By Sunil Sharan

Making the nation’s electric grid “smart” has become a passion of the Obama administration. Already $4 billion of American Recovery and Reinvestment Act (ARRA) money has been committed to the endeavor. With a complete makeover for the U.S. grid projected to cost $165 billion, it is imperative that future allocations are made more judiciously than how ARRA has divvied up the pot so far.

ARRA has allowed for the rollout of 18 million smart meters. With each smart meter costing about $200, in total nearly $4 billion would be needed. ARRA is providing half this amount with utilities expected to foot the rest. Emerging smart grid technologies such as smart transformers, automated substations, and in-home energy devices take home the remaining $2 billion of ARRA money. Such a large allocation for incipient technologies seems unwise, given that out of all available smart grid technologies only smart meters have proven themselves to be cost-effective in scale.

Consider the Italian utility Enel’s rollout of 30 million smart meters throughout Italy. The project, launched in 2001, was completed in 2006, and cost nearly $3 billion or about $100 per consumer. Economies of scale helped Enel lower its expenditure. The utility believes it is saving $750 million every year through its network of smart meters, recouping its investment in just four years, with mainly upside potential from then on.

Contrast this with Xcel Energy’s SmartGridCity project in Boulder. Xcel started deploying in 2008 a wide variety of smart grid technologies similar to those funded by ARRA to Boulder’s 50,000 residents. With project costs ballooning almost three times from an initial estimate of $15 million to over $40 million now, i.e. $800 per consumer, the utility has had to raise customer rates to help fund the project. Unclear is when costs will be recovered. In fact state regulators have started scrutinizing the project to ascertain its performance. Even the utility admits that it has embarked on an experiment, some parts of which will work and others that will not.

Nearly 40 million smart meters have been deployed globally, much more than other smart grid technologies such as smart transformers, automated substations, and in-home energy devices. As such, the smart meter business model has been vetted in the field. A critical mass of vendors, many of them based in the U.S., have through years of trial and error been able to arrive at proven fare. Almost 180 million smart meters are expected to be in place worldwide by 2014, a four-fold jump from today, opening up a huge market for U.S. goods and services. By accurately tracking electricity demand and helping correlate it to available supply, the technology substantially meets the energy independence and climate change alleviation goals of the administration. The European Union is so convinced about the technology’s environmental and operational benefits that it has mandated eighty per cent of its 300 million households to have smart meters by 2020, with blanket coverage in another two years. The U.S, already trailing markedly, will fall even further behind at current rates of adoption.

No such market validation or technology ruggedness substantiates the claims of other smart grid technologies. Field deployments today in their case are no more than in the tens of thousands. Time alone will tell whether these technologies will scale, how much they will cost and how much fruit they will bear. As Xcel’s project illustrates, much learning is in store. Well-intentioned while is the administration’s effort to promote their use, allocating a couple of billion dollars to them at this stage, as ARRA has done, could well boomerang. And, with the smart grid projected to absorb tens of billions of dollars of public money in the coming years, why not more fully ride a proven horse such as smart meters, while helping the other stuff get ready for prime time with smaller, less risky levels of investment. Being all things to all people can be counter-productive.

Sunil Sharan, a director of the Smart Grid Initiative at GE from 2008 to 2009, has worked in the clean-energy industry for a decade. He can be reached at sunil_sharan@yahoo.com.