TODAY’S STUDY: THE WHITE HOUSE SMART GRID PLAN

Things change and nothing else is certain. It is best not to panic.

The Obama administration has been calling for Energy Efficiency and New Energy from Day One. Literally Day One. It had a prominent place in the inaugural address.

Yet politics is the art of the possible and the political opposition always gets to play. Though frustrating when the party in power could be doing good things, it is a comfort when the party in power is trouble. That is how the founders framed it.

The Obama administration’s leadership in Energy Efficiency and New Energy has never wavered. It is easy to look back now and say that going for health insurance reform first was a mistake but revisionists and I-told-you-so-ers don’t want to remember how politically astute and aggressive the decision to go for health care looked in early 2009.

Health insurance reform had been fighting for life since the 1940s while the transition to New Energy had “only” been struggling to be born since the 1970s. And in the heady days of early 2009 the circumstances driving the entire world toward a New Energy economy looked like they would only gather momentum while health insurance reform looked like the crucial economic hinge point.

Things change and nothing else is certain. It is best not to panic.

The Obama administration, as the White House paper highlighted below demonstrates, continues to lead. It has never panicked. The swing of the pendulum has been back toward the recalcitrants. That is politics.

Remember that the White House is doing everything it can, given two crucial realities: (1) The political opposition will neither get out of the way nor lend a hand; (2) To retain power in 2012, the President must win not just the approval of a wise and farsighted few but the majority – or at least a plurality – of the electorate.

The President cannot do what the wise minority wants him to do, he can only do what it MAKES him do with political pressure so effective it becomes the will of the people.

It is not an ideal situation but it is the one the White House faces. In the long run, the choice is between a New Energy economy and a fossil fuel addiction. In the immediate future, it is a choice between Supreme Court justices in the mold of Antonin Scalia or those in the mold of Ruth Bader Ginsburg.

It is a choice between papers, like the one below, that truly foresee the coming New Energy future and hollow words, like those that echoed through the previous administration’s White House from the halls of fossil fuel power.

Things change and nothing else is certain. It is best not to panic. The best preventative for panic is work. There is an election coming and winning it is preferable.

A Policy Framework for the 21st Century Grid; Enabling Our Secure Energy Future
June 2011 (National Science and Technology Council/White House)

Foreward

A smarter, modernized, and expanded grid will be pivotal to the United States’ world leadership in a clean energy future. This policy framework focuses on the deployment of information and communications technologies in the electricity sector. As they are developed and deployed, these smart grid technologies and applications will bring new capabilities to utilities and their customers. In tandem with the development and deployment of high-capacity transmission lines, which is a topic beyond the scope of this report, smart grid technologies will play an important role in supporting the increased use of clean energy.

A 21st century clean energy economy demands a 21st century grid. Much of the traditional electricity infrastructure has changed little from the original design and form of the electric grid as envisioned by Thomas Edison and George Westinghouse at the end of the 19th century (EEI 2011, p. 6). In a 21st century grid, smart grid technologies will help integrate more variable renewable sources of electricity, including both utility scale generation systems such as large wind turbines and distributed generation systems such as rooftop solar panels, in addition to facilitating the greater use of electric vehicles and energy storage. Moreover, such technologies will help enable utilities to manage stresses on the grid, such as peak demand, and pass savings on to consumers as a result.

The evolution towards a 21st century grid is already taking place. With the Recovery Act investment of $4.5 billion for electricity delivery and energy reliability modernization efforts, the promise of a smarter grid is becoming a reality. States across the Nation are benefiting from new investments in electricity infrastructure and in consumer-facing devices that promise to vastly reduce energy waste, increase the reliability of the electric grid, and provide consumers with opportunities to save money. In addition, our current investments will enable innovation, creating jobs of the future here in the United States and giving rise to new export opportunities.

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The Federal Government, building on the policy direction set forth in the Energy Independence and Security Act of 2007 and the Recovery Act’s historic investments in innovation, offers this policy framework to chart a path forward on the imperative to modernize the grid to take advantage of opportunities made possible by modern information, energy, and communications technology. This framework is premised on four pillars:

1. Enabling cost-effective smart grid investments

2. Unlocking the potential for innovation in the electric sector

3. Empowering consumers and enabling them to make informed decisions, and

4. Securing the grid.

Each pillar supports a set of policy recommendations that focus on how to facilitate a smarter and more secure grid. Progress in all four areas, as part of an overall grid modernization effort, will require sustained cooperation between the private sector, state and local governments, the Federal Government, consumer groups, and other stakeholders. Such progress is important for the United States to lead the world in the 21st century economy, be at the forefront of the clean energy revolution, and to win the future by encouraging American innovation.

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Introduction and Overview

The National Academy of Engineering named electrification the greatest engineering achievement of the 20th century (NAE 2003). To meet America’s energy, environmental, and security needs for the 21st century, the United States should continue efforts to upgrade the electric grid. To seize the leadership position in a clean energy revolution, President Obama has set a national goal of generating 80% of our electricity from clean energy sources by 2035 and has reiterated his goal of putting one million electric vehicles on the road by 2015. These goals are part of a strategy to develop and deploy innovative energy technologies and create the energy jobs of tomorrow here in the United States (Office of Press Secretary 2011b). As President Obama has outlined, part of a secure energy future is providing “consumers with choices to reduce costs and save energy” (White House 2011b, pp. 4).

In the face of an aging grid (Chu 2010, p. 13), investing in the grid’s infrastructure is crucial. Given this imperative, there is an opportunity to upgrade the grid’s efficiency and effectiveness through investments in smart grid technology. Smart grid technologies and applications encompass a diverse array of modern communications, sensing, control, information, and energy technologies that are already being developed, tested, and deployed throughout the grid. In particular, these technologies can be divided into three basic categories: (1) advanced information and communications technologies (including sensors and automation capabilities) that improve the operation of transmission and distribution systems; (2) advanced metering solutions, which improve on or replace legacy metering infrastructure; and (3) technologies, devices, and services that access and leverage energy usage information, such as smart appliances that can use energy data to turn on when energy is cheaper or renewable energy is available.

These technologies and applications give rise to three cross-cutting categories of benefits:

•• Facilitating and enabling a clean energy economy with significant use of renewable energy, distributed energy resources, electric vehicles, and electric storage;

•• Creating an electricity infrastructure that saves consumers money through greater energy efficiency, as well as supporting the more reliable delivery of electricity; and

•• Enabling technological innovation that creates jobs of the future and new opportunities for empowering consumers to use energy wisely and reduce their energy bills.

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The Energy Independence and Security Act of 2007 (EISA) (U.S. Congress 2007) made it the policy of the United States to modernize the Nation’s electricity transmission and distribution system. President Obama underscored that commitment in the Blueprint for a Secure Energy Future (White House 2011b). To advance that policy, The American Recovery and Reinvestment Act of 2009 (Recovery Act) (U.S. Congress 2009) accelerated the development of smart grid technologies, investing $4.5 billion for electricity delivery and energy reliability activities to modernize the electric grid and implement demonstration and deployment programs (as authorized under Title XIII of EISA). To date, the SGIG program has awarded grants to 99 recipients, including private companies, service providers, manufacturers, and cities, with total public-private investment amounting to over $8 billion (DOE 2009d). As these efforts are implemented, they will continue to inform utilities, regulators, and other stakeholders about the best paths toward a smarter grid.

The course and pace of smart grid deployment efforts are naturally varied. There are more than 3,000 electric utilities in the United States (EIA 2007) with diverse needs, regulatory environments, energy resources, and legacy systems. As a number of industry participants have observed, it is thus highly unlikely that a single solution will emerge as appropriate, cost-effective, and useful for all electric utilities and consumers…Rather, the nature, pace, and scope of smart grid deployment efforts will vary according to the needs of different parts of the country. This diversity is a strength of the U.S. model and explains why many states and local governments are already taking leadership roles to act on the national priority to make the grid smarter. To date, 25 states have already adopted policies relating to smart grid technology (NCSL 2011), resulting in “a lot of different smart grids” (McGranaghan 2010). While there is no one-size-fits-all set of smart grid solutions, there are important unifying policy strategies that can advance U.S. leadership in the 21st century clean energy economy. This report outlines such policies and details efforts by the Federal Government and others to advance them.

The policy framework set forth in this report was developed by the National Science and Technology Council (NSTC) Subcommittee on Smart Grid.2 To develop this framework, the Subcommittee conducted an extensive outreach and research process to identify policies that build on the Administration’s smart grid investments and constitute an important part of the Administration’s clean energy strategy. Notably, the policies highlighted in this document are just one part of the overall grid modernization effort. In particular, the Administration’s smart grid strategy complements its efforts to spur the planning and siting of new high voltage transmission lines and to facilitate the integration of variable renewable energy. While these topics are outside the scope of this document, the Administration recognizes that overall grid modernization efforts are critical to supporting the energy needs of the 21st century.

This policy framework rests on four pillars for a smarter grid—(1) enabling cost-effective smart grid investments; (2) unlocking the potential of innovation in the electric sector; (3) empowering consumers and enabling informed decision making; and (4) securing the grid from cybersecurity threats. These pillars each support key aspects of the transition to a smarter grid and a clean energy future.

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Each pillar has an associated set of key actions:

Pillar 1. Enable Cost-Effective Smart Grid Investments:

Smart grid technology can drive improvements in system efficiency, resiliency, and reliability, and help enable a clean energy economy through cost-effective grid investments. Many of these technologies promise to pay for themselves in operational improvements and energy savings. The Federal Government’s research, development, and demonstration projects, technical assistance, information sharing on technologies and programs, and evaluations provide valuable guidance for utilities, consumers, and regulators about what approaches are most cost-effective, thereby paving the way for the effective, ongoing upgrade of the grid.

1. States and Federal regulators should continue to consider strategies to align market and utility incentives with the provision of cost-effective investments that improve energy efficiency.

If utilities do not have a strong incentive to sell less energy and operate more efficiently, they will not see sufficient benefits from investing in certain smart grid applications. Recognizing this issue, state commissions are increasingly confronting questions about regulatory reform options that change utility business models to, for example, make energy efficiency a more central part of their mission.

2. The Federal Government will continue to invest in smart grid research, development, and demonstration projects.

The benefits of research and development can be shared across all utilities. If one utility performs the research by itself, however, it will bear all of the associated costs. As explained in President Obama’s A Strategy for American Innovation (White House 2011b), the government can address this issue and facilitate innovation by supporting funding for basic research, maintaining a high-quality intellectual property rights system that offers incentives to industry and university partners, and providing pathways to commercialization.

3. The Federal Government will continue to support information sharing from smart grid deployments to promote effective cost-benefit investments and remove information barriers.

Creating centralized public repositories for this information can encourage cost-effective investments and reduce duplicative experimentation.

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Pillar 2: Unlock the Potential of Innovation in the Electricity Sector:

A modernized electric grid promises to be a powerful platform for new products and services that improve grid operations and deliver convenience and savings to energy customers.

4. The Federal Government will continue to catalyze the development and adoption of open standards.

The U.S. standards system is private-sector led and bottom-up, with the Federal Government acting as a public-sector partner and a convener. The ongoing smart grid interoperability process, led by the National Institute of Standards and Technology (NIST), is working towards flexible, uniform, and technology-neutral standards that can enable innovation, improve consumer choice, and yield economies of scale. Robust stakeholder participation in the standards process, including by utilities, is desirable to create the most effective technical standards.

5. Federal, state, and local officials should strive to reduce the generation costs associated with providing power to consumers or wholesale providers during periods of peak demand and encourage participation in demand management programs.

Consumers generally pay time-invariant rates for electricity. Consequently, consumers generally lack the information or incentive to shift their consumption away from times when the costs of providing electricity are high. As a result, utilities spend billions of dollars a year to build, maintain, and operate peaking plants that are used only rarely, typically driven by extreme temperatures or unplanned emergencies. Studies suggest that using smart grid technologies to better manage energy use during the highest demand periods, such as a very hot day in the middle of summer, could save consumers billions of dollars a year.4 Smoothing these expensive peaks also promises to reduce utilities’ operating costs, resulting in additional savings to consumers and utilities.

6. Federal and state officials should continue to monitor smart grid and smart energy initiatives to protect consumer options and prevent anticompetitive practices.

Facilitating a robust market for devices, energy management services, and applications that interact with the electric grid is critical to enabling innovation in smart grid technologies and applications.

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Pillar 3. Empower Consumers and Enable Informed Decision Making:

The success of smart grid technologies and applications depends crucially on engaging and empowering both residential and small business consumers in an effective manner. New tools and programs promise to provide consumers personalized information and enable them to make informed energy choices, while ensuring their energy consumption data is accorded privacy protections.

•• State and Federal policymakers and regulators should evaluate the best means of ensuring that consumers receive meaningful information and education about smart grid technologies and options.

Many state regulators are already requiring education and communication programs as a condition of authorizing smart grid deployments that directly impact consumers. In rolling out such deployments, public-private collaborations, market research, and multichannel messaging can help develop meaningful educational materials that enable consumers to make informed choices despite their differing needs, preferences, and motivations.

8. Building on recent efforts, state policymakers and regulators should continue to consider how to develop policies and strategies to ensure that consumers receive timely access to, and have control over, machine-readable information about their energy consumption in a standard format.

Ensuring that energy usage data are provided swiftly in predictable, automation-friendly formats can maximize consumer access to information.

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9. State and Federal regulators should, in instances where a utility deploys the relevant infrastructure, consider means of ensuring that consumer-facing devices and applications make it easier for users to manage energy consumption.

When regulators are required to be involved in decisions regarding in-home devices, they may want to consider to what degree the proposed smart grid technologies that offer consumers energy usage data and new tools to manage usage are user-friendly.

10. State and Federal regulators should consider, as a starting point, methods to ensure that consumers’ detailed energy usage data are protected in a manner consistent with Fair Information Practice Principles (FIPPs) and develop, as appropriate, approaches to address particular issues unique to energy usage.

FIPPs are widely accepted principles adopted by government agencies and intergovernmental organizations to ensure protection of personal information. The Administration supports legislation that would make FIPPs the baseline for protecting personal data in commercial sectors not currently subject to sector specific Federal privacy statutes.

11. State and Federal policymakers and regulators should consider appropriately updating and enhancing consumer protections for smart grid technologies.

As new issues and opportunities develop, policymakers may need to update consumer protection policies built over the last century that ensure adequate notice, the right to dispute bills, and protect health and safety issues related to disconnects, and affordability.

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Pillar 4. Secure the Grid:

Protecting the electric system from cyber attacks and ensuring it can recover when attacked is vital to national security and economic well-being. Developing and maintaining threat awareness and rigorous cybersecurity guidelines and standards are key to a more secure grid.

12. The Federal Government will continue to facilitate the development of rigorous, open standards and guidelines for cybersecurity through public-private cooperation.

A critical part of such an effort is to identify and prioritize relevant cyber risks — including malware, compromised devices, insider threats, hijacked systems, etc. — and develop standards and guidelines that enable the design of effective mitigation plans for managing those risks. Consistent with the Administration’s model cybersecurity legislation (Schmidt 2011), the overall goal of the effort is to develop policy and regulatory frameworks that ensure that effective and feasible security is appropriately implemented and that all stakeholders contribute to the security and reliability of the grid as a whole.

13. The Federal Government will work with stakeholders to promote a rigorous, performance based cybersecurity culture, including active risk management, performance evaluations, and ongoing monitoring.

The grid’s cybersecurity protections must be tested thoroughly and regularly to ensure real-time, prioritized protection from potential threats. For this reason, the Administration’s approach to electric grid cybersecurity emphasizes the importance of a performance-based culture, including active risk management, performance evaluations (i.e., exercises and simulations to determine security vulnerabilities), and ongoing monitoring.

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In addition to setting forth a policy framework for smart grid efforts, this report highlights several new or important ongoing initiatives, including:

•• Updated information on the impact of smart grid technology on grid performance and consumer behavior resulting from the Recovery Act funded smart grid grants and demonstration projects, available at www.SmartGrid.gov;

•• A series of regional stakeholder meetings, convened by the Department of Energy (DOE)’s Office of Electricity Delivery and Energy Reliability, to stimulate high-quality, peer-to-peer dialogue on smart grid deployments, share lessons learned, and help replicate successes;

•• Continuing efforts with stakeholder groups and organizations to apply data derived from Recovery Act projects to advance knowledge of the costs and benefits of smart grid technology;

•• A commitment by DOE to expand cooperative relationships with the National Association of Regulatory Utility Commissioners and the National Association of State Utility Consumer Advocates, to continue providing technical assistance to their members and sharing information on consumer empowerment from Recovery Act projects;

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•• A Smart Grid Innovation Hub, led by DOE, as proposed in the President’s Fiscal Year (FY) 2012 Budget request;

•• New transformational research and design investments for the grid by the Advanced Research Projects Agency–Energy (ARPA-E);

•• New challenges designed to fuel innovation and empower customers, including a Home Energy Education Challenge;

•• The release of consumer behavior studies funded by the Recovery Act; and

•• New investments in smart grid technologies by the Department of Agriculture’s Rural Utilities Service (RUS).

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Building a smarter 21st century grid is a process that will unfold over years and even decades. The objective of this report is not to prescribe particular technologies, specific smart grid deployment schedules, or even uniform policy strategies for moving this effort forward. Rather, it provides a policy framework to enable the United States to seize the opportunities available in this area and to address the challenges that will emerge as the Nation transitions to a smarter grid.

Within this framework, the Administration will continue to engage and collaborate with states, industry, consumer advocates, utilities, and other stakeholders to ensure that the grid meets consumers’ needs, operates with improved efficiency, security, and resiliency, and is a platform for innovation. To that end, within six months of the release of this Report, DOE will provide the National Science and Technology Council’s Committee on Technology a status report on its implementation across smart grid topic areas, including cost-benefit analysis, standards development efforts in partnership with NIST, consumer education, and cybersecurity. Similarly, DOE will continue to identify new policies and technology recommendations related to smart grid implementation.

This report begins by describing where the Nation is today. The heart of the report then discusses the key actions, presenting them within the context of the four overarching policy goals or pillars outlined above. Finally, the report describes the collaboration between various stakeholders and the Federal Government to advance the relevant opportunities for advancing these policy goals.

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Conclusion

Smart grid technologies and programs represent an evolution in how our electricity system operates. As this report highlights, this transition offers significant promise for utilities, innovators, consumers, and society at large. This document has outlined four essential pillars that will enable the United States to transition to a smarter grid:

1. Enable Cost-Effective Smart Grid Investments:

Smart grid technology can drive improvements in system efficiency, resiliency, and reliability, and help enable a clean energy economy through cost-effective grid investments. Many of these technologies promise to pay for themselves in operational improvements, and energy savings. The Federal Government’s research, development and demonstration projects, technical assistance, information sharing on technologies and programs, and evaluations provide valuable guidance for utilities, consumers, and regulators about what approaches are the most cost-effective, thereby paving the way for the effective, ongoing upgrade of the grid.

2. Unlock the Potential of Innovation in the Electricity Sector:

A modernized electric grid promises to be a powerful platform for new products and services that improve grid operations and deliver comfort, convenience, and savings to energy customers.

3. Empower Consumers and Enable Informed Decision Making:

The success of smart grid technologies and applications depends on engaging and empowering both residential and small business consumers. New tools and programs promise to provide consumers personalized information and equip them to make informed energy choices, while ensuring their energy consumption data is accorded privacy protections.

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4. Secure the Grid:

Protecting the electric system from cyber attacks and ensuring it can recover when attacked is vital to national security and prosperity. Developing and maintaining threat awareness and rigorous cybersecurity guidelines and standards are keys to a more secure grid.

The smart grid policies and activities discussed in this document complement the Administration’s efforts to spur the planning and siting of new high voltage transmission lines and other methods to better integrate variable renewable energy. While these topics are outside the scope of this document, the Administration recognizes that overall grid modernization is critical to supporting the energy needs of the 21st century.

There are significant benefits that will flow from making the grid smarter. This grid modernization effort, however, will require sustained cooperation between the States, local governments, the Federal Government, the private sector, and other stakeholders. The Recovery Act provided support for a number of important steps in this direction, but there is still much to be done. To provide a path forward, the Administration’s smart grid policy framework will enable U.S. leadership in clean energy solutions and provide a foundation of energy innovation more generally.

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The Administration recognizes that this report is only one step in an ongoing effort. To that end, within six months of the release of this report DOE will provide the National Science and Technology Council’s Committee on Technology with a status report on its implementation across topic areas, including cost-benefit analysis, standards development efforts in partnership with NIST, consumer education, and cybersecurity. Similarly, DOE will continue to identify new policy and technology recommendations related to smart grid implementation. DOE will continue to identify new policy and technology recommendations related to smart grid implementation. For example, the Energy Information Administration, budget permitting, will undertake initial efforts to measure progress through its utility data collection mechanisms as early as 2012.

Just as the 20th century grid has supported the growth of America’s dynamic economy, the 21st century grid will sustain that growth into the future. With tools for a clean energy economy, efficiency benefits for utilities, opportunities for consumers to engage and save money, and new areas for innovation, a smarter, modernized, and expanded grid can serve as a platform for American leadership in a clean energy future.