The smart grid conversation is stupid. Policies to encourage smart grids are at best minor distractions, and at worst contrary to the public interest. Smart grids are also the key to cleaning up and modernizing the electric system.

These sentences are not in conflict with one another.

The smart grid is the cart, not the horse. There is no doubt that better access to real time data could facilitate a much more rational use of our electric infrastructure, shifting usage patterns (both in time and in space) to reduce the costs of grid construction and operation. But we don’t need new technologies.

Don’t get me wrong — new technologies are great, and they’ll keep getting greater. But since when do we need to invent a way to share real time data? The internet is here — get used to it! I installed a biomass-CHP plant at a lumber mill in northern Vermont four years ago that included a $1000 bit of communication hardware to remotely monitor and control the unit through the ethernet. In so doing, that generator could participate in ISO-New England‘s Forward Capacity Market, getting paid for avoiding new central generation and transmission assets. In other words, that system did everything that the Smart Grid is promised to do, with pretty cheap, off-the-shelf technology.

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So why don’t I do that on every generator I build? Because there’s no money in it. ISO-NE created a regulatory structure where small loads had an economic incentive to reduce their peak demand, and folks like me went to Radio Shack, got the necessary bits and pieces installed and (pretty cheaply) provided a nice new service to the grid. You could cut the cost of that hardware package to $10 and I still wouldn’t do it on most of my installations, for the same reason I don’t send unsolicited $10 bills to utility executives. There’s no money in it.

That, then, is the conversation we ought to be having. Not about communication protocols, data-by-wire and sophisticated new grid switching technologies, but about reforming the policies to make it economically beneficial for consumers to manage their load. As Lynne Kiesling has consistently pointed out, the challenges for Smart Grid policy are transactional, not technological. Other than Lynne, no one talks about that. Which means we’re all talking about the wrong thing.

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Some of this is the usual challenge of utility regulation — we don’t have a very good paradigm for electricity users to take on (however partially) grid management responsibilities. ISO-NE has shown the way, but it’s not coincidental that they are in one of the more deregulated parts of the electric system.

But the larger challenge is at the consumer level. Alfred Kahn has noted that we create regulated monopolies in order to create subsidies. And therefore, the political challenges to deregulation relate primarily to the process of subsidy removal (and associated wealth-transfers). 

We create electric monopolies because we know that without them, the farmer at the end of the road is never going to be able to pay for grid access — so the monopoly builds the wire and recovers the cost across all rate payers. Fixing the transactional problems necessary to unleash Smart Grids requires first sailing into that problem. If I want you to buy a dryer with a chip that shuts off when power prices are high, I have to first change your tariff so that you pay more for power during certain times of day. Consumers with high mid-day loads won’t like that, for rather obvious reasons. Similarly, if I want to encourage load curtailment on a particularly congested part of the grid, I have to first charge more for power at that point. 

Which brings me back to my little project in Northern Vermont. ISO-NE’s program was originally conceived as the Locational Installed Capacity (or “LICAP”) program. They were going to create a charge for peak capacity at every node on the New England power grid so that folks like me would make investments and shift their load accordingly. That would have massively raised power prices in southwest Connecticut — far and away the most congested part of the New England power grid. Connecticut politicians didn’t much like that, and fought back. Hard. The ultimate compromise was the current program, where anyone in New England gets paid the same amount to reduce a kW of demand during peak periods, be they in Stamford, Conn. or the nether corners of Maine. In other words, that generator I put in Vermont probably doesn’t deserve the benefits it’s getting. Call that a political compromise, call that a good first step … but don’t call it Smart.