Smart Grid: How Does It Work and Why Do We Need It?

MissionPoint is an investment firm exclusively focused on financing the transition to a low-carbon economy. This is the first in a series of Hill briefings that MissionPoint is co-sponsoring to describe selected pieces of the low-carbon puzzle that it has experience evaluating, backing and strategically accelerating.

On January 8, the Environmental and Energy Study Institute (EESI) and MissionPoint Capital Partners held a briefing and demonstration discussing smart grid technology, what it is, how it can be used, and what key policy issues and market barriers affect its development. The need for a smart grid is increasingly recognized as policymakers at all levels of government look for ways to improve the energy efficiency of producing and using electricity in our homes, businesses, and public institutions. Many believe that a smart grid is a critical foundation for reducing greenhouse gas emissions and transitioning to a low-carbon economy. A smart grid entails technology applications that will allow an easier integration and higher penetration of renewable energy. It will be essential for accelerating the development and widespread usage of plug-in hybrid electric vehicles (PHEVs) and their potential use as storage for the grid. Certainly, PHEVs have been of great interest in the Congress. Smart meters are a key component in the smart grid system that can help utilities balance demand, reduce expensive peak power use and provide a better deal for consumers by allowing them to see and respond to real-time pricing information through in-home displays, smart thermostats and appliances.

Congress may take up provisions related to a smart grid as part of the upcoming economic recovery package. Regardless, these issues will certainly be part of policy discussion as energy and climate legislation is considered in the 111th Congress. This briefing provided an opportunity to hear first-hand from a panel of experts about some of the demonstration projects and deployments underway, and lessons learned from those experiences. The briefing also discussed existing federal/state barriers and various policy options to address them.

• Representative Jay Inslee opened the briefing with an impassioned call for the United States to “start a revolution” in clean energy development. Smart grid technology will be essential to the revolution, according to Rep. Inslee, and Uncle Sam has a pivotal role to enact policies to spark economic and technological development.
• The electrical grid has functioned essentially the same way since its inception. It is vital to bring 21st century information technologies to electrical networks to allow consumers to track their energy usage.
• A smart grid is a holistic solution that employs a broad range of information technology resources, allowing existing and new gridlines to reduce electricity waste and energy costs.
• Smart grid technologies have countless applications and permutations, including smart meters in individual homes to the ability to access variable and distributed sources of energy based upon demand and availability. Smart meters empower electricity consumers to use energy based on price signals given as rates fluctuate.
• A smart grid will be a critical foundation for the incorporation of renewable energy into the electrical grid. Since renewable sources like solar and wind are variable, it will be critical to have a demand-responsive electrical grid that uses energy efficiently.
• Plug-in hybrid electric cars will also require a smart grid to allow consumers to charge their vehicles when rates are low. This also lessens the burden on utilities supplying enormous loads of power to a new source of electricity demand.
• Several speakers emphasized that smart grids no longer face an innovation problem, but a deployment and scale problem. The technology is already available.
• Consumers are ready as well, as a Department of Energy study has shown. When consumers are given the ability to track their electricity usage through smart meters, their usage declines as much as 15 percent.
• Policymakers must play an active role in the development of a smart grid. Incentives need to be provided to early adopters of smart grid technology to encourage quick development. Additionally, smart grid technologies are infrastructure projects that promote immediate job growth, which qualify it for consideration in the upcoming stimulus package.