In order to increase its renewable target to 33% by 2020, California needs an additional $6.5 billion worth of transmission projects. That’s according to the California Independent System Operator, which plays babysitter to the state’s electrical grid.
Current law requires 20% of the state’s power to be produced renewably by 2010, a goal that can be achieved without major infrastructure upgrades. But anything beyond that would require new transmission capacity, and new investment.
Similar scenarios are being played out around the country and the world, where intentions are good but technology is lagging. A 100% renewable energy mandate, for example, is nothing but laughable if the proper supporting cast isn’t in place.
And so we’re realizing, slowly but surely, that a shiny new solar plant in the middle of a desert is worthless unless it’s hooked up to a little thing we call the grid. As it happens, we’re discovering the grid is also in need of some drastic improvements.
The Old Grid
OK, so we’re not really discovering them as much we are paying attention to them. We’ve known the grid was never smart but, then again, we never really needed it to be. Our electricity transmission infrastructure, or grid, was built to move electrons in one direction. It’s done that. And it’s done it well.
But there have always been two problems with the grid that we new would haunt us some day:
1.It has a limited capacity
2.It is incapable of two-way communication
Now, with surging electricity demand, we’re testing the upper reaches of our grids’ capacities. . . think blackouts on hot summer days.
What’s more, once electrons reach a substation – many steps before its final destination – the utility, in the majority of cases, can no longer track or monitor it. That means in the early stages of power outages utilities literally have to make an educated guess on where to send the crew to fix the problem.
And how about consumers? We’ve been staring at the same meter for decades. How about giving us a bit more to base our energy decisions on than a spinning wheel that goes faster or slower depending on whether or not the air conditioning is on?
The creation of a smart grid will alleviate those problems, as well as create two-way communication between energy consumer and energy supplier to foster increased efficiency.
The Smart Grid
There’s no one way to define it, but a smart grid is basically overlaying the power delivery system with an information system that allows a utility and its consumers to constantly monitor and adjust electricity use. So it can offer benefits on both the supply and demand side of things.
On the demand side (called demand response) of the smart grid, companies like Comverge (NASDAQ: COM), EnerNoc (NASDAQ: ENOC) and Echelon (NASDAQ: ELON) are making devices and systems that let consumers monitor and adjust their electricity use in real time.
In some cases, these companies can pull electricity from the grid by reducing the demand from a group of heating, venting, and air conditioning (HVAC) units that are in close proximity. This is known as a virtual power plant, and can be used during times of peak use without the need to fire up coal or natural gas back-up power plants.
On the supply side, utilities are working to improve communications with their consumers by offering energy data in real time. With the use of so-called smart thermostats, consumers can see how much electricity each appliance in their home consumes. They’ll also know when electricity is cheapest by using a rate and peak-time feature on their thermostat, so appliances can be run during off-peak hours – automatically, if necessary.
For the financial-minded, these companies generate revenue by reducing demand. They sign contracts with utilities, employ their services in a designated area, and get paid for generating what have become known as ‘negawatts,’ or electricity that isn’t used.
In other cases, companies are compensated for aggregated data that is sold in the form of carbon- or renewable energy credits.
And as futuristic as it may sound, the smart grid is already here in many ways. Utilities like Xcel Energy (NYSE: XEL) and others are building entire smart grid cities. Xcel is spending an estimated $100 million to fit 100,000 homes with smart grid technologies in Boulder, Colorado. Similar projects are underway in other cities.
Transmission and the smart grid are often overlooked in the glitz surrounding renewable energy, yet many analysts are predicting it to be one of the hottest sectors of 2009. And because getting energy to the consumer is just as important as generating it, related technologies are going to garner a lot of interest going forward.
Plus, many grid improvements aren’t as capital intensive as building energy generation plants, making the business model more attractive to investors. In most cases, it is software or networking devices that are at the heart of the technology, so millions aren’t needed to build giant factories.
Keep the smart grid in mind over the next year. It’s going to help us get more renewable energy to the grid and more green in the portfolio.