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Can the Smart Grid Save the Economy?

03/05/08


No one has been more involved in thinking through energy solutions this century than Spencer Abraham, former Secretary of Energy (2001-2004). Since leaving the DOE, the former Senator from Michigan has led The Abraham Group (TAG), a Washington, D.C.-based consultancy. He also serves as the non-executive Chairman of AREVA, Inc. He is a Distinguished Visiting Fellow at the Hoover Institution, a FOX News analyst and a periodic op-ed contributor to the Financial Times, the Wall Street Journal, the Washington Post and other publications.

Abraham's high-level experience gives him a comprehensive view of the Smart Grid and how it fits into the larger world of energy. SGN recently sat down one-on-one to get his thoughts on the future. He told SGN who holds the key (the states), which approach is failing (conservation), and how to accelerate progress (energy efficiency funds for improving buildings). One of his ideas has the potential to speed Smart Grid adoption while simultaneously stimulating the economy and repairing the ailing real estate sector.

An early Smart Grid advocate

As Secretary of Energy, Abraham inherited a severe energy crisis that included the California blackouts and declining domestic energy supplies. Yet even then, he held forth an optimistic scenario. He began a 2001 speech to the San Francisco Bay Area Council by stating: "I would like to describe a different world – a more optimistic world – in which energy is seen as the fuel of our survival and success, rather than the cause of our demise.”

Abraham went on to describe a world of cleaner, smaller and more efficient power generation. He predicted individual choice, more competition and a closer approximation of a true energy market. And he thought all of this was possible with increased reliability, increased supply and lower prices. He was one of the first leaders to advocate what we now call the Smart Grid. Early in his tenure, he described a move “...away from a transmission system in which power only flows one way – from a plant to your home – and, instead, contemplates a two-way electricity grid where homes or businesses can sell their surplus power back to the grid."

States are the key

Fast forward seven years to January 2008, when Abraham keynoted Distributech 2008. Today, he states firmly, technology is not the problem. With the Energy Policy Act (EPAct) in 2005 and the Energy Independence and Security Act (EISA) of 2007, the federal government set the foundation for building the Smart Grid. Now the states must accelerate adoption. Always practical, Abraham says energy can only fuel our survival and success if we challenge our current assumptions. To this end:

· States need to set rates in favor of deployment.

· States need to follow the lead of California and decouple utility profits from power generation.

· Voters and public policy makers need to understand that conservation is not enough.

Conservation is not working

On the latter issue, the Secretary cited research that shows consumers are using more energy despite millions of dollars spent on education about energy efficiency. He pointed to a recent Washington Post article (see link below) documenting how energy usage in Northern Virginia is exceeding all projections. Despite this evidence, some people still preach conservation. Abraham makes a distinction between conservation (people taking active steps to reduce energy usage) and energy efficiency (built-in devices that passively save energy). Abraham believes that voluntary conservation efforts will produce positive results, but they must be coupled with major energy efficiency initiatives. SGN notes that experience in California supports his contention.

Economic stimulus built around energy efficiency

Secretary Abraham believes that we can climb out of the current economic downturn, reduce our dependence on foreign oil and build the Smart Grid all at the same time. He proposes:

· Fully funding existing DOE programs. Existing programs such as Energy Saving Performance Contracts (which led to the ESCO industry) and the budget of DOE’s Electricity office need to be fully funded.

· Emphasizing “smart, green buildings”. Although there has been some emphasis on passive energy measures, Abraham suggests third parties and utilities combine to fund energy efficiency measures that convert new and existing buildings into "smart, green buildings." Those buildings would then be the engine for demand response programs selling negawatts back to the utilities. The revenue earned by building owners would pay back the loans used to build or retrofit. Once the loan is paid back, the building owner has a new source of income.

Government would set the policy and requirements. Private money would be used to (i) reduce energy consumption, (ii) restore small business, (iii) create jobs, (iv) provide a return to investors and (v) implement demand response (a core element of the Smart Grid.)

Such a program could reverse the current economic climate by revitalizing the real estate construction business and aiming it towards creating smart, green buildings for demand response. As a point of reference, more than 400 Energy Savings Performance Contract projects have been awarded by 19 different federal agencies in 46 states. And $1.9 billion has been invested in U.S. federal facilities, saving 16 trillion Btu annually, equivalent to the energy used by a city of about 450,000.

Harkening back to his 2001 speech, the Secretary continues to articulate an optimistic future – if we can but act.