Tuesday, November 25, 2008

On the Unified Smart Grid

My boss had me take a brief look at Al Gore's WeCampaign's proposal for a Unified National Smart Grid, and I figured I'd post my summary here in case anyone cares about these sorts of things. I apologize to the hardcore libertarians in the audience for my decidedly less-hostile-to-statism-and-intervention tone, but such is life.

The Smart Grid: An Introduction

Smart Grid is the name of a Department of Energy initiative charged with the modernization of the national energy grid.

The Premise: Existing electricity infrastructure is approaching the limits of its capacity. It is in the public’s interest to have a secure and efficient supply of electricity. But because existing technologies do not allow generators to effectively communicate with their consumers, and because rates have historically been unresponsive to dynamic market conditions, the importance of increased efficiency and security has not been properly captured in the market price of electricity. Accordingly, the current incentive structure does not encourage electricity producers to invest in more efficient and reliable technologies. This can lead to socially costly system failures, power outages, and energy quality issues (the DoE estimates that these issues cost Americans $100 billion per year). Government action is being used to bring about a more efficient outcome by allocating social resources towards the modernization of our nation’s grid.

The Strategy: It appears to be twofold. First, the DoE will incentivize investment in new energy infrastructure and promote research into new efficiency-improving technologies. A cornerstone of this approach seems to be the widespread introduction of Advanced Metering Infrastructure (AMI) to allow customers to coordinate their energy use with grid conditions through the use of customizable personal profiles. The increased cohesion, responsiveness, and customizability of the Smart Grid would bring about lower costs, smaller loads put on existing infrastructure, and greater flexibility in responding to problems.

The second part of the strategy will be to promote decentralization of electricity generation through distributed facilities. By localizing production capacity and utilizing a broader portfolio of smaller scale production methods, grids would be better protected against problems. The technologies introduced through the first part of the strategy will also increase the potential for the success of distributed production methods, and allow for energy solutions that are more tailored to the specific needs of customers.

Unified National Smart Grid

Unified National Smart Grid is a concept put forward by the WeCampaign, a project of Al Gore’s Alliance for Climate Protection.

The Premise: Our current national grid is plagued by “Balkanization” and an excessive reliance on CO2-intensive generation methods. The technology for a CO2-neutral economy exists, but realizing this goal would require a nationally integrated system of electricity transmission so that electricity could be used far away from its point of generation.

The Strategy: Most of the efficiency-promoting infrastructural improvements of the DoE’s Smart Grid program are embraced by the WeCampaign proposal. The major difference, though, can be found in the fundamentally different paradigms in thinking about the nature of an ideal future generation regime. The Smart Grid program is focused on encouraging decentralization and distributed generation, allowing communities to be more self-sufficient and independent of failure-prone regional systems. The WeCampaign proposal seeks to go in precisely the opposite direction, centralizing the production and distribution of electricity using a vast new network of transmission lines to transport electricity all over the country.

The most obvious question raised by this strategy has to do with the cost of erecting high-efficiency electricity transmission lines across the United States to create a nationally integrated grid: even if it were true that such a system could be constructed, and that if it were constructed it would be possible to have a CO2-free economy, it would be unclear that we would really want to pursue such an option. Surely there are other values besides mitigating climate change! A one-dimensional analysis like the one offered by the WeCampaign ignores the fact that there are other important things besides responding to climate change. Neither the monetary nor the opportunity cost of a nationally integrated system is ever addressed in the WeCampain analysis, and one can only suspect that both would be formidable.


The Smart Grid plan described by the DoE is among the better kinds of government policies. It is clearly set out as a response to transactions costs which prohibit the attainment of certain public goods, and acknowledges that the decentralized planning of market actors must be relied upon in order to achieve an efficient solution to our electricity needs. The central features which distinguish the WeCampain Unified National Smart Grid proposal from the DoE’s plan are a single-minded focus on the use of CO2-free electricity production methods and an integrated national electricity transmission system. Both of these features, I think, would require substantial arguments which are not offered by the WeCampain, and on their face seem economically unfeasible. Accordingly, it’s very difficult to imagine that the DoE would amend their policy to accommodate the WeCampaign’s suggestions (unless the WeCampaign can generate enough public support to force the adoption of a clearly bad policy).


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