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For Now, the Smartest Thing About the Smart Grid is its Marketing

This article was originally published on April 8, 2015 in The Hill, and was written by Consumers’ Research Director of Operations, Kyle Burgess.

The Senate Energy and Natural Resources Committee will be drafting a comprehensive energy bill in the coming weeks as part of a bi-partisan effort spearheaded by committee Chair Lisa Murkowski (R-Alaska) and Ranking Member Maria Cantwell (D-Wash.). The effort has moved along quicker than anticipated, as legislators conducted a flurry of activity in preparation for the two-week recess which ends Friday. The Senate addressed several energy and climate related measures before the break, while the House considered energy allocations for the fiscal year 2016 budget resolution. Given all this legislative activity focused on energy, it’s important to take stock of some of the neglected outcomes of past energy legislation and the associated expenditure of federal funds. One such effort is the smart grid – the poster child for energy efficiency and consumer cost savings on utilities (with the former proposition being much more promising than the latter).

The American Recovery and Reinvestment Act of 2009 (the Stimulus) allocated $2.5 billion toward the smart grid initiative, but so far Congress has paid little attention to the effectiveness and impact of smart grid spending. Much of the earmarked funds have been designated to programs that focus on advanced metering infrastructure (AMI) – with federal grants footing half the bill for many of the AMI programs across the country. The majority of the remaining funds have been portioned out to systems upgrades that enable two-way communication between electric utilities and grid components as well as the automation of many functions (i.e. making the grid “smart”).

Better managed energy distribution allows for electric utilities to run power lines at lower voltages, which results in energy savings that are said to translate into cost savings for consumers. Automated grid systems have faster blackout restoration times and require less fuel to conduct their operations, saving electric utilities millions of dollars. However, it should not go unnoted that efficiency from automation comes at the cost of thousands of meter reading jobs across the nation.

Additionally, there is much talk about the potential cost savings to consumers as a result of the smart grid, but in researching projected cost savings or demonstrated savings from fledgling programs and systems, resources are sparse, difficult to interpret, and lack corroboration. Both the direct and indirect costs of upgrading the energy grid will need to be recovered. With a growing annual price tag of $63 billion per year the recovery won’t happen all at once – in many cases, costs will be spread over a twenty year period to lessen the financial burden on consumers – but it will happen and consumers will ultimately be the ones who pay for it (whether directly in their utility bills or through tax dollars). This is not the problem though.

As with any good or service, electricity has a price and those who consume it should be prepared to pay that price. The issue, however, is that consumers are being told how much they will save once the smart grid is up and running – a veritable win-win-win for consumers, utilities, and the environment. However, power rates are rising despite the smart grid initiative and estimated efficiency gains seem to pale in comparison to the tens of billions needed to bring the electrical grid into the 21st century.

Improving the aging electrical infrastructure, building new power plants, and accounting for the incentive-based renewable energy feed-in tariffs all diminish the value proposition of the smart grid. It simply doesn’t seem feasible that all this investment will be offset by shifting and distributing energy demand/use, improving efficiency, and automating certain functions. Moreover, years of inadequate infrastructure improvements have resulted in an investment gap that is estimated to reach $107 billion by 2020, putting cumulative investment needs at $673 billion by 2020. Not to mention that once all these improvements are made and costs are incurred, the cycle will come full circle and new improvements and upgrades will be needed and their costs will likely not have been planned for – which is how we got here in the first place.

It’s undeniable that the U.S. electrical infrastructure needs an overhaul. What the electrical infrastructure does not need, however, is to be blanketed in false promises of cost savings to consumers. Consumers don’t need to be tricked into what’s good for them. They can make the costly but necessary choices without being misled. False promises will only make consumers angry and distrusting of those who lead them into a false sense of security – which in this case appears to be electric utility companies, the government, and the green energy movement. Instead, these actors should work to educate consumers about the necessity of systems upgrades and be honest about costs. Consumers know very well that nothing is free.

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