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The Smart Grid: What's our next move?

Posted by Devin Cole  November 14, 2011 02:30 PM

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Hessenbruch.Arne__.Headshot_1_.jpegRecently, Brown Rudnick organized a seminar at their offices in downtown Boston entitled “Navigating the Intersection of the Utility Sector, Venture Capital Funding, and Energy Policy”. The advantage of the seminar lay in having the differing perspectives alluded to in the title represented on the panel: three utilities, a company seeking to enable large electricity customers to react to price fluctuations, a VC investing in new energy technologies, and finally the government of Massachusetts represented by two bodies: the Energy and Telecommunications Division of the Massachusetts Office of the General Attorney, and the Executive Office of Environmental Affairs.

It is fairly easy to articulate the problem with electricity distribution. The electrical grid was constructed 100 years ago and its structure reflects that. The agents of change consist of deregulation and new technologies. The former has broken up vertically integrated industries, and the latter consists of decentralized energy production (e.g. wind, solar) and measurement of the flow of electricity throughout the grid. The result is aged equipment, obsolete system layouts, and, one might argue, outmoded concepts and procedures. Articulating the problem may be easy, but the solution to the problem is exceedingly complex.

For example, Scott DePasquale, of Braemar Energy, pointed out that many venture capitalists like to invest in disruptive new technologies, but the regulators and the government agencies advocating for rate payers are risk averse by statute, and so they are bound to counteract disruption. DePasquale mentioned as an example the putative future fleet of electrical cars that will store enough electrical energy to obviate the need for the very expensive production of extra energy at peak demand – because energy can be drawn from the stored energy instead. He also asked Jed Nosal, the Attorney General's Office's advocate for rate payers, just how much risk it would be fair for rate payers to assume in the renewal of the grid.

Nosal did not deny that the politically acceptable risk to rate payers is probably zero. But the introduction of price and the ability to act on price would be an easier ask, nodding to Audrey Zibelman of Viridity Energy, which provides large electricity companies with software that enables them to optimize their energy consumption and use of distributed energy assets like solar and storage, thus enabling them to reduce their power costs by buying low and selling high into the power markets. This is attractive to both the customer and the utility, whose exposure to price volatility and peak production is reduced.

Peter Clark, of Western Massachusetts Electrical Company, pointed to another problem: the metric for government policy is jobs, and the lag between the introduction of technological innovations and their resulting in new jobs, is sufficiently large to cause political problems. Barbara Kates-Garnick, Undersecretary for Energy, Massachusetts' Executive Office of Energy and Environmental Affairs, said that they were in fact currently very concerned about developing the right metrics, and she enthusiastically supported Viridity Energy's concept of “monetization” beyond the realm of large consumers - and also suggested that a national carbon tax might fit that bill.

Other countries, notably Denmark, have advanced much further in the direction of a smart grid. As Zibelman pointed out, Japan is now exiting nuclear power and directing its efforts towards the smart grid. This means that hefty companies such as Mitsui and Mitsubishi are moving into a market with potentially captive buyers. In other words, there is a large economic carrot for companies getting into the smart grid technological development sooner rather than later. Brian Tierney, of American Electric Power, while welcoming utility-facing innovations, such as voltage control, could not see political consensus for renewable energies part of the smart grid arriving any time soon. AEP derives 2/3 of their electricity from coal fired power plants, and Tierney sees places such as West Virginia close up. He opposes the elimination of livelihoods for thousands of West Virginians, just as the Attorney General's Office opposes any cost to rate payers.

Each, from their perspective, is reasonable. Changing the status quo unfortunately entails losers, at least in the short term, but not changing the status quo will likely lead to even more losers. A stitch in time saves nine, but in this case each stitch hurts someone party to the decision making process.

Arne Hessenbruch is a Danish expat and the founder of Boston Denmark Partnerships, where he connects Danish companies with an interest in doing business in Boston.

This blog is not written or edited by Boston.com or the Boston Globe.
The author is solely responsible for the content.

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