Smart Grid Technology: $20 Billion Market in Five Years

Published on October 6, 2009

Business Week recently published a special report on smart-grid technology, a subject that we have followed closely in the past.  The idea of developing an electric grid that can pass information and energy in both directions between utilities and customers seems to be exactly the kind of infrastructure that could provide lasting benefits for society.  It is a sign of the dysfunctional environment in Washington DC to find that only $4.5 billion of the $787 billion stimulus package was allocated to smart grid technology.

Here are a few excerpts from the Business Week article.

A $20 Billion Market in Five Years

The Electric Power Research Institute, a nonprofit research and design group, estimates that it will cost $165 billion, or roughly $8 billion a year for 20 years, to create the smart grid. The market for the gear needed to overhaul smart-grid communications alone may reach $20 billion a year in five years, Cisco estimates. Other technology companies developing smart-grid software and hardware include IBM (IBM), Oracle (ORCL), Google (GOOG), and Siemens (SI).

The tech sector’s interest is fitting considering the similarities between the energy-grid upgrade and the computing revolution of the 1980s that saw hulking, centralized mainframes give way to PCs. The existing U.S. power grid dispenses electricity but is limited in its ability to gather intelligence from end users—hence the monthly visit from a meter reader.

Benefits For Solar and Wind

Another benefit is that customers may soon get more leeway in determining the nature of the power they purchase, more easily opting for renewable energies such as solar and wind, says Matthew Trevithick, a partner at venture capital firm Venrock. Companies that are actively trying to cut their carbon footprints, such as Coca-Cola (KO), may be able to specify the percentage of renewable energy they buy, opting to pay more for wind, for example, if it helps them meet go-green targets.

But questions abound over who will foot the bill for the grid’s modernization. The American Recovery & Reinvestment Act has allocated $4.5 billion in grants and loans through the Energy Dept. for the smart grid to enhance security and to ensure reliability of the electric grid to meet growing demand.

Incentives for Timing of Energy Use

But as information on usage is extended further to the residence or business, customers will be able to see just how much energy their lighting, air conditioning, and appliances use. “The idea is that electricity costs more at peak-demand times, so if you showed those pricing signals to people, they can choose to shift usage to off-peak times,” says Jeffrey Taft, global smart-grid chief architect at Accenture (ACN). The smart grid will also give utilities the ability to automatically turn down business and consumer appliances on peak days. Customers would probably be given some sort of discount in exchange for letting the utility cut power to certain systems at key times of the day.

With the benefits associated with widespread implementation of a smart-grid system, it seems like exactly the kind of program that deserves funding under a stimulus measure.  The smart-grid is an investment that will provide tangible benefits for society for decades to come and can be compared with funding for the interstate highway system.  Furthermore, if there is any possibility of bi-partisan consensus in the current political climate, one would think that funding a smart-grid would be a good place to start.

Future generations will be paying for the current stimulus spending binge for decades to come and we might as well leave them with some useful infrastructure as part of the bargain.

Smart Grid Technology: $20 Billion Market in Five Years