[pagebreak:Electronomics: How the Smart Grid Will Power Wealth, Pt. II]
See also Part I: Investing Wisely in the Age of Obama.
Part II: Electric Infrastructure, Innovation and Economic Growth
America's current electricity grid has a lot in common with the nation's interstate highway system, a mid-20th century creation driven by our country's love affair with oil.
Both networks were built out in the 1950s, ‘60s and ‘70s. Like the highway system, our transmission network runs about 150,000 miles. The highway system, however, has been continually repaved and maintained with taxpayer money. The transmission grid, on the other hand, has not been upgraded or refurbished despite more than three decades of wear and tear. The recent neglect of the electricity grid is particularly surprising, given the 300 percent surge in bulk power transactions between 1998 and 2004.
But now – thanks to the government's impending economic stimulus package – both sets of infrastructure will be receiving hefty financial infusions designed to repair crumbling roads or cracked transformers while generating rapid employment and lasting prosperity at the same time.
In theory, this is classic Keynesian economics at work: spend public-sector money on labor-intensive projects in a crisis even if it runs up a budget deficit, create jobs, improve incomes, restore spending and consumption, rejuvenate growth, and work off the budget shortfall through increased tax receipts and spending restraint.
Beyond the Stimulus Package
Nobody knows if the impending stimulus from Washington, D.C. will play out in this textbook way. But when you look at other great infrastructure transformations in history – railroads, airlines, telecommunications and the Internet, for example – yo u see another and perhaps equally beneficial economic pattern emerge.
As each one of these massive and complicated systems was built or overhauled, much-needed standards were put in place. This, in turn, encouraged a host of breakthrough companies to exploit the newly architected or re-architected infrastructure in fresh, profitable and unpredictable ways. Simply put, new infrastructures create new ways to do business. And the countries, companies and individuals that move quickly in the wake of this construction or re-construction activity can gain competitive advantage that can last for decades.
Exploiting New Infrastructure Build Outs
After the country agreed on "standards" for the width of railroad tracks, for example, the transcontinental railroad was completed in the late 19th century. This infrastructure advance served as a catalyst for Andrew Carnegie's steel company, which began churning out millions of ultra-strong rails for the rest of the nation's train network.
At the same time, Sears Roebuck came into existence, determined to use America's budding railroad system as the conveyor and conduit for its mail-order catalogue business. Sears was the original Amazon – the first to create a virtual superstore that used a new infrastructure for ordering and fulfillment. It employed that early insight to dominate mail order retailing for a half century.
Almost 100 years later, a visionary entrepreneur and Yale graduate named Fred Smith saw opportunity after the nation's commercial airline routes were deregulated. The unorthodox result was the hub-and-spoke system and the birth of Federal Express, which absolutely, positively delivered packages the next day – no matter what.
In the 1980s, after the monopolistic telecommunications infrastructure was broken apart and Ma Bell was told it had to compete, a feisty upstart company by the name of MCI surfaced and began offering consumers choice in the form of refreshing and low-cost calling plans and programs.
And in the late 1990s, when it became obvious that navigating the vast and unplumbed depths of the Internet required more than a mere browser, Google and its high-powered search technology made its presence felt on computer screens around the world.
Steady Stream of Profit Opportunities
When the renovation is finished – and the whole project could take as long as a decade and require as much as $1 trillion – the vastly improved and revamped American electricity grid of the 21st century will feature three essential technology components. First, two-way communications like the Internet; second, smart devices that use this communications pipeline to watch what’s going on and report back; and third, advanced control systems that take all the gathered information and manage it in real-time.
These three technology components – plus open and interoperable Web-like standards, correct pricing models and regulatory encouragement – will result in a steady stream of profitable possibilities for a remade utilities industry. And make no mistake, new upstarts will flourish in this transformation, just as the computing revolution created Microsoft, the telecomm upheaval made Qualcomm possible and the Internet movement unleashed Cisco.
Dynamic and Different Business Models
To capitalize on these opportunities, utilities from coast to coast will begin to adopt dynamic and different new business models that will alter the way electrons have been produced, stored, shipped, packaged, sold and used over the past 100 years. Actually, dramatic change will be essential for survival, because for the first time ever, utilities may be forced to vie with non-utilities – like technology companies – for sales and revenues.
To fully serve their customers in the coming decades, utilities will have to deploy cutting-edge innovations like just-in-place power systems, which will enable the grid to efficiently and effectively distribute the right amount of electricity at the right time to communities. In this way, costly peak-and-trough usage patterns and periods will be eliminated – a financial blessing because peak electricity can be 100 times more costly to produce.
Self-healing digital distribution systems that can identify and rectify interruptions of power in mere milliseconds will also be installed as a way of generating labor saving productivity for both large and small businesses.
Pushing Toward the Future
Several U.S. utilities – like Southern California Edison, Xcel Energy, Austin Energy and Sempra – are already pushing toward new and intelligent electric infrastructure.
Top-tier financial investors like Goldman Sachs, Kleiner Perkins and the Global Environment Fund have also joined platinum companies such as GE, IBM and Google in committing capital to smart grid technology research, development and deployment.
And a number of emerging and fast-growth Electricity Economy companies are currently staking claim to potentially huge profits in areas such as demand response, distributed resources, smart meters and advanced controls.
Picking the Early Leaders
It’s far too soon to predict the long-term winners in the Electricity Economy; but we can say that some companies will become giants, and we can identify several of the leaders at this stage of the game.
First, there’s GridPoint, which makes a broad platform allowing utilities to reliably optimize grid management. The company’s intelligent network of distributed energy resources works hard to help control electricity loads as well as store and pool power. The flexible and modular solution also encourages the blending of old technologies and news ones like plug-in electric hybrid vehicles.
Second, we have New Jersey-based Comverge, which markets a breakthrough concept that helps to efficiently curb electricity consumption and turns that reduced demand into a block of power that can be sold into the market.
Comverge control units manage the electricity in approximately 90,000 homes in Salt Lake City, for example, and each residence can throttle about a kilowatt of energy. That means Comverge oversees, and can easily access, the equivalent of a 90-megawatt power plant. As a result, utilities dealing with Comverge – who are also trying to cope with rising electricity demand – don’t have to build extra power plants or buy extra electricity on the open market during costly peak periods.
Third is EnerNoc, which runs a remote demand response network like Comverge -- but which emphasizes the business market, instead. Headquartered in Boston, EnerNoc has successfully installed systems in New England, California and New York. The company’s CEO, Tim Healy, says the extra power EnerNoc can deliver offers an insurance policy against grid wear down and black out.
Fourth, there is A123 Systems, a Massachusetts company that has harnessed MIT technology to create high-powered lithium-ion batteries for electric vehicles. A123 has been around for several years and remains at the forefront of next-generation transportation development, thanks to its unique nanoscale materials.
Fifth, comes Itron, the world’s leading provider of smart meters. Based in Washington State, Itron offers the hardware and software to precisely measure electricity usage so that informed decisions can be made and the network can be optimized.
And sixth is Areva T&D, one of the top three global players in the advanced control solutions that are finally giving utilities an "air traffic control" system to prevent outages and blackouts. Areva T&D builds high- and medium-voltage substations and develops state-of-the-art control centers worldwide.
Nobody knows for sure if these six companies will retain their current stellar status. If we go back 14 years, to 1995, for example, everyone thought Netscape and its browser would guide Web usage for decades. We were proven wrong, however, when Microsoft pried away browser leadership and Google arrived to take over thought leadership.
Serious and Lasting Transformation
But we do know that smart grid innovation and infrastructure improvements are steadily unfolding, and that the world is experiencing a serious and lasting transformation as the Petroleum Economy slowly gives way to the Electricity Economy of the 21st century.
So, in the end, perhaps the best inspiration for these six companies – and the scores of others who will enhance the smart grid – is to remember what Federal Express, Google, MCI and Sears achieved when offered the lucrative opportunity to conduct commerce on new and improved infrastructure.
Opportunities of this same scope and magnitude are available to tomorrow’s entrepreneurs and innovators – provided we create a smart grid today.
This piece is from an independent writer and is not connected with Greentech Media News. The views expressed here are those of the author and are not endorsed by Greentech Media. Jesse Berst is head of GlobalSmartEnergy (GSE), an internationally recognized consulting firm, and author of the forthcoming book, "Electronomics: How the Smart Grid Will Power American Prosperity."