[pagebreak:Electronomics, or How the Smart Grid Will Power Wealth, Pt. I]

Part I: Investing Wisely in the Age of Obama

Electronomics – which studies the creation of national prosperity and personal wealth as we transition from today's Petroleum Economy to tomorrow's Electricity Economy – offers essential learning for public and private sector decision makers in the Age of Obama.

And the key word here is "essential." 

At a time of financial crisis, the impending and evolving Electricity Economy represents the biggest industrial and entrepreneurial opportunity since the Petroleum Economy it's poised to replace. The Electricity Economy is so large, in fact, that it dwarfs the Internet, the interstate highway system or our vast telecommunications networks in its ability to create new industries, new wealth and new national prosperity.

This enormous potential exists because – even though most people don't realize it – we've already passed the tipping point. In 1950, 20 percent of the U.S. GDP was directly dependent on electricity, according to the Manhattan Institute; today, the figure is at 60 percent – and rising.

Creating New Companies and New Industries

That means we can expect to see the creation of huge new companies – next-generation Microsofts and Googles – as well as fresh fortunes for entrepreneurs who gain early-mover advantage. It also signals legions of new and good-paying jobs that will enhance and sustain our quality of life and standard of living.

So, the upside opportunities of the Electricity Economy are clearly in our financial interest.

They're also in our environmental and national security interests.

Recent forecasts predict that electricity generation will dou ble between now and 2030, and our ever-increasing consumption is putting additional and harmful pressure on the environment  (50 percent of U.S. electricity comes from dirty coal plants) and on our aging and overstressed power grid.

But, if we invest wisely in a new, intelligent and digital electric infrastructure – the smart grid – we can seriously cut our dependence on fossil fuels because a new 21st century electric network will make it easier to use renewable energy sources.

The current electricity grid simply wasn't built for wind or solar power, which often have to be generated from great distances before they can effectively reach end users. And, if it's a still or cloudy day, wind and solar power can also be intermittent, putting additional peak-and-trough usage pressure on the already shaky electricity grid.

But, since 60 percent of the current electricity infrastructure needs to be replaced over the next decade anyway, there's a significant opportunity to re-tool and re-invent more cleanly and greenly.

Customizing Our Electricity Consumption

The efficiencies of the smart grid are also promising; some analysts believe we will be able to reduce our energy consumption by up to 30 percent when all is said and done, thanks to a host of intelligent devices that will monitor usage patterns, customize electricity consumption and balance supply and demand across large regions.

For consumers, a smart grid promises lower energy costs – our overall electricity bills today are two times larger than our telephone bills – and an end to today's "one-size-fits-all" electricity pricing; in the future, people will be able to choose an electricity plan just as they now choose a calling plan. What's more, the new digital infrastructure will scale down and decentralize electricity distribution, giving communities, co-ops and campuses the option to become self-reliant and self-sustaining.

And to combat climate change, the proliferation of smart grid technology offers the chance to completely transform our transportation sector from petroleum to electricity. Analysts believe there's no reason that 25 percent of all vehicles on our roads and highways can't –and shouldn't – be electrified by 2020. 

If a new smart grid doesn't get the attention and funding it deserves in Washington, D.C., the consequences will be significant.

First, we'll see more dirty coal plants.

In the absence of a smart grid, say experts, we'll need to build the equivalent of 25,000 500 megawatts new coal-fired power plants over the next 20 years just to keep pace with rapidly growing global electricity demand.

We'll also be forced to cope with an obsolete and over-taxed electric infrastructure that has no role in today's world. In addition to being fragmented, our electric infrastructure is aging, outmoded, underfunded and overstressed. We have a 19th-century design (from the days before microprocessors) that attempts to keep up with a 21st-century economy (where wealth will come from electrons not petroleum).

And we're pushing that aging grid well beyond its design life. Approximately 70 percent of the transformers and transmission lines in our current electric infrastructure are 25 years old; and 60 percent of the circuit breakers are 30 or more years old.

[pagebreak:Electronomics: Continued]

The Price of Stagnation

We’re already paying the price. Grid congestion costs ratepayers $2 billion a year, while commercial ventures lose more than $130 billion to outages. Yet we’re still not investing in our electric infrastructure. In fact, when it comes to our electric grid, we have an embarrassingly low R&D rate – about 1/20th the average of all U.S. industries.

Without nourishing investment in smart grid innovation, we will also witness the continuation of a regulated 19th century electricity monopoly that desperately needs to change.

In addition, our electric infrastructure will remain vulnerable to natural disaster, terrorist attacks and the whims of the global economy. The American electricity grid is especially exposed because we don’t even make some of the most critical parts that comprise it. Our transformers, for example, are manufactured in countries like Mexico and Czechoslovakia.

To make matters worse, our global rivals will surge past us. The sad truth is that some developing nations may actually have more modern, up-to-date electricity grids than the United States right now.

Countries like China, for example, which recently allocated $170 billion of its stimulus package to upgrade its electric grid, see the future and are moving toward it. Many of the most innovative smart grid initiatives are also occurring overseas. Europe spends 10 times what we do on smart grid research. And much of the Middle East is using its oil money to create a modernized grid (along with sustainable cities).

Stimulating the Economy for the Long Haul

The incoming Obama Administration seems to understand all of this. And that’s why intelligent electric infrastructure is mentioned so prominently as part of the forthcoming –and much-needed – economic stimulus package. 

With its ability to generate lasting jobs that will create new forms of commerce and a 21st century platform for prosperity, policy makers are increasingly coming to realize that the smart grid actually offers our nation a bigger and stronger jolt of financial medicine than just repaving highways, renovating buildings or building bridges.

So, there’s absolutely no question that revamping and re-inventing the electrical infrastructure in this country is a major New Deal-type of undertaking.

And with good reason.

Over 100 years old, the current U.S. electric grid has been called the most complex machine on earth. For starters, the system has 14,000 substations for high-voltage transmission and about 4,500 large substations for medium-voltage distribution. And, just as importantly, there are over 3,000 entities – each with a competing agenda – that own a piece of this vital infrastructure.

This fragmented and often rudderless apparatus makes it hard to implement technical and political "repairs." The price tag is daunting, too. Electric infrastructure costs have soared by a staggering 170 percent since the early 1990s. And now, in the wake of these significant outlays, it will take an additional $1 trillion to expand and upgrade our  grid system between 2010 and 2030.

But, as many legislators have come to understand, this investment is crucial for both the local and national economy.

With beaten down and worn out grid systems that can’t reliably handle bulk power shipments or manage demand-side efficiencies, a number of communities across the country are losing plants, factories and server farms that shift to regions with low-cost, high-quality power. One case in point: Google, which built mammoth electricity-powered data centers in the wilds of Washington near low-cost hydropower to keep costs down.

Other U.S. companies are increasingly looking abroad for better and more electricity to fuel growth. One relocated a robotic manufacturing facility from Iowa to Germany to get more reliable electricity feeds.

Regaining Our Competitive Edge

Once electricity is delivered on a new and improved grid, our country will begin to regain its competitive edge in the world; growth-oriented companies from Europe and Asia are seeking the best and most abundant supply of electricity they can find, and if the U.S. provides it, then those companies will relocate here, bringing with them tens of thousands of much-needed jobs.

To be completely fair, our policymakers are well intentioned, but they are hobbled by antiquated regulations that need to be updated for the 21st century economy. These old rules allow utilities to purchase equipment that is obsolete the moment it is installed. They also reward utilities for selling more power in an era when we all need to use less.

As Washington D.C. gets down to work on the critical stimulus package as well as new energy legislation, it’s not irrational to believe that giant steps will be taken toward establishing a vast, interconnected and intelligent electrical grid that is monitored and controlled end to end - all the way down to billions of individual devices.

Making the Vision Reality

Indeed, this vision can become a near-term reality. Right now, our electric infrastructure revolves around control centers that are blind to each other. We need an interoperable network that shares information, power and resources across long distances. There’s no reason, for example, that we can’t balance and mix wind power from Texas with hydropower from Washington State and demand response from California.

A cornerstone of this new smart grid will be efficiency optimized by computers. We need to "digitalize" the current analog system. Or, to put it another way, we need an Electricity Internet. We need to Google the grid and create massive interconnections that permit intelligent self-healing and adjustments as supply and demand warrant.

This radical and sustainable shift can be accomplished using non-petroleum sources. And it will permit customized and decentralized electricity distribution that will enhance efficiencies, enrich choices and lower prices for millions of end-users while boosting productivity and prosperity as well as America’s standing in the world at large.

There’s no textbook for Electronomics yet; but watch closely in the months ahead - because President Obama and Congress may be writing the first and most important chapter of this must-read volume. 

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."