Four big reasons to get behind the smart grid

With venture capital flooding in and stimulus money on the way, the smart grid is taking shape -- and the business world stands to benefit

Energy is the life-blood of commerce. The smart grid -- an intelligent electricity-delivery system drawing significant interest from the U.S. government, venture capital investors, startup companies, and established tech giants, including IBM, Cisco, GE, and Google -- promises to make that energy flow more freely, more reliably, more efficiently, and at lower costs to both consumers and businesses.

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Just one of the benefits of the smart grid -- reducing power outages -- arguably helps justify the federal government's desired investment of $17 billion in federal funds into transmission and smart-grid investments. According to Electric Power Research Institute estimates, power outages cost U.S. business at least $50 billion a year.

But reducing power outages is but one of the potential benefits of connecting utilities and consumers through an intelligent network. With smart meters installed at homes and businesses to monitor energy consumption and transmit information between energy providers and consumers, the smart grid promises to be substantially more efficient than today's system. I'll dig more deeply into the capabilities and features of the smart grid as I share what I view as some of the top benefits it holds for business.

1. The smart grid can reduce the costly impact of blackouts. Our current energy grid is, well, dumb. It doesn't know when one of its components needs upkeep or has failed -- and the utility company doesn't know, either, until someone calls in to report it. Then we all just sit and wait for the lights to come back on.

A smart grid, by contrast, is self-aware, a point explained to Congress Wednesday by IBM vice president of strategy and development Allan Schurr. "Imagine a system that continuously monitors the state of the network, looking for approaching equipment failures by analyzing such things as transient voltage data and transformer oil temperature to predict when equipment may fail so it can be maintained or replaced just in time," he said.

Schurr continued, "Imagine a system that detects an outage and automatically isolates the problem by rerouting power to affected customers, while simultaneously diagnosing the cause and dispatching the nearest repair crew that has the replacement parts on the truck."

Equipment failure isn't the only cause of a blackout: During the hot summer months in parts of the country, the electric grid feels heavy strain when homes and business crank up the air conditioning. The strain can get so high, it can result in rolling blackouts.

Thanks to smart grid technology, however, business and home owners can arrange with their local utility to have their building's AC systems automatically turned down or certain lights turned off when the grid is being heavily taxed. That reduces the strain on the grid, thus preventing rolling blackouts and costly downtime.

2. The smart grid can help measure and reduce energy consumption and costs. One of the visions for the smart grid is that consumers will be able to monitor their energy consumption in real time, or at least near real time, via the Web. Moreover, in the future, you'll be able to dig down to more granular levels to see how much energy individual systems and equipment are consuming and what it's costing.

For both businesses and consumers, this provides the opportunity to identify ways to reduce energy costs. You might find that changing the temperature a couple of degrees or that turning off more equipment at night can make a significant difference to your electricity bill. You might find that running certain processes after hours is more economical. You might also identify a major energy-drainer that should be replaced.

Taking it a step further: Suppose yours is a business with multiple sites, whether offices, retail stores, or call centers spread out across one state or the entire country. You'll be able to compare the energy consumption of each site and identify those that are using significantly more energy. From there, you can start digging into the causes and making changes.

The smart grid will even enable large businesses to connect their building energy management systems with their utility's systems to interact in new and innovative ways, according to Steve Widergren, administrator for the GridWise Architecture Council. "Today very few buildings exchange information digitally with their electricity provider. Contracts are set up manually for flat or sometimes time of use rates, both sides read their own meters, and bills are sent through the mail to reconcile energy usage," he said in an interview.

"But suppose contract selection is done online and offers choices such as real-time rates and emergency services," Widergren continued. "Once the building manager selects a contract, the building system automatically configures itself to connect to the energy provider information system to periodically exchange metered data and pricing information. The building system adjusts demand, balancing the needs of the business with the price of energy."

3. The smart grid can help businesses reduce their carbon footprint. More and more companies are looking for ways to reduce the amount of carbon dioxide they're responsible for emitting, both for the sake of environmental stewardship and to comply with current or future legislation. Much of those emissions comes from electricity consumption, as power tends to be generated from coal and other fuels that produce CO2.

[ Learn about how vendors are developing tools to help companies measure their carbon footprint. ]

The smart grid can help companies reduce energy consumption, which in and of itself helps put a dent in their carbon footprints. But one of the promises of the smart grid is greater availability of clean energy, such as solar and wind power. "Whether in a utility scale configuration or in wholly distributed installations, the integration of renewables with traditional grid operations requires special consideration and smart grids can reduce this cost of assimilation," said IBM's Schurr.

For example, Schurr said, "Transmission access is often cited as a constraint to more renewable energy development. This constraint is a combination of the lack of transmission lines to interconnect the utility scale wind or solar plant, as well as lack of available capacity on the existing transmission assets downstream of the interconnection point. If smart grid technologies can allow transmission operators to capture additional capacity through more dynamic loading, asset risk assessments, new market designs, and reduced spinning reserve that is otherwise contracting for transmission capacity, the costs and lead time of constructing new capacity can be reduced."

4. The smart grid opens up new opportunities for tech companies. The third quarter of 2008 saw venture capital investments in energy efficiency and smart grid grow to $272 million. The market for metering hardware and software and networking technologies for the smart grid was $2.7 billion in 2008 and will grow to $4.7 billion in 2013, according to a report from Lux Research titled "Alternative Power and Energy Storage State of the Market Q4 2008: Weaving the $65 Billion Power Web." In other words, there's already plenty of money being invested and made from smart-grid projects, and there's more to come.

Much of that cash needs to go into the IT hardware and software that will make the smart grid work, from the meters and networking equipment to the software that aggregates and provides information. Numerous companies, both new and established, are taking part.

IBM, for example, is immersing itself heavily in the smart-grid space. For example, the Mediterranean island nation of Malta recently inked a $91 million deal with IBM to build a "smart utility" system that will digitize the country's electricity grid and water system. Big Blue and its partners will replace Malta's 250,000 utility meters with smart ones. The devices will enable Malta's electric utility, Enemalta, to monitor electricity use in real time and set variable rates that reward customers who cut their power consumption. A sensor network will be deployed on the grid, providing information that will let the utility more efficiently manage electricity distribution and detect potential problems. IBM will provide the software that will aggregate and analyze the data so that Enemalta can identify opportunities to lower costs and reduce carbon emissions.

Additionally, Google recently dipped its toes in the smart grid waters by unveiling the Google PowerMeter, a tool designed to show consumers their home energy information in nearly real time, on their computer. In addition, the company is planning to create a services organization that will specialize in analyzing consumer electricity usage and suggesting changes to lessen their drain on the electric grid, according to Ed Lu, a member of Google's engineering team.

Moreover, Cisco is quietly working on smart grid technology. The company recently awarded $250,000 to two German computer science students and a Russian engineer who proposed an IP framework that would allow devices to ask for power from the grid only when they need it, rather than passively consuming whatever is sent over. A spokesperson for the company said the idea "will potentially revolutionize how power is managed."

Meanwhile, lesser-known companies are taking part. Silver Spring Networks appears to be a smart-grid success story already: The company, which has financial backing from Google, "boasts a backlog of orders for meters and related technology worth $500 million," according to BusinessWeek. Silver Spring offers an array of smart-grid software and networking infrastructure, leveraging the IP networking protocol.

The list of smart-grid companies continues. SmartSynch has developed technology enabling two-way delivery of real-time energy usage data over public wireless networks. A startup called eMeter designs software that helps utilities gather and integrate information generated by smart meters and communicate usage information from homes and businesses back to utilities. A company called Tendril manufactures an array of devices, including a wireless thermostat and an Internet gateway that provides a method for automatically collecting energy-usage information.

Presumably, as with the Internet boom, not all of the companies entering the smart-grid arena will survive. The point, though, is that the smart grid will be built and expanded on information technology, which makes the smart grid particularly good for the IT world from a business perspective.

Play it smart

There's plenty more work to be done to get a national smart grid up and running. Proponents will need to sort out issues of standards, privacy, and security. Utilities -- which are, after all, businesses -- will need to be convinced that they can profit from the investment.

Given the attention the smart grid is getting from the government, businesses, and environmentalists, I'm bullish about the future of the smart grid. It will prove to be good for business and good for the environment. My local utilities (Pacific Gas and Electric and the Sacramento Municipal Utility District) are already working on smart-grid products; I urge you to contact your local utilities, politicians, and chambers of commerce to get behind the smart grid as well.

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