Investing Daily

There's been a lot of talk about the Smart Grid, but much of the reporting has provided more heat than light (pardon the pun) about what a Smart Grid entails and its feasibility.

Forces arrayed against this mammoth undertaking write it off as another government-funded boondoggle, another waste of taxpayers’ money. Proponents envision a revolution in the way we consume and distribute electricity that will transform our antiquated grid into a Smart Grid that’s as flexible, communal and individual as the Internet.

The truth lies somewhere in between.

The Basics

A Smart Grid is a power system that adjusts based on real-time information from power suppliers, distributors and consumer. It would take a long time to explain the details of the entire networked system; if you're interested in getting a handle on the big picture, check out the Dept of Energy's book on the Smart Grid. For the Cliff’s Notes version, check out the Wikipedia entry.

Proponents envision the entire country rewired into a national Smart Grid where power would come from traditional baseload power generators. Smart power lines would transmit this electricity into smart homes. Producers would be able to monitor in real time how power is being consumed, how efficiently the power is being distributed and how to adjust baseload plants to optimize efficiency. Consumers would have Smart Meters that would show how they're consuming power and recommend adjustments to to their electricity usage.

The national electrical grid is around 100 years old, yet our hunger for electricity has grown exponentially since then. We just moved into a house with that was wired in the 1970s; with the computers, TVs, phone and iPod chargers, dishwasher, lights, etc. humming along, turning on the toaster oven or a blow dryer sends me down to the breaker box.

Expand that personal anecdote to a town, city or region and you get an idea of the infrastructure tightrope we walk as a nation. One false move and everyone is sitting in the dark, business grinds to a halt, data is lost and chaos descends. It's hard to run a 21^st century family--or economy--with such an antiquated system.

But building a national Smart Grid is a very daunting task, but regional coalitions comprising industry, government and consumers are banding together to push for smaller, local Smart Grids.

On the local level, renewable energy sources like wind and solar can be moved onto the grid to supplement baseload power plants when needed. The distribution system can be redesigned so that an outage in one spot on the grid doesn't bring the whole system down; power from local sources can be rerouted to areas shut down by the outage while the baseload power can be restored.

At the annual Smart Grid conference hosted by the Galvin Electricity Initiative, the featured topic was MicroSmart Grids or Microgrids. These are systems that are being built from the ground up--for example, a Smart Grid for a college campus, an office building or a neighborhood.

The initiative was launched by former Motorola (NYSE: MOT) CEO Robert W. Galvin to transform our electric power system into one that’s fundamentally more reliable, efficient, secure and clean, and meets the needs of 21^st century consumers. In 2010, the Initiative is accelerating its multistate campaign to spur a migration toward a consumer-driven electric power system.

Microgrids allow utilities to balance generation and load and attract private investment. Distributed generation--the ability to incorporate alternative energy resources into the grid--provides backup power to help manage peak demand, improve reliability and reduce costs tied to loss of service, allowing utilities to use those resources elsewhere. Microgrids also open the door for utilities to offer auxiliary services such as renewable energy, demand-response and infrastructure for electric vehicles.

Unfortunately, regulations prohibit many utilities and communities from developing microgrids. Policies and regulations are needed that incentivize collaboration among businesses, utilities and communities and encourage investments in local distribution systems.

Regulatory challenges aside, utility industry executives must also be motivated to upgrade their generation and distribution systems--a century-old habit is tough to break. But there's no alternative to modernizing, other than continually patching the current system until it's just the old system with new parts. At this point, that's the cheapest way to go; many utility executives are reluctant to invest in new technologies. Those costs are either passed on to the consumers or eaten by the company.

Despite the challenges, some uitlities are agressively moving into Smart Grid and Microgrid pilot projects. Duke Energy (NYSE: DUK), Xcel Energy (NYSE: XEL), San Diego Gas & Electric (AMEX: SDO) and Pacific Gas & Electric (NSYE: PGE) are three examples. Other companies in the space that are worth investigating include Itron (NDSQ: ITRI), Echelon (NSDQ: ELON) and Amercian Superconductor (NSDQ: AMSC).

Many of these companies and others are followed in our newsletter New World 3.0.

GS Early is executive editor of KCI Investing and focuses on emtech/nanotech/cleantech.