Today and tomorrow I will be at GridEcon in Chicago! As one of the co-organizers I am making some opening remarks:
I am very happy to welcome you all to what I hope is the first annual GridEcon conference. As you all know, we are in the midst of a crucial time for this discussion. Catalyzed by the current economic downturn and increasing attention to the economic and environmental implications of energy use, business and policy attention are turning toward smart grid technologies as beneficial opportunities to invest in our aging and obsolete electricity infrastructure. The $4.5 billion dedicated to smart grid in the recent federal stimulus package is one very large example of such attention.
GridEcon creates an environment in which we can share ideas and create new ones about the economics of smart grid technology and smart grid policy. For at least the past decade many parties, including many of you in this room, have been working on and thinking about the technical aspects of digital communication technology’s increasingly valuable role in the electric power network. Over that time we have concentrated on the technical aspects of that role, such as the technical standards governing the communication of information among different devices and applications, increasingly across the boundaries of firms. The work we have done on the GridWise Architecture Council to raise awareness around interoperability and to enable dispersed efforts on interoperability to coalesce is one example. Now, as work continues on those technical issues, we take up the business and policy questions more directly. I believe that through our discussions here and through the open interactions of the Domain Expert Working Groups that NIST and GWAC have organized, we are creating a framework for communication of the technical work and the business and policy work to lead to a set of valuable, resilient, and adaptable architectural principles. These principles include those that have gone into the good work that’s been accomplished thus far on technical standards, but without sound market design and regulatory policy, these standards will languish and not be widely adopted.
The economic aspects of a smart grid are an essential component of its value, but are often not mentioned when we focus on such capabilities as distribution management, fault detection, and even demand response. A smart grid is a rich transactional environment, a market platform, a network connecting producers and consumers who contract and negotiate their mutual exchange of value for value. Without this potential for negotiation, prices do not communicate this distributed information, and without a meaningful price system to elicit and transmit that information, consumers and producers cannot make efficient decisions, and cannot make decisions that reflect the appropriate economic and environmental values of the parties in the long run. A smart grid is a transactive grid, and if it is not transactive it is not smart.
However, we are considering these questions of smart grid architecture, investment, and policy in the context of a set of regulatory institutions designed to induce the widespread electrification and low, stable retail prices that were the policy objectives of the 20th century. As we examine the implications of smart grid technology, we also have to examine the set of policies that are consistent with economically sound smart grid investment. Smart grid technology and the changes we have experienced in our culture in the past decade open the road to more decentralized participation in retail electricity markets, in roles that are prohibited by current policy. If we don’t change our regulatory environment, all of our discussions today and tomorrow will be sound and fury, signifying nothing.
In considering the economic and policy questions associated with smart grid, I am reminded of a quote from the economist Friedrich Hayek:
The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.
The humility his remark suggests is something that I think we should bear in mind as we move forward with our smart grid economics and policy work.
Some of the questions I encourage you to consider, and to address, throughout our interactions are
- How will technological change shape business models in the industry?
- What roles should utilities and other parties play in making smart grid investments?
- What criteria should we, and regulators, use to evaluate utility smart grid investment proposals, and how do these criteria differ from “traditional” regulatory criteria?
- Where are the opportunities for new entrants in the different parts of the electric power value chain?
- What kinds of new products and services can be created around the smart grid’s transactive capabilities? In particular, what kind of new financial and risk management products and services are possible?
- How is the market for smart grid products and services developing and evolving?
- How do smart grid opportunities and the transactive nature of a smart grid interact with potential future carbon policy, and with increasing shares of renewables in the portfolio mix?
- How are existing state and federal regulatory policies affecting all of the above?
- What are some regulatory and policy reforms that would enable economically valuable smart grid investments to occur?
- What are some regulatory and policy reforms that would increase the value creation from investments in smart grid technology?
GridEcon is a new event to address these topics, organized by Clasma Events in partnership with the GridWise Architecture Council (GWAC), the National Institute of Standards and Technology (NIST), Open Access Same-Time Information System (OASIS), the GridWise Alliance, the Edison Electric Institute (EEI) and other organizations involved in smart grid development.
Thank you for your enthusiasm and your participation, thank you to our speakers for agreeing to get the conversation rolling, and thanks to Anto Budiarjo and Clasma for organizing GridEcon 2009!