Paying the Utility Bill

Utilities around the world are busy installing smart meters that will tell customers the price of the electricity they use throughout the day. Appliance manufacturers are building refrigerators, washing machines, and air conditioners that can automatically go into low- or no-power mode when demand spikes. Renewable-energy companies are selling solar, wind, and even geothermal power to the grid. But all this activity will not significantly improve the reliability of grids, or curb the appetite for coal-fired power plants, unless it is accompanied by major improvements in the infrastructure used to generate and transmit electricity.

Around the world, obsolete and overloaded transmission networks are the norm. In the United States, power supply problems such as outages and voltage sags cost businesses more than $100 billion a year, and the threat remains of another massive blackout, like the one that affected more than 50 million North Americans in 2003. But despite near-unanimous agreement that the infrastructure needs to be improved, little progress has been made.

One problem is that building grid infrastructure often requires permits that, largely because of local opposition, are difficult and costly to obtain. An April 2010 report on smart grids by the EU-supported European Electricity Grid Initiative lists public opposition to grid improvements as one of the biggest obstacles to progress. In the United States, a transmission line intended to bring solar, wind, and geothermal power to San Diego from the California desert was delayed for years by litigation and protests. Construction finally began a few months ago.

An even bigger problem is that upgrading grid infrastructure is expensive. For example, in the northwestern United States, the Bonneville Power Administration, a federal agency that generates and sells hydroelectric power, is adding more than 350 kilometers of transmission lines to the grid at a cost of about $1 billion, or roughly $2.8 million per kilometer. The Bonneville project received federal funding, but generally it’s difficult to find money to build new infrastructure. In China, among other countries, utilities are state-owned, so the money must come from government budgets. The EU is developing a scheme in which subsidies for smart-grid upgrades will be funneled to one centralized organization. But in much of the rest of the world, the majority of the infrastructure for generating and transmitting electricity belongs to investor-owned utility companies that have little economic incentive to invest billions in infrastructure.

China, where a significant portion of the grid is only now being built up for the first time, spent more than $7.3 billion of government funds on its smart grid in 2010. The United States has also made considerable federal investment in upgrades, with $4.5 billion in 2009 stimulus funding allocated specifically to developing smart-grid technologies and $6.5 billion in increased borrowing authority for power agencies in the Northwest to build new transmission lines. But these figures are still just a fraction of the total required: a 2004 estimate by the industry-funded Electric Power Research Institute pegged the cost of upgrading the U.S. grid at $165 billion over 20 years, and the figure is still considered accurate.

With so much uncertainty, is there any new business model that would compel utilities to spend billions on the smart grid? “That’s the million-dollar question,” says Steve Hauser, of the U.S. National Renewable Energy Laboratory. “I’m not sure that anyone has an answer to that.”