by Gary Fromer, CPower Inc.
Those of us who have opened a new investment account with a brokerage firm are familiar with a process we are put through to determine our personal risk and reward profile and our investment time horizon.
Without this information, it is impossible to determine our basic objectives and the success or failure of the investment advisor in guiding us toward those objectives.
Across the country, we are deploying $3.4 billion of federal Smart Grid Investment Grant funds, matched by more than $7 billion of matching state, local and electricity ratepayer funds—more than $10 billion of our children’s money—for technological improvements to our electricity grid. In electing where to spend stimulus funds that were going to be spent anyway, improvements to our aging electricity grid are a worthy cause. As with any investment, however, we should understand our objectives and investment time horizon. What are we the people getting out of this, and when?
The largest portion of these funds are being deployed by local and regional utilities to install smart meters, along with systems that allow those smart meters to communicate back to the operators. Smart meters collect more information about customer usage of electricity; instead of providing usage only when read, say, each month for billing, smart meters provide usage information over much shorter intervals, such as every 15 minutes. The installation of a smart meter and basic communication system in a typical home costs about $1,000, about the same as that home’s annual electricity bill.
So what will we and our children get back on this investment? Smart meters provide a great deal of value to utility operators:
- They facilitate automatic shutoff. If you don’t pay your bill, the utility can shut off your electricity from headquarters. No visit is required anymore, which saves the utility.
- They allow for automatic billing. There’s no need for meter readers. That coupled with fewer billing staff also saves the utility.
Profitable, efficient utilities are not bad—that alone would not pass the sniff test for spending more than $10 billion of our children’s money. This investment to digitize the electricity infrastructure of our homes and businesses demands to be part of something much bigger. It must be the core enabler for replacing fossil fuel-based sources of electricity with renewable sources of electricity. Wind and solar energy, etc., will contribute toward this end, but the cheapest, quickest way to reduce pollution and our carbon footprint is energy efficiency.
We the people never have really measured and managed our electricity use. A recent study by advisory firm McKinsey & Co. indicated that we can reduce our electricity use and carbon production more than 20 percent via energy efficiency, and at a fraction of the cost to add wind farms, solar panels and nuclear plants.
Step No. 1 in a smart grid is smart, motivated users. Smart meters help us with only some of the smart part. We’ll be able to measure how much electricity we are drinking in short intervals. Our smart grid investments also must motivate behavior by creating incentives. Doing good things for society is some incentive, but we all know that economic incentives work wonderfully. Aligned financial incentives—market-based programs that pay those who deliver energy efficiency and charge higher rates to those who do not—are essential to deliver a return on this significant social investment to us and our children. This will stimulate us to behave differently when we purchase and use major appliances, manage big, electricity-using equipment at work, and when we live day-to-day. We must hold our administration, legislators, regulators and utility administrators accountable for completing that efficiency circle. If we are successful, our children can look back on this investment favorably as they work to pay it back with interest.
Gary Fromer is the chief executive officer of CPower Inc.