Stimulus Provisions Spur Smart Grid Development

By Tom Hulsebosch West Monroe Partners, Chicago June 1, 2009

In recent months, the issue of the reliability and scalability of our nation’s electrical grid infrastructure has risen to the forefront of our social and political agendas. As a society we have become increasingly aware that our electrical grid, as it is currently set up, is dangerously close to reaching its maximum limitations. Many inherent risks associated with relying on a 20th-century power infrastructure exist while operating in a 21st-century economy. It seems counterintuitive that a society such as ours, that places such a premium on technological innovation, has not invested more attention or dollars to update our mission-critical electric grid.

Up to this point, we have taken the grid’s reliability for granted; however, major blackouts in the last decade (see Figure 1), along with power outages that have cost Americans at least $150 billion each year, have highlighted the dire need for significant upgrades. If the power grid is struggling to meet current demands, how can it be expected to handle the expected 40% increase in energy demand within the next 20 years? President Barack Obama, his administration, and utility industry leaders, among many others, believe smart grid is the solution, and each of these constituents has committed to investing in smart grid solutions to best serve our utility infrastructure’s future.


The term “smart grid” refers to a collective set of technologies whose benefits are predicated upon the two-way flow of electricity and information via the use of robust two-way communication, advanced metering, information technology applications, and distributed computing technologies. Smart grid has been a focal point for the utilities industry, as utility executives have championed it as the solution to many of the industry’s pain points.

Smart grid technologies enable utilities to deliver energy during peak usage times by flattening the demand curve during peak times, reducing and/or shifting the energy demand, and increasing the use of electric generation and distribution resources. They also allow electricity providers to better understand the specific energy usage patterns of their customers, sense system overloads, provide usage and pricing information directly to the end customers, and reroute power accordingly to avoid any potential outages.

Consumers can benefit from smart grid as well because the increased data about power usage trends enables utilities to create price tiers based on times; this gives consumers the opportunity to adjust their consumption patterns as they become more aware of the associated costs. In addition, smart grid empowers a more localized approach to power generation and distribution, minimizing the geographical area affected by a given outage and taking advantage of smaller renewable generation sources that may be built at customers’ premises. All of these factors work in conjunction to make the grid more reliable, efficient, and responsive.

Ultimately, smart grid increases the electrical grid’s efficiency by:

  • Decreasing peak demand

  • Increasing its ability to support a growing digital economy

  • Enabling decentralized sources of power

  • Enabling time-of-use-based electric pricing models that incent consumers to shift demand and save energy, which corresponds to fewer power plants that need to be commissioned.

These benefits are well publicized, and utility executives have made clear their desire to implement these solutions. Policymakers also have acknowledged that smart grid solutions need to be ubiquitous in the future electrical infrastructure and accordingly have made significant provisions in the American Recovery and Reinvestment Act of 2009 (ARRA 2009) to incentivize utilities to deploy these solutions as soon as possible.


On Feb. 17, 2009, President Obama signed into law ARRA 2009. He has said that energy-related activities are “absolutely critical to our future” and has dedicated approximately $45 billion of the $787 billion stimulus package to these efforts, $4.5 billion of which is allocated solely for smart grid initiatives.

More specifically, the $4.5 billion is available for the captital to match the utilities’ investments for quality smart grid solutions that enable demand side management and enhance security and reliability of the energy infrastructure. Funds also are available for research and development for new solutions and deployment of proven smart grid solutions. All of these activities fall within three major categories: demonstration, research and development, and deployment. These project categories and the $4.5 billion funding for smart grid initiatives are built upon Title XIII of the Energy Independence and Security Act of 2007 (EISA 2007 ). Demonstration and research and development work fall under Section 1304, and deployment projects are under Section 1306.

The stimulus bill states that the Secretary of Energy shall provide financial support to smart grid demonstration projects in urban, suburban, tribal, and rural areas. This includes areas where the electric system assets are controlled by nonprofit entities, as well as areas where they are controlled by investor-owned utilities. Demonstration projects are concerned with representing the power of smart grid and validating its proposed benefits. These projects include implementing smart grid technology on a large scale, monitoring the effects, and publishing the results. Sharing the knowledge gained will be a key component of these projects, as they will ultimately provide the business case for nationwide adoption of smart grid technology.

The funds for research and development projects will be used to validate smart grid solutions in different environments. There also are provisions for the deployment of smart grid infrastructure components because to put smart grid technology in place requires large mobilization efforts. Lastly, $100 million is available for worker training, as the installation of smart grid technology will require utility personnel to be trained on its use, support, and other areas.

Although the $4.5 billion is the only funding set aside solely for smart grid activities, there are a number of closely related initiatives for which $33 billion is available (see Figure 2). Some of these activities include utility scale generation, distributed renewable generation, and plug-in hybrid electric vehicles/electric vehicles (PHEV/EV) smart charging (see Figure 3).


The U.S. Dept. of Energy (DOE) issued a Notice of Intent and a draft Funding Opportunity Announcement (FOA) the week of April 13, 2009, that will lay the groundwork for how utilities and related organizations can apply for smart grid funding. EISA 2007 established the Smart Grid Investment Matching Grant Program , which provided reimbursements for up to 20% of qualifying smart grid investments. However, with the Obama administration’s renewed focus on the nation’s energy concerns, the reimbursement percentage will be raised to 50%. The administration believes that this approach serves the dual purpose of creating jobs as well as providing the incentive for utilities to implement smart grid technologies on a large scale.

Many utilities are expected to apply for federal funding once the guidelines are released. These grant requests will need to be highly detailed business cases wrapping smart grid technologies into a holistic package of technically sound, well-engineered programs that push smart grid’s state-of-the-art benefits and capabilities. The requests will be atypical compared to requests relating to other parts of ARRA 2009, and will require more detail about strategies to plan, deploy, and maintain smart grid solutions to qualify for funding.


Smart grid technology has been discussed and considered for the last several years, and some of the nation’s forward-thinking utilities have already deployed programs associated with its robust two-way communications and advanced metering infrastructure. Now, with the federal government’s financial support, our country’s utility infrastructure is comprehensively shifting to a smart grid technology-based platform. Utilities of all shapes, sizes, and forms will launch initiatives to obtain funding for building our future electric grid, if not already in the process of doing so. Such an effort will most certainly require “all hands on deck” (from the government to utilities to equipment providers to contractors and consultants) to successfully design, procure, and deploy this vital energy solution that will enable a more reliable, more efficient, and more distributed electrical grid.

Author Information
Hulsebosch is a member of the management team of West Monroe Partners, where he is responsible for developing and leading the firm’s Energy & Utilities practice. He is a 20-year veteran of the utility and wireless telecommunication industries with extensive experience in creating and delivering solutions for enterprises, public safety agencies, and service providers. West Monroe Partners helps utilities and large energy users understand the best smart grid and distributed generation solutions to meet their needs and then procure, install, and maintain these solutions.