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We've heard for decades about green generation (a.k.a. green power, alternative energy, and renewable energy). And for decades about green end-use, (a.k.a. energy efficiency and conservation). Don't we need a green grid to connect the two? We can get a cleaner, greener grid through automation. Grid automation refers to the application of digital technology -- electronics, software, and communications -- to the transmission and distribution (T&D) infrastructure. Examples include digital relays, substation automation, and grid monitoring and control. As Morgan Stanley energy analyst Judith B. Warrick puts it: "The list of technological advances [for the grid] seems nearly endless." The green grid, however, gets much less press than green power and green end-use. Ironically, an improved grid may be the fastest short-term path to green objectives. A smart, digital grid could:
run much closer to capacity, reducing the need for expensive new power lines; better match supply and demand in real time, reducing the need for "just in case" power plants;
reduce the likelihood of catastrophic failures such as the August 2003 blackout in the Northeast and Midwest U.S.; and
make it easier to safely and efficiently integrate distributed generation (including renewables) into the electric power system. The smart grid also may be a path to entrepreneurial opportunity and investor profits. To be sure, the grid automation sector has been in the doldrums for the past few years, thanks to the recession, the Enron fiasco, and the backlash from the California power crisis. However, the Center for Smart Energy has observed at least six signs that the three- year freeze is beginning to thaw. We predict that 2005 will see a measurable uptick in energy technology sales, with even stronger gains in 2006 and 2007. The signs of progress include: Increased capital expenditures. Utilities are increasingly unable to postpone grid upgrades. For instance, organizations such as Southern California Edison, Progress Energy, Seattle City Light, and Bonneville Power Administration have announced significant grid investments this year. Increased interest from investors. Earlier this year, two of the country's largest pension funds, Calpers and Calstrs, earmarked a combined $500 million for clean energy. A meaningful portion of that money is aimed at grid automation. "There is a lot of investment going into communication devices on power grids to monitor, control and shift more data digitally," confirmed Neil Susiak to The Wall Street Journal. Susiak is the managing director of New York-based Braemar Energy Ventures. Increased attention from big software and services firms. Companies such as IBM, Accenture, Navigant, EDS, Microsoft, and Cisco are focusing more of their time and talent on the utility sector. Increased attention from government. Last year, the U.S. Department of Energy created a new department devoted solely to grid issues. Called the Office of Electric Transmission and Distribution, its mission is to "lead a national effort to help modernize and expand America's electric delivery system." Increased organizations lobbying for change. Regulatory confusion is the primary hurdle to growing the grid automation sector. Fortunately, the last few years have seen the formation of many organizations advocating change. The Center has compiled a list of more than a dozen groups of national and international significance. This growing chorus will make it easier to pass new energy legislation on the national, state, and provincial level. Increased pilot projects and successful pioneers. We are beginning to hear success stories from grid automation pioneers -- utilities, transmission organizations, and energy technology companies -- that have already begun to reap the rewards of grid automation. We plan to document several of the most important leaders. The acceleration of the grid automation sector is far from certain, but signs are encouraging. Smart investors and companies should use the next 6-12 months to position themselves to take advantage of this emerging opportunity. Jeff Canin and Jesse Berst are principals at the Center for Smart Energy, a research consultancy that helps energy technology investors and companies through research and consulting. This editorial was adapted from the white paper "Predicting the Grid Automation Sector -- Are We Approaching the Tipping Point?" available for free download from www.centerforsmartenergy.com or email your request to jberst[at]centerforsmartenergy[dot]com.