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How Smart Grids Fit Into the Clean Energy Challenge

Remarks as Delivered at the 2nd Annual GridWise Global Forum

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SOURCE: Center for American Progress

John Podesta

The following remarks were given by John Podesta at the Gridwise Global Forum on November 10, 2011 in Washington, D.C.

Good afternoon. A special thank you to Bob Shapard for inviting me to speak here today, and to the GridWise Alliance and the U.S. Department of Energy for organizing this event. I thought about making a crack at Rick Perry’s expense about remembering to include DOE in my acknowledgements. But suffice it to say that I have tremendous admiration for the work Secretary Chu and the department are doing, and GridWise is truly an invaluable forum for sharing ideas for transforming the world’s energy infrastructure. It’s heartening to have so many representatives from industry, from government, from academia, and from all over the world in the room today to share their vision for that transformation and real strategies for achieving it.

I know that over the past several days, you have dug pretty deep into what those strategies look like, and spent a great deal of time and brain power breaking down the technical challenges ahead. And for the most part, I will leave those particular challenges to the many engineers and investors in the room.

What I would like to do with my time here is to take a step back and look at the clean energy challenge more broadly, and how the smart grid fits into that picture—and map out the next steps of a new policy framework for building the next-generation infrastructure that is so needed today.

To start, I’d like to take a moment to lay out the scope of the challenge and opportunity before us. Not the nuts and bolts challenge of technically building smarter distribution networks, which has been very well covered here, but the larger design challenge of how we approach the grid itself.

At this moment, the world is at a turning point—we can transition to cleaner sources of energy, and our children and grandchildren can reap all the benefits that accompany that transition; or we can continue to rely on 20th century technologies and 19th century fuels, and speed the creation of a world with an unpredictably altered climate, dwindling or difficult-to-reach energy resources, and exacerbated geopolitical instability.

In Washington, we are used to thinking about clean energy in policy terms: as a means for avoiding global warming, and providing greater energy security. But in reality—and what’s so critical to our conversation here today—the challenge of moving to a clean energy economy is a physical one. Fundamentally, our clean energy future rests on our ability to redesign, re-engineer, and rebuild the infrastructure that powers our economy today. To be successful in that effort, the United States must deploy technology, deploy it rapidly, and invest in innovation to make that technology better and more powerful. The smart grid, clearly, rests at the heart of that effort.

Remaking our energy infrastructure is an enormous challenge, but I firmly believe that it is an achievable one. In fact, during all of our lifetimes the United States has successfully navigated very similar terrain before. Both the information technology and telecommunications revolutions, for example, were driven by the kind of wholesale technology deployment required to rebuild our energy grid today. With the Internet, we did it in less than a decade.

And while I think that there are important policy lessons to be learned from both those revolutions, which I will return to in a moment, the more remarkable analogy comes from what happened to the information economy as a result. Transitioning to smart and clean energy technology can do the same thing for today’s economy: spur investment, innovation, productivity, efficiency, competition, and economic growth at a scale this country desperately needs. That is simply an opportunity that we cannot afford to miss.

It also bears repeating that the coming energy transformation, at an engineering level, is very similar to the IT challenge of the past 20 years. In the very recent past, we’ve moved from using centralized main-frame computers, where intelligence remained at the center of the network, to running an entire information economy in the cloud, where distributed users are connected in an interconnected web, and multidirectional flows of information, energy, and economic value are exchanged at lightning speed.

Today, we are moving to a cloud-based energy system, where smart buildings, smart grids, clean energy, and energy storage converge in real time conversation—and the design model for utilities and rate payers that we’ve used for the past 100 years must be fundamentally turned on its head.

But the analogy to cloud-based computing is much more than a metaphor. Many of the fundamental features will look very much the same. Like cloud-based computing, an integrated clean energy network must be distributed, self-healing, and operate in real time. It will generate massive new opportunities for creating economic value and more effective markets. And it raises many of the same issues we’ll have to face together in the years and months ahead: how to protect users’ security and privacy, and how to approach an entirely new set of policy, investment, and consumer protection demands.

Within this context, it is easy to see how we, as a community, are taking on the smart grid with too narrow of an approach. Yes, the smart grid is about synchrophasors on transmission lines and smart meters in homes, and getting the technical issues right is paramount. But the smart grid is much bigger than the distribution system itself. It is—or has the potential to be—the operating system to a much broader clean energy network. A network that links energy consumers directly to markets, and gives them the freedom and ability to choose what kind of energy they consume and, indeed, produce. A network that creates the opportunity for renewable resources to replace conventional ones. A network that transmits not only electrons but data and dollars in real time. A network that powers a new clean energy economy, creates real economic value, and drives record investment into the built environment, infrastructure, research, innovation, and the industries of tomorrow.

I know that many of us understand the potential inherent in building this interconnected system. But we have not captured the public imagination with the breadth of this potential, and critically, I still believe that we’re thinking too small, or at least in too compartmentalized a way.

For today, not only do we fall into the trap of thinking about the coming clean energy network as a number of “separate but equal” priorities—the smart grid as one, building efficiency as another, renewables as a third—the policies we’re pursuing are often too small and disconnected to achieve any one of those goals at scale—let alone to knit them into a common framework for building a truly seamless clean energy network.

The controversy over Solyndra is an important, albeit unfortunate, example of how we need to broaden our thinking. The Center for American Progress has been very supportive of DOE’s loan guarantee program in the past, and we continue to believe that robust federal investment in clean energy industries is incredibly important. But what Solyndra made very clear is that investing a little bit here and there in individual businesses and technologies simply won’t work. In fact, the United States’s failure to take a more comprehensive approach to clean energy tech is part of the reason companies like Solyndra are forced to close their doors—the United States has simply done less to support a competitive market for clean energy products than other countries have, and we keep falling behind as a result.

What’s more, policy programs like the loan guarantee program are subject to Congress’s fickle political whims, making it tougher to achieve the stable financial backing clean tech needs. And, while the government can be pretty good at managing secondary loan programs—witness the SBA—it is not that good at having agency officials make investment decisions in specific businesses.

That means that this industry increasingly cannot rely on big agency action or on new government programs to give clean energy the support it needs—certainly not in the short term. And while bipartisan initiatives on cybersecurity and other smart grid issues have been introduced in both houses of Congress, in the current political and fiscal environment, we clearly cannot rely on Congress for ambitious new smart grid legislation either. I know that won’t come as a shock to people in this room.

Rather, the best strategy, I think, is a more limited and targeted one. That may seem counterintuitive, but it bears witness to our own experience of what works in the face of big infrastructure challenges.

To explain why that is, let me return to the Internet analogy I touched on earlier.

In 1997, just three years after the first Internet connection for consumers was introduced, the number of Internet users had quadrupled. A system that had been designed to serve just a few thousands users had grown to serve tens of millions. Defense, academic, and business stakeholders were all continuing to build out the early platform, but without the comprehensive standards needed for the system to be smart, responsive, interoperable, and truly interconnected. And no individual actor had the authority to set the needed standards on their own.

Sound familiar?

In light of those challenges, the Clinton administration took an approach to the Internet that provides a valuable lesson for the smart grid today. We saw that the internet held tremendous potential to create jobs and grow the economy—and remake the very way people worked, shopped, and communicated with one another. We also realized that building the next generation Internet was a decentralized task that private industry could do best. And we understood that the private-sector competition emerging around the Internet meant that the government’s approach had best be a very limited one.

Nevertheless, the idea today that government did not do anything to help create the Internet is simply wrong. In fact, beginning with DARPA, and continuing with executive actions made beginning in the 80s and throughout the 90s, government played a lynchpin role in making sure that the Internet developed in a way that was open, standardized, rapid, and free:

  • Particularly as the Internet morphed into a driving commercial force, we brought all the relevant players to the table to establish shared principles for guiding the growth of new online markets.
  • We made it clear that any government role toward the Internet should be to support and enforce a predictable, minimalist, consistent, and simple legal environment.
  • We lent strong government support to the industry’s standard setting work to promote interoperability.
  • We committed government resources to closing the digital divide, establishing rules and norms for electronic commerce, and elevating emerging threats in cybersecurity.
  • And, more broadly, President Clinton used his office to elevate the importance of greater coordination around the growth of Internet technology and communications, and to articulate a compelling vision of what the platform would look like in the future. "If we establish an environment in which electronic commerce can grow and flourish,” Clinton said, “then every computer will be a window open to every business, large and small, everywhere in the world.” Looking back, I think that we achieved that goal.

When I was in the White House, our ambitions for the Internet seemed so futuristic. Less than 15 years later, those ambitions have long been surpassed: The Internet and all the technologies and infrastructure that support it are now so closely integrated into our daily lives that we tend to take them for granted.

With the same kind of leadership and vision, our transition to a clean energy network can be just as rapid and just as great in scope. Like the Internet, the private sector must take the reins to build out the smart grid: The scale of the challenge is too big to be taken on without private innovation, ingenuity, and investment. But there are still critical junctions where the private sector needs leadership from the highest level of government to elevate the issue, bring together stakeholders, and help set the rules of the road. And the president taking leadership on this issue and making it a priority for his administration and for the public matters most of all.

Of course, the Internet revolution played out against another backdrop of policy and regulatory decisions that also have important implications for the smart grid: the decisions to open up the telecommunications industry to competition, and the unprecedented wave of private investment that followed. The break-up of Bell telephone’s monopoly allowed new carriers to compete in the telecoms market. Those carriers stepped up to provide a new suite of services to their customers, and developed new business models and types of communication that created tremendous profits all the way down the value chain. Their competitive efforts were buttressed in turn by the critical regulatory decisions the Federal Communications Commission made to open up the data layer and free it from the regulatory structures that covered voice communications. And all of this was further codified when a Republican Congress passed and President Clinton signed the bipartisan Telecommunications Act in 1996—even though the government was deeply divided along partisan lines at the time.

In short, the infotech/telecom revolution was also made possible because government stepped in with a couple of good decisions at critical junctures to open up the market to the private-sector competition that followed.

There are, of course, significant differences between the Internet and telecom revolutions and the clean energy transition before us. For example, the energy challenge is made all the more complicated by tremendous reliability pressures, as well as the burden of sunk capital costs, powerful consumer protection concerns, and an extremely diverse patchwork of state, local, and regional regulatory frameworks. But I still think that the analogies are good ones. Transitioning to a smarter grid and a broader clean energy network will transform the technical design, cost structure, and service offerings of a bedrock American infrastructure. That’s what happened with the Internet and that’s what happened in telecoms, and there are clearly concrete lessons from both of those transitions that should inform the energy transformation we’re about to take on today.

Now, let me be clear: the Obama administration has made major strides to advance key elements of a broader distributed energy network thus far. The American Recovery and Reinvestment Act made an historic investment of $90 billion in energy innovation, including $4.5 billion for advanced metering technologies and smart grid pilot projects. The White House put forth the landmark Better Buildings Initiative to help make commercial buildings more energy efficient; and GSA and the Department of Defense are changing how they invest in buildings, too. The Department of Interior has taken the lead dealing with siting issues for renewable energy generation, to make sure that that infrastructure can be built quickly and safely across the country. The National Institute of Standards and Technology led standards setting exercises for the smart grid. And the Office of Science and Technology has moved to organize a federal smart grid strategy through the Grid 21 initiative I know GridWise strongly supports.

But as good as this work has been, the administration still has more work to do. In my view, they’ve often treated each of these technologies as separate goals, rather than as building blocks of a single, integrated infrastructure—contributing to the piecemeal approach to clean energy we’re all guilty of taking. And what’s more, these policies have yet to reach the scale of ambition warranted by the economic opportunity at hand.

So today, I want to use this forum to challenge all of us—in industry, in government, and in policy shops like mine—to commit to taking a much more integrated strategy to clean energy infrastructure going forward. We need a better strategy for building out seamless, distributed, and smart energy networks. We need a clearer policy framework that opens up markets so the private sector can take on the heavy lifting behind this transition. We need to rally around using the tools and authorities available to the executive branch to provide leadership. And we need to hammer home a more comprehensive vision of what this network looks like that the policymakers and the public can understand and endorse.

Over the past several months, the Center for American Progress, under the leadership of my colleagues Bracken Hendricks and Kate Gordon, has been thinking very carefully about the policies and action that go into a comprehensive approach. We certainly don’t have all the answers. But we are starting to ask the right questions, and to map out next steps for all of us to take to move this framework forward. And we are deeply committed to working with the people in this room to figure out a strategy for making our vision of a clean energy network a reality.

I want to quickly and in closing map out several of the big issues we’re trying to address, and a few thoughts for how we can make real progress in the short term to solve them.

First, the Obama administration has the authority and the responsibility to elevate the clean energy network challenge and opportunity. Setting the country down the path to developing a clean energy web could be a signature achievement of this administration, looking forward to 2012 and beyond. And they could do it using existing executive powers—starting with an executive order that elevates the importance of building a clean energy network, makes it a top-tier presidential initiative, and puts the full weight and convening power of the president behind it.

Following the precedent the Clinton administration took on the Internet, that executive order should set clear goals for spurring open access, competition, and consumer protection. It should also require government to take steps to partner with the private sector to meet those objectives. For instance, the executive order could convene a federal advisory committee that would work across agencies and with the private sector to set needed standards and streamline regulation for developing the smart grid. Those efforts would send a clear signal that government is taking a limited but targeted role to smart grid development. And they would boost the private sector by giving them a more predictable and fair set of rules for how to play the game.

The administration should also use the executive order to bring state and local utility regulators to the table, and help them move toward common standards and interoperable equipment more quickly. As you know, most U.S. smart grid solutions are not based on common standards, at least not yet. This is analogous to the pre-interoperability computer era, where your keyboard and mouse would only work with your computer if they were all made by the same manufacturer. Making sure that smart grid solutions also work together will work just as effectively to open up the market and drive down prices. And it will help keep the United States competitive as well: right now, China is building out its own grid so rapidly that its standards risk becoming the de facto norm, and U.S. smart grid product manufacturers risk being shut out of China’s booming electricity market or forced to sacrifice their intellectual property as a result.

The administration also can take significant steps to drive transparency into the market. For example, the Energy Information Agency could use their existing authorities to expand reporting on the level of access to real time, machine-readable data utilities already made available to consumers about their own energy use. Using that kind of information to establish a clear baseline for how much access customers already have—and creating an expectation that this information will be visible in the market—could dramatically accelerate the uptake of new monitoring and management tools.

It would also open up opportunities for businesses to develop next-generation tools that help consumers monitor, reduce, and reshape their energy use—and potentially energy production—and see how much value they get from doing it.

Again, CAP is working to flesh out this policy agenda in greater detail, and we look forward to working with you in coming days and weeks to determine what our next steps should be. Together, we hope to build a workable framework for beginning to transform how we run and power the American economy—a bold aspiration, but, I think, an achievable one.

So in closing, I want to thank you, again, for inviting me to join you today: This is an issue with tremendous transformative potential for the global economy at a moment of tremendous economic need. I am confident that we can get this job done. But it is time to elevate our ambition and boost our efforts to communicate the stakes involved. It is time to become far more targeted in our approach to policy and public investment. And it is time to hone in on the specific public interventions that are needed to unlock the flow of private capital going forward.

I am optimistic that we can strike this balance, and that in the coming decade we will see a transformation as radical as the last decade has been. I am optimistic because I know we have done similar things before, and because I trust the leadership vision of this administration, and the ingenuity and commitment of the scientists, engineers, entrepreneurs, investors, and public officials in this room today.

We can get this job done. And thanks for your commitment to that goal.

John Podesta is Chair and Counselor of the Center for American Progress and the Center for American Progress Action Fund.

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