A Northwest Initiative for Job Creation, Energy Security and Clean, Affordable Electricity

A Special Report from

Climate Solutions

By Patrick Mazza Research Director

Poised for Profit in Clean Energy Report

www.climatesolutions.org

Powering Up the Smart Grid:

Climate Solutions, 219 Legion Way SW, Suite 201, Olympia,WA 98501-1113 ph: 360-352-1763, x101, fax: 360-943-4977, www.climatesolutions.org

TABLE OF CONTENTS

About This Paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6What Is the Smart Grid?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10Who Is Working On the Smart Grid? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11What Technologies Make Up the Smart Grid and What Do They Offer? . . . . . . . 12What Are Benefits Of Smart Energy and the Smart Grid?. . . . . . . . . . . . . . . . . . . . 16

Charts: Smart Energy Technologies and Benefits . . . . . . . . . . . . . . . . . . . . . . . 21A Smart Energy Scenario . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

What Assets Does the Northwest Have to Become a World Smart Grid Center? . . 23How Will the Smart Grid Happen? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25What Is the Northwest Doing to Make the Smart Grid Happen? . . . . . . . . . . . . . . 27What’s Holding Back the Smart Grid?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28What Regulatory and Policy Changes Will Unleash the Smart Grid?. . . . . . . . . . . 29How Can the Northwest Help Overcome Smart Grid Obstacles?. . . . . . . . . . . . . . 31

The Smart Grid Workforce . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35Conclusion: The 21st Century Smart Grid – Time to Take the Lead . . . . . . . . . . . 36

Powering Up the Smart Grid:A Northwest Initiative for Job Creation,

Energy Security and Clean, Affordable Electricity

A Special Report from Climate SolutionsBy Patrick Mazza, Research Director

July 2005

Photo CreditsCover – Puget Sound Electrical Joint Apprenticeship & Training Committee

and Warren Gretz, National Renewable Energy LaboratoryPage 6 – National Oceanic and Atmospheric AdministrationPage 9 – Don Cresswell, East OregonianPage 14 – InvensysPage 17 – Pacific Northwest National LaboratoryPage 19 – First National Bank of OmahaPage 22 – Itron Page 23 – Bonneville Power AdministrationPage 27 – Pacific Northwest National LaboratoryPage 30 – The Gear Works, SeattlePage 33 – Puget Sound Joint Apprenticeship & Training CommitteePage 36 – Warren Gretz, National Renewable Energy Laboratory

1

In 2001 and 2003 Northwest energy andeconomic development organizations joined in

the Poised for Profit partnerships to identify theregion’s leading opportunities for developing cleanenergy technology industries. This paper focuseson practical steps to fully realize the potential ofone of the top prospects uncovered by Poised forProfit, smart energy, the convergence of informa-tion technology and electric power. The paper isthe outcome of a year-long collaborative process

that began in summer 2004 which engaged regionaland national energy and economic developmentexperts in interviews, meetings and peer reviews. Following is a partial listing of people whocontributed their insights and expertise to thiseffort. The listing in no way indicates endorse-ment of this paper or the proposals it makes.Climate Solutions takes all responsibility for thecontent and policy positions of this document, and for any errors.

AeA Washington – Terry ByingtonAltus Alliance – Dave ChaseApollo Alliance of Washington – Rich FeldmanAqua Consulting – Graham EvansAreva T&D – Dr. Lawrence JonesBonneville Environmental Foundation – Angus DuncanBonneville Power Administration – Mike Hoffman,

Terry OliverCascadia Partners – Wayne Embree Center for Smart Energy – Jesse Berst, Jeff Canin Citizens Utility Board of Oregon – Jeff Bissonette,

Jason EisendorferCity of Renton - Ben Wolters Clean Edge – Ron PernickEnergy Northwest – Dan Porter, Tom Krueger,

David KobusElectric Solar Utility Network – Chris RobertsonEnergy Technology Alliance of the Pacific Northwest –

David DusseauEnergy Trust of Oregon – Tom Foley, Adam SerchukExcel Engineering – Charles GrunewaldGridWise Alliance – Steven Hauser Heller Ehrman – Alison Freeman-Gleason International Brotherhood of Electrical Workers –

Jim HunterInternational Sustainable Solutions – Jayson Antonoff Lambda Transition Group – Sung-wei Chen MicroPlanet – Michael SheehanNatural Resources Defense Council – Ralph Cavanaugh NW Energy Coalition – Nancy Hirsch,

Danielle Dixon, Steve WeissNorthwest Energy Efficiency Council – Stan Price Northwest Energy Technology Collaborative –

Jeff MorrisNorthwest Natural – Chris Galati

Northwest Power & Conservation Council –Ken Corum

Oregon Business Association – Ashley HenryOregon Department of Energy - Phil Carver,

Carel Dewinkel, Mark Kendall, Justin Klure Pacific Northwest National Laboratory – Robert Pratt,

Marc Ledbetter, Matt Donnelly, Carl ImhoffP5 Group – Denis DuBoisPortland Business Alliance – Molly MoorePortland City Commissioner Dan Saltzman Office –

Jeff CogenPortland Development Commission – Ann GriffinPortland General Electric – Joe Barra, Wayne Lei Portland Office of Sustainable Development –

David Tooze Preston Gates Ellis – Elizabeth Thomas, Ken Gish Puget Sound Energy – Mike RichardsonRegenbogen – Chip Greening Regulatory Assistance Project – Richard SedanoRenewable Northwest Project – Ann GravattSeattle City Light – Marya Castillano, David Van HoldeSeattle Office of Economic Development – Laura Lutz Seattle Office of Sustainable Development – Kim DrurySnohomish Public Utility District – Bob FletcherStoel Rives - Ted Bernhard 3Tier Environmental Forecast Group – Pascal StorckU.S. Department of Energy – Chuck Collins Washington Department of Community, Trade andEconomic Development – Tim Stearns, Tony UsibelliWashington Public Utility District Association –

Dave WarrenWashington State University Energy Program –

John RyanWest Wind Wires – Roger Hamilton

Climate Solutions extends its grateful appreciation to all who participated in developing this paper, and looks forward to your continued involvement in

unfolding the smart grid vision it details.

About This Paper

2

Fast forward to a sizzling summer after-noon on the Western power grid

sometime in the not too distant future. A mainOregon-California transmission line is saggingunder stress. Inch by inch it sinks until a highvoltage spark jumps toward a nearby tree branchwith a crackle and flash, shutting down the lineand cutting off much of the power flow from theNorthwest to the Golden State. In the old days,before the grid was rebuilt, this would have meanta blackout. It did twice in 1996. But now thesmart grid kicks into action. The sudden drop injuice flowing to the California grid comes as aninstantaneous signal to literally millions of refrig-erators, hot water heaters, air conditioners andother appliances to cycle down demand.Networks of small-scale local generators distrib-uted throughout the affected grid receive signalsto come on line and provide power supplies tostores, offices and factories. At the same time asophisticated grid-wide control system, senses thetrouble and scales back Northwest generation topreserve system stability. The combinationrelieves the grid long enough to bring in replace-ment power from the Southwest, averting ablackout. The lights stay on and the economycontinues to function unaffected. This future isnot only possible – It is coming.

Smart energy technologies providesolutions to grid problems.

A host of new smart energy devices and systemsare emerging that can take pressure offoverloaded grid infrastructure and power costs,dramatically improve grid reliability and security,and accelerate the growth of cleaner powergeneration.

Smart energy is the application of digital infor-mation technology to optimize the electricalpower system. The smart grid is the product ofapplying smart energy technology to electricalpower delivery and generation. Smart energytechnologies are beginning to transform the

power network into a smart grid capable ofmeeting 21st century economic, security andenvironmental challenges. But the smart grid stillfaces hurdles, in particular the need for extensivefield testing to prove new energy systems andregulatory reform to remove financial disincen-tives to adopting new technologies.

Places that lead in smart griddeployment will gain a competitiveedge in the smart energy industryand build their overall employmentbase.

The smart energy industry already accounts for$15 billion in annual sales. The Pacific Northwestis a global center with a $2 billion share of theindustry and a series of world-class smart energycompanies marketing around the world. Apartnership of leading Northwest economicdevelopment, energy and research organizationsidentify smart energy as the region’s leadingopportunity to develop a job-rich energytechnology sector on the scale of current regionalleaders such as aerospace and computers.

The Northwest has a huge economic interest inbreaking through smart grid deployment barriers.If the region sets a high priority on acceleratingthe transition to the smart grid, the effort willdemonstrate the value of new technologies as wellas regulatory and financial models that provideincentives for all players.

A host of new smart energy devices andsystems are emerging that can takepressure off overloaded grid infrastructureand power costs, dramatically improve gridreliability and security, and accelerate thegrowth of cleaner power generation.

Executive Summary

3

Regional smart grid success will create launchingpads for Northwest smart energy companies tobuild their global marketplace leadership andgenerate new jobs in the region. Power reliabilityand rate control offered by smart energytechnologies will also help protect and grow the overall base of Northwest employmentdependent on affordable electricity.

The Northwest should undertake ahigh-profile smart grid accelerationinitiative.

Certainly, with the economic and security needsfor power reliability, development of the smartgrid should become a federal priority. But if theNorthwest leads with its own smart grid initiativeit will play a vital role in setting the nationalagenda and federal grid investment priorities. To fully catalyze smart grid deployment andrealize its many economic and environmentalbenefits the region should boldly undertake acoordinated Northwest Smart EnergyInitiative. It should draw in state governments,local governments, public and investor-ownedutilities, research and educational institutions,technology companies and investors, markettransformation organizations and labor unions.Governors and the Northwest CongressionalDelegation have pivotal roles to play.

äGovernors should:

• Appoint blue ribbon commissions to createsmart grid roadmaps for their states.

• Ask utility commissions to build smartenergy incentives into regulations.

• Build energy centers of excellence in public universities and colleges.

• Forward smart energy companies in trade policies.

• Make public facilities into smart energymodels.

äNorthwest Congressional Delegationmembers should:

• Work to secure federal funding for regionalsmart energy technology demonstrations.

• Champion a national grid modernizationfund.

The Northwest has an unequalleddepth of public and private smartenergy resources that make it oneof the world’s best places to accel-erate the smart grid.

To its private sector leadership the region adds atrack record of internationally-recognized energypolicy leadership and world-class public andnonprofit energy organizations including university energy programs, innovative utilitiesand technology accelerators. Some Northwestorganizations are already engaged in nationally-significant smart grid initiatives:

• Bonneville Power Administrationis mounting one of the transmissionindustry's most advanced efforts to replace costly line upgrades with smartenergy technologies.

• Pacific Northwest National Laboratoryis a national smart energy research centerand a major player in national smart gridacceleration efforts.

• Pacific Northwest GridWise Testbedjoins the above two organizations withregional utilities in smart grid field tests.

• Northwest Energy Efficiency Allianceis pilot testing digital technologies that dramatically improve power distribution efficiency.

Regional smart grid success willcreate launching pads for Northwestsmart energy companies to buildtheir global marketplace leadershipand generate new jobs in the region.

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Tens if not hundreds of billions will be invested in the U.S. power grid over coming decades tomodernize it and keep up with growth. Theregion will put itself and its companies in line togain a substantial portion of these billions with a Northwest Smart Energy Initiative thataccelerates smart grid growth. The smart gridwill generate huge additional economic benefitsto the Northwest as well. Digital management ofpower loads will significantly reduce the need forexpensive power infrastructure needed to servepeak demands, a key strategy to keep power rates under control. Power disturbance costs will decline. Energy efficiency will improve.Connecting renewable and cleaner small-scale generators to the grid will become moreeconomical.

How will the smart grid work? A scenario for comprehensive smartgrid deployment throughout anentire community.

The community begins with 1,500 residences, a mall with 50 retail businesses, 100 other store-front shops, an office center with 50 tenants, anda large factory. When a new development adds500 new homes the local utility is faced with achoice – Either build a new substation or create a 21st century power network rich in informationtechnology and telecommunications bandwidth.Since the utility already has a fiber optic networkand is looking for ways to fully employ it, the decision is tipped to the advanced technology route.

Customers paid to help the grid – To managepower demand all customers are equipped withsmart meters that can report moment-to-momentpower use to the utility. Residential customers areprovided rebates for buying smart appliances thatcan cycle up and down in response to grid needsand signals. These technologies enable customersto participate in a voluntary demand responseprogram which gives them credits on their billsfor limiting power use in peak demand periods orwhen the grid is under stress. Smart appliancesaccomplish this automatically so customers do nothave to make manual adjustments, though they

can override the system if they wish by control-ling their appliances over the Internet. Since peakdemand is lower, fewer poles, wires and distantpower plants are needed.

Power distribution automated – Local substa-tions and other power infrastructure are fittedwith electronic controls and sensors. So tasks thatformerly were done manually on site now can beordered from remote locations. This allows moreintensive use of infrastructure. For example, onetransformer which served the residential area wasunderutilized during the day when people were atwork. Another transformer serving the factorywas underutilized at night when the factory wasclosed. Now it takes only one automated trans-former to serve both areas. During the day itshifts capacity to the factory, while at night itswitches it over to residences. Automation alsohelps restore service quicker in case of a blackout,and allows better control of voltages in ways thatmake overall power use more efficient.

Local power generation added – Adding tolocal power supplies also takes stress off the grid.The utility worked with the office center toinstall a microturbine with a heat exchange unit,so it can supply heating and cooling as well aselectricity. Recycling generator heat effectivelydoubles fuel use efficiency. The turbine hassurplus electrical generating capacity. ANorthwest energy systems firm builds a commu-nity digital quality power network around theturbine so it can provide power to othercustomers who require high reliability power.The utility also made a deal with the factoryowner to link an existing diesel back-up generatorinto the grid, and to convert it to biodiesel so itcan run for more hours without bumping upagainst air quality limitations. The generatorkicks on when hot or cold days place highdemands on the grid. Another move to increaselocal power generation is siting solar photovoltaicmodules on homes and businesses to handlesummer peak loads. These local power sourceshelp eliminate the need for expanded transmis-sion capacity into the area. This avoided powerline expense makes money available to buy downcosts of solar modules and other local generation.

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Jobs and skills grow – As with most of theelectrical power industry the utility was faced withanother problem, an aging workforce with a largeproportion retiring in the next few years. So itviews the community smart grid deployment as anopportunity to solve two problems at once. It joinswith electrical worker unions and the localcommunity college to create a new Digital andDistributed Power Systems Training Program toupgrade skills of existing workers and train futureworkers. Presence of the program attracts severalsmart energy technology installation companieswith a total of 150 workers to the utility servicearea. The smart grid community itself attracts anew data processing firm employing another 45people. Local availability of high reliability powermeans the firm does not need to buy its ownexpensive backup power system. That makes thecase for the location. Last but not least the energysystems firm that built the innovative communitydigital power network leverages its successfulexperience to gain new customers in NorthAmerica and East Asia. In a year it grows from 21 to 160 employees.

The 21st century smart grid – Timefor the Northwest to take the lead.

A Northwest Smart Energy Initiative to acceleratethe smart grid will provide the Northwest withsecure regional power supplies that are thefoundation of economic prosperity and jobcreation. At the same time it will build up theNorthwest’s world-class smart energy companiesand position the region at the forefront of theelectrical power sector’s global transformation. Forthe Northwest’s economic future, it is hard toimagine a more important or rewarding step. IfNorthwest states take the initiative in smart griddemonstration and deployment, our reward will bethousands of good, new jobs and a central role inmeeting the world's growing electric powerdemands with the 21st century's smart energytechnologies.

6

On August 14, 2003, the lights went downfrom Broadway to Detroit, throwing the

lives of 50 million people into temporary chaosand costing an estimated $6 billion. It was thelatest evidence that that U.S. power grid isbecoming increasingly overloaded and unstable.Columbia University power grid researcher RogerAnderson notes that “since 1998, the frequencyand magnitude of blackouts has increased at analarming rate . . . Blackouts in Chicago, Delaware,Atlanta, New Orleans, and New York in 1999, SanFrancisco and Detroit in 2000, and the infamousCalifornia ‘problems’ of 2001 deviated from thepredictable behavior of the 1980s and early 1990s . . .If present trends continue, a blackout envelopinghalf the continent is not out of the question.”1

The power grid today is strainingunder a weight of interconnectedproblems each of which make resolu-tion of the others more difficult.

Growing power demand and restructured powermarkets have soaked up excess power transmissioncapacity built up in previous decades. Meanwhileregulatory uncertainty over how grid operatorswill be financially rewarded has depressed gridinvestments even as new infrastructure is needed.More uncertainties are created by growingconcerns over power plant pollution, its impact onclimate and how it will ultimately be regulated.Attempts to resolve these issues at the federal levelhave run into roadblocks. A “one size fits all”solution for the complexities of U.S. power gridshas proven difficult to uncover.

Smart energy technologies providesolutions to grid problems.

A host of new smart energy devices and systemsare emerging that can take pressure off overloadedgrid infrastructure and power costs, dramaticallyimprove grid reliability and security, and accel-erate the growth of cleaner power generation.

Smart energy is defined as the application of digitalinformation technology to optimize electricalpower generation, delivery and end use. The smart grid is the product of applying smart energytechnology to systematically optimize powerdelivery and generation. This paper will overviewa number of smart energy technologies and howthey are beginning to transform the electricalpower network into a smart grid capable ofmeeting 21st century economic, security andenvironmental challenges.

But the smart grid still mustovercome significant hurdles.

äTwo barriers stand out in particular:

• New technologies always must provethemselves – In the electrical power industrywhere “keeping the lights on” is top priority,the burden of proof is even greater. Newpower technologies require extensive fieldtesting before widespread integration intopower grids.

• Smart energy technologies can yieldphenomenal gains in energy efficiency andlocal power generation, but this can havedisruptive impacts on standard utilitybusiness models that base revenue flows ongross energy throughput. Dated regulatory

1Anderson, Roger and Albert Boulanger, “Smart Grids and the American Way,” Mechanical Engineering, March 2004

Introduction

Smart energy is defined as the applica-tion of digital information technologyto optimize electrical power generation,delivery and end use.

Satellite photo shows much of region from Midwest to Northeast,including New York City, blacked out around 9p.m. on Aug.14, 2003.

7

and ratemaking frameworks create disincen-tives for adopting new technologies and push utilities to older “business as usual”equipment.

If the Gordian knot restrainingprogress is to be cut, it will be states and regions that first slicethrough the obstacles. The PacificNorthwest is in a strong position to take the initiative.

In the final analysis, the national interest indeploying power technologies that improve gridreliability, security, economics and environmentalperformance will demand a greater federalpriority. For now, states and regions will have totake the lead in development, demonstration anddeployment of the 21st century smart grid. TheNorthwest has a singular array of resources as wellas a unique set of opportunities and challengesthat make it a strong candidate to move to the head of the pack. The region has a record ofenergy innovation and a series of world-classpublic and private institutions in the energy field.Many are already staking out forward positions inthe smart grid.

This paper will overview regional assets andefforts, and propose a Northwest Smart EnergyInitiative to coalesce regional smart grid leader-ship through public policies to unleash one of theworld’s largest and most advanced deployments ofsmart grid technologies. Northwest governments,businesses, universities, laboratories andnonprofits should together work to mount coordi-nated technology testbed/demonstration effortsand to update public policies and regulations inorder to realize smart grid benefits.

The Northwest is already a globallysignificant center for smart energytechnologies.

The smart grid will deliver the high-quality,reasonably-priced electrical power that is thefoundation of economic development and jobcreation in all sectors. That alone would justify a

high regional priority. But the Northwest has aparticular interest in driving forward smart gridtechnologies – A disproportionate share are madeand marketed by Northwest companies.

With at least 225 smart energy enterprises thathold a $2 billion share in the $15 billion per yearglobal smart energy industry, the Northwest isalready a global heartland for the digital energymanagement technologies that will shape andsecure the grid of the future.The Poised for Profit II Partnership of leadingNorthwest economic development, energy andresearch organizations in 2003 identified smartenergy as the region’s leading opportunity todevelop a job-rich energy technology sector onthe scale of current regional leaders such asaerospace and computers.

Other regional high technology sectors provideabundant cross-fertilization opportunities. Thesmart grid will be software-driven, infused withsemiconductors and linked with broadbandcommunications. Regional leaders such asMicrosoft, Intel and the wireless communicationsindustry could find new markets.

The region has a record of energyinnovation and a series of world-classpublic and private institutions in theenergy field. Many are already stakingout forward positions in the smart grid.

With at least 225 smart energy enter-prises that hold a $2 billion share in the$15 billion per year global smart energyindustry, the Northwest is already aglobal heartland for the digital energymanagement technologies that will shape and secure the grid of the future.

8

The Northwest’s smart grid opportunity is driven by crucialregional, national and global needs for reliable, economical, clean electric power.

äBenefits of deploying the smart grid will be significant at all scales:

• an intelligent, self-healing grid that antici-pates and thwarts disruptions and dramati-cally reduces costly blackouts and powerdisturbances,

• a more economical grid that has far less needfor expensive peak power generators anddelivery infrastructure,

• a cleaner grid that can more rapidly bring online renewable and cleaner distributedgeneration.

Self-healing grid – As Anderson notes, “Theproblems that have caused the recent spate ofblackouts will propagate cascading failures of thegrid more and more frequently, unless we create amore intelligent grid control system. The systemmust become automated, because decision speedsincreasingly are becoming too fast for humans tomanage. This is a vital national security interest ...The management of the smart grid will requiredigital control, automated analysis of problems,and automatic switching capabilities more familiarto the Internet.”2 Those capacities will let the gridautomatically route power flows around troublespots and bring back on line equipment that nowmust be manually re-started.

Economical grid – That power costs represent agrowing economic challenge is reflected in a 5.2%rise in average U.S. power prices in the 12 monthsending in April 2005. This is “one of the highestrecorded for the United States,” said NUSConsulting Co-President Richard Soultanian.3

Digital management capabilities will contribute topower rate control by making everyday gridoperations more economical. Today’s power grid isbuilt to supply the highest expected power

demands. So billions are invested in poles, towers,wires and power plants that are used only part ofthe time. The overall utilization rate of U.S.power grid infrastructure is barely over 50%. Buteach piece of the infrastructure will be fullyutilized at some point, even if for only a few hoursa year. If such low usage infrastructure could beeliminated, the power grid would operate moreeconomically. Digital technologies enablewidespread management of end-use demands inways that reduce the need for peaking infrastruc-ture. Studies quoted in this paper show a vigorouseffort to deploy smart grid technologies couldeliminate $46 billion-$117 billion in U.S. peakinginfrastructure investments over the next 20 years.

Cleaner grid – Smart energy technologies willalso serve crucial environmental goals for reducedemissions from the power sector, now the nation’slargest source of air pollution:

• Energy efficiency – Digital control systemswill constantly monitor and adjust buildingsystems, equipment and appliances for topefficiency, thus reducing power needs.

• Distributed generation – Automated gridmanagement will make it possible to operatea multitude of small-scale distributed energyresources in coordination with the grid,including pollution-free sources such as solarmodules and wind turbines, and cleaner gas-fired technologies including microturbinesand fuel cells. Such local generation alsoopens the way to recycle waste heat intobuilding systems, making for far moreefficient use of fuels than in central gener-ating stations.

• Mass-scale renewables – Meeting goals forrenewable energy will eventually require thata large share of power supplies come fromwind and solar resources whose intermit-tency and less than 100% predictabilityposes special grid operation problems. Thesewill be addressed by digital managementtechnologies that flexibly and automaticallybalance mass-scale intermittent generationwith local distributed generation, energy

2Anderson, Roger and Albert Boulanger, “Smart Grids and the American Way,” Mechanical Engineering, March 20043Average U.S. Electricity Price Rises,” NUS Consulting Group, May 17, 2005

9

storage and control of end-use demands. Inaddition, computer modeling will continueto improve wind, sun and water resourceforecasting, making renewables easier tointegrate by making them more predictable.

• Clean power market – Smart equipment,appliances and buildings will have capacitiesto automatically seek out cleaner poweroptions offered on the market. Thesefunctions could be set to come on lineduring air pollution alerts, or could operateat all times to express owner desires forgreen power options.

While the United States failed to enter the KyotoProtocol to reduce global warming pollution whenit went into effect Feb. 16, 2005, U.S. states andregions can nonetheless contribute to stabilizingthe global climate by leading in actions to deploy a smarter, cleaner power grid.

The purpose of this paper is toprovide an overview of smartenergy technology and its smartgrid applications, how this willbenefit the Northwest, and whatthe region needs to do to becomean international smart grid deploy-ment leader.

äThe paper is structured as answers to a series of questions:

• What is the smart grid?

• Who is working on the smart grid?

• What technologies make up the smart grid and what do they offer?

• What are benefits of smart energy and the smart grid?

• What assets does the Northwest have to become a world smart grid center?

• How will the smart grid happen?

• What is the Northwest doing to make the smart grid happen?

• What’s holding back the smart grid?

• What regulatory and policy changes will unleash the smart grid?

• How can the Northwest help overcomesmart grid obstacles?

The smart grid will be able to integrate and manage mass-scale renewable energy production from intermittent andvarying sources such as wind farms.

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What Is the Smart Grid?

Information technology is beginningto infuse itself throughout thepower grid. This represents the mostprofound electrical power revolutionin a century.

Today’s grid is primarily composed of centralgenerating stations and electromechanical powerdelivery systems operated from control centers.Nineteenth century electrical pioneers ThomasEdison and George Westinghouse would findmost of it familiar. But now the system is trans-forming itself into a smart grid that integrates amultitude of distributed energy resources, usessolid state electronics to manage and deliverpower, and employs automated control systems.The power industry, trailing behind economicsectors from retailing to manufacturing alreadyrevolutionized by computerization, over comingdecades will see cheap computing power and low-cost bandwidth infuse every element of the gridwith digital intelligence.

The vision of a smart grid rich ininformation technology is cominginto full view.

GridWise Alliance – “. . . information technologyis the key catalyst and enabler for realizing thepotential of new energy technologies to transformthe electric power system. Information technologyis vital to transforming the electric power systemfrom a rigid, hierarchical system to a collaborative,distributed, commerce-driven ‘society’ of devicesthat would enhance the utilization of expensiveassets and simultaneously increase reliability andsecurity.”4

U.S. Department of Energy Grid 2030 –“. . . a fully automated power delivery network . . .ensuring a two-way flow of electricity and infor-mation between the power plant and the appli-

ance, and all points in between. Its distributedintelligence, coupled with broadband communica-tions and automated control systems, enables real-time transactions and seamless interfaces amongpeople, buildings, industrial plants, generationfacilities and the electric network.”5

A national panel of leading electricalgrid experts notes that the smartgrid is primarily defined by abilitiesfar in advance of the traditional grid.

äThe Smart Grid Working Group convened bythe bipartisan Energy Future Coalition writes:“The key attributes of the 21st century powergrid include the following:

• The grid will be ‘self-healing.’Sophisticated grid monitors and controls willanticipate and instantly respond to systemproblems in order to avoid or mitigatepower outages and power quality problems.

• The grid will be more secure fromphysical and cyber threats. Deployment ofnew technology will allow better identifica-tion and response to manmade or naturaldisruptions.

• The grid will support widespread use ofdistributed generation. Standardizedpower and communications interfaces willallow customers to interconnect fuel cells,renewable generation, and other distributedgeneration on a simple ‘plug and play’ basis.

• The grid will enable customers to bettercontrol the appliances and equipment intheir homes and businesses. The grid willinterconnect with energy managementsystems in smart buildings to enablecustomers to manage their energy use and reduce their energy costs.

4 http://gridwise.pnl.gov/foundations/history.stm5 U.S. Department of Energy Office of Electric Transmission and Distribution, Grid 2030: A National Vision for Electricity’s Second 100 Years,July 2003, p17

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• The grid will achieve greater throughput,thus lowering power costs. Grid upgradesthat increase the throughput of the transmis-sion grid and optimize power flows willreduce waste and maximize use of thelowest-cost generation resources. Better

harmonization of the distribution and localload servicing functions with interregionalenergy flows and transmission traffic willalso improve utilization of the existingsystem assets.”6

6Energy Future Coalition, Report of the Smart Grid Working Group7National Grid Initiatives - Part One: Research Programs, http://www.smartgridnews.com/artman/publish/article_8.html; National Grid Initiatives - Part Two: Standards Efforts, http://www.smartgridnews.com/artman/publish/article_32.html; National Grid Initiatives - Part Three: Demonstration Projects, http://www.smartgridnews.com/artman/publish/article_41.html

A series of complementary efforts to accelerate the smart grid areunder way.

• GridWise – The GridWise Alliance aims tolead a national development and deploymenteffort for innovative smart grid technolo-gies.. The Alliance works in coordinationwith the GridWise Program in the U.S.Department of Energy’s (DOE) Office ofElectricity and Energy Assurance. Togetherthey aim at a “compelling demonstrationagenda” to “prove state-of-the-art bydefining a series of demonstrations” that“illustrate the breadth of the transforma-tion,” their agreement states. CurrentAlliance members include multinationaltechnology corporations – Areva, GeneralElectric, IBM, and Schneider Electric; utili-ties and grid operators – American ElectricPower, Bonneville Power Administration,ConEd and PJM Interconnection; researchorganizations – Battelle, RDS, and SAIC;resource aggregator Nxegen, and venturecapital firm RockPort Partners.

• Intelligrid – This is an effort to developsoftware architecture for the smart gridundertaken by the Electric Power ResearchInstitute (EPRI). Intelligrid products arealready being used by the Long IslandPower Authority, Electricite de France andthe California Energy Commission.

• Other efforts – DOE is also undertakingrelated efforts to accelerate energy storage,superconductivity and other grid technolo-gies. Its National Renewable EnergyLaboratory is working on technologies andstandards for integrating distributed energyresources into the grid. The CaliforniaEnergy Commission and New York StateEnergy Research and DevelopmentAuthority are conducting research anddevelopment in load management anddistributed resources. The Power SystemsEngineering Research Center joins 13universities (including Washington StateUniversity) in collaborative research aimedat solving grid problems. Distribution 2010is a utility effort to supply high-qualitypower to business customers. These andother efforts are detailed by the Center forSmart Energy at its website.7

Who Is Working On the Smart Grid?

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8Electricity Innovation Institute, CEIDS Distributed Energy Resources Integration Element Program Plan, March 6, 2002, p1

A 21st century power grid rich in information technology andtelecommunications bandwidth will weave together a collaborativecommunity of smart energy devicesworking together to optimize grid efficiency.

Distributed ResourcesDistributed generation interconnection –At least 60,000 megawatts (MW) of small-scaledistributed generators, defined as under 10 MW,are on line in North America.8 Most are diesel andreciprocating engines, but solar modules, smallwind turbines, microturbines and fuel cells areemerging. Almost all distributed generation isused as back-up power and is unconnected to thegrid. But communications, control and switchingsystems that link and operate generator networksin coordination with the grid are beginning toappear. This reduces the need for costly peakinginfrastructure and can mitigate blackouts. (Ofcourse, many back-up generators operate withhigh emissions so hours of usage must be strictlylimited. Mass-scale distributed generation willdepend on growth of cleaner and zero-emissionstechnologies.) Electronic intelligence alsoconnects solar modules and other small-scaledistributed generators to the grid, making possiblenet metering through which surplus renewablegeneration is fed to the grid and generator ownersreceive credit. These interconnection technologiesare a precursor to the “Energy Web,” a shift to apower grid with a multitude of localized powerunits. Integrating these new and emerging cleanenergy technologies will require a more complexand automated control system than today’s gridbased on a relatively small number of centralgenerating stations. The Energy Web will offer atleast three benefits: high reliability, reduced lossesfrom power lines and improved ability to utilizewaste heat from power generation.

Energy storage integration – While electricityhas been mostly a just-in-time delivery system, thesmart grid will integrate increasingly economicalenergy storage devices that will stabilize powerflows and provide grid shock absorbers. For inter-mittent renewable resources such as sun and wind,energy storage will balance power generation anddemand. Automated control systems will dispatchstored energy to the grid when needed.Conventional lead-acid batteries are alreadycommon, while utility-scale sodium sulfur batteriesare in commercial production and use in Japan, andreversible flow batteries (or cells) are in develop-ment and demonstration. Several SuperconductingMagnetic Energy Storage units which hold powerin a superconducting coil are in operation. Small-scale flywheels are already appearing in on-sitebackup power systems, while 2005 demonstrationsof utility-scale flywheels are planned for Californiaand New York. The smart grid’s capacity tointegrate a multitude of distributed resources willcreate greater economic value for energy storageand accelerate development in this area.

What Technologies Make Up theSmart Grid and What Do They Offer?

Example – Portland General Electric’sDispatchable Standby Program networkson-site backup generators in sites such asoffice buildings and public facilities inorder to meet peak power demands. Theutility installs communications, controland switching equipment on customer-owned generators, and provides mainte-nance and fuel. In return customers allowthe utility to run generators up to 400hours per year. The program aims tosupply 100 megawatts of peaking capacityand now has 38 MW on line or underconstruction.

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Power Grid ManagementReal-time monitoring – Sensors are embeddedthroughout the grid from generators and powerlines through substations and feeders. The real-time information stream enables a multiplicity offunctions including rapid diagnosis and correctionof grid problems, and measurements of transmis-sion lines to determine when they are reachingcapacity – Lack of such information means trans-mission operators must under-use wires to makesure they do not overload. Real-time readings willallow fuller utilization of transmission lines,improving grid reliability and economics.

Transmission/Distribution automation –Automation gives grid managers remote control of operations that formerly were done manuallyon-site at facilities such as substations and feeders.Automation allows faster adjustments to condi-tions, both preventing blackouts and making forfaster recovery. Some power researchers projectthat automated networks also will have the flexi-bility to channel electricity to customers thatrequire absolutely reliable service, such as hospi-tals, during area outages. Automated substationsprovide capacities not available in traditionalsubstations to link in new smart information andcontrol technologies.

Demand Response –Two-way communicationsbetween power providers and customers opens theway to flexibly adjust power to grid conditions.This “demand response” contrasts with the tradi-tional utility system in which supply adjusts tomeet all demands. Customers receive financialincentives for cutting power demand at times thegrid is under pressure. They can do this bydropping consumption or replacing grid powerwith distributed generation. Demand responseholds power bills in check by reducing the needfor peak power generation and wires infrastruc-ture, the most costly pieces of the power gridbecause they are used the fewest hours. It couldalso be employed to help prevent blackouts andbrownouts.

Example – Power transmission intoCastle Valley, Utah was operating at fullcapacity. PacifiCorp faced the need toeither build a new substation and 16 milesof transmission lines through environmen-tally sensitive lands or improve localcapacity. So the utility in March 2004brought on line the first Vanadium Redoxflow battery in North America to balancepower loads in the valley. Cost was $1.3million, as opposed to $5.6 million for thesubstation and line.

Example – PCS UtiliData of Spokaneautomated an Inland Power substation,making possible installation of voltagecontrol technology that improves substa-tion efficiency. The company has alsoinstalled voltage control at an Avistasubstation and three Clatskanie PUDsubstations. Power savings can range toaround 5%, a large improvement in theelectrical delivery system efficiency.

Example – Bonneville PowerAdministration (BPA) has pioneered theWide-Area Measurement System (WAMS)a network of sensors located at substationswhich provide real-time updates on theBonneville grid 30 times per second.Updates are coordinated through globalpositioning satellites and sent to a centralcomputer that analyzes disturbances,provides operators with solutions andmonitors the results. WAMS systems nowoperate throughout the western U.S.Similar monitoring networks are beinginstalled in the Northeast in order to avoida repeat of the August 2003 blackout.

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Communications networks – Broadbandcommunications networks including cable, fiber,power line carrier and wireless play a crucial role inlinking together the smart grid. They carry infor-mation among smart devices that allow them torespond to grid conditions, offer services to thegrid and make economic transactions. Customerinformation gateways provide two-way communica-tions that enable smart devices to connect andtransact with the power grid. Communicationsnetworks are protected by information security,privacy and authentication software that protectsthe grid and its participants.

Customer Power ManagementSmart meters – Smart meters record power usagedigitally by time of day and report it by telecommu-nications. This enables pricing that varies betweenhigh and low demand periods, providing economicincentives to shift power use out of peaks. North-west utilities including Puget Sound Energy andAvista have made large smart meter deployments.

Example – BPA operates a Demand Exchangesystem which uses wireless and web technolo-gies to alert participating customers when thepower system is expected to be under stress, forexample, when arrival of a cold front is forecast.Customers respond with bids for demandreductions and receive financial compensationin return. Demand Exchange is being employedon the Olympic Peninsula to shave peaks in aneffort to defer the need for expanded transmis-sion capacity. BPA is also signing up local back-up generators to offset peak demands.

Example – Following the 2000-2001 West Coastpower crisis California instituted a DynamicPricing Pilot to test the effects of time-basedpricing on peaks. Starting in July 2003 smartmeters were installed at 2,500 customer locationsand several rate structures were tested. Peakreductions on hot summer days when the gridwas most stressed reached 13%.9 With a largemajority of participants expressing a desire tocontinue, the program remains ongoing.

Example – The Ashland,Oregon municipal utility offersthe PowerShift program, ademand response program forresidential customers thatemploys an Internet gateway unitto automatically control energy-hungry appliances such as hotwater heaters and pool pumps.When the utility needs to curtailload it uses the municipal cabletelevision system to signal thegateway, which then employswireless RF technology tooperate smart switches connected

9Charles River Associates, Impact Evaluation of the California Statewide Pricing Pilot, March 16, 2005

Graphic depicts how communications networks including Internet and local RFsignals control end-use energy demands.

to appliances. Customers can overridecommands using the Internet. An added benefitfor customers is time-based information onelectrical use patterns which can help customersadjust those patterns to save energy and money.

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their loads. This systemwide response couldprevent blackouts and brownouts. PacificNorthwest GridWise Testbed plans a summer2005 demonstration. (See “What is theNorthwest doing to make the smart gridhappen?” below.) PNNL offers a virtual tour athttp://gridwise.pnl.gov/technologies/gfa-tour/Gridwise_web.htm.

Example – Pacific Northwest NationalLaboratory is developing inexpensive computerchips that enable appliances to detect drops inthe 60 hertz frequency that is standard on U.S.power lines. Since such drops indicate troubleon the grid appliances automatically reduce

Example – Klickitat PUD was faced withunexpected low voltage problems in 2003 whentwo municipal water pumps were added to aline. Those problems affected several customers.The PUD was in a bind. It needed to add asubstation but was financially strapped. Tidingit over until it could afford to bring the substa-tion on line were MicroPlanet voltage regula-tors which firmed up voltage at two customerlocations. The devices made by the Seattle-based company combine a programmable PCboard with a transformer to keep power flow to114.5 volts. They are still operating successfully.

Example – In 2001 the One Union SquareBuilding in Seattle drew 15 million kilowatthours from the grid. By 2004 that figure haddropped 40% to 9 million kWh. The differ-ence was a $3.5 million retrofit that includingtraditional efficiency measures such as betterheating/cooling fans and drives, and smartenergy improvements. New lighting controlswere installed and mechanical energy manage-ment controls were replaced with a digitalsystem made by Redmond, Washington-basedAlerton. Annual savings of $450,000 willprovide a six-year payback with a 16.5% returnon investment.

Smart buildings and equipment – Buildingenergy management systems use sensors andautomated controls embedded in heating, cooling, lighting and other equipment to monitor building conditions and adjust for optimal operating efficiency. This intelligence also enables buildings to automatically participatein demand response programs by shutting orcycling down electrical loads.

Smart appliances - Home appliances contain on-board intelligence that receives signals from thegrid and reduces demand when the grid is understress. The intelligence can also be programmed tooperate appliances when power rates are lower. Afleet of smart appliances reduces the need to buildcostly peak load and reserve power infrastructureand dramatically increases grid reliability. Smarthot water heaters and air conditioners have forsome time been able to cycle down to reduce peakloads. Now smart refrigerators, dishwashers andclothes washers/dryers are being developed.

Customer Voltage Regulation – Most electricalequipment is geared to take a standard voltage.But power is delivered through the grid at varyingvoltages. Essentially the “pressure” forcingelectrical current, voltage is boosted at substationsin order to maintain sufficient voltage at a distance.So customers closer to substations are actuallyreceiving higher voltage than they need, wastingenergy and wearing out motors faster. Regulationunits sited at the customer location step downvoltage to the basic level needed for service, thussaving energy and equipment life. These regula-tors also can adjust upwards in low-voltage situa-tions. (Grid-level voltage regulation is coveredabove in “Transmission/Distribution Automation.”)

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The smart grid will accelerateadoption of new technologies,create jobs, lower power deliverycosts, reduce blackouts andbrownouts, improve energyefficiency, cut pollution, andpromote growth of distributed andrenewable resources.

Accelerated adoption of new technologies –Emerging energy technologies have value at morethan one level. Not only do they offer services atthe specific location where they are employed –They also provide benefits that radiate across thegrid. For example, the value of local solar photo-voltaic generation in terms of reduced grid opera-tion costs is up to 20 cents/kilowatt hour, a reportto the California Public Utility Commissionreveals.10 The communications and controlcapabilities of the smart grid make it possible tofully integrate new energy devices into the grid.So the smart grid can realize and reward the totalvalue that a particular technology has for theentire system, no matter where it is located orwho owns it. When the business case for a newsystem includes both its local and system benefitsit can tip the decision in favor of purchase andinstallation. In this way the smart grid can accel-erate adoption of the range of smart energytechnologies, helping create economies of scalewhich bring down costs and build markets.

Job creation in the smart energy sector – TheNorthwest, as noted in the introduction, also hasspecial job creation potentials in deployment of the smart grid. The Poised for Profit IPartnership, which included Bonneville PowerAdministration, BC Hydro, and lead economicdevelopment and energy agencies in Oregon,Washington, and British Columbia, in 2001concluded that the Northwest could create over32,000 jobs in advanced clean energy technologies

over the next 20 years with public policies to aidemerging businesses. The Partnership identifiedpower systems (smart energy) and fuel cells asareas where the Northwest can develop globallycompetitive industry clusters.11

The follow-on Poised for Profit II Partnership,with many of the same partners, was convened tofocus best opportunities in the five-year timeframe.The Partnership in 2003 targeted smart energy asthe Northwest’s best immediate prospect to createan energy-sector economic powerhouse. It foundat least 225 companies in the region already repre-senting nearly 14% of the $15 billion global smartenergy market.12 They include industry leaderssuch as Itron, world’s largest smart meter maker;Areva T&D, a global power grid automationpresence; Schweitzer Engineering Laboratories,maker of solid-state power controls, and Celerity, apioneer in building distributed generationnetworks. The high regional concentration ofsoftware, semiconductor and wireless companiescould also find new opportunities and speedinnovation in the energy sector. The Partnershipnoted that, “smart energy is already much largerthan better-known sectors such as wind ($5billion), solar ($1.5 billion) and fuel cells ($0.5billion). It shows every sign of widening the gap.”13

The region “can gain an industry of distinction torival current mainstays such as aerospace, biotech,forest products and software,” the Partnershipreported. “The Pacific Northwest has the assets tobecome a global center in smart energy.”14

What Are the Benefits Of Smart Energy And the Smart Grid?

10Americans for Solar Power, http://www.forsolar.org/?q=node/9811Poised for Profit: How Clean Energy Can Power the Next High-Tech Job Surge in the Northwest, 2001, p512Poised for Profit in Smart Energy, Executive Summary, p1813Poised for Profit II: Prospects for the Smart Energy Sector in the Pacific Northwest, 2003, p814Ibid, p8, 16

The region “can gain an industry of distinc-tion to rival current mainstays such asaerospace, biotech, forest products andsoftware. The Pacific Northwest has the assetsto become a global center in smart energy.”

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Reduced power infrastructure costs – Today’spower grid is dramatically underutilized comparedto its capacity:

• Generation - U.S. power plants number over9,000 and have a 2001 book value of $570billion. They can produce up to 819gigawatts of power but are only utilized at53% of that capacity.

• Transmission - The U.S. transmissionnetwork, over 700,000 miles of line worth$64 billion, is used at 50% of capacity.

• Distribution - Local wire networks totalingover one million miles and worth $160billion have utilization rates under 30%.15

Smart energy technologies have multiple poten-tials to significantly increase power systemproductivity, in the process reducing costs. Forinstance, sensors in power lines give grid operatorsreal-time information on line temperature andother conditions. Knowing exactly how muchstress lines are under allows higher utilization.

“The power venue is saddled with an aging infra-structure, approximately 60% of which will needto be replaced in the next 10-15 years at a hugecost to companies,” notes Harbor Research.“Because of this the utility market is motivated bya desire to better optimize the existing infrastruc-ture through the management and monitoring ofpower generation, distribution and quality.” As aresult, “Pervasive Internet technology holds aplace in the power market.”16

In particular, digital technologies seededthroughout the power grid can control end usepower demand and coordinate local, distributedgeneration with the grid, thus reducing peak loadsand providing new flexibility in responding tounexpected contingencies. When digital technolo-gies are infused into the power grid, end-usedemands can be adjusted to available powersupplies, and local generation can take stress offpower lines. This ability to manage and reducepeak demands reduces the need for costly peakingand “just-in-case” power infrastructure. Hugesmart grid saving potentials are uncovered instudies of the GridWise vision. A PacificNorthwest National Laboratory (PNNL) studyfound that over 20 years significant amounts ofU.S. power infrastructure additions could beavoided. Net present value figures are:

• Generation - $19 billion-$49 billion

• Transmission - $5 billion-$12 billion

• Distribution - $22 billion-$56 billion

• Total - $46 billion-$117 billion.17

RAND Corporation conducted an independentevaluation of the GridWise vision. Withwidespread application of smart grid technologies,RAND found net present value of $57 billion ingeneration- transmission-distribution savings over20 years.18

PNNL also projects a 1% reduced cost of capital,for an additional $11 billion savings, becausesmaller-scale smart energy technologies can beadded incrementally to meet power demands. Thisimposes smaller financial risks than large plantsand power lines that must be brought on line wellbefore demand has fully materialized.

These savings figures do not take into accountcapital costs of deploying new technologies. But,as PNNL researchers note, “bits are cheaper thaniron.” For example, they note, smart appliancescosting $600 million can provide as much reservecapacity to the power grid as power plants worth $6 billion.

15Kannberg, L.D., et al, GridWise™: The Benefits of a Transformed Energy System, Sept. 2003, Pacific Northwest National Laboratory, p316Harbor Research, Smart Power: Pervasive Internet Technology in a Changing Energy Market, Feb.2005, p217Kannberg, p2518Baer, Walter S et al, Estimating the Benefits of the GridWise Initiative, Phase 1 Report, RAND Science and Technology, May 2004

“The power venue is saddled with anaging infrastructure, approximately 60% of which will need to be replaced in the next 10-15 years at a huge cost to companies.”

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19Baer, p23-4 20Baer, p26

Fewer blackouts and power disturbances –Figures on the 2003 cost of power outages to theU.S. range from $30 billion-$120 billion. The rangereflects the fact that overall economic ripple effectsare not fully understood. But at any level, smart gridtechnologies significantly improve power systemreliability. A nominal scenario developed by RANDplacing annual losses at $50 billion shows themreduced by $15 billion annually with a 50% penetra-tion of GridWise technologies in transmission and25% in distribution. With assumption of $100 billionin outage impacts and a slightly higher rate oftechnology penetration, losses could be cut by $49 billion annually.19

Improved energy efficiency – Building energymanagement systems that constantly monitor andadjust smart equipment and appliances yield signifi-cant energy efficiency gains. RAND projects that in20 years these systems could reduce annual powerdemand by 52-106 billion kilowatt hours annually,for a savings of $3 billion-$7 billion per year.20

Reduced use of polluting plants – Peak powerplants tend to be among the most polluting becausethey tend be less efficient and because cycling plantsup and down creates more pollution than runningthem at a steady rate. Spinning reserve plants,typically 10-15% of overall load, are left runningeven if power is not needed. The grid needs thisreserve to meet surges in power demand. Smartenergy technology smoothes peaks and surges, and soreduces the need for peak and spinning reserve plantsand the pollution they produce.

Clean power market – Today power customers havethe option to pay a small premium to cover theirelectrical use with Green Power. Also today, duringserious air pollution alerts, power plants and heavyindustries sometimes shut down. The smart grid willbe able to automate those functions and combinethem. Smart equipment, appliances and buildings willhave communication capacities that tell them whensmog alerts are taking place. Polluting equipment

such as dirtier central and backup power plants willbe instructed not to operate. Smart devices will takebids and execute purchases for cleaner power optionsoffered on the market. These search functions couldalso operate at all times to express owner desires forgreen power options. Providing owners of cleanpower generators an e-commerce-style market intowhich they could bid will open new opportunitiesand drive forward addition of renewables and cleandistributed generation to the grid.

Large-scale renewables integration – Major newadditions of renewable energy capacity are coming tothe West. The Western Governors Associationtargets 30,000 MW in new renewables by 2015.California aims at a 20% share of renewableelectricity by 2010. A renewables plan in develop-ment in Oregon aims at 25% by 2025. Northwestutilities including PacifiCorp and Puget SoundEnergy are making major windpower additions. TheWest Coast Governors Climate Initiative is exploringa global warming pollution cap that would furtherdrive new renewables additions. This poses realchallenges for grid operators. Wind and solar powerare intermittent and cannot always be predicted. Sofar, power grids in Denmark, Spain and Germanyhave been able to manage up to 20% presence ofintermittent renewables on the grid. But meetingambitious renewables goals and reducing globalwarming pollution will increase the share of intermit-tent generation and accompanying challenges. Smartenergy technologies will offer new capacities tomanage mass intermittent renewables:

• With all elements of the grid tied together by communications systems and automatedcontrols, the grid will instantly respond tospikes and valleys in intermittent energy generation by:

- drawing on energy storage resources

- balancing resources over diverse geographies (for instance when wind is blowing one place and not another)

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- cycling down end-use demands

- kicking on networks of local distributed generators and other power generation resources.

• Advanced computer modeling will enableimproved predictions of wind, sun andstream flow availability for power genera-tion. Seattle-based 3Tier EnvironmentalForecast Group already offers these services to renewable energy industry clients. 3Tier’sPascal Storck notes, “. . . a 10 percentincrease in next hour forecast accuracy isroughly equivalent to a savings of $1 millionper year for a 100-megawatt wind farm.”21

“Cutting-edge technologies will be required tocreate what we call the smart grid of the futurethat can accommodate the additional power frommassive, remote solar and wind farms," Columbia’sRoger Anderson says. "These sources are environ-mentally benign, but erratic and unpredictable intheir generation capacity.”22

Martin Hoffert, a New York University scientistwho led a team which identified energy develop-ment needs to stabilize atmospheric globalwarming gases, concludes, “A broad spectrumApollo-like program is needed. Nominal goal isgenerating 3-10 terawatts emission free fromrenewable sources by 2050. Typical projectsshould include demonstration of smart transmis-sion grids and components.”

Distributed generation integration – Todayhome and business owners who want to install asolar panel, electrical engine or other distributedgeneration at their location and interconnect it tothe grid must jump through a series of hoopsimposed by their utility. Utilities have legitimateconcerns. Power flow from large numbers ofdistributed generators has potential to imbalancelocal grids, so utilities require switching equip-ment and other protocols to protect systemstability. Standards vary among utilities. The effectis to make each distributed generation installation

a custom job and the resulting increase in costsstops many installations before they start.Standardized plug and play interconnection ofdistributed generators, whether they are recipro-cating engines, fuel cells, solar modules or smallwind turbines, is a target of smart grid develop-ment. This will reduce installation costs and thushelp create a virtuous cycle of market growth andeconomies-of-scale cost reductions.

Reduced costs for digital-quality power –Today’s digital economy is increasingly demandinghigh-quality power that is free of surges, spikesand interruptions. Electric Power ResearchInstitute projects that by 2020 nearly 10% of U.S.power use will require top-grade power available99.99999% of the time. Some observers projectthat the smart grid will be able to supply suchpower. Whether or not this ultimately proves true,the improved distributed generation interconnec-tion capacities of the smart grid will make qualitypower more economical. Installations requiringhigh-availability power typically maintain backuppower systems which mostly remain unconnectedto the grid, as noted in the “DistributedGeneration Interconnection” item above. Ifbackup units can be hooked to the grid and supplypower when it is not needed on site, increased

21Storck, Pascal, “Squeezing more out of renewable energy,” Seattle Daily Journal of Commerce, July 13, 200322Anderson and Boulanger, “Smart Grids and the American Way,” Mechanical Engineering, March 2004

Fuel cell provides reliable digital quality power to the FirstNational Bank of Omaha credit card processing center. Today’sdigital economy increasingly demands premium quality power,driving growth in distributed generation.

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23Casten, Thomas R. and Brennan Downes, “Critical Thinking About Energy: The Case for Decentralized Generation of Electricity,”Skeptical Inquirer, Jan/Feb 2005, p3024Casten, p27

utilization and resulting revenue streams translateinto reduced backup system costs. So places withthe smart grid interconnection’s capacities will havean edge in creating digital economy jobs.

Microgrids - Smart energy management technolo-gies also open up possibilities for microgrids notconnected to the larger grid. They might supplyDC power instead of standard AC, which is atremendous energy and cost saver since digitalequipment which typically runs on DC containsexpensive, energy-wasting power conversion equip-ment. Electronic intelligence will automaticallyoperate microgrids in conjunction with buildingenergy management systems and smart equipment,thus reducing operating costs.

Reduced line losses – By making local generationmore financially rewarding, smart energytechnology offers significant gains in overallefficiency of the power system. Typically ninepercent of electricity leaks from wires betweengeneration and end use. Distributed generationreduces that figure to around two percent – Thatoccurs when distributed generators are off line andgrid power supplies the backup. Other smart energytechnologies installed within grid infrastructure,such as voltage control, also have great potential toreduce line losses.23

Combined Heat and Power – Local generationalso enables recycling of heat into building heatingand cooling systems in Combined Heat and Power(CHP) operations. Thomas R. Casten, chair of theWorld Alliance for Decentralized Energy, notes thatpower industry efficiency peaked around 1910. Atthat point power plant efficiency was only 15%, butmost plants were in populated areas so waste heatwas channeled into local heating systems, bringingoverall efficiency to 65%. Since then plants havegrown larger and, to mitigate the environmentalimpacts, moved to remote locations. Heat now goesup stacks. So even though the best plants now reach50% efficiency, the industry overall average is 33%.CHP efficiencies range from 65-97%.24

“No other industry wastes two-thirds of its rawmaterial; no other industry has stagnant efficiency;no other industry gets less productivity per outputin 2004 than it did in 1904 Casten says. “Manytechnical advances make local or distributed genera-tion technically and economically feasible andenable society to return to energy recycling,displacing boiler fuel and doubling net electricefficiency.”

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Customer Power Managementsmart meters smart buildings/ smart voltage

equipment appliances regulation

Improved utilization, economics - renewable & distributed resources X X X

Improved end use energy efficiency X X X XReduced costs for digital-quality power X XElimination of costly peaking infrastructure X X X XImproved utilization of wires and

delivery infrastructure X X X XReduced use of polluting plants X X X XImproved reliability - reduced blackouts X X X XCapacity to recycle generator heat to

building systems XRatepayer rewards for adjusting demands

to help grid X X X

Charts: Smart Energy Technologies and Benefits

Distributed Resourcesdistributed generation energy storageinterconnection integration

Improved utilization, economics - renewable & distributed resources X X

Improved grid efficiency - reduced line losses XReduced costs for digital-quality power X XElimination of costly peaking infrastructure X XImproved utilization of wires and delivery infrastructure X XReduced use of polluting plants X XImproved reliability - reduced blackouts X XCapacity to recycle generator heat to building systems XRatepayer rewards for adjusting demands to help grid X X

Power Grid Managementreal-time transmission- demand communicationsmonitoring distribution response networks

automationImproved utilization, economics -

renewable & distributed resources X X XImproved grid efficiency - reduced line losses X X X XReduced costs for digital-quality power X X XElimination of costly peaking infrastructure X X X XImproved utilization of wires and

delivery infrastructure X X X XImproved reliability - reduced blackouts X X X XRatepayer rewards for adjusting

demands to help grid X X X

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A Smart Energy Scenario

Envision a comprehensive deploy-ment of advanced electrical powertechnologies throughout an entirecommunity.

The community begins with 1,500 residences, a mall with 50 retail businesses, 100 other store-front shops, an office center with 50 tenants, and alarge factory. When a new development adds 500new homes the local utility is faced with a choice –Either build a new substation or create a 21stcentury power network rich in informationtechnology and telecommunications bandwidth.Since the utility already has a fiber optic networkand is looking for ways to fully employ it, thedecision is tipped to the advanced technology route.

Customers paid to help the grid – To managepower demand all customers are equipped withsmart meters that can report moment-to-momentpower use to the utility. Residential customers areprovided rebates for buying smart appliances thatcan cycle up and down in response to grid needsand signals. These technologies enable customersto participate in a voluntary demand responseprogram which gives them credits on their bills forlimiting power use in peak demand periods orwhen the grid is under stress. Smart appliancesaccomplish this automatically so customers do nothave to make manual adjustments, though theycan override the system if they wish by controllingtheir appliances over the Internet. Since peakdemand is lower, fewer poles, wires and distantpower plants are needed.

Power distribution automated – Local substa-tions and other power infrastructure are fitted withelectronic controls and sensors. So tasks thatformerly were done manually on site now can beordered from remote locations. This allows moreintensive use of infrastructure. For example, onetransformer which served the residential area wasunderutilized during the day when people were atwork. Another transformer serving the factory wasunderutilized at night when the factory was closed.Now it takes only one automated transformer toserve both areas. During the day it shifts capacityto the factory, while at night it switches it over toresidences. Automation also helps restore servicequicker in case of a blackout, and allows bettercontrol of voltages in ways that make overallpower use more efficient.

Local power generation added – Adding to localpower supplies also takes stress off the grid. Theutility worked with the office center to install amicroturbine with a heat exchange unit, so it cansupply heating and cooling as well as electricity.Recycling generator heat effectively doubles fueluse efficiency. The turbine has surplus electricalgenerating capacity. A Northwest energy systemsfirm builds a community digital quality powernetwork around the turbine so it can providepower to other customers who require high relia-bility power. The utility also made a deal with thefactory owner to link an existing diesel back-upgenerator into the grid, and to convert it tobiodiesel so it can run for more hours withoutbumping up against air quality limitations. Thegenerator kicks on when hot or cold days placehigh demands on the grid. Another move toincrease local power generation is siting solarphotovoltaic modules on homes and businesses tohandle summer peak loads. These local powersources help eliminate the need for expanded trans-mission capacity into the area. This avoided powerline expense makes money available to buy downcosts of solar modules and other local generation.

Smart meters such as this model from Spokane-based Itron allow customers to participate in power demand managementprograms and receive credit on their bills.

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What Assets Does the Northwest Haveto Become a World Smart Grid Center?

The Pacific Northwest is oneof the world's best places to accelerate deployment of the 21st century smartgrid. A number of regionalenergy organizations arealready taking the lead.

äWorld-class regional resourcesinclude the emerging Northwestsmart energy cluster discussedabove and a host of otherregional institutions with a trackrecord of energy innovation:

World-class transmission operators– Bonneville Power Administration operates amajor transmission system that sends powerthroughout the West, and is a home to leadingedge energy innovations. Since 1999 it has formeda collaborative around Energy Web concepts,made one of the world's most extensive deploy-ments of utility fuel cells, and shaped a Non-Wires Solutions process that represents one of thetransmission's industry's most advanced efforts toreplace costly line upgrades with smart energytechnologies. BC Hydro has major initiatives toserve growing loads with clean energy andefficiency.

World-class research and development labs -Pacific Northwest National Laboratory based inRichland, Washington is a national research and development center for smart energy technologiesranging from intelligent appliances and buildings tofuel cells. A leader in conceptualizing the smartenergy network, PNNL operates some of world'smost complex power grid computer models and is amajor player in the GridWise Alliance. The labora-tory is also initiating creation of a NorthwestCenter for Electric Power Technologies aimed at

Jobs and skills grow – As with most of theelectrical power industry the utility was faced withanother problem, an aging workforce with a largeproportion retiring in the next few years. So itviews the community smart grid deployment as anopportunity to solve two problems at once. It joinswith electrical worker unions and the local commu-nity college to create a new Digital and DistributedPower Systems Training Program to upgrade skillsof existing workers and train future workers.Presence of the program attracts several smartenergy technology installation companies with a

total of 150 workers to the utility service area. Thesmart grid community itself attracts a new dataprocessing firm employing another 45 people.Local availability of high reliability power meansthe firm does not need to buy its own expensivebackup power system. That makes the case for thelocation. Last but not least the energy systems firmthat built the innovative community digital powernetwork leverages its successful experience to gainnew customers in North America and East Asia. In a year it grows from 21 to 160 employees.

Bonneville Power Administration’s vision for the Energy Web, a smart power network rich in distributed energy resources.

Energy Web

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promoting regional smart energy technology leader-ship through research, development and training.Powertech Labs in Surrey, BC, associated with BCHydro, is one of the continent’s leading centers fortransmission R&D.

World-class universities – University ofWashington and Washington State University arehome to two of the nation’s 15 graduate powerengineering programs, and leading-edge energytechnology research. Gonzaga is building up itspower engineering programs. Oregon StateUniversity is a nationally recognized powerelectronics research center and University ofOregon has notable solar research efforts. In BritishColumbia important energy technology research isunderway at University of British Columbia,University of Victoria and Simon Fraser University.

Innovative technology accelerators – TheNorthwest is developing networks of organizationsaimed at helping start-up companies and acceler-ating adoption of new technologies. NorthwestEnergy Technology Collaborative, (described belowunder “What is the Northwest doing to make thesmart grid happen?”) is a regional effort targeted tohelp energy company start-ups. The PowerTechnology Alliance was formed in March 2005 toaccelerate growth of British Columbia’s smartenergy and distributed energy resources sectors.Other business support efforts also help energycompanies. They include the SpokaneIntercollegiate Research and Technology Institute,which played a vital role in the launch of Northwestfuel cell leader ReliOn, and Kitsap SustainableEnergy and Economic Development which is devel-oping a clean technology business park in theBremerton area.

Innovative utilities – The Northwest’s public andinvestor-owned utilities are energy efficiency leadersand some of the nation's largest purchasers of windpower. PacifiCorp became one of the first U.S. utili-ties to anticipate future costs for climate-disruptingcarbon emissions in its long-range plans, and is addingmajor new clean energy generation as a result. Nowsuch climate risk assessments are becoming standardfor investor-owned utilities throughout the Northwest

and California. Seattle City Light is becoming thefirst major U.S. utility to effectively zero out all itsglobal warming emissions by buying carbon offsets.Energy Northwest, a consortium of public utilities,has become a major clean electricity developer. Manypublic utility districts are also developing broadbandcommunications services that can act as telecombackbones for smart grid operations.

Innovative policies – The Northwest was one ofthe first places in the world to employ the conceptof least-cost power planning. Through this processover the past 25 years it has pioneered the concept ofefficiency as a power resource, generating the equiva-lent of one-third of new load this way and exportingthe expertise gained to utilities worldwide. For a totalexpenditure of $1.75 billion over the past quartercentury, the Northwest is saving $500 million inpower bills each year, or a load equivalent to twoSeattles. The recently adopted fifth regional powerplan issued by the Northwest Power andConservation Council in September 2004 for thefirst time calls for consideration of demand responseas a least-cost alternative to building additionalpower plants and wires. The plan calls for develop-ment of 500 MW of demand response by 2009, aswell as 700 MW of new efficiency gains.

Innovative market transformers – The NorthwestEnergy Efficiency Council and Northwest EnergyEfficiency Alliance lead the region’s efforts to accel-erate use of conservation technologies. The Allianceis moving into the smart grid area with itsDistribution Efficiency Initiative. It includes addingmeters, automated controls and voltage regulationfrom PCS UtiliData to local distribution infrastruc-ture, and pilot testing 500 MicroPlanet home andbusiness voltage regulators. Energy Trust of Oregonmanages state funding of efficiency and renewablesand is undertaking coordinated efforts to deploy thesetechnologies in ways that support the power grid.

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How Will the Smart Grid Happen?

The coming of the smart grid is asystems revolution comparable tothe deployment of other societal-scale infrastructures such as theInternet, the Interstate Highwaysand the original power grid itself.

ä As with those earlier outbreaks, the smartgrid will catalyze in specific places wherenew concepts are pioneered and fromwhich change will spread everywhere:

• Before Eisenhower announced the continent-spanning Interstate Highway System in 1955,states such as Pennsylvania, New Jersey andCalifornia were building advanced limitedaccess highways that later became links.

• The Internet began in 1969 with fourcomputers at Stanford, University of Utahand University of California campuses inLos Angeles and Santa Barbara. In threeyears it broadened to 19 computers, in 35years to tens of millions.

• Power systems, which now serve over 4 billionpeople, began in 1879 in testbed form atThomas Edison’s Menlo Park, N.J. lab, andwere commercially demonstrated with Edison’s1882 electrification of a Manhattan district.

• The smart grid will emerge the same way,from specific geographies that forwardthemselves as centers of grid innovation.Smart energy technology deployment nodesdispersed across wide areas will growtogether, linked by telecommunications intovirtual smart grid networks that managepower flow on regional scales.

äThis process of emergence will occur in three stages:

• Bench test – Laboratory development of technologies.

• Testbed/demonstration – Technologies arefield tested under real world conditions ofincreasing scope and complexity, and incoordination with each other.

• Deployment – Proven technologies aredisseminated on a mass market basis.

Most of the new smart energytechnologies are already operatingsomewhere on the grid, but in alargely uncoordinated fashion.

No one has put the range of new technologiestogether in a systematic way. This represents lostopportunities. Much as personal computers didnot realize their full potential before they werelinked together in the Internet, smart energydevices provide their maximum value when theyare working synergistically, when assembledtogether in systems.

But the fact that comprehensive smart energysystems have not yet been fully deployed is alsounderstandable, since connecting new technologiescan be difficult and have unpredictable effects.Deploying new devices in a systematic way requiressweeping changes, and making systematic changesbefore technologies have proven themselves is arisk few utilities will consider. So benefits remainunrealized and utilities remain skeptical.

Testbed/demonstration projects makethe critical linkages, leaping the chasmbetween laboratory and marketplace.

Particularly in the electrical power industry, wherea very high level of reliability is demanded, newtechnologies must demonstrate they are capable ofproviding required services. They must show howthey work together to create communities ofsmart devices that provide benefits to all playersalong the electrical value chain. Testbed/demon-strations help work out the kinks and demonstratethe most effective ways to build integrated smartgrid systems.

Robert Pratt, PNNL’s GridWise lead, notes, “Astechnologies are developed and explored, testbedsand demonstration projects will provide experi-ments of ever increasing scale to prove their worthor reveal their faults. These demonstration

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projects will help build momentum for the changesthat lie ahead and increase the support and reducethe perception of risk, building acceptance of theconcept of a transformed energy grid.”25

As much as they are about proving thefunctionality of new devices, testbed/demonstrations are also about testingregulatory and market frameworkswhich unleash economic benefits toboth power providers and users.

Smart energy technologies offer ratepayers unprece-dented opportunities to participate in the powermarketplace by adjusting power demand to gridconditions. This can provide huge cost-savingopportunities for utilities, but customers must haveeconomic incentives to participate. Smart energyalso opens the door to tremendous energy efficiencyimprovements and increases in local generation, but utilities will have little drive to promote them if their revenues are purely tied to kilowatt-hourthroughput. Ratemaking that offers utilities financialrewards for deploying the smart grid is one solution.

The critical need for smart gridtestbeds is being recognizedthroughout the electrical power world.

EPRI has called for a federal smart grid research,development and demonstration effort of $1 billionover five years, to be matched by other players.That would stimulate around $100 billion in smartgrid investment over a decade, EPRI says.

The Energy Future Coalition’s Smart GridWorking Group notes, “A public-private partner-ship program is needed to support early deploymentand demonstration of these innovative technologies. . . The demonstration projects will bring realbenefits in power reliability, security and systemflexibility that will enhance local and regionaleconomic development. The demonstrationprogram would be designed to field-test the newtechnologies that will be the building blocks of thesmart grid, train the labor force to install and workwith these systems, and build a broad base ofconstituents who are familiar and comfortable withthe new technologies and what they can do.”

The U.S. Department of Energy Office ofElectrical Transmission and Distribution says,“Information technologies for distributed intelli-gence, sensors, smart systems, controls and energyresources need to be designed, field tested,standardized, and integrated with market operationsof electrical transmission and distribution systems,and customer operations.”26

The Northwest has many points ofgrid congestion and growing load thatcan provide opportunities to buildnodes from which the smart gridgrows, much as those original fourcomputers originated the Internet.

The BPA Non-Wires Solution process is alreadyidentifying a set of potential places where advancedtechnologies can enhance transmission reliability.By concentrating deployments of smart energytechnologies on transmission and distributionproblem spots, the region will gain practical experi-ence in creating advanced energy networks andbegin building a grid capable of meeting 21stcentury demands. Since communications is thehallmark of the smart grid, deployment nodes thatare geographically remote from one another can beoperated in coordination to provide smart gridbenefits. As the number of nodes increase and theweb of communications links thicken, the smart gridwill grow to blanket the region.

Testbed/demonstrations and deploy-ments will also spur growth and jobcreation in the regional smart energycluster.

Smart grid testbed/demonstrations and deploymentsthat prove new technologies generate value streamsfor utilities and ratepayers will provide launch padsfor Northwest smart energy industry success in theglobal marketplace. For example, the BPA Non-Wires effort employs Beaverton, Oregon-basedCelerity to build distributed generation networks onthe Olympic Peninsula that serve peak power needsand thus defer the need for new transmission lines.

25Pratt, Robert G., “Transforming the U.S. Electricity System,” Pacific Northwest National Laboratory26U.S. Department of Energy Office of Electric Transmission and Distribution, National Electric Delivery Technologies Roadmap, Nov 2003, p.vii

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What Is the Northwest Doing to Make the Smart Grid Happen?

The Northwest is already one of thegeographies from which the smartgrid is beginning to grow.

Previous sections have already outlined a numberof steps already being taken by Northwest energyorganizations to accelerate the smart grid,including BPA Non-Wires Solutions, PNNL’sGridWise commitments and Northwest EnergyEfficiency Alliance’s Distribution EfficiencyInitiative Regional fifth power plan goals fordevelopment of a major demand response marketrepresent a further spur to smart grid develop-ment. Now the region is taking smart grid acceler-ation to a new level through alliances of keyregional utilities and research outfits aimed atmounting technology testbed/demonstrationprojects.

Key Northwest testbed/demonstra-tion efforts include: Northwest Energy Technology Collaborative –works across public, private, nonprofit andresearch/educational sectors to catalyze growth of energy technology industries in the Northwest.NWETC offers a broad range of servicesincluding:

• Assistance in securing research and development funding and venturecapital investments

• Connections to the regional network ofuniversity/laboratory facilities and businessincubators

• Marketing and promotion from regional tointernational scales, including NWETC’sown Northwest Energy TechnologyShowcase.

NWETC includes BPA, BC Hydro, Puget SoundEnergy, Avista Corporation, PNNL, WashingtonTechnology Center, Spokane IntercollegiateResearch and Technology Institute, Washington

State Department of Community Trade andEconomic Development, ReliOn and the InlandNorthwest Technology Education Center.

Pacific Northwest GridWise Testbed is a neweffort which joins BPA, PNNL, Portland GeneralElectric and PacifiCorp in field tests of smart gridtechnologies and market frameworks that provideeconomic incentives for new technologies.Projects operated by the Testbed will be funded bya combination of U.S. Department of Energy,member and project partner resources. TheTestbed intends to provide an institutional struc-ture for developing and hosting smart griddemonstration projects, and plans to expand itsmembership to utilities throughout theNorthwest.

The first project slated to launch over summer andfall will test smart appliances with on-board intel-ligence that senses when the grid is stressed andcycles power demand down in response. Thetechnology developed by PNNL “creates a safetynet under the grid,” Pratt says. About 200 house-holds in the service territories of participatingutilities will be equipped with grid-responsivewater heaters and clothes dryers. Whirlpool isparticipating with some of its latest appliancetechnology.

Graphic depicts chip developed by Pacific Northwest NationalLaboratory that gives home appliances on-board intelligence to respond to grid conditions.

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What’s Holding Back the Smart Grid?Beyond normal challenges faced bynew technological entrants, smartgrid technologies confront a regula-tory system that often discouragestheir adoption.

Smart grid and smart energy technologies face the uphill battles any technological innovationencounters. New devices must prove they operatereliably and offer superior services and/oreconomics. But emerging power technologies face additional hurdles that represent what mostobservers regard as the overarching challenge.Traditional regulation sets up significant economicdisincentives that do not allow utilities to fullyrecover investments in new technologies, and finan-cially punishes utilities when customers install theirown energy systems. Meanwhile, utility restruc-turing that aimed at overcoming some of thosedisincentives is incomplete and its status is uncertain.The overall effect is to place utility investment inboth traditional and advanced technologies in a slump.

“The rapid emergence of the digital economy hasseverely strained our antiquated and inefficientpower infrastructure,” Harbor Research observes.“Already, power costs and supply problems areactually hampering economic growth in the U.S.,and this situation will worsen steadily as power-hungry digital technology, and our dependenceupon it, grows exponentially.”27

Red Herring Magazine wrote a year after the greatNortheast blackout, “Despite countless commit-tees, investigations, and pontification thatfollowed, little has been done to improve the flawsof the aged electrical infrastructure. Energyexperts know what needs to be done – theproblem is how to do it. The long-term answer isa smarter electrical infrastructure with bettermonitoring and consistent reliability standards inplace, a so-called ‘smart grid.’ But a lack of finan-cial incentives for utilities makes them hesitant to

pony up billions of dollars for improvements.”

“No one disputes that investment in powertechnology is at a nadir in the U.S.” Red Herringsaid. “This is the lowest level of investment since the Great Depression, when adjusted for infla-tion,” Clark Gellings of EPRI told the magazine.”28

“The technology exists to enable a radical overhaulof the way in which energy is generated, distributedand consumed – an overhaul whose impact on theenergy industry could match the Internet’s impacton communications,” noted The Economist. “Butunless regulators restore the economic incentivesfor investment, the future looks bleak. Time tostock up on candles and torches.”29

The bipartisan National Commission on EnergyPolicy in December 2004 recommended encour-agement of “new technologies to enhance theavailability and reliability of the grid, in part byclarifying rules for cost recovery.”30

The U.S. Department of Energy National ElectricDelivery Technologies Roadmap notes, “Moreeffective regulations and business practices areneeded to spur innovation and increase testing ofnew technologies and techniques . . . State agenciesneed to revise their rules, regulations, codes andstandards and revise those that inadvertentlyreward risk aversion and unnecessarily penalizeprudent risk taking and entrepreneurial behavior.”31

27Harbor Research, p13 28“Grid block: America’s power grid is outdated and inadequate, but power companies are unwilling to dish out the cash for improvements.”

Red Herring, Aug. 16, 200429“Building the energy internet,” The Economist, March 11, 2004 30National Commission on Energy Policy, Ending the Energy Stalemate: A Bipartisan Strategy to Meet America’s Energy Challenges, Dec.2004,

Summary of Recommendations p1631U.S. Department of Energy Office of Electric Transmission and Distribution, National Electric Delivery Technologies Roadmap, Nov 2003, p.viii

“The technology exists to enable a radical overhaulof the way in which energy is generated, distributedand consumed – an overhaul whose impact on theenergy industry could match the Internet’s impacton communications,” noted The Economist. “Butunless regulators restore the economic incentives for investment, the future looks bleak. Time to stock up on candles and torches.”

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What Regulatory and Policy ChangesWill Unleash the Smart Grid?

A series of changes in regulationsgoverning investor owned utilitiesovercome disincentives to, andcreate incentives for, adoption ofsmart energy technologies

Provide financial incentives for implementingsmart energy technologies – Utilities are oftenhesitant to apply the latest technologies due to riskfactors. One way to overcome this is to providehigher returns for bringing new smart energysolutions on line, including distributed generation,combined heat and power, load management andend-use efficiency. Utility regulators should workwith utilities to identify smart energy technologieswith ratepayer benefits including improved relia-bility and efficiency, and environmental benefits interms of reduced emissions. In recognition ofthese broad benefits, regulators should allow orprovide utilities financial incentives for imple-menting new technologies sufficient to overcomerisk factors.

Break the link between energy throughput andprofits – Utilities are hesitant to apply newtechnologies because they reduce the grossamount of energy throughput, either by improve-ments in efficiency or customer-side power gener-ation. Utility ratemaking fortifies the hesitancy bysetting pricing and revenues on the basis of centsper kilowatt hour. This ratemaking generally givesutilities a financial incentive to increase kilowattthroughput even if measures to reduce throughputreduce the total cost of providing service. Utilityregulatory commissions should remove thesedisincentives by breaking the link between utili-ties’ electricity and gas sales and their profits. Thiscan be accomplished through small annual true-ups in rates to ensure that unexpected changes insales do not affect the utility’s ability to recovercosts approved by its regulators. This involvescomparing actual sales to those predicted when

rates were set, and adjusting rates up or down toensure that authorized revenues are collected (nomore, no less). This is also known as decoupling.Any such system must be carefully designed toavoid unintended consequences and providereturns that are fair to all parties. Decouplingplans can and should be designed to provide win-win solutions for utilities and ratepayers. TheNorthwest has one operating model of decouplingin gas rates set for Northwest Natural.

Employ performance-based ratemaking toprovide positive incentives – Decouplingremoves disincentives for utilities to implementmeasures that reduce energy throughput.Performance-based ratemaking is a complemen-tary measure that offers positive financial incen-tives for utilities to promote such measures.Utilities and regulators target specific accomplish-ments such as an amount of energy to be savedthrough efficiency programs. For meeting orexceeding goals utilities gain rewards on thebottom line. Rhode Island, Massachusetts, NewHampshire and Kentucky have set up notableefforts in this area.32

Improve grid efficiency with incentives toreduce line losses – Power systems generallyinvolve line losses, but if utilities are authorized tocollect 100% of line loss costs from customers,there is little incentive to run the grid for topefficiency. Utility regulatory commissions shouldmandate that utilities optimize transmission anddistribution networks for minimum line losses.Commissions should deny cost recovery for lossesabove this level.

Apply least cost planning to power delivery asit has been applied to generation – Planning toidentify least cost options for power supply,whether generation or efficiency, was pioneered inthe Northwest. But least cost planning has not yet

32These efforts are detailed in “Removing Disincentives: Efforts to Promote Electric Utility Efficiency,” Kenneth J. Gish Jr., Preston GatesEllis, http://www.prestongates.com/images/pubs/Removing%20Disincentives.pdf

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fully come to power delivery systems. Utilityregulatory commissions should update rulesgoverning Integrated Resource Plans (IRPs) torequire gas and electric utilities to apply least-costplanning principles to proposed transmission anddistribution investments. Rules should ensure thatutilities fairly and transparently assess non-wiresoptions including clean distributed generation,combined heat and power, demand response andpeak shaving. The Washington Utilities andTransportation Commission has opened arulemaking process to update the integratedresource planning rules and request for proposalsrules (UE-030311 / UE-030423 / UG-030312).This is a key opportunity for input and influence.

Make sure utilities account for climate changeand other risks to bottom lines – IntegratedResource Plans are beginning to take into accountpotential costs for emitting carbon into the atmos-phere. Notable examples are IRPs created byPacifiCorp, Puget Sound Energy and Idaho Power.When carbon emissions carry a price, as they nowdo in Europe and Japan, it levels the playing fieldfor clean generation and efficiency technologies.

Utility regulators should insist all IRPs assign acost to carbon dioxide emissions based on risk offuture regulation and take into account fuel pricevolatility. The WUTC rulemakings mentionedabove will also consider inclusion of guidelines forevaluation of additional risk factors such as fossilfuel and wholesale electric market price volatility,fossil fuel supplies, hydroelectric supply and othersignificant power rate spike threats. The OregonPublic Utility Commission has a rulemaking opento update its IRP rules to include more evaluationof risk (UM 1056).

Public utility governing bodies havepolicy options to unleash smartenergy benefits for their ratepayers.

äSmart energy technologies bring manybenefits to ratepayers including improvedreliability and rate control. Public utilitygoverning bodies can take a number ofsteps to secure those benefits:

• Designate staff to track and recommendemerging technologies of potential benefit toratepayers including distributed generation,combined heat and power, load managementand end-use efficiency.

• Place these “non-wires” technologies on alevel playing field when consideringupgrades in traditional pole and wire infra-structure. Study all options in a least-costplanning format.

• Place a priority on employing smart gridtechnologies such as voltage reduction tooptimize delivery networks for minimal linelosses.

• Work with public utility organizations, cleanenergy advocates and Bonneville PowerAdministration to overcome obstacles tolocal generation created by interconnectionrules and losses of BPA power allocations.

• Public utilities involved in fossil-fired gener-ation should assess risk of future costs oncarbon emissions in their long-termplanning.

Utility planning that takes the cost of global warming emissionsinto account is increasing use of wind energy as well as windpower jobs. Shown here is a wind turbine being rebuilt at The Gear Works in Seattle.

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How Can the Northwest HelpOvercome Smart Grid Obstacles?

A Northwest Smart Energy Initiativewill catalyze regional smart griddevelopment and leadership.

The Northwest has an unparalleled set of publicand private resources that make it a prime candi-date to stage one of the world’s most extensiveefforts to test, demonstrate and deploy the smartgrid. As this paper has documented the region hasalready taken serious steps in this direction. But tofully catalyze smart grid deployment and realize itsmany economic and environmental benefits theregion must boldly assert leadership and undertakea coordinated, high-profile public effort thatovercomes regulatory, technological and financialhurdles. A Northwest Smart Energy Initiative is avehicle through which this can be accomplished.

Key leadership for the NorthwestSmart Energy Initiative must comefrom the Northwest governors andmembers of the NorthwestCongressional Delegation.

äThese public officials should cometogether to declare that:

• Pacific Northwest states are joining in aNorthwest Smart Energy Initiative to leadthe way in smart energy and the smart grid.

• The region will undertake state and regionalpolicy changes to accelerate the smart grid.

• Northwest governors will work with theCongressional Delegation to spur a newnational smart grid effort that brings majorfederal funding to the region.

äThis smart grid initiative must coordinatewith several related regional energy initiatives:

• Climate and renewable energy - TheWestern Governors Association’s goals foradding new renewables and the West CoastGovernors Climate Initiative are bothdependent on a grid that can manage anddeliver large amounts of intermittent renew-able energy. Meeting West Coast climategoals will also require large efficiency gains.The Northwest Energy TechnologyCollaborative also targets growth of smartand clean energy. Coordinated efforts byNorthwest states to demonstrate and deploysmart energy and smart grid technologieswill provide vital support to these environ-mental and economic goals.

• Grid operations - The Northwest, alongwith other Western states, is attempting toresolve uncertainties about who will operateand manage the transmission grid. GridWest,proposed as a regional transmission organiza-tion, in December adopted bylaws tocontinue development. The NorthwestPower Pool’s Technical Advisory Committeeis also exploring future regional transmissionneeds. In addition, the Northwest Center forElectric Power Technologies is beginning todefine and assess regional issues not only ingrid operations, but in other technologyareas related to electricity delivery and use.Northwest Smart Energy Initiative shouldwork closely with all these efforts to makesure smart grid solutions are fully on the table.

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äKey actions to be taken by governors include:

• Appoint a bipartisan state-level Blue Ribbon Commission to develop a smartenergy/smart grid roadmap. Draw togetherleaders from in-state energy technology compa-nies, key power-using industries, electricalworker unions and investor owned utilities;public sector leaders from utility commissions,legislatures, energy agencies, economic develop-ment agencies, and public utilities; and repre-sentatives of universities, research institutions,market transformation organizations and non-profit groups. Assign them to develop a stateroadmap for accelerating development of thesmart grid and smart energy sector which laysout actions for public, private and nonprofitsectors. Direct a high-level staff member tomake the Commission one of their top priori-ties. Commissions should explore the conceptof advanced energy technology research trust funds along the lines of the life sciencefund recently created by Washington state, and identify potential revenue sources.Commissions should also identify changes instate public policy needed to accelerate smartgrid deployment. Blue-ribbon commissionsshould work with utility commissions to

identify regulatory changes that create incen-tives for smart energy technologies.

• Ask utility regulatory commissions toidentify regulations that pose disincentivesto advanced energy technologies and testregulatory models that create incentives.Utility commissions are independent bodies butare also responsive when a governor sets apriority. Governors should ask commissionersand staff to set up a working group to uncoverareas where regulations are creating barriers tothe growth of the smart grid and related distrib-uted generation technologies, and to exploresolutions. An excellent example is the OregonPublic Utility Commission’s in-depth studydetailing recommendations to overcomebarriers holding back distributed generation andCombined Heat and Power.33 It is especiallyimportant to develop consistent least-costplanning guidelines for power transmission anddistribution infrastructure paralleling long-termregional practices for generation planning.Governors should encourage commissions towork with utilities to create regulatory pilotsthat test new frameworks.

33Oregon Public Utilities Commission, Distributed Generation in Oregon: Overview, Regulatory Barriers and Recommendations, February 2005

Northwest Smart Energy Initiative Actions

Governors Congressional Delegation

Create state Blue Ribbon Commissions to develop smart energy roadmaps X

Ask utility regulators to build smart grid incentives into regulations X

Develop university centers of energy excellence XDevelop energy technology trade strategies XMake public facilities smart energy models XSecure testbed demonstration funding XChampion National Power Grid Fund X

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• Work directly with state universities andcommunity and technical colleges todevelop and enhance centers of energyexcellence. The power industry is facing aretirement “brain drain” from an agingworkforce. By identifying the workforce needsof the 21st century power grid and training thenext generation of utility and energy industrytechnologists and engineers, the region willhave an edge in attracting and retaining smartenergy companies. In addition, supportingadvanced university research in fields such aspower electronics and nanotechnology willfound new companies and ground the regionalsmart energy cluster.

• Develop an energy technology tradestrategy aimed at developing nationsmarkets, China and India in particular.Pacific Rim nations are rapidly building powergrids. Much as they have skipped past tradi-tional telephone systems to cellular, they canalso be markets for leapfrog smart and cleanpower technologies that can be deployed moreeconomically than conventional central genera-tion and transmission systems. Governorsshould direct their trade promotion organiza-tions to promote Pacific Rim market opportuni-

ties for in-state energy technology companies,and make energy a central theme of their owntrade promotion tours.

• Make public facilities into smart energymodels. Much smart energy technology workson the customer end, and public buildings andinfrastructure represent some of the largestpower users. So public facilities represent amajor opportunity for early deployment oftechnologies such as advanced energy efficiencyand load control systems, and on-site cleanpower generation.

äKey steps to be taken by members of theNorthwest Congressional Delegationinclude:

• Secure funding for smart gridtestbed/demonstrations. The delegationalready has done notable work to secure initialfunding for the GridWise NW Testbed. Now astestbed/demonstrations grow in scope andcomplexity, so should funding. EPRI’s call for$1 billion in federal funding over five yearsrepresents a well-informed assessment of theneed. In the 1980s the Northwest undertook ademonstration project to test the full potentialof energy efficiency in a model community,Hood River, Oregon. Involving mostresidences, the project validated that efficiencycould be a significant energy resource, andspurred efficiency programs not only in theNorthwest but across the U.S. But the HoodRiver Project cost approximately $25 million,an amount that would be hard to replicate intoday’s financially stressed utility world. TheNorthwest has world-class research and utilityassets that equip it to mount similar, broadefforts to demonstrate the potential of smartenergy technologies. Benefits of the knowledgegained would address vital national needs,power reliability in particular – Grid vulnera-bility is an important homeland security risk. So

34Report of the Smart Grid Working Group, Energy Future Coalition

Solar photovoltaic modules installed at Puget Sound Electrical JointApprencticeship & Training Committee's Renton Training Center inphotovoltaics training program.

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substantial federal funding is justified.Members of the Delegation should workwith such institutions as PNNL and BPA todevelop proposals and substantial federalfunding for large-scale smart gridtestbed/demonstrations.

• Champion a National Power GridSecurity and Modernization Fund. Thepublic interest in modernizing the gridexceeds the financial capacity of hard-pressed grid operators to make the billionsin needed investments. This justifies anational trust fund to accelerate gridmodernization. The Energy FutureCoalition’s Smart Grid Working Groupnotes, “a major new investment vehicle mustbe developed . . . In many respects thispriority is analogous to the circumstancessurrounding the country in the 1950s when anational approach to financing the InterstateHighway system was adopted. We now need

a National Electricity Superhighway and areproposing a parallel way to begin the invest-ment to deploy it.”34 The group identifies anumber of potential funding sourcesincluding fees assessed on power sentthrough lines and bond issues. Such a fundshould be structured to prioritize small-scaletechnologies that operate near the customerend and offer lower-cost alternatives totraditional pole, wire and central plant infra-structure. A grid trust fund might beperceived as a “new energy tax.” But it couldpay for itself by just preventing one or twomajor blackouts. The cost of power distur-bances adds as much as 50% to the approxi-mately quarter trillion dollars Americans payannually for electricity. An unreliable gridrepresents a hidden tax on all powerratepayers. Targeted public investments inthe smart grid will pay for themselves manytimes over.

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The Smart Grid Workforce

The need for training in new gridtechnologies and to replace an agingutility workforce represents anopportunity to address two criticalpower industry issues at once.

The infusion of advanced energy technologies intothe power grid will demand extensive workforcetraining. Utility linemen and utility electricianswill require familiarity with automated gridsystems. Utility planners, reliability coordinatorsand control room operators will have significantlyricher information streams from digital networksthroughout the grid that they must learn how touse. Lack of workers qualified in these advancedtechnologies will create barriers to adoption.

The need to train the smart grid workforceprovides an opportunity to resolve a loomingproblem facing the utility industry, an agingworkforce that will substantially retire overcoming years without having transferred theirknowledge to a new generation of workers. ACarnegie-Mellon University survey of public andinvestor-owned electric utility human resourcesdepartments underscores this is their greatestworry. Of 53 utilities representing more than383,000 employees, 40 named their agingworkforce as their top concern. It was the numbertwo concern for another eight, and was mentionedby the other five.35

“It all boils down to money, whether there will beenough trained people to keep the industrygoing,” notes Jim Hunter, InternationalBrotherhood of Electrical Workers UtilityDepartment director.

Regional efforts to advance the smart grid shouldexamine this challenge and identify fundingsources to build up regional utility training outfitssuch as the National Utility Training & EducationCenter at Hanford.

Also emerging as a crucial need, for utilities, smartenergy companies and education/research organi-zations are skilled scientists and engineers in thepower technologies field. A report from SenatorMaria Cantwell’s office focuses the challenge.

“Both industry and academia are bracing for acritical shortage of engineers in this area. Morethan half the nation’s science and engineeringworkforce will reach retirement age in the next 20 years. Currently the Institute of Electrical andElectronic Engineers reports 360,000 electricaland 23,000 registered power engineers. Yet todaythere are only about 500 undergraduate degreesawarded in the area of power engineering –compared to nearly 2,000 in the 1980s – fewerthan 200 masters degrees and about 20 PhDsconferred per year.”

The Cantwell report calls out the potential oppor-tunities this opens for Washington state. Of 15U.S. universities offering graduate level powerengineering programs, Washington StateUniversity and University of Washington are two,while Gonzaga University offers a strong under-graduate program. (Oregon State University, notcovered in the Washington senator’s report, alsohas nationally recognized programs in the electricaland power fields.) “Washington state has the begin-nings of a competitive advantage in the area ofenergy technology due to our existing industry andthe fact our universities are leaders in the area ofpower engineering,”36 the report says. It calls forincreased federal support for grants, traineeshipsand fellowships in energy-related fields.

35Ashworth, Michael J. Workforce Aging and Involuntary Turnover in the U. S. Electric Power Industry: Empirical Investigation and Research Agenda(Working Paper), 2005, Electricity Industry Center, Carnegie Mellon University 36Office of Senator Maria Cantwell, Meeting the National Demand for a Skilled Energy Workforce, April 15, 2003, p2-3

“Washington state has the beginningsof a competitive advantage in the area of energy technology due to ourexisting industry and the fact ouruniversities are leaders in the area of power engineering,”

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Conclusion: The 21st CenturySmart Grid - Time to Take the Lead

Fast forward to a sizzling summer afternoonon the Western power grid sometime in thenot too distant future. A main Oregon-California transmission line is sagging understress. Inch by inch it sinks until a high voltagespark jumps toward a nearby tree branch with acrackle and flash, shutting down the line andcutting off much of the power flow from theNorthwest to the Golden State. In the old days,before the grid was rebuilt, this would have meanta blackout. It did twice in 1996. But now the smartgrid kicks into action. The sudden drop in juicethroughout the grid comes as an instantaneoussignal to literally millions of refrigerators, hotwater heaters, air conditioners and other appli-ances to cycle down demand. Networks of small-scale local generators distributed throughout thegrid receive signals to come on line and providepower supplies to stores, offices and factories. The combination relieves the grid long enough tobring in replacement power from the Southwest,averting a blackout. The lights stay on and theeconomy continues to function unaffected. Thisfuture is not only possible – It is coming.

The key question is who lead theway and pioneer the smart grid.

Certainly, with the security issues involved, devel-opment of the advanced power grid shouldbecome a federal priority. But regions that step upto the plate to develop their own smart grid initia-tives will play a vital role in setting the agenda,and be first in line for federal resources. State andlocal governments, public and investor-ownedutilities, research and educational institutions,technology companies and investors, labor unions– All have critical roles to play in assemblingregional initiatives. All have resources andexpertise they can and must bring to the table.

No place is better positioned to lead than the Pacific Northwest.

This is a moment of supreme opportunity when arevolution is emerging in the ways electricity isgenerated, delivered and used. The Northwest hasan unequalled depth of public and private smartenergy resources, and possesses singular opportu-nities and distinct incentives to vigorously movethis electrical revolution forward.

Tens if not hundreds of billions will be investedin the U.S. power grid over coming decades tomodernize it and keep up with growth. With aNorthwest Smart Energy Initiative thatovercomes the financial, regulatory and technicalhurdles to full scale deployment of advancedpower technologies, the region will put itself andits companies in line to gain a substantialportion of these billions.

A Northwest Smart Energy Initiativewill build a new regional economicsector and position the Northwestto lead the transformation of one ofthe world’s largest industries.

Tens if not hundreds of billions will be invested inthe U.S. power grid over coming decades tomodernize it and keep up with growth. With aNorthwest Smart Energy Initiative that overcomesthe financial, regulatory and technical hurdles tofull scale deployment of advanced power technolo-gies, the region will put itself and its companies inline to gain a substantial portion of these billions.

A comprehensive regional smart grid initiative willprovide the Northwest with secure regional powersupplies, build up the Northwest’s world-classsmart energy companies and position the region atthe forefront of the electrical power sector’s globaltransformation. For the Northwest’s economicfuture, it is hard to imagine a more important orrewarding step. If Northwest states take the leadin smart grid demonstration and deployment ourreward will be thousands of good, new jobs and a central role in meeting the world's growingelectric power demands with the 21st century'ssmart energy technologies.

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