Clean Infrastructure

Yesterday at the CTIA Conference on Enterprise and Applications at the Moscone in San Francisco, NDN released our new Acceleration Agenda to speed the rollout of Electricity 2.0.  The Agenda provides a detailed blueprint of the policy and advocacy measures needed to upgrade our electricity architecture. 

Keynoting the same conference, Department of Energy Undersecretary Dr. Kristina Johnson underscored the need to upgrade to Electricity 2.0.  (For an account of her important remarks, click here.)  As Dr. Johnson observed, the smart grid and new technologies have the potential not only to revolutionize energy but also to drive a major new wave of wealth and job creation in the United States.  However, the promise of Electricity 2.0 may not happen--at least in the US--if we fail take action to remove obstacles in the way. 

Indeed, as a high wage economy, the US really has no alternative but to innovate.  We do not want to compete on low cost labor.  Our strengths lie in inventing the future and then converting ideas into new products and services that increase our standard of living but also create high wage jobs for Americans.  But innovation grinds to a halt when it is not rewarded.  The current incentives in our electricity system do not reward innovation as witnessed by a lack of R&D in the industry, and, in fact, often work to resist it.

When Edison and Tesla working on Houston Street in New York City and in Menlo Park, New Jersey, respectively, devised the key electricity technologies that still power the world, they created not only jobs in the electricity industry but the basis for new platforms of innovation in electric appliances and electronic devices that created further waves of growth.  We saw this pattern at work again in the 1990s when the US blazed the trail for the rest of the world in Internet and telecom technologies that led in turn to new platforms for innovation in online video, messaging and social networking. It is not a conincidence that most of that innovation followed fundamental reforms in the sector in the 1990s.

The telecom analogy is not a perfect one.  Electricity differs in important ways: greater capital requirements of electricity lines as opposed to fiber, lack of a declining cost curve for the time being for bandwidth and safety issues surrounding electricity as opposed to data transfer.  Nonetheless, the parallels are strong.  In telecom, innovation and large numbers of new jobs emerged when pieces of the network were opened to new participants armed with new ideas and capital.

In the early stages of the telecom revolution, the participants were large institutions.  As Vint Cerf, the father of the Internet recently recalled these years to me, the Arpanet created a small, platfom for scientists to transmit files and later mail.  When several networks joined together, they created a larger open platform for applications.  In due course, the platforms widened to encompass businesses and then consumers and this is when the Internet exploded as an economic proposition.  Simlarly, at the CTIA conference, at the recent Gridwise Smart Grid conference in Washington and at countless other industry conferences, the action today is taking place among large players in the form of intra-uitility transactions.  But the promise is out there of a networked energy world where businesses and consumers share energy--produced locally or transmitted long distance--over lines managed by utilities, pushing activity to the edge (analagous to the shift of content to the edge of the Internet) and vastly increasing energy capability and resilience--while creating a new US-led industry.

Why has energy been centralized for most of the last century (Westinghouse's vision by the way, not that of Edison who favored distributed DC generation)?  The reasons are several fold but include the following:

• Zoning.  People prefer to burn coal, the dominant electricity fuel, away from business and residential neighborhoods.
• Location.  Hydropower has generally been located away from population by endowment while nuclear power is sited remotely for safety.
• Economies of scale.  The energy yield from large facilities has been higher than from smaller distributed ones, with these economies outweighing the huge costs of distribution.

Of these three factors, however, several are changing.

Solar energy is clean, community friendly and therefore well suited to distributed generation.  Electricity can increasingly be generated in smaller quantities from natural gas using fuel cells (like the Bloom  Box) or new generators (like the Lichtblick) unobtrusively and natural gas is already ubiquitous.  Meanwhile, many industrial facilities can easily produce electricity while producing heat in industrial parks, right where power is needed.

The economies of scale of solar so far have placed localized generation on an even footing with large scale solar. In all likelihood, both will coexist in the future.  Fuel cells may prove more efficient than traditional natural gas fired turbine generation.  And combined heat and power at industrial facilities is cost competitive with baseload power.

What are some of the platforms that could turn into economic tsunamis.  They include microgrids for buildings, office parks and residential developments, network management software, energy efficiency software, electricity commerce platforms and home energy networks.  One interesting new platform we proposed a year ago and companies are now starting to unroll would be a low voltage DC platform--think a USB network running in your home--that could power all your portable electronic devices now requiring clunky transformers.  But once innovation is unleashed, as with the Internet, new platforms may arise that we do not even envision.

The advantage of creating a platform for electricity trading that is open to small producers--from farmers who put up wind turbines to homeonwers who invest in solar panels to store owners who buy a Bloom Box is that it would tap into the energy and desire of millions of Americans to take control of their energy future.  If Germany can convert Germans into energy providers through its feed in tarriff, surely America with its entrepreneurial spirit can create millions of energy entrepreneurs.

As our Acceleration Agenda lays clear, the key to creating these platforms is to open up sections of the electricity network.  These might include the home, network software and demand response using open standards and local networks such as airports, buildings and developments.  The nature of electrical energy means that regulated utility monopolies will still be needed to manage critical flows.  However, portions of the network must be opened to others and incumbent utilities need to be offered incentives to invest in new technologies, products and services. 

We are excited about Electricity 2.0 and the traction it is getting not only in Washington but in the energy, communications and technology communities.  Please check out our acceleration agenda.  Comments are welcome.

Last week the NBER announced the recession ended in June, 2009.  The good news is we have been in a recovery for 15 months though we may not always have felt it.  The bad news is not only that the jobs have been slow to return but that policy makers have used an unprecedented amount of powder.  On the monetary side, the fed cut rates to zero and also added to its formerly pristine balance sheet over a trillion of distressed securities.  On the fiscal front, the US deficit as a percent of GDP, at 10%, is far above what most economists consider sustainable.  Over time we need to return to historic norms but withdrawing stimulus too quickly could trigger another recession.  If only there was another source of capital to drive the recovery forward!  Fortunately there is: trillions of private capital sitting on the sidelines.  If we can coax it out of hiding, not only can we support the current economy but we can begin to build the next one.

Fifteen months into the current recovery one of its most notable features is how much it resembles the old one.   The two pillars of the Bush economy, banking and housing (with some help from the government) are still at the core of our economy and policy focus  Social networking has emerged as a new growth avenue for the Internet but technology stalwarts like Microsoft and Google have watched their growth slow.  Despite much talk about a clean economic revolution by me, President Obama and many others, clean jobs have been slow to materialize and regulated utilities and traditional energy companies still dominate the energy landscape.  While we have seen glimpses here and there of the next economy in IPOs from Tesla Motors and A123 Batteries, their products have yet to go mainstream.  In short, we are waiting for the Next Economy.

This endurance of the old and tardiness of the new is noteworthy given the depth and breadth of the Great Recession.  The 1982 recession dramatically deindustrialized the US economy, leveling steel companies and manufacturers alike, but paved the way for the services heavy, technology driven economy that took its place.  The 2001-2002 recession leveled a huge swath of the telecom and dot com sectors but paved the way for healthy growth once the industry consolidated.  Reforms of the banking system combined with financial engineering paved the way for the housing boom of the 2000s even if that boom proved unsustainable.  Yet the far deeper 2008-2009 recession while triggering numerous foreclusures and some closure of banks has not yet ushered in a successor.

Enter private capital.  For the next economy to really take shape, we need not government but private capital and companies to begin investing.  Private companies and investors have the money.  The top three banks are currently sitting on a half trillion in unused cash according to banking analyst Richard X. Bove.  And the Fortune 500, having survived the recesssion in most cases (in contrast to earlier recessions) are sitting pretty with non cash firms holding about one trillion in cash in their treasuries.  Institutional investors have even greater sums stashed in cash that they could be using to buy corporate bonds or equities to fund investment in new plant and equipment. And trillions more in money lie offshore where it could be tempted by the right economic opportunities in the United States.  This combined powder is much greater than anything Congress or even the Fed could deploy.  The question is, what is holding it back?

A number of things:

First, tight banking supervision.  Banks, Bove explains, are currently constrained by regulators and stringent standards from making loans.  The recent downturn took its toll on credit scores, length of employment, assets and other credit indicators.  Supervisors and banks must agree on a middle ground that is tighter than in 2007 but realistic given today's different economic reality.

Second, excessive energy regulation.  The major sectors and regions to boom over the last half century have unifomrly been those that benefited from thoughtful liberalization.  Liberalization can be carried too far as it was in banking in the last decade.  However, the examples of Eastern Europe, China, Japan, Latin America as well as sectors in the west from banking in the 1980s in Lond to telecom in the 1990s in the United States are conclusive.  The highly regulated electricity sector is a bar to innovation today and only by creating a modern 21st century architecture can we usher in a clean economy (the focus of NDN's Electricity 2.0 initiative.)

Third, legal uncertainty.  The Obama Administration needs to commit itself to stable regulatory policies.  The extralegal nature of measures taking during the crisis for example, necessary as they may have been, are a long term deterrent to investment of capital.  More broadly, the Administration and Congress should lay out a long term agenda to provide regulatory certainty and visibility to investors.

Fourth, risk.  The government can help manage risk in a way the private sector cannot.  The Administration is correct in seeking to use comparatively limited quantities of public funding to leverage far greater quantities of private funds.  Its infrastructure bank proposal, for example, far from being a vehicle for government spending, as portrayed by oppontents, is in fact a way to leverage private funds.  Similarly, a green bank structured to provide a government guarantee to money advanced by the private sector, would give a huge boost to capital intensive clean economy investments

Finally, fear.  The Administration as it enters its third year needs to reassure the public that normalcy is returning to the economy.  Congress should do the same.  Policymakers will have more opportunities to advance good ideas with a healthy economy than they will ever have in the midst of crisis.  Accordingly, the Administration and Congress need to put the crisis behind it in their rhetoric and articulate an economic plan and message that is both forward looking and above all positive.

The US faces longer term challenges that require a variety of long term measures but in the short term the challenge is clear. 

The private capital is out there and the Next Economy is waiting.  It is only a matter of connecting the two.

Clean energy has captured the imagination of people from Silicon Valley, who invested $5.4 billion in the sector last year, to President Obama, who highlighted it in his State of the Union Address. However, it has yet to fulfill its economic promise and displace legacy fuels in America’s electricity sector, especially when compared with the significant progress made in other countries. Today, non-hydro renewables account for just 3.5% of electricity in the US.

On May 21st, NDN and New Policy Institute Green Project Director Michael Moynihan will host a presentation in New York, examining the electricity industry and why the uptake of renewables has been so slow. He argues that the answer lies in the outdated and complex structure of Electricity 1.0, a closed, highly regulated network created a century ago, fundamentally incompatible with clean technology and renewable power. Michael will argue that America must upgrade to Electricity 2.0, an open, distributed network capable of fostering innovation and a clean technology revolution.  

We hope that you will be able to join NDN in New York.  Please RSVP if you can attend. 

Electricity 2.0 paper available here.

Electricity 2.0: Unlocking the Power of the Open Energy Network
Friday, May 21st
8:00 AM, breakfast will be served

Speaker:
Michael Moynihan, Green Project Director and Electricity 2.0 author

Today, NDN will host an important and groundbreaking event focused on charting a course to the electricity future. Entitled Electricity 2.0: Envisioning the Future of Electricity, the event will feature remarks by:

• Congressman Edward Markey, Chairman of the House Select Committee on Energy Independence and Global Warming and Chairman of the Subcommittee on Energy and the Environment

and a panel discussion with:

• Clem Palevich, former President and CEO of Constellation New Energy 
• Nick Sinai, Director of Energy and Environment for the Federal Communications Commission 
• Jigar Shah, founder of Sun Edison and now CEO of the Carbon War Room 
• Michael Moynihan, author of the recent policy paper from NDN & the New Policy Institute, Electricity 2.0 

In addition to protecting our climate and enhancing energy security, clean electricity has the potential to power a new wave of prosperity. It can serve as a platform for entrepreneurs and innovators to create new jobs and build new industries.  

In order to meet this challenge and achieve clean electricity's promise, the United States must update our antiquated grid and add dramatically more renewable resources. The US currently supplies 3.5% of power from renewables, compared with 28% in Denmark. 

Electricity 1.0 helped secure reliable, universal power. But with R&D in the electricity industry having dwindled to less than 1% of sales, utilities constrained from offering new products and services, renewable generators unable to get their product to market, and consumers unable to control their energy destinies, it is time for an upgrade to Electricity 2.0. With a new open architecture in place and the right incentives to restore innovation and revive investments, Electricity 2.0 promises to do for energy what the Internet did for communications.  

Electricity 2.0: Envisioning the Future of Electricity
Tuesday, May 11 @ 3:30 p.m.
U.S. Capitol - Room HC-6 (access through South Entrance)
A live webcast will begin at 3:45 p.m. ET
RSVP  :  Watch Webcast

We are on the cusp of a revolution in how the world creates, trades, and consumes energy. However, for that revolution to occur we need to create a new modern, open, and secure electricity architecture that allows innovation to flourish.

Yesterday, Michael Moynihan spoke alongside energy experts Bill Massey, Dan Munson, and Kurt Yeager at an event hosted by the COMPETE Coalition. Here are a couple of the accounts of the event from trade press:

From Restructuring Today:

Compete Coalition conference reminded why innovation is key 

The current system of power industry regulation is ill-suited for driving innovation in the very significant ways needed to address climate change, experts said at a Compete Coalition event yesterday in Washington. Innovation in the industry has been declining, notwithstanding the work at EPRI, with low R&D budgets and little incentive to try new things, said think tank NDN's Green Project Director Michael Moynihan.

Moynihan's report titled "Electricity 2.0" advocates opening up the grid or "network" to two-way communication between customers and suppliers.

More here (subscription required).

From Electric Power Daily:

Experts decry antiquated nature of grid, regulations 

The current regulatory structure "has created the grid it was designed to create" but is extremely ill-suited to meet the needs of a 21st century electric industry, an official with a Washington think tank said Wednesday.

US consumers can "buy flowers from Ecuador but can't get electricity, moving at the speed of light, from one coast to the other," Michael Moynihan, director of NDN's Green Project, said at a panel discussion hosted by the Compete Coalition.

With a structure that offers no incentive to conduct innovative research and development, or even to deploy innovations by others, the electric utility industry cannot be expected to lead the way to a clean energy future, he asserted. Moynihan avoided laying blame entirely at the feet of the power industry, observing that "we absolutely do not have the policies in place" to encourage innovation; to the 

contrary, they work against it.

Sharing the view that industry is not to blame, Dick Munson, senior vice president at Recycled Energy Development, agreed it is a policy problem. "Without competition, we are going to limit ourselves to expensive and dirty power," he asserted. The current regulatory regime "is byzantine at best."

But that does not mean there is no role for government, Munson continued. "Government needs to set the goals for where we are headed," and open up the markets to "a flood of innovators and entrepreneurs," he said.

Decrying a "bipartisan habit" on Capitol Hill of trying to pick winners, Munson suggested Congress should "set the standards and let the market figure out how to get there." And whatever the standards, added Kurt Yeager, executive director of the Galvin Electricity Initiative, the government must hold all companies to them.

One thing that is desperately needed is a standard for putting power onto the electric grid, Moynihan said. While there is a standard outlet for a consumer to plug into to draw electricity from the system, there is no standard inlet for getting power onto the system, he continued.

"That is precisely what you have in the organized markets," said William Massey, counsel for Compete. Competitive markets provide a standard "plug-and-play" feature and will "enable the innovation" advocated by the panelists, he added.

"A poorly designed market will perform poorly," Massey said, while a well-designed competitive market that encourages innovation can perform "exceedingly well."

A centralized organization, be it a utility or regulatory body, cannot do what the competitive market can, Moynihan agreed. You are "not going to get the diversity of ideas."

He recalled that AT&T's idea for advancing the old black rotary phone was to introduce the Princess phone. It was only after the telecommunications industry was pried open to competition that real innovation began. Likewise, a major obstacle faced by new technology in the electric industry is the "absence of the correct regulatory framework," Moynihan said.

More here (subscription required).

For more on Electricity 2.0, please visit www.ndn.org/electricity20. 

NDN Green Project Director and Electricity 2.0 author Michael Moynihan will speak on March 24 at noon at the National Press Club at an event entitled "Clean Energy, Smart Grid, and Energy Efficiency: Competitive Electricity Markets and the Path to America’s Clean Energy Future." The event will include leading experts in the clean energy and electricity fields.

The Compete Coalition, the sponsors of the event, issued the following release:

WHAT: Panel discussion exploring the intersection of competitive electricity markets and innovative clean energy, smart grid, energy efficiency, and demand response technologies. 

Unique characteristics of organized electricity markets, such as transparent price signals, well-functioning forward markets, and large geographic scope encourage innovative energy solutions to meet America’s economic and environmental needs. These findings were reflected in the recent “Electricity 2.0” report by NDN and the New Policy Institute, which found that competition in electricity markets is needed to stimulate innovations such as smart grid and clean energy technologies.

WHO: Bill Massey, former Commissioner, Federal Energy Regulatory Commission

Michael Moynihan, Green Project Director, NDN

Dick Munson, Senior Vice President, Recycled Energy Development

Kurt Yeager, Executive Director, Galvin Electricity Initiative

WHERE: Zenger Room, National Press Club, 529 14th Street NW, Washington, D.C.

WHEN: Wednesday, March 24th, 2010, 12:00 p.m. to 1:00 p.m. 

NDN and the New Policy Institute seek a Washington, DC based Staff Director/Project Coordinator to help launch and manage our Electricity 2.0 Project.

Electricity 2.0 is a vision for an open, connected, modernized electricity network capable of allowing the innovation necessary to foster a clean technology and renewable energy revolution.  We are seeking a Project Coordinator who shares this cutting edge vision and is committed to playing a key role in launching a multi-year campaign to make it a reality.

Responsibilities include:

• Overall in-house coordination of the Electricity 2.0 project

• Providing key operational and logistical support to the Electricity 2.0 Chairman, Senior Fellow, and other principals;

• Helping to represent the project and vision to Washington DC stakeholders, Congress and the Administration through advocacy, arranging meetings, designing and executing events, and other outreach;

• Performing ongoing outreach to and communication with project partners, regional stakeholders, and Electricity 2.0 evangelists;

• Managing a communications strategy that includes traditional press, new media, and coordinating public speaking opportunities for project principals;

• Producing, coordinating, and contributing substantively to written content and research, including white papers, blogs, essays and op-eds on the subject of Electricity 2.0 and related topics;

• Producing and coordinating the production and promotion of operational content, including fundraising proposals, press releases, and marketing materials;

• Working with the rest of the NDN and New Policy Institute team to advance Electricity 2.0 and the mission of NDN and the New Policy Institute.

Job Requirements:

• 3+ years experience in the electricity, utility, clean technology/renewable energy, and/or policy fields;

• Deep knowledge of and desire to reform the nation's electricity system;

• Knowledge of smart grid, clean and renewable technology and clean energy space;

• Connections to Washington-based policy community and/or stakeholders;

• Writing ability and experience; proficiency with computer and web tools and software; good communications skills;

• Academic degree in economics, political science, technology or energy policy, or related field.

Additional Qualifications:

• Masters degree in public policy, energy policy, or related field

• Political/Administration/Hill/Campaign experience

• Salary commensurate with experience and qualifications. Excellent benefits provided.

Please submit resume and cover letter to jberliner@ndn.org.

The good people at the Truman National Security Project are out with a new study today on the costs to American security of reliance on oil. Truman COO and Iraq veteran Jon Powers' op-ed on Huffington Post previews the study and includes a telling quote from former CIA Director James Woolsey:

Except for our own Civil War, this [the war on terror] is the only war that we have fought where we are paying for both sides. We pay Saudi Arabia $160 billion for its oil, and $3 or $4 billion of that goes to the Wahhabis, who teach children to hate. We are paying for these terrorists with our SUVs.

From an economic perspective, the reliance on oil is also tremendously costly. This graph (via calculatedrisk) illustrates that more than half of America's trade deficit now consists of imported oil:

Last week, NDN released my paper on Electricity 2.0: Unlocking the Power of the Open Electricity Network and since then, talking about E2.0 with many in the electricity and energy world, producers, consumers and other leaders, I am move convinced more than ever of the need to upgrade our electricity architecture.

In a nutshell, the argument I make in the paper is that the US will not recognize the promise of clean energy without fundamental redesign of the network at the core of the energy system: the electricity network.  The electricity network is the only portion of the wider energy network where energy moves at close to the speed of light as opposed to the speed of a tanker or truck.  It translates energy from carbonized plants, falling water and the atom to usable form.  It is the only part of the network able to let falling water in one time zone simultaneously light a city in another.   But our antiquated architecture restricts its amazing qualities.

Many have commented on the antiquated physical state of America's grid.  But the deeper question is why is the grid so underfunded, undersized and unintelligent?  The answer is that America has the grid that the current system was designed to create.  For many years, R&D in the highly regulated electricity sector outside of the industry consortium, EPRI, has been virtually nil.  Our balkanized system operates under a patchwork of multi-tiered regulation.  Since utilities realize no reward for risk and receive a guaranteed rate of return on capital, they have no incentive to innovate.  The incentives all work against clean energy and new technology.  Resistance to innovation, in turn, works its way back up the value chain, constraining purchase of new technology and clean energy developed by others, be they Fortune 500 companies or high tech start-ups.  The clean energy promise has captivated everyone from President Obama to Silicon Valley--largely due to gap between what we have and what is possible.  However, we won't achieve what is possible without an upgrade to Electricity 2.0.

Electricity 2.0 involves an upgrade at multiple levels.

• It involves the upgrade of our physical wires--network modernization.
• It requires the upgrade of the software and switches guiding the network--a smarter network.
• However, far beyond that it requires, a new open, plug and play architecture to facilitate many-to-many connections, richer information exchange between consumer and producer, the blending of the consumer and producer distinction as more people trade with one another and the rollout of innovative new products and services across an electricity commerce platform that leverages the power of an open network.
• To make all this happen, it requires the rearchitecting and modernization of the regulatory framework underlying the system to reward risk, create competition and create opportunity for incumbents and new players alike. Absent a new architecture, the system will remain frozen in time and investments in meters or new transmission will fail to achieve their goals.

To do these four things, while making the network more reliable and secure, we need nothing less than a Big Bang at the federal and state and local level to consist of federal and state legislation and federal and state rulemaking to create a 21st Century platform for electricity delivery and exchange.  As a starting point, we should look to the model that unleashed innovation and unlocked wealth in the highly regulated telecom world at the start of the Internet era, the 1996 Telecommunications Act.

Ultimately, we cannot expect regulated utilities to lead a revolution.  In the case of the telecom revolution, people designing websites, configuring cellphones and writing code late at night made the revolution.  The American people have the energy, drive and desire to lead a clean energy revolution as well, but we must give them the tools they need to do so.

The stakes are huge.  If we succeed, we will realize the opportunity of clean energy and launch a renewable revolution.  We can lower electricity costs, freeing up purchasing power in household budgets and make American industry competitive in the coming century.

If we fail, and continue with the current system, we will not see clean energy come online at scale, we will see few innovative energy products and the competitiveness of our industry will erode.

Electricity 1.0 served the country well in its day.  But that day is past.  It is time to upgrade our century-old architecture to Electricity 2.0 if America is to stay competitive in the 21st Century.

In coming months, NDN will be working with stakeholders to develop a framework for America to upgrade to Electricity 2.0.