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The Smart Grid   Bob Moreo And Yuchen Mao
 

The Smart Grid Bob Moreo And Yuchen Mao

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A grad school research paper and study of "smart grid" technology and economic development policy; I wrote part II of the paper, beginning on page 13.

A grad school research paper and study of "smart grid" technology and economic development policy; I wrote part II of the paper, beginning on page 13.

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    The Smart Grid   Bob Moreo And Yuchen Mao The Smart Grid Bob Moreo And Yuchen Mao Document Transcript

    • The Smart Grid: a business sector study and economic development opportunities for Michigan Robert Moreo + Yuchen Mao Wayne State University State, Regional and Local Economic Development – UP6550 May 04, 2010 0 Page
    • PART I Introducing the New Energy Economy Generally speaking, conventional energy is referred to as those energy sources which are technological mature and have been utilized on a large scale. On the other hand, new energy is usually an energy source which is being researched and developed, and has not been utilized on a large scale. Coal, petroleum, natural gas and large- and medium-scale hydropower will be regarded as conventional energy, while solar, wind, biomass, geothermal, ocean, nuclear and hydrogen energy will be regarded as new energy. As opposed to traditional fossil fuel energy, new energy features lesser pollution and larger storage, which has significance to solving current environment pollution and resource depletion. In the new round world economic development, new energy economy is playing a critical role. First, it is an important strategy to cope with energy crisis and preserve human living environment due to the substitution effect it brings about. Since the beginning of industrialization age, coal, petroleum, and natural gas have been all along main energy sources. The massive consumption of these non-renewable fossil fuels, has led to their increasing rarity and long-term pricing fluctuation, wreaked havoc on the environment, and thereby cast a shadow over the sustainability of human society. New energy sources may make up for the inadequacy of the traditional energy sources, and therefore form a means to adjust energy structure, widen diversity of energy supplies, enhance energy security, and preserve and ameliorate environment. Thus, new energy economy is universally valued. According to REN211 (Renewable Energy Policy Network for the 21st Century), from the end of 2004 to the end of 2008, globally, solar power generation increased by 6 times, and wind power generation increased by 2.5 times. Second, the new energy economy will form a pull effect by attracting a large investment and creating numerous jobs. According to REN21, globally, investment on renewable sources was $63 billion in 2006 and $104 billion in 2007 respectively, and then rose dramatically to $1,200 billion in 2008. 1 (1) REN21, the Renewable Energy Policy Network for the 21st Century, is a network that provides a forum for 1 international leaders in renewable energy policy in order to share knowledge and facilitate the rapid growth of Page renewable energy technologies in developed and developing countries. See www.ren21.net.
    • A Morgan Stanley report predicted that globally, smart grid market sales will reach $200 billion by 2010, and attain $1,000 billion by 2030. Third, it has an effect of technological progress since its development could further the technology level of energy supply and provide a new platform for economic development. Economic development and human existence are closely interrelated to energy supply. Economic growth depends on the further progress of energy supply technologies. New energy economy is adapting to these needs. Especially, the development of smart growth could be said to be an enabler of new energy economy, because a smart grid will help energy efficiency, renewable energy sources, storage, and plug-in electric cars to achieve scale and cost effectiveness. Defining Smart Grid As to smart grid, there exist varieties of definitions. A grid is an enormous, complex network of transmission and distribution lines and devices along which electricity, generated at large, central fossil fuel plants, hydroelectric dams, and nuclear facilities, travels many hundreds of miles. Wikipedia provides that a smart grid delivers electricity from suppliers to consumers using two-way digital technology to control appliances at consumer’s homes to save energy, reduce cost, and increase reliability and transparency. GridWise Alliance2 contends a smart grid is a more complex and sophisticated infrastructure that will continue to power our digital economy but in a cleaner, more reliable, and more affordable way. A publication THE SMART GRID: AN INTRODUCTION3 provides that a smart grid uses digital technology to improve reliability, security and efficiency of the electric system which is from large generation, through the delivery systems to electricity consumers and a growing number of distributed generation and storage resources. SMART GRID SOLUTIONS: AN ENERGY INTERNET4 provides that a smart grid marries information technology with our current electrical 2 The GridWise Alliance, founded in 2003, is a coalition of public and private stakeholders that advocates for a smarter grid for the public good. 3 The Smart Grid: An Introduction outlines the promise and power of a smarter grid in layman’s terms and is a 2 useful layman’s overview of the smart grid and its benefits. Page 4 See http://www.itsyoursmartgrid.com/solutions/
    • infrastructure, and helps support the energy needs of our 21st century society and is essentially an energy internet, delivering real-time energy information and knowledge and empowering smarter energy choices. 2007 Energy Independence and Security Act5 of U.S. Department of Energy (DOE) described those which could be regarded as research, development or demonstration of smart grid technology, including:  To develop advanced techniques for measuring peak load reductions and energy- efficiency savings from smart metering, demand response and load management, distributed generation, and electricity storage systems  To investigate means for demand response and load management, distributed generation, and storage to provide ancillary services.  To conduct research to advance the use of wide-area measurement and control networks, including data mining, visualization, advanced computing, and secure and dependable communications in a highly-distributed environment.  To test new reliability technologies, including those concerning communications network capabilities, in a grid control room environment against a representative set of local outage and wide area blackout scenarios.  To identify communications network capacity needed to implement advanced technologies.  To investigate the feasibility of a transition to time-of-use and real-time electricity pricing.  To develop algorithms for use in electric transmission system software applications.  To promote the use of underutilized electricity generation capacity in any substitution of electricity for liquid fuels in the transportation system of the United States.  To propose interconnection protocols to enable electric utilities to access electricity stored in vehicles to help meet peak demand loads, in consultation with the Federal Energy Regulatory Commission. 3 5 The Energy Independence and Security Act of 2007 is an Act of Congress concerning the energy policy of the Page United States.
    • Moreover, the Act also listed the functions of smart grid, including:  The ability to develop, store, send and receive digital information concerning electricity use, costs, prices, time of use, nature of use, storage, or other information relevant to device, grid, or utility operations, to or from or by means of the electric utility system, through one or a combination of devices and technologies.  The ability to develop, store, send and receive digital information, concerning electricity use, costs, prices, time of use, nature of use, storage, or other information relevant to device, grid, or utility operations to or from a computer or other control device.  The ability to measure or monitor electricity use as a function of time of day, power quality characteristics such as voltage level, current, cycles per second, or source or type of generation and to store, synthesize or report that information by digital means.  The ability to sense and localize disruptions or changes in power flows on the grid and communicate such information instantaneously and automatically for purposes of enabling automatic protective responses to sustain reliability and security of grid operations.  The ability to detect, prevent, communicate with regard to, respond to, or recover from system security threats, including cyber-security threats and terrorism, using digital information, media, and devices.  The ability of any appliance or machine to respond to such signals, measurements, or communications automatically or in a manner programmed by its owner or operator without independent human intervention.  The ability to use digital information to operate functionalities on the electric utility grid that were previously electro-mechanical or manual.  The ability to use digital controls to manage and modify electricity demand, enable congestion management, assist in voltage control, provide operating reserves, and provide frequency regulation. Characteristics of Smart Grid Technology Due to the above-mentioned functions of a smart grid to monitor electricity use, locate 4 Page disruptions and changes, use digital controls to manage and modify electricity demand, the smart grid
    • will be more reliable, secure, economic, efficient, and environmentally-friendly in comparison with the current power grid.6 Reliability: the power may undergo structural collapse for a couple of hours during a storm or on a hot summer day when everyone is running their air-conditioners on high. Again, each year economy inevitably suffers heavy loss during blackouts and brownouts. A smart grid will be able to decrease the frequency of the blackouts and make a possibility for quicker recovery. Since it can use power from many different sources rather than just central fossil fuel power plants, and use cutting-edge technology to make sure that if one source is failing, electricity can still be instantly dispatched into the grid from other sources. Security: with its two-way communication, a smart grid can quickly identify, respond to and recover from interruptions and threats. Due to its old age, the current electric grid often causes some problems. Grid failure may sometimes lead numerous power plants and generation units to shut down which in turn causes oil and water delivery systems to shut down, rail and air travel to be disrupted, homeland security and communications capabilities to be inaccessible, and lives to be threatened if air- conditioning is unavailable in hot summer days. More often than not, current utilities won’t know where there is an outage except that a customer calls. However, a smart grid can solve this problem by real- time monitoring and advance warning. By a smart grid, electricity may quickly be rerouted from hundreds of distributed sources to locations where demand is the most critical. Moreover, a smart grid’s enhanced computing power enables the use of more sophisticated grid protection and encryption software which can thwart cyber attacks on the power generation and transmission equipment. Economy: the current aging electric grid needs maintenance and improvements which may cost ratepayers more than $2 billion a year. Moreover, outages cost businesses and manufacturers as much as $100 billion yearly. Investing in a smart grid will reduce the money businesses lose each year in these power outages. Meanwhile, the cost of major infrastructure improvements that would have been necessary anyway which is predictably between $46 billion and $117 billion over the next 20 years would be avoided. Besides, a smart grid would help save consumers’ money by letting them know about the relations between price and supply-demand so that they will have more control over how they use electricity in their own home and business, which in turn can increase their discretionary 5 Page 6 See http://gridwise.org/
    • income. Accordingly, on a national scale, savings from controlling and reducing the energy use by consumers could reach billions of dollars per year by 2015. Efficiency: a smart grid, as an efficient electricity distribution system, uses digital technology to eliminate waste and improve reliability. As meters and controls are installed all along the grid, they are constantly feeding information back to computers so that operators can know about what’s going on all over the grid at any one time. Thus, operators would be able to strike a balance between supply and demand. Otherwise, there will be an inefficient flood of electricity on lines. With a two-way communications of a smart grid infrastructure in place, a utility could monitor the performance of the equipments so as to make operational recommendations for ways to save money and energy during various times of the day. Environment: to generate electricity by burning coal emits greenhouse gas and other numerous pollutants, which contribute to global climate change. A smart grid will enable making full use of renewable energy resources, which will in turn reduce greenhouse gas emissions. Meanwhile, a smart grid will also reduce energy consumption by increasing the efficiency of generation, transmission, and distribution equipment. The increased capacity to see what’s happening on the grid and manage it quickly allows for less waste and loss of energy, increased efficiency and more use of clean, renewable energy sources. The Department of Energy has a list of 7 characteristics of a smart grid, respectively:  Enable active participation by consumers;  Accommodate all generation and storage options;  Enable new products, services and markets;  Provide power quality for the digital economy;  Optimize asset utilization and operate efficiently;  Anticipate and respond to system disturbances;  Operate resiliently against attack and natural disaster. Accordingly, 2007 Energy Independence and Security Act of DOE also listed smart grid technologies and applicability, which ties the components of a smart grid with the above-mentioned characteristics by DOE. 6 Page
    • With respect to enabling active participation by consumers, smart grid technologies include smart meters, advanced metering infrastructure, existing automatic meter reading technology, programmable communicating thermostat, smart home software, home automation network interfaced with utility smart grid system, building and facility energy management system interfaced with market pricing signal and utility smart grid system. By these technologies, consumers would know how and when to adjust their usage of electricity and thus help achieve the desired objectives of efficient and economy utilization of energy. In terms of accommodating all generation and storage options, smart grid technologies include virtual utilities, plug-in hybrid electric vehicles, solar and wind generation, distributed energy resource management system and energy storage devices and systems. There exist real-time and time-of-use pricing options design and research, new market system, demand response and load management system, appliances interface with utility smart grid system, and motor and drives interfaced with utility smart grid system in a smart grid to enable new products, services, and markets. A smart grid has great compatibility and changeability to cater to different needs. In providing power quality for the digital economy, the technologies include intelligent electronic devices, smart switches capable of communications, smart reclosers with communications capability, intelligent assets with built-in communications, smart feeder automation, interconnection protocols, system interoperability adoption project. In optimizing asset utilization and operating efficiency, there exist condition-based monitoring and maintenance, computerized maintenance management, advanced asset management software, advanced outage avoidance and management, dynamic line ratings systems, transformer load management, grid similar and modeler, flexible power flow control and process re-engineering using intelligent system. In addressing and responding to system distribution in a self-healing manner, there are integrated outage and work management system, outage damage assessment for restoration, distribution state estimator, fault location and analysis, wide area monitoring system, substation automation, station equipment condition and reliability monitoring, smart feeder and distribution automation, automated 7 adaptive relaying, feeder fault detection and diagnostics, voltage regulator with communication Page capability, capacitor control with communication capability.
    • In operating resiliently against physical and cyber attacks and natural disasters, the technologies include cyber-security and data integrity, weather prediction, storm damage forecast and outage management system, etc. History of Smart Grid7 Though the term “smart grid” appeared lately, smart grid technologies have emerged much earlier. Since 1896, the alternating current power grid, which is the base of a smart grid, has evolved. In the 1980s, automatic meter reading was used for monitoring loads from large customers, and evolved into the advanced metering infrastructure of the 1990s, whose meters could store the data in terms of how electricity was used at different times of a day. In 2000s smart meters could achieve real-time monitoring by continuous communications and be used as a gateway to demand response aware devices and smart sockets in the home. Beginning in 2000, Italy’s Telegestore project was the first to network large numbers of homes using such smart meters connected via low bandwidth power line communication. It is widely regarded as the first commercial scale use of smart grid technology. Monitoring and synchronization of wide area networks were revolutionized in the early 1990s when the Bonneville Power Administration expanded its smart grid research with prototype sensors that are capable of very rapid analysis of anomalies in electricity quality over large geographic areas. Then the first operational wide area measurement system appeared in 2000. It’s assumed that the term smart grid’s debut is in 2005, when the article “toward a smart grid”, appeared in the September/ October issue of IEEE P&E magazine. The first commercial scale use of smart grid technology in the US came from Austin, Texas, which has been working on building its smart grid since 2003, when its utility first replaced one-third of its manual meters with smart meters that communicated via a wireless mesh network. Boulder, Colorado, completed the first phase of its smart grid project in 2008. Both system use the smart meter as a gateway to the home automation network that controls smarts sockets and devices. 8 Page 7 Summarized from http://en.wikipedia.org/wiki/Smart_grid
    • Smart Grid Technology Worldwide8 The governments of numerous countries have provided smart grid policies one after another. Australia has committed to investing $100m in smart grids and initiated a study, which is expected to increase customer awareness and engagement in energy usage, and establish distributed demand management and distributed generation management. The government of Ontario, Canada, through the Energy Conservation Responsibility Act in 2006, has mandated the installation of smart meters in all Ontario businesses and households by 2010. In 2009, China announced a framework for transmission-centric smart grid deployment. As part of its current 5 year-plan, China is building a wide area monitoring system and by 2012 plans to have phasor measurement unit sensor at all generators of 300 megawatts and above, and all substations of 500 kilovolts and above. In 2009 the UK government released a green recovery plan, to plan to invest heavily in eco-friendly electric cars in order to cut down carbon dioxide emissions and to help the British motor industry, strive to make wind power generation occupy 15 percent of its total power demand by 2020. The Republic of Korea has launched a $65 million pilot program on Jeju Island with major players in the industry. The program consists of fully integrated smart grid system for 6000 households, wind farms and four distribution lines are included in the pilot program. This demonstrates the extent of Korea’s commitment towards an environmental viable future. Smart Grid Organizations in the United States A number of committees and organizations have formed to begin the task of rolling out a smart grid and transferring the knowledge and experience gained in smaller scale pilot studies to the national grid.9 DOE (US Department of Energy) created an Electricity Advisory Committee in 2008, which is composed of a group of industry experts who advises the department on strategies for modernizing the nation’s electricity delivery infrastructure and implementing the Energy Policy Act of 2005 and the Energy Independence and Security Act (EISA) of 2007. 9 8 Summarized from Wikipedia and other websites Page 9 See http://gridwise.org/
    • The GridWise Alliance establishes work groups drawn from its members to address the challenges of successfully realizing a smart grid. Current work groups are focused on federal, regional, and state legislation and policy, implementation and interoperability. The Electric Power Research Institute (EPRI) is working on a wide variety of research, development and demonstration projects aimed at developing new electric power delivery technologies that support a smart grid. EPRI’S IntelliGridSM initiative is creating the technical foundation for a smart power grid that links electricity with communications and computer control to achieve tremendous gains in reliability, capacity, and customer services. The GridWise Architecture Council is made up of industry experts who are focused on the interoperability of grid devices and systems. The council is defining a framework that will enable interoperability to transform electric power operations into a system that integrates markets and technologies. The Galvin Electricity Initiative, launched in 2005 in response to the massive East Coast blackout of August 2003, is headed by Former Motorola Chief Robert W. Galvin. Its aim is to create a power delivery system that is environmentally sound, fuel efficient, resilient, and robust; than can withstand natural and weather-related disasters; and that can mitigate the potential damage caused by terrorist attack. Coined “the perfect power system”, it will make affordable electricity available to all consumers and allow consumers to control their own energy use to the extent they choose. The Smart Grid Policy Center, established in 2007, will become the center of competency on policies and technologies that support the implementation and deployment of a smart grid. The Electric Drive Transportation Association released in January 2009 its Electric Drive Road Map for Energy Security, which details the need for advancing technological developments in electric drive and energy storage options. The EDTA is advocating for a smart charging infrastructure, which is an integral part to transportation and smart grid, to enable the expansion of the electric vehicle market. The Federal Energy Regulatory Commission (RERC) and the National Association of Regulatory Utility Commissioners (NARUC) have joined together in collaborative dialogue on facilitating the transition to a smart electric grid. This FERC/NARUC collaborative provides an opportunity for federal 10 and state colleagues to work together on important new policies to support the vision of a smart grid. Page
    • The North American Electric Reliability Corporation worked directly with the utility industry to create the Critical Infrastructure Protection standards. NERC continues to maintain, update, and enforce these standards. A current focus is on issues surrounding cyber security. DOE and the U.S. Environmental Protection Agency are cosponsoring the National Action Plan for Energy Efficiency, Vision for 2025, whose goal is to achieve all cost effective energy efficiency by 2025. Gains in efficiencies, termed our efficiency resource, could meet 50% or more of the growth in demand anticipated between now and 2025. The American Public Power Association (APPA) convened a Public Power Smart Grid Task Force. The task force includes representatives from public-owned utilities, nonprofits, and private entities to develop recommendations enabling public owned utilities to prioritize smart grid investments. Edison Electric Institute’s membership of shareholder-owned utilities has made implementation of a smart grid an EEI corporate goal. EEI seeks a rational evolution that focuses on the deployment of smart grid technologies as the value of those technologies can be shown. The Center for American Progress is advocating a national clean energy smart grid. In April 2009, CAP produced the report, “wired for progress 2.0”, a call for action on addressing key hurdles of a smart grid. Analysis and Estimation of Growth Potential Incorporating into power grid is the only way for clean energy sources to develop. To accelerate the exploitation and development of clear energy sources such as nuclear, wind, solar, and biomass is the strategic support for sustaining energy supply. As the only carrier to transmit power, power network is a prerequisite and support for achieving large-scale development, long-distance delivery and extensive generation absorption of clean energy sources. In other words, only if the clean energies are transformed into power, could large-scale development, long-distance delivery and high-efficiency utilization be achieved. The north of the state with abundant wind energy is far from load center and lacks ability in selling power as well. Only by a smart grid could large-scale trans-regional generation 11 absorption be realized. Page
    • A smart grid will provide support for intensive exploitation and utilization of clean energy sources by integrating advanced information, automation, operation control, energy storage system, operational control, delivery technology. On the one hand, secure and stable functioning of power grid while incorporating large-scale clean energy sources could be guaranteed, and thus ability of power grid to absorb clean energy sources could be efficiently enhanced. On the other hand, smart grid could provide transmission conditions for large-scale and intensive exploitation of clean energy sources far from load centers. Thus, it could be said that smart grid is the only road to achieve sustainable development of energy resources, because it could to the maximum extent absorb clean energy sources, achieve energy conservation and improve energy efficiency. Therefore, a smart grid is an effect means to alleviate ecological environmental problems. The south of Michigan, especially the southeast, is more populous and developed than the north of the state. Thus, environment is heavily loaded so that inconsistency between economic development and land resources is increasingly obvious. Smart grid will be an important means to optimize the distribution of fossil fuel power plants, utilize the environmental capacity of various areas in entirety, and use land resources intensively. To promote the establishment of wind power generation stations in the north abounding in wind energy could both leave leeway for land resources and environmental capacity demanded by the south for economic development, and facilitate the transformation of resource strength of the north to its economic strength, increase rate of recovery, and reduce the exploitation of non-renewable fossil fuels and pollution from their transportation. A smart grid is vital to reduction of greenhouse gas emissions. To support incorporation of clean energy sources into power grid, promote large-scale exploitation and high-efficiency utilization of clean energy sources is a key measure to bring enterprises among the power grid into full play, reduce greenhouse gas emissions, and cope with climate change. Enterprises should fully exert the function of supporting points to a smart grid, make the most of their influences and drives on society and industries, advocate green development, implement green production and procurement, promote technological upgrading of industries, resource-conserving social construction, and sustainable development of economy and society. Besides, enterprises should still be aimed at raising the capacity to accommodate clean energy sources, reducing circuit loss rate 12 and coal consumption by generator units, and promoting development of electric vehicles. Page
    • PART II Case Study: DTE Energy DTE Energy (NYSE: DTE) is an integrated energy utility company headquartered in Detroit, Michigan. DTE provides gas and electric utility services to 2.7 million Michigan homes and businesses, and has a variety of business operations in 26 US states. In 2009, DTE reported income of $532 million on revenue of $8 billion. The company employs over ten thousand individuals. The largest subsidiaries of DTE are Detroit Edison and Michigan Consolidated Gas Co. (MichCon). Founded in 1903, Detroit Edison is the largest electric utility in Michigan and one of the largest in the nation. Detroit Edison generates, transmits and distributes electricity to 2.1 million customers in southeastern Michigan. With an 11,084 megawatt system capacity, the company uses coal, nuclear fuel, natural gas, hydroelectric pumped storage and renewable sources to generate its electrical output. Commissioned in January 1988, the company's Fermi 2 nuclear power plant represents 30% of Michigan's total nuclear generation capacity at 1.1 million kilowatts. This single plant is capable of producing enough electricity to serve a city of about one million people. Founded in 1849, MichCon is one of the nation's largest natural gas utilities. MichCon is engaged in the purchase, storage, transmission, distribution and sale of natural gas to approximately 1.2 million customers in Michigan. The company owns and operates 278 storage wells representing approximately 34 percent of the underground working capacity in Michigan. There is more gas storage capacity in Michigan than in any other state. DTE’s Gas Resources subsidiary also operates more than 170 wells in the Fort Worth basin. Located in north central Texas, the Barnett shale formation has emerged as one of the largest and most active gas fields in North America. DTE Energy Services owns and/or operates on-site energy projects throughout the country with automakers, steel companies, large commercial and industrial businesses, and the pulp and paper 13 industry – including chilled water, compressed air, waste-water treatment, fuel supply, power generation and price risk management. In the pulp and paper industry, DTE Pet Coke helps businesses Page
    • significantly reduce energy costs by replacing natural gas and fuel oil energy sources with pulverized petroleum coke. DTE Biomass Energy converts methane emitted from decomposing trash into electricity, steam and pipeline quality gas at more than 20 landfill recovery sites in 14 states. By collecting and turning harmful greenhouse gases into a renewable source of energy, DTE claims to have recovered more than 900 billion cubic feet of landfill gas to date - a positive environmental impact equivalent to planting more than 4.5 billion trees. DTE Methane Resources is a niche operator in abandoned coal mine methane recovery with a unique blend of competencies. Methane, a potent greenhouse gas, is a byproduct of the geological process that transforms organic material into coal. DTE Methane Resources projects collect the methane gas in abandoned and operational coal mines.10 To find out more about how DTE is investing in Smart Grid technology, we contacted Detroit Edison’s Vice President of Distribution Operations Vincent G. Dow. A thirty-year veteran of Detroit Edison, Dow is responsible for overseeing the company’s electrical distribution system, including distribution and substation operations, outage restoration, new customer connections, engineering, field and meter services, and all distribution system construction. Dow also oversees asset optimization, resource management, performance management, and the Smart Grid efforts for DTE Energy. In speaking to Dow, it became evident that he feels that when all things are considered, companies in the Smart Grid sector are not that different from most other companies. They are seeking a talented workforce, appropriate sites and infrastructure for their business operations, and a favorable tax and regulatory environment for their particular endeavors. When questioned about whether he believes that Michigan is taking appropriate actions to attract investment in the energy sector, Dow expressed confidence in the educational and workforce development programs being offered through our higher learning institutions and the government. Where he sees problems are in the state’s uncertain and often cumbersome tax and regulatory structure. This can be considered a 14 deterrent to businesses from any sector to locating in Michigan. He feels the state also suffers from a Page 10 Background information provided by DTE, through http://www.dteenergy.com/
    • lack of leadership and promotion – which seems to fly in the face of efforts led by Governor Jennifer Granholm to tout Michigan as a leader in the new economy. There remains, Dow believes, a strong perception nationally of Michigan as a failed manufacturing state, where uneducated workers rely on Union negotiation to secure higher wages and benefits than the market can support. More effort, Dow feels, is needed to court the existing business leaders who can better persuade other businesses to join them in Michigan.11 DTE operates an Economic Development team which offers to companies considering expansion or relocation to Michigan confidential building and site location assistance, rate analysis and support, and direct access to key decision-makers through the company’s strong community and economic development partnerships. The department’s website lists many positive attributes for companies considering a move to Michigan:12  Michigan ranks third in the number of engineering degrees awarded annually.  With the nation's fourth largest high-tech work force, Michigan offers the skills and expertise required for companies to succeed in the 21st century.  We rank third in the country in private sector lending to small businesses.  We rank third in home ownership rates. Living in Michigan is affordable, safe and uniquely enjoyable.  Michigan offers the most aggressive film tax credits in the nation. Our range of urban, suburban, rural and coastal landscapes, as well as four distinct weather seasons, provides rich opportunities for film- makers. DTE also maintains a venture capital subsidiary through DTE Energy Ventures. Over the past decade, DTE Energy Ventures has invested over $100 million in energy-related companies in Michigan and around the country. These companies are those typically beyond the initial start-up phase of development, but who still need additional capital to reach their potential. The investors have a focus on 15 Page 11 Phone interview with Vincent Dow conducted on April 9, 2010 12 http://www.dteenergy.com/dteEnergyCompany/economicDevelopment/whyMichigan.html
    • entrepreneurial ventures in energy efficiency, renewable energy, and energy storage – all of which touch the Smart Grid sector we have described – as well as investments made in other venture funds that target similar companies. DTE Energy Ventures also has provided financing for demonstration projects and other technological initiatives. One such project has been the DTE Energy Hydrogen Technology Park. This hydrogen energy demonstration project was designed to provide critical insight into the role of hydrogen in our nation's energy system. From the generation of hydrogen to storage, distribution and conversion to energy, the working prototype produces hydrogen gas from tap water using a mix of solar power, biomass power and power from the electric grid. It compresses and stores the hydrogen on site, and delivers enough electricity to power a small office complex, or approximately 20 homes, and produce enough compressed hydrogen gas to power about three fuel cell vehicles per day. DTE formed a partnership with DaimlerChrysler and the US Department of Energy for this project.13 The company also maintains four solar demonstration projects, both in Michigan and in California.14 DTE has partnered with the University of Michigan to present the Clean Energy Prize competition, which awards $100,000 in prize money to teams of Michigan students, faculty and professionals who develop the best business plans for bringing new clean energy technologies to market. The inaugural competition in 2009 awarded $65,000 to a team with a plan to use algae to simultaneously treat wastewater and produce the raw materials for biofuels. Twenty-two teams competed for the award.15 DTE has also competed for and been awarded competitive grant money from the federal government to help develop its Smart Grid programs. In October 2009, DTE was awarded $84 million from the US Department of Energy to implement its SmartCurrents program in Michigan. Total investment, by DOE, DTE and other partners, is reported to total $170 million. SmartCurrents is DTE’s program to develop an Advanced Metering Infrastructure that allows for increased interaction between end users and the grid, as well as allowing for remote monitoring and reading by DTE. The company plans on installing 700,000 meters, which also enables technology for in-home displays, smart 13 http://www.dteenergyventures.com/technologyInitiatives/hydroTechPark/ 16 techPark.html?technologyInitiativesDisplay= 14 http://www.dteenergyventures.com/technologyInitiatives/solarDemoProjects/ Page solarDemo.html?technologyInitiativesDisplay= 15 http://www.dtecleanenergyprize.com/
    • appliance communication, and advanced thermostats to be introduced as well. DTE is also using this funding to make necessary improvements to its substations and other infrastructure involved in improving efficiency and smart grid readiness.16 DTE estimates that this investment in the rollout of the SmartCurrents program will create 700 deployment and construction jobs for IT contractors and overhead linemen, and 350 permanent positions for suppliers.17 DTE and A123 Battery Systems A123Systems develops and manufactures advanced lithium- ion batteries and battery systems for the transportation, electric grid services and portable power markets. Founded in 2001 and headquartered in Massachusetts, A123 Systems’ proprietary nanoscale electrode technology is built on initial developments from the Massachusetts Institute of Technology. A123 was born out of the research labs of the Massachusetts Institute of Technology and was funded initially with a $100,000 grant from the US Department of Energy in 2001.18 A123 entered Michigan in 2006 when it acquired Ann Arbor-based T/J Technologies – an advanced materials research company founded by three University of Michigan alumni in 1991.19 In April 2009, DTE Energy Ventures was among several others in providing A123 Systems with $69 million in venture capital financing.20 Since then, A123 was also awarded $100 million in refundable tax credits by the State of Michigan to build new production facilities in Livonia and Romulus.21 In November 2009, DTE was awarded $5 million in American Recovery and Reinvestment Act (ARRA) grant funding from the US DOE for Detroit Edison’s Advanced Implementation of A123s Community Energy Storage Systems for Grid Support. The project will demonstrate the use and benefits of Community Energy Storage (CES) systems for utilities and test the ability to integrate secondary-use electric vehicle batteries as part of the CES demonstration. Success of this 16 http://dteenergy.mediaroom.com/index.php?s=43&item=453 17 http://dteenergy.mediaroom.com/index.php?s=43&item=455 17 18 http://ir.a123systems.com/releasedetail.cfm?ReleaseID=403092 19 http://www.annarborusa.org/growth-expansion/success-stories/tj-technologies/ Page 20 http://dteenergy.mediaroom.com/index.php?s=43&item=406 21 http://ir.a123systems.com/releasedetail.cfm?ReleaseID=403091
    • demonstration could extend the lifecycle use of electric car batteries, and lead to lower lease and purchase costs of plug-in vehicles. This project will install 20 CES units, 25kW/2hr each, into a system that includes a 1 MW storage device integrated into a solar system.22 Other Smart Grid Investment in Michigan General Electric is another major energy corporation making Smart Grid investments in the State of Michigan. The global giant (304,000 employees in 160 countries) announced in June 2009 that it was investing $100 million to convert a shuttered Visteon facility in Van Buren Township into a new Advanced Manufacturing and Software Technology Center employing up to 1200 workers. The center will be utilized to research and develop the manufacturing technology for wind turbines and other green technology, as well as software, IT and other manufacturing.23 In a speech given by GE CEO Jeff Immelt to the Detroit Economic Club, the executive was quoted: “Michigan is a great location for a technology center because of its world- class engineering, technical talent and public officials who understand that investing now will create tomorrow’s leading positions in information technology, clean energy and transportation.” 24 GE is also a major stakeholder in A123 Systems. In the same round of financing that drew investment from DTE Energy Ventures in 2009, GE Energy Financial Services and GE Capital 18 22 http://www.energy.gov/news2009/documents2009/SG_Demo_Project_List_11.24.09.pdf Page 23 http://www.mlive.com/business/index.ssf/2009/06/general_electric_picks_van_bur.html 24 http://files.gereports.com/wp-content/uploads/2009/06/michigan_technology_center_release_62609.pdf
    • contributed $15 million of the $69 million raised by A123. GE is now the largest cash investor in A123, with $70 million invested cumulatively for a 10% ownership stake in the company.25 Smart Grid implementation includes many opportunities for consumers as well as for utility and industrial businesses. One such consumer innovation will be the development of Smart appliances – washing machines, refrigerators and other household staples. Michigan-based Whirlpool Corporation is leading the way in its commitment to bringing these appliances to market. In May 2009, at the EE Global Forum & Exhibition in Paris, announced that by 2015 every electronic appliance it makes worldwide will be capable of receiving and responding to signals from smart grids.26 In order to do so, the company is taking the lead in forming two critical partnerships. The first is to drive the development by the end of 2010 of an open, global standard for transmitting signals to and receiving signals from a home appliance. The second is to develop appropriate policies that reward consumers, manufacturers and utilities for using and adding these new peak demand reduction capabilities.27 United States Energy Policy and the Smart Grid As has been stated in this and countless other reports, it is ultimately government policy that shapes the market for whether or not Smart Grid technologies are successful. Whether through direct investment – through government grants as well as through actually purchasing goods and services – or by way of indirect influence through regulation, taxation and incentives, governments at the local, state and federal level exert great influence on this sector of the emerging economy. The Energy Independence and Security Act of 2007 (EISA) passed by the United States Congress contains many elements that spell out the current position of the US Government towards energy and the Smart Grid. Title XII – Section 1301 contains a statement of policy on the modernization of the electric grid: 19 25 http://ir.a123systems.com/releasedetail.cfm?ReleaseID=403092 Page 26 http://www.greenbiz.com/news/2009/05/08/whirlpool-set-launch-smart-grid-compatible-appliances-2015 27 http://investors.whirlpoolcorp.com/phoenix.zhtml?c=97140&p=irol-newsArticle&ID=1285080&highlight=
    • It is the policy of the United States to support the modernization of the Nation’s electricity transmission and distribution system to maintain a reliable and secure electricity infrastructure that can meet future demand growth and achieve the ultimate goals that together define a Smart Grid. The section goes further: to call for DOE to report to Congress on the deployment of Smart Grid technologies and any barriers to deployment; for DOE to establish a Smart Grid Advisory Committee and a Smart Grid Task Force to assist with implementation; to direct DOE to conduct Smart Grid RD&D and to develop measurement strategies to assess energy savings; to direct the National Institute of Standards and Technology to establish protocols and standards to increase the flexibility of use for Smart Grid equipment and systems; to direct DOE to create a program that reimburses 20% of qualifying Smart Grid investments; to direct states to encourage utilities to employ Smart Grid technology and allow utilities to recover Smart Grid investments through rates – among others. Two major initial provisions of this legislation were not ultimately included in the enacted law. The two most controversial provisions of H.R. 6 were the proposed Renewable Energy Portfolio Standard (RPS) and most of the proposed tax provisions, which included repeal of tax subsidies for oil and gas and new incentives for energy efficiency and renewable energy.28 These provisions would have done a great deal to shape the Smart Grid market by mandating and incentivizing an increased use of renewable energy and efficiency. The proposed national 15% RPS would have been greater than that which has been approved in Michigan and many other states with lower or no RPS at all. Michigan Energy Policy and the Smart Grid In 2005, the Michigan Legislature authorized the allocation of $1 billion in state tobacco settlement funds29 over ten years to create the 21st Century Jobs Fund. The fund’s mission is to increase equity investment activity, increase commercial lending activity, and to encourage the development and commercialization of competitive-edge technologies.30 Among the four competitive- 20 28 http://energy.senate.gov/public/_files/RL342941.pdf 29 The Tobacco Master Settlement Agreement (MSA) is an agreement entered into in November 1998, originally Page between the four largest US tobacco companies and the Attorneys General of 46 states. 30 http://www.michiganadvantage.org/Targeted-Initiatives/21st-Century-Jobs-Fund/Default.aspx
    • edge sectors the fund chooses to focus on is the alternative energy sector. Within that sector is a specific commitment towards investing in advanced energy storage systems – primarily through advanced battery manufacturing and research. The state has leveraged its strength within the automotive sector, as the market for and development of hybrid-electric vehicles has grown, to address the need for developing a domestic advanced battery manufacturing industry. This has included a recently-expanded incentive program for advanced battery R&D and engineering, pack manufacturing, and cell manufacturing. The state is actively recruiting battery manufacturers, to lure them to the state with these incentives. Michigan is also awarding incentives to help create the supply chain necessary to support a growing battery industry, as well as providing the workforce development and job training programs vital to establishing a skilled pool of labor. The state also boasts the nation’s first Energy Systems Engineering Masters program at the University of Michigan, which delivers a targeted curriculum toward the development of battery and energy infrastructure engineers.31 Recent analysis of the first few years of 21st Century Jobs Fund financing has shown that only a small portion has gone towards the alternative energy sector. A 2007 Senate Finance study showed that, of 82 awards that had been given at the time, just seven were allocated to the alternative energy sector. Statutory requirements within the authorizing legislation mandated a large amount of funding be dedicated to the life sciences sector.32 The current Michigan Economic Development Corporation portfolio of 21st Century Jobs Fund investments shows that only 4% of the fund’s investment has been in the alternative energy sector – none of which is seemingly 21 31 http://www.michiganadvantage.org/Targeted-Initiatives/Advanced-Energy-Storage/Default.aspx Page 32 http://www.senate.michigan.gov/sfa/Departments/DepartmentPublications/MSF-MEDC- JobsFundPresentation.pdf
    • directly in Smart Grid technology.33 Perhaps in an effort to change the way in which the fund was initially investing, legislation was passed in both 2008 and 2009 to direct a total of $73 million to be used by companies who partner with universities to form Centers of Energy Excellence to aid in commercializing innovative energy technologies. These funds are specifically designated to help match federal funds when it is necessary to do so in order to receive federal grant money. In 2008, the Michigan Strategic Fund Board awarded $43 million to six Centers of Energy Excellence in the first phase of the program. 2009 Public Act 144 allowed a second phase of the COEE program.34 Michigan’s current energy regulatory policy was set in motion in April 2006, when Governor Jennifer Granholm issued Executive Directive 2006-2, calling for a 21st Century Energy Plan. The directive ordered the Chairman of the Michigan Public Service Commission to prepare a plan that would address several specific components laid out by the Governor. These points included: preparing an analysis of the long-term electrical needs of the state; ensuring “appropriate use and application of energy efficiency, alternative energy technology, and renewable energy technologies… with the goal of assuring reliable, safe, clean and affordable energy”; identifying technology options to generate, transmit, or distribute energy more cleanly or more efficiently; and the creation of a renewable portfolio standard.35 The state had not been working under any comprehensive energy plan since 1996. Hundreds of participants representing over 150 stakeholder organizations from customer groups, business groups, jurisdictional and non-jurisdictional utilities, independent transmission companies, environmental groups, energy efficiency advocates, independent power developers, and alternative and renewable energy providers were active in the planning stages.36 In January 2007, the 21st Century Energy Plan was released. In it, the commission made the recommendation that Michigan legislate a 10% RPS be in place by 2015, with the possibility of expansion to 20% by 2025. This target did set Michigan ahead of the 13 states that have no renewable or alternative energy portfolio standards, but critics were disappointed that a higher standard was not set. Neighboring Great Lakes states such as Ohio and Illinois have 25% standards in place. Noted economist and New York Times columnist Thomas Friedman spoke to an audience at Eastern Michigan University in 2008 (weeks before the Michigan Legislature passed the 10% standard) and 33 21stCJF_invest_portfolio.pdf accessed 5/4/2010 via www.michiganadvantage.org 22 34 COEE Fact Sheet: http://www.michiganadvantage.org/Targeted-Initiatives/21st-Century-Jobs- Fund/Default.aspx Page 35 http://www.michigan.gov/gov/0,1607,7-168-36898-140415--,00.html 36 http://www.michigan.gov/documents/mpsc/21stcenturyenergyplan_185274_7.pdf
    • called for Michigan to enact the toughest standards in the country. In his presentation to a group of business leaders there, Friedman advocated for a 30% standard by 2020 because of the impact such a high mark would have on creating a strong market demand.37 The legislation that would become law as a result of the recommendations of the 21st Century Energy Plan would be known as the Michigan Clean, Renewable, and Efficient Energy Act of 2008. The Governor signed the package of bills on October 6th, 2008. Besides the 10% RPS, the final legislation package also included an income tax credit to offset a portion of ratepayers' investments in renewable energy for Michigan and a "net metering" law that allows customers to sell renewable electricity they produce at their homes or businesses to their utility companies. The bills’ energy efficiency initiatives were projected to save consumers and businesses $1.04 billion a year by 2025.38 23 Page 37 http://www.mlive.com/businessreview/annarbor/index.ssf/2008/09/thomas_friedman_michigan_needs.html 38 http://www.michigan.gov/gov/0,1607,7-168-23442-201273--,00.html
    • Realigning Michigan’s Priorities in 2010 The 2009 Michigan Green Jobs Report claims that there are currently 109,000 “green” jobs in the State of Michigan – a number that makes up only 3.4% of total employment. 41% of these existing green jobs are within the transportation and clean fuel sectors, and the vast majority of the additional 25% within the energy efficiency core are based in the construction industry. It is difficult to quantify the exact number of these jobs which could be attributed to Smart Grid technologies. This is primarily due to the lack of definition over what constitutes a Smart Grid job. Smart Grid technologies were not specified in the survey that led to the generation of the report. Several occupations listed in the report, however, may have significant ties to the Smart Grid sector. Just over a thousand workers, for example, or 4.7% of the energy efficiency core area, are power plant operators who could be actively employed in Smart Grid activities. While fewer than 9,000 jobs are devoted to renewable energy production, detailed industries in Utilities and Manufacturing, focused in the areas of electricity generation and distribution, comprised the majority of the Renewable Energy Production cluster, accounting for about 60 percent of employment. Some of the industries where Michigan seems to be showing signs of success in relation to the country as a whole are those which could most directly relate to Smart Grid technologies – although they probably do not currently translate directly to actual Smart Grid activity. Between 2004 and 2008, Michigan showed a 30% increase in “Other Electronic Component Manufacturing”, compared to a 9.4% increase nationwide. Michigan added 1000 jobs in that time period in “Power and Communication Line Construction” – another 30% increase in comparison to 24.9% nationally. “Semiconductors and Related Devices” saw a 256.9% spike, compared to job losses at the national level.39 All of these industry classifications would seem to include the necessary skills required for jobs working on Smart Grid technologies. If Michigan workers can develop and manufacture semiconductors and electrical components for solar panels and fuel cells, it stands to reason that they can do the same for smart meters and energy monitoring devices. Up to this point, Michigan’s existing workforce development programs and energy-related policy initiatives do not seem to be driving much investment in the Smart Grid technology sector. Even as Michigan’s government and business leaders seek economic diversity, the state seems to be building upon entrenched strengths in the automotive, construction, and life sciences industries. This makes 24 Page 39 Michigan Green Jobs Report 2009 - http://www.milmi.org/admin/uploadedPublications/1604_GreenReport_E.pdf
    • sense in the short-term for a state leading the nation in unemployment. Michigan’s first priority is finding work quickly for displaced workers with certain skills and experience. But as this report was being researched, on April 8, 2010, the U.S. Department of Energy awarded the Michigan Department of Energy, Labor & Economic Growth (DELEG) a $4.388 million competitive grant to train workers for jobs in the electric power sector – Michigan's Electric Power Workforce Training Strategy. This investment, funded through the American Reinvestment and Recovery Act of 2009 (Recovery Act), will allow the state of Michigan to prepare 588 individuals for high-skill jobs building and operating Smart Grid technologies that will modernize the state's electrical infrastructure. It is perhaps a sign that Michigan is viewing the data as we are, and seeing opportunity for growth in this emerging sector. These Recovery Act dollars will allow DELEG to leverage an additional $16.7 million from Consumers Energy and DTE Energy for wage support and apprenticeship opportunities for workers enrolled in the Smart Grid training program. Consumers Energy and DTE alone anticipate hiring 186 new workers trained through the new Smart Grid program.40 Potential for Smart Grid Growth The figure below is a projection for overall growth in the U.S. market for Smart Grid technologies over the next five years. Note that total U.S. market size is projected to double. 25 Page 40 http://www.michigan.gov/dleg/0,1607,7-154--235079--,00.html
    • This figure breaks down the projections for market growth in certain specific Smart Grid technology sectors. The segment with the largest current share of the total Smart Grid market is smart sensors and devices. The segment with the largest projected five-year growth is in smart metering hardware and software. It should be noted that these industry segments seem to reflect the same portions of Michigan’s existing green jobs economy that have shown the most growth over the past few years. They are high-tech, knowledge-based research and manufacturing jobs, requiring more advanced and specialized training and education than is currently the primary focus in Michigan. This last figure illustrates the job creation potential in the United States for key Smart Grid segments: 26 Page
    • Conclusions and Recommendations to NEI The purpose of this report has been to analyze the growing economic sector surrounding what constitutes Smart Grid technology, to assess its potential for growth in the state of Michigan, and to make recommendations regarding what efforts should be made in order to stimulate economic growth and job creation within the sector. The New Economy Initiative for Southeast Michigan is a philanthropic initiative, created in 2008, aimed at helping to restore southeast Michigan to a position of leadership in the new global economy.41 The Initiative maintains its grantmaking focus on three modules of activity. The three modules of activities are: 1. Promote a successful entrepreneurial eco-system 2. Capitalize on existing regional assets and resources, and 3. Build and employ a more skilled and educated workforce Capitalizing on Existing Regional Assets and Resources NEI leadership considers this module of work the research and development arm of NEI.42 Because of parallel applications within automotive industry, it makes a great deal of sense for Michigan to direct policy and investment towards applying Smart Grid battery storage solutions to improve alternative energy reliability. The domestic automakers, as well as many foreign-owned brands, are already employing large numbers of workers in battery research and development. Michigan’s universities are already offering programs to train students to work in this field. DTE Energy, General Electric and A123 Systems are already heavily invested in battery technology in Michigan. The state has programs in place to offer tax incentives to companies looking to develop battery-related businesses in Michigan. What is needed is a program that will develop the industry beyond its automotive roots, and fully explore its potential for Smart Grid and renewable energy integration. One avenue to consider is to expand upon the pilot project that DTE and A123 have in place, which uses batteries for community 27 Page 41 http://neweconomyinitiative.cfsem.org/about/history-of-nei 42 http://neweconomyinitiative.cfsem.org/grants/capitalizing-on-existing-assets
    • energy storage solutions. A larger-scale project – integrating wind, solar and other renewable sources of power generation into a functioning residential and commercial grid through the use of battery storage systems, smart meters, and other smart technologies – would serve to attract substantial attention and investment in these peripheral industries that Michigan is not yet receiving. Another recommendation that will capitalize on Michigan’s existing automotive-based battery sector would be to offer funding for projects that will develop a strong secondary market for used automotive battery packs. If Michigan is to be the leader in developing and manufacturing these products, it needs too to be the leader in recycling and repurposing them for other uses. Building a Skilled Workforce NEI seeks to be a “catalyst for change” in Michigan’s workforce development. One of the main components to NEI’s workforce development strategies is to support strategies and programs that build on a sectoral approach to employment – including the advanced manufacturing and alternative energy sectors.43 Michigan’s current workforce development goals are not in line with the idea of establishing a strong Smart Grid technology sector in the state. Much of Michigan’s workforce training is focused on retraining lower-skilled, out-of-work manufacturing workers to work in “green collar” jobs in construction and other manufacturing. More can be done to allow more educated workers with engineering and technical experience to adapt to the needs of Smart Grid technology companies. The April 2010 award from the Department of Energy to create Michigan's Electric Power Workforce Training Strategy should be considered as a great start to future investment. NEI could seek to use its funding to leverage additional federal funds, as well as additional private sector participation. The educational focus in Michigan needs to shift to the understanding of computer and electronic devices and components that will connect the Smart Grid. NEI should consider opportunities to form partnerships between Smart Grid technology businesses, colleges and high schools to impress upon our state’s younger students the value of computer and electrical engineering in the future economy. Lastly, NEI should encourage efforts to educate the people of Michigan about the impact that Smart Grid technology can have on our future economy. Criticisms regarding costs and other concerns need to be addressed directly and in a way that improves the public’s perception. 28 Page 43 http://neweconomyinitiative.cfsem.org/grants/workforce-development