How Regulators Increase the Business Risk in Smart Grids

Published: August 03, 2010 Category: Smart Grids

The escalating costs of the Boulder SmartGridCity – the project will now cost at least $44.8 million and not the original $15.3 million – is being presented as incompetence on the part of Xcel Energy and possibly of the Colorado Public Utilities Commission as well. (http://www.dailycamera.com/boulder-county-news/ci_15594606?source=rss). It is certainly arguable that both sides could have done a better job of handling their role in the project. But we think that, in the end, the kind of oversight that the PUCs are supposed to have for such projects may do more harm than good.

Even if the Einsteins of the regulatory world had been appointed to the Colorado PUC, they are inherently in no position to make a judgment about projects that involve experimental technologies such as the smart metering used in SmartGridCity.

Commissioners would have to have God like powers to make such decisions, since there is really no way that they can know in advance whether the benefits of a new Smart Grid technology will outweigh the costs. How can they effectively answer questions such as “how will consumers actually behave in such experiments?” In fact, we believe that regulators add considerably to the business risks faced by the corporations and entrepreneurs that are building Smart Grids and therefore actually make Smart Grids less likely to happen.

Consider the following. . . In NanoMarkets/Smart Grid Analysis recent study of Smart Grid markets in Asia, we note that both Chinese and Indian Smart Grid projects seem to be very inexpensive smart meters. Some of these will certainly also be available in the West soon. What seems possible to us, is that some of these products, will not have a long life, either because they simply won’t survive well in the field or (and this is much more likely) they won’t be sophisticated to supply the metering services that customers will need in a few years time.

We wonder therefore, whether, in order to keep regulators happy, will Smart Grid operators have to buy low-cost, low-performance meters from Asia and then have to replace the meters in a very short space of time. If so, this will increase the costs to customers; the very thing that regulators are supposed to prevent.

There may be a role for regulators somewhere in the evolution of Smart Grid deployment, but it is certainly not in trying to structure projects that involve judgment calls about new technologies. Since regulators can never truly be insiders to the projects, they are in no position to make such decisions and are most likely to take such decisions in the worse possible way; politically.

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How Regulators Increase the Business Risk in Smart Grids