Modernizing the Grid: Part II

The economic and employment opportunities of upgrading the power grid

7 October 2013

Because of the fundamental importance of the mission and the costs involved in developing a smarter grid, a critical approach must be taken to the enormous investments needed to improve its reliability and resiliency, and enable economic competitiveness. One metric is “payback,” or return on investment (ROI).

Having studied this in depth, each US $1 invested garners a return to the broader economy of $2.80 to $6. The ROI begins immediately with economic stimulus and job creation. To reach these numbers I used a very narrow definition of “smart grid.” If the definition is broadened, the benefits increase.

The cost of a smarter grid would depend on how much instrumentation is actually put in, such as the communications backbone, and enhanced security and increased resiliency features. The total price tag ranges around $340 billion to $480 billion, which, over a 20-year period, would be something like $20 to $25 billion per year. But right off the bat, the benefits are $70 billion per year in reduced costs from outages. And in a year where there are a number of hurricanes, ice storms, and other disturbances, that benefit goes even higher.

Currently, outages from all sources cost the U.S. economy somewhere between $80 and $188 billion annually. With a smarter system, costs of outages would be reduced by about $49 billion per year and reduced CO2 emissions by 12 to 18 percent by 2030. In addition, it would increase system efficiency by over 4 percent, and that’s another $20.4 billion a year.

The costs cover a wide variety of enhancements to bring the power delivery system to the performance levels required for a smart grid. They include the infrastructure to integrate distributed energy resources and achieve full customer connectivity, but exclude the cost of generation, the cost of transmission expansion to add renewables and to meet load growth, as well as a category of customer costs for purchase of smart-grid-ready appliances and devices. Despite the costs of implementation, investing in the grid would pay for itself, to a great extent.

As of March 2012, the total invested value of $2.96 billion to support smart-grid projects generated at least $6.8 billion in total economic output. Smart-grid deployment positively impacted employment and labor income throughout the economy. Overall, about 47 000 full-time jobs were supported by investments.

Among smart-grid vendors—an ecosystem of manufacturers, information technology, and technical services providers—about 12 000 direct jobs were supported with the remaining jobs being in those companies’ respective supply chains induced by the money spent throughout the broader economy.

Investment in core smart-grid industries supports high-paying jobs. Industrial sectors that benefit directly include computer systems design, technical and scientific services and consulting, and electrical/wireless equipment and component manufacturing. Industrial sectors that experience indirect and induced benefits include real estate, wholesale trade, financial services, restaurants, and health care. The U.S. Department of Energy American Recovery and Reinvestment Act’s investments in smart grid also supported employment in personal service sectors such as health care, financial services, real estate, and food/restaurants through indirect and induced impacts.

This article is the second in a series on “Modernizing the Grid.” The next post will discuss the role of smart grid in developing renewable energy. Follow us @IEEEInstitute, Facebook, or sign up for our E-newsletter to get notified of upcoming posts.

Massoud_Amin Photo: Massoud Amin

Massoud Amin is an IEEE senior member and the director of the University of Minnesota’s Technological Leadership Institute, in Minneapolis, where he is also a professor of electrical and computer engineering. He is chair of the IEEE Control Systems Society’s Technical Committee on Smart Grids, and serves as chairman of the IEEE Smart Grid Newsletter.


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