President Barack Obama has announced a $3.4bn investment into modernising the nation’s electricity grid in the largest single grid modernisation investment in US history. It has been a long time in coming. As Carol Browner, assistant to the president for energy and climate change, put it, the US has an “antiquated” system. The funding, which must be matched at least dollar-for-dollar by recipients, means a total of $8.1bn is to be spent.

The US government says modernising the grid and installing smart meters,  thermostats, will create tens of thousands of jobs, save money for consumers and businesses, and allow for the transportation of renewable energy across the nation. Jared Bernstein, chief economist and economic policy adviser to the vice president, said the US government is helping to unleash the vast potential of the economy.

The payout today is all part of the administration’s $787bn stimulus spending plan. Of that, $20bn is in energy tax incentives, and there also is a separate allotment of $43bn in Department of Energy grants for energy efficiencies, carbon capture or smart grid projects, according to Andrew Miller, Ernst & Young’s America’s Tax Leader for Power & Utilities. It has taken this long to begin awarding the money because of the complexities involved: the administration had to announce what companies could apply for, set out application guidelines, review applications and award funding. Mr Miller notes that nobody has done anything like this before.

Inflationary fears

There is no doubt the stimulus money has started to flow, and is helping to generate jobs and improve the energy infrastructure of the country. But some worry the majority of it will be too late to aid in economic recovery - its original intent. John Diamond, an economist at the James A Baker III Institute for Public Policy, said just $164bn of the $787bn established in the stimulus package has been spent.

The Obama Administration made clear from the start that most of the money would be spent in 2010 and even 2011. Yet Diamond notes that the US economy is getting to the point where that money will not accomplish its desired goal of stimulating the economy but rather create inflationary pressures if the economy already is turning around. Indeed, there are expectations that US GDP data this week will show an improvement. Diamond suspects a lot of the spending after mid-2010 is likely to be counterproductive.

Yet Joe Stanislaw, economist and founder of the JAStanislaw advisory group, argues that unemployment is so high in some places that there will be plenty of need for the stimulus money through 2010 and perhaps even into 2011. Here is how he explains his position:

We have a strong stock market, but unemployment is on the rise. There are whole pockets of the US that will experience rising unemployment. The stimulus money will be used to employ and help people in those areas currently in double-digit unemployment and those who enter the zone of double-digit unemployment.

He pointed to pockets of Florida, Detroit, Ohio, Pennsylvania as examples, noting that the US is a national economy of multiple, regional economies. While there are green shoots in some, in others there is no sign of them. Besides, if inflationary pressure build amid the stimulus disbursement, he says, the Federal Reserve could take dollars out of the money supply.

Perhaps both views are correct. There likely will be enough demand to soak up stimulus dollars in some parts of the US next year and into 2011. But in some areas funding will probably come amid a recovery and create inflationary pressures.  The bottomline is that disbursing such a large amount of money must be done carefully, so that it can be targeted to the most needy areas, and justify the massive debt the US has taken on to fund the program. How well the Obama Administration does at this remains to be seen.

Where some of the money has gone, and where the remainder is likely to go:

To ensure effectiveness, established companies, such as Iberdrola Renewables, the world’s largest wind provider, were among the first recipients. It received $295m on September 1 and $251m on September 22 because it had shovel-ready projects, according to Jan Johnson, Iberdrola Renewables’ spokeswoman.

The stimulus money is already creating a significant increase in activity in the wind sector, according to Denise Bode, chief executive of the American Wind Energy Association. Since the early July announcement of rules to receive funding from the stimulus bill, the association has seen about $6.2bn in new investment.

The administration’s goal is to not only stimulate the economy but funnel the money toward improving the country’s infrastructure for the long term. This is where the smart grid funding comes in, with awards ranging from less than $10m to $200m, supporting technologies incorporating two-way communication to prevent more power being generated than needed and allowing homes to be contributors of power as well as recipients.

Mark Hura, smart grid commercial leader for GE’s energy business, said $4.5bn of stimulus funding is designated for smart grid research, demonstration programs and so on. The Department of Energy was flooded with so many applications it cancelled a planned third round of funding and said it cannot guarantee there will even be a second round if all the money is used up in the first tranche.

GE has worked with more than 100 of its utility customers on applications for projects Mr Hura hopes will result in large, scaleable demonstrations or actual deployments that show the benefits of smart grid.

Michael Niggli, chief operating officer of Sempra Energy’s regulated California utilities, believes the company’s experience, at a time when the government must ensure transparency and effectiveness, will ensure it is among those obtaining funding.

Local governments are also beneficiaries. Houston’s main administrative building is getting an energy overhaul. This 27-floor building is being retrofitted with new heating and cooling systems, low-flush toilets, motion-sensitive lights, and cooling and heating systems that automatically speed up in the morning and slow down at night.

The air and water systems were 25- to 30-years old and the lighting 5-10 years old and needed replacing, said Gavin Dillingham, director of special projects for the US’ fourth largest city. The $22.8m grant from the federal government is allowing Houston to not just replace, however, but do so with state-of-the art technology to lower energy consumption, reduce carbon emissions and create green jobs not only here but  across the city.

Chase Raska is overseeing the Houston city work that has been contracted to Schneider Electric, which will be paid $9.5m of the funds for retrofitting seven Houston buildings.  Schneider has promised Houston it will have earned back all it has spent in 11.4 years as the more efficient systems save the city its investment in energy bills.

October 27, 2009 5:14pm in Politics | Comment