Forbes.com: Smart Grids Get A Pay Raise !!!

Andy Greenberg, 05.18.09, 06:40 PM EDT
A U.S. energy policy change means that a smaller number of smart-grid projects could receive larger chunks of stimulus funds.

With its focus on technology upgrades to the electrical grid, the Obama administration may have found a worthy "shovel-ready" project, one that both stimulates the economy and alleviates energy woes. But it seems to have underestimated the size of the shovel.

On Monday, the Department of Energy announced that it would raise the maximum amount of the matching grants aimed at so-called smart grid projects tenfold, from $20 million to $200 million per project. The cap on grants for demonstration projects will also be raised, from $40 million per recipient to $100 million.

That shift in spending won't change the total amount of federal funds aimed at smart-grid projects, which was set at $4.5 billion in February's economic stimulus bill. But the change shows that large-scale smart-grid initiatives may be much more costly than previously expected, and likely means that a smaller number of initiatives grab larger chunks of funding, says DOE spokeswoman Jen Stutman.

"Our goal is to fund projects of all sizes as quickly as possible," she says. "If we hadn't raised the cap, we might have awarded a few more awards, instead of giving them at a larger scale."

Smart-grid projects, including smart-metering systems that allow users to change their energy use in real-time in response to energy supply, are expected to vastly increase the efficiency of America's power supply; smart-metering systems, for instance, could save utilities $35 billion over the next 20 years, according to the consulting firm Brattle Group.

But Monday's policy change comes as a response to protests from utilities and other grid-watchers that the DOE's original plan for smart-grid spending, submitted last month, undercut big revamps to electrical systems. Major utility companies including American Electric Power ( AEP - news - people ), Dominion Energy and Centerpoint Energy all plan to spend well over the $40 million per project imagined in the DOE's original program, says Katherine Hamilton, president of the Gridwise Alliance, a coalition of smart-grid supporters that includes utilities, technology companies and universities. "This is a whole new level of IT laid onto the grid," Hamilton says. "I don't think anyone knew exactly how much it would cost."

Raising the cap on grants for a single project will likely mean that the government distributes its $4.5 billion more quickly to utility companies, and may also shift the competitive landscape for the technology companies vying for deals with those utilities. Tech giants like General Electric ( GE - news - people ), IBM ( IBM - news - people ) and Cisco ( CSCO - news - people ) have all announced their intention to sell equipment aimed at making electrical grids more efficient and responsive, a market valued at around $100 billion, according to a Cisco announcement Monday. (See "Cisco Gets Smart.")

With the maximum grant for a single project dramatically raised, those companies will likely find themselves competing for fewer, more lucrative customers--a situation that could favor larger tech firms capable of grabbing big deals, the Gridwise Alliance's Hamilton says. "To get the money out the door as quickly as possible, the administration is focusing on fewer projects of larger scale," she says. "If you have a company that does entire end-to-end tech solutions, then a higher cap on spending means bigger opportunities."