Prof. Richard
Schmalensee, MIT
Sloan School of
Cambridge, MA, U.S.A. --- (METERING.COM) --- December 7, 2011 - With some specific policy changes, the United States grid is expected to be able to accommodate the expected influx of electric vehicles and wind and solar generation, according to a new study from the MIT Energy Initiative.

In particular, the study, The Future of the Electric Grid, calls for enhanced federal authority over the routing of new interstate transmission lines, a restructuring of the way customers pay for the costs of the grid, and the naming of an agency responsible for the entire grid.

With wind and solar power likely to be produced far from where it is to be used, long distance transmission lines will be required to be built across multiple regulatory jurisdictions. Currently, when new transmission lines cross state boundaries, each state involved – and federal agencies as well, if federal lands are crossed – can make its own decisions about permission for the siting of these lines, with no centralized authority. To overcome this it is recommended that the Federal Energy Regulatory Commission (FERC) either be given the authority to make decisions in such cases, or be designated as the “backstop” authority in cases where there are disputes.

As for costs the report states that payment for electric distribution, like payment for generation, is currently calculated based on usage. But most of the costs involved are fixed, and don’t depend on usage. This gives utilities incentives to resist distributed generation, such as homeowners installing rooftop solar panels, and gives consumers excessive incentives to install such systems – and thereby to shift their share of fixed network costs to their neighbors. Fixed network costs should be recovered primarily through customer charges that don’t depend on electricity consumption, the report proposes.

In addition, while many utilities have begun to install smart meters for their customers, most of these are not yet being used to provide feedback to customers that could shift electricity usage to off-peak hours.

Another area that will require is cybersecurity, the study found. The more thoroughly the grid is interconnected, and the more smart meters are added to gather data about usage patterns, the greater the risk of security breaches or cyberattacks on the system.

Currently no agency has responsibility and authority for the entire grid, and perhaps the U.S. Department of Homeland Security could be given such responsibility and authority. However thorny issues related to authority over local distribution systems would need to be resolved. In addition, it would be important to develop rules and systems to maintain the privacy of data on customers’ electricity usage.

Study co-director Richard Schmalensee, the Howard W. Johnson Professor of Economics and Management at the MIT Sloan School of Management, says the study came about “because a number of us were hearing two sorts of rhetoric about the U.S. power grid: that it’s on the brink of widespread failure, or that simply installing some new technology could open up wonderful new opportunities.

“The most important broad finding was that both of these are false,” Schmalensee said. “The current regulatory framework, largely established in the 1930s, is mismatched to today’s grid.” Moreover, he added, today’s regulations are “highly unlikely [to] give us the grid of the future – a grid that by 2030 will support a range of new technologies and consumer services that will be essential for a strong and competitive U.S. economy.”

The study was carried out by a panel of 13 faculty members from MIT and one from Harvard University, along with 10 graduate students and an advisory panel of 19 leaders from academia, industry and government.