Smart Grid Stimulus Funds to Provide Market Boost

With initial federal grant awards to be announced in October, automation vendors expect to see a rise in electric utility spending.

{mosimage} October could shape up to be a busy month for automation vendors serving the electric power industry. By around mid-October, the U.S. Department of Energy (DOE) is expected to begin announcing the first winners of Smart Grid federal stimulus funding. And while the bulk of the money will go to utilities, and not to their suppliers directly, the major vendors of automation products stand to benefit if their customers are among those utilities selected for Smart Grid grants or demonstration projects.

Until now, the upcoming availability of stimulus money has actually been a drag on the market, say industry sources, as Public Utility Commissions and utilities have waited to see if they can get stimulus funding before moving forward on projects.

Going crazy

“Since February [when the stimulus package was enacted], we’ve seen the market slow down,” confirms Mike Edmonds, vice president, Energy Automation, for supplier Siemens Energy Inc. (http://ww1.energy.siemens.com), Orlando, Fla. “But I would anticipate that starting in October and for the next 18 months to two years after that, the market is going to go really crazy, with these stimulus funds and other pent-up investments coming out,” Edmonds says. “I could see October being an extremely busy period for the industry.”

Smart Grid is the term used to describe modernization of the aging U.S. electrical grid, to save energy, reduce costs and improve reliability. As part of the $787 billion American Recovery and Reinvestment Act (ARRA) of 2009, signed into law by President Obama on Feb. 17, some $11 billion was earmarked for Smart Grid-related initiatives.

Of that total, about $3.3 billion was set aside for DOE-administered Smart Grid Investment Grants to support deployment of Smart Grid technologies for immediate commercial use. An additional $615 million will go to Smart Grid Demonstration Project grants to show how Smart Grid technologies can be innovatively applied and integrated. The maximum size of each Smart Grid Investment Grant is $200 million, while Demonstration Project awards are capped at $100 million each. Both types of funding require recipients to share at least 50 percent of project costs.

Initial deadlines for funding applications passed this summer. And with hundreds of applications submitted by utilities, the amount of money requested far exceeds the amount available, say industry sources, raising speculation as to how the DOE will prioritize the requests.

Near-term bump

With the DOE Smart Grid award announcements expected to start in October, the stimulus money will fuel a near-term uptick in utility industry spending, but it won’t have a major long-term impact, says Chuck Newton, chief executive officer at Newton-Evans Research Co. Inc. (www.newton-evans.com), an Ellicott City, Md., firm that focuses on the electric power industry.

The availability of the stimulus funds  has “kicked up the timing for some projects,” Newton observes. But over the long haul, Smart Grid spending will proceed at a measured pace, he says. “The Smart Grid eventually will be built out. But utilities never rush into anything, for the simple reason that they’ve got to keep the lights on. They can’t take it out of service to rebuild it. So it’s got to be an iterative process, and that usually means multi-year efforts.”

Newton puts the size of the U.S. market for automation-related spending by the electric power industry at more than $1 billion in 2009, including “smart meters” installed in customer homes. He sees that total growing at 7 percent to 12 percent annually as smart infrastructure increasingly becomes a larger percentage of the grid infrastructure market.

Newton-Evans Research Co. Inc.
www.newton-evans.com

Siemens Energy Inc.
http://ww1.energy.siemens.com

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