Department Of Energy Outlines Funding For Smart Grid Initiatives

Monday, June 1, 2009 - 00:00

On April 15, 2009, the Department of Energy ("DOE") announced detailed plans to distribute over $5.7 billion to fund Smart Grid initiatives under the American Recovery and Reinvestment Act of 20091(the "Stimulus Package Act"). The DOE will distribute $3.375 billion for a Smart Grid Investment Grant Program and an additional $615 million for Smart Grid Demonstration Projects. The DOE will also hold a meeting in early May for industry leaders to work towards creating industry-wide standards for Smart Grid development.

These Smart Grid investment programs will provide new sources of funding to help implement technologies aimed at transforming how electricity providers operate their systems, offer options for increased energy storage, and accelerate the integration of renewable energy sources with the electrical grid. These investments will help implement necessary digital upgrades on the electric grid, making it more efficient, resilient, and secure. They should also help make the grid capable of integrating renewable supplies effectively, foster and support the plug-in electric and hybrid vehicles industries, and promote energy management technologies, with the ultimate goal of reducing U.S. dependence on foreign oil. As such, this program is of significant import to every sector of the U.S. electric power industry.

The DOE released a Notice of Intent ("NOI") to issue a Funding Opportunity Announcement ("FOA") for the DOE Smart Grid Investment Grant Program, and a draft FOA for a smart grid regional development initiative. The DOE is directed to give preference to projects that can be started and completed expeditiously, and to distribute funds in a manner that maximizes job creation and economic benefit.

The NOI and the draft FOA each include a 20-day public comment period. The DOE will use this feedback to finalize the grant program structure and issue a subsequent FOA for the grant program and to finalize the demonstration projects FOA.

Summary Of Investments

To expedite the distribution of energy investments under the Stimulus Package Act, most of the funds included in this funding program are intended to supplement established federal energy initiatives. Funds allocated to the Smart Grid Investment Program will be used to implement Smart Grid technology research, development, and demonstration authorized under Title XIII of the Energy Independence and Security Act of 2007.

Smart Grid Investment Grant Program

DOE announced the following size ranges for the $3.375 billion in grants it plans to distribute under the Smart Grid Investment Grant Program:

Smart Grid Technology Deployments: $500,000 - $20 million

Deployment of Grid Monitoring Devices: $100,000 - $5 million

This program will provide matching grants of up to 50 percent for investments planned by electric utilities and other entities to deploy smart grid technologies. The program will use a competitive, merit-based process to select qualified projects to receive funding. Eligible applicants will include, but are not limited to:

• Electric utilities;

• Load serving entities, or load distribution companies, which provide electricity distribution services;

• Retail distributors or marketers of electricity which sell electricity to consumers;

• System operators which coordinate, control, and monitor grid operations within a single state or region; and

• Manufacturers of appliances and equipment to enable smart grid functionalities.

DOE anticipates issuing the FOA on June 17, 2009, and will accept applications on or before three separate due dates with the complete obligation of funds to awards accomplished by September 30, 2010. The three anticipated application due dates are: July 29, 2009; December 2, 2009; and March 31, 2009.

Smart Grid Demonstration Projects

The draft FOA distributes the $615 million in grants to three areas of smart grid demonstration: (1) technology viability, (2) storage, and (3) monitoring. The goal of this FOA is to demonstrate technologies in regions across the U.S. that embody essential and salient characteristics of each region and present a suite of use cases for national implementation and replication.

1. Smart Grid Regional Demonstrations will:

• Quantify smart grid costs and bene- fits

• Verify technology viability

• Examine new business models

2. Utility-Scale Energy Storage Demonstrations will include technologies such as:

• Advanced battery systems

• Ultra-capacitors

• Flywheels

• Compressed air energy systems

These demonstrations will include applications such as wind and photovoltaic integration and grid congestion relief.

3. Grid Monitoring Demonstrations will support the installation and networking of multiple high-resolution, time-synchronized grid monitoring devices, called phasor measurement units, that allow transmission system operators to see, and therefore influence, electric flows in real-time.

Each demonstration project must be carried out in collaboration with the electric utility that owns the grid facilities. The DOE encourages an integrated team approach that includes, for example, products and services suppliers, consumers, and state and municipal regulatory bodies. All Smart Grid Demonstration Projects require a cost share of at least 50 percent of non-federal funds.

The DOE plans to collect and provide the optimal amount of information necessary for customers, distributors, and generators to change their behavior in a way that reduces system demands and costs, increases energy efficiency, optimally allocates and matches demand and resources to meet that demand, and increases the reliability of the grid.

Smart Grid Industry Standards Forum

The DOE also announced plans for a Smart Grid meeting held in Washington, D.C. in early May. This event will serve as a forum for industry leaders to move toward an industry standards agreement which is critical to developing the Smart Grid. The meeting will bring together leaders from key stakeholders' organizations, largely from private industry, to begin a critical discussion about industry-wide standards. The DOE will also expect industry leaders at the meeting to pledge to harmonize industry standards critical to developing the smart grid, commit to a timetable to reach a standards agreement, and abide by the standards devised.

Energy Secretary Steven Chu and Commerce Secretary Gary Locke will chair this upcoming event. To make further progress on a standards agreement, additional meetings of industry staff are planned for May 19 and 20.

The Smart Grid funding via the Stimulus Package Act that will be made available to electric utilities and manufacturers of batteries and other smart grid components can create critical opportunities for your company, enhance your operations, and provide excellent joint venture opportunities between power providers and distributors and smart grid development and load balancing and energy storage companies. For further information on the program and for assistance in applying for these grants, please contact any the attorneys listed in the biography.

Additional details regarding DOE's release of finalized Smart Grid FOAs, and implementation of Smart Grid funding in the Stimulus Package Act will be forthcoming in future guidance to be posted by the DOE to www.recovery. gov and www.energy.gov/recovery. 1President Obama signed The American Recovery and Reinvestment Act of 2009 (herein, the "Stimulus Package Act") on Tuesday, February 17, 2009. For the text of the Stimulus Package Act, as approved by Congress, and the related Conference Report, see http://www.rules.house.gov/bills_details. aspx?NewsID=4149. The Stimulus Package Act provides more than $34 billion in funding for improving national systems of energy production, distribution, and transmission.

Gregory J. Blasi, a Partner at Day Pitney LLP, practices in the corporate and securities areas, primarily involving the energy industry. He has been involved in the electric power industry for more than 30 years. Michael A. Stosser, Of Counsel to Day Pitney LLP, is an energy attorney with 30 years of experience in many aspects of the energy industry. His practice includes project development and finance of renewable and alternative energy projects, state and federal regulatory matters, and legislation.

Please email the authors at gblasi@daypitney.com or mstosser@daypitney.com with questions about this article.