Putting A Price On Smart Power An improved electric grid could potentially make electricity more reliable, more efficient, cleaner and perhaps even cheaper. But what would it cost to actually build it, and how much would it save?

Putting A Price On Smart Power

Alyson Hurt and Andrew Prince/NPR
Power Hungry

In a series of 10 stories airing this week on Morning Edition and All Things Considered and published here on NPR.org, we examine the costs, the politics and other challenges of upgrading the country's electricity grid.

An improved electric grid could potentially make electricity more reliable, more efficient, cleaner and perhaps even cheaper. But what would it cost to actually build it, and how much would it save?

The answer isn't simple. It's difficult to put a price tag on a new grid, and almost impossible to quantify the potential savings.

The Trouble With Costs

There aren't many estimates of what it would cost to modernize the grid, and the estimates that do exist can range from $100 billion to $2 trillion.

Part of the problem is that the grid isn't one coordinated entity — it's made up of dozens of little parts, which would be built and managed by different sectors of the energy industry.

And people often disagree about which of those elements actually count as the electric grid. Is it just the power lines? The "smart" technology? The power sources? Each can add hundreds of billions of additional dollars to a total cost estimate.

There's also basic disagreement over what the grid ought to look like. How many miles of transmission lines are needed to access renewable energy sources, such as wind and solar? Where should those lines be, and what kind of terrain will they need to cross? And moreover, what are the goals — how much of the nation's energy will really come from renewable sources?

The cost can also vary depending on how long it takes to get the different components built. Public opposition and environmental concerns can add years to the building process and also carry the extra cost of litigation. A 90-mile transmission line recently built in West Virginia and Virginia, for example, was delayed more than a decade because of problems with the permitting process, costing the builders an extra $50 million.

A Whole Lot Of Money

Pretty much everyone agrees on one thing about the grid: It's not going to be cheap.

The American Society of Civil Engineers estimates that total needed investment in electric utilities could be as much as $1.5 trillion to $2 trillion by 2030. That would include money for energy generation (wind farms, solar farms, etc.) and all of the power lines to move the energy to your neighborhood.

Energy Secretary Steven Chu told NPR it would cost more than $100 billion to modernize the grid, but it's not clear what that would include or exactly how much more than $100 billion it could end up costing.

Mark Chupka, an analyst at The Brattle Group, says that when the economics consultancy first analyzed the potential cost of energy investment, $100 billion sounded enormous. But then the financial crisis hit, along with the bank bailouts totaling $1 trillion or more, and suddenly some of the potential grid costs that seemed so big a year ago "don't seem so big to the average person."

To bring the numbers down to size, here's one that's a little more manageable: $250 — that's the amount it would cost to install a digital smart meter in your home or business, according to the Center for American Progress, a nonprofit think tank.

The smart meter can tell you how much energy you're using on a minute-by-minute basis, and it can give the utilities a better idea of their customers' needs. With about 140 million residential and small-business electricity customers in the country, that comes to a total of approximately $35 billion for smart meters alone.

Who Pays For It?

The vast majority would come from private-sector investment. "It's a mistake to think of it as a one-time payment by the government," says Bracken Hendricks of the Center for American Progress. The stimulus package includes $11 billion dedicated to the grid, but given the overall cost, that's really just a down payment.

Most of the money for the grid would come from power companies and private investors who expect to make a 12 percent return on their investments.

But the cost is eventually passed onto consumers in the form of bigger electricity bills. Ever noticed the line on your electric bill called "transmission and distribution"? That's the added cost you pay each month to maintain and renovate the grid.

Mike Heyeck, senior vice president of American Electric Power, which has built the majority of the country's new extra high-voltage transmission lines, says that a $100 billion investment in the grid would add $4 to $5 a month to the transmission and distribution cost on an average electric bill.

But he adds that investment in the grid might lower another part of your bill: the cost of the energy itself. Over time, Heyeck says, electricity costs will drop with improved reliability, efficiency and access to energy sources.

How Much Will We Save?

It may be expensive, but investing in an improved grid will also generate returns.

Hendricks argues that the costs are a "fundamental investment" in a more productive and competitive U.S. economy and will ultimately represent a net gain.

"What we're buying with this is tremendously valuable long-term infrastructure that's going to improve our competitiveness. It's going to enable new business to grow, and it's going to enable us to avoid the impacts of global warming, which are by no means costless," he says.

Transmission congestion, which occurs when there isn't enough energy to meet the demands of every customer, currently costs consumers in the eastern U.S. $16.5 billion annually in higher electricity prices. And the Electric Power Research Institute estimates that power interruptions and fluctuations cost the economy more than $100 billion each year in damages and lost business.

A more efficient system, along with smart technology, could reduce congestion and fluctuation costs significantly. And access to renewable resources could mitigate the potential costs of climate change by reducing our dependence on coal.

A Necessary Investment

While demand for reliable electricity has increased in recent decades, investment in energy infrastructure has lagged. The American Society of Civil Engineers gave the energy system only a D+ in an annual report card, saying that rapid investment is a must.

As Shalini Vajjhala of Resources for the Future, an environmental and natural resource think tank, says, "The trade-off isn't between build this or don't build this. It's between build this or build something else."

In other words, no matter the details on spending and saving, a major investment in an improved grid may be an unavoidable necessity — perhaps just part of the cost of doing business in America.