Xcel Energy's plan for a smart grid in Boulder, Colo.

When former Vice President Al Gore wrote in the New York Times in November 2008 about the need to build a unified national smart grid, economist and demand response consultant Ahmad Faruqui says he knew the concept had arrived. “I was struck by the visibility,” says Faruqui, referring to the recent media attention being paid to the smart grid.

Gore called for an investment of $400 billion over 10 years for a grid of high-voltage underground lines with smart features to carry power from renewable generation sites to cities. Though the term “smart grid” is somewhat fluid and encompasses a range of technologies—from so-called smart meters to home area networks—analysts and industry insiders seem to agree the time is at hand for many such technologies to be widely implemented.

Analysts point to demand-side management as a way to take the pressure off the need for new energy generation while providing flexibility in the grid to accommodate new technologies. Others, such as R. James Woolsey, former director of the U.S. Central Intelligence Agency, point to demand-side management as a national security issue.

“2009 will be a banner year when it comes to the smart grid,” Faruqui says. “The business case is stronger than it has ever been. I’m optimistic that we’re at the proverbial tipping point.”

So far, smart grid endeavors have materialized as small—often government-funded—pilot projects testing technologies as well as customers’ willingness to adjust their energy-use habits. (You’ve likely read about a number of them in this magazine.)
‘The coming year will yield more pilots, Faruqui says; though some projects such as Minneapolis-based Xcel Energy’s (NYSE: XEL) SmartGridCity in Boulder, Colo., and several smart metering initiative rollouts in California are considerably farther along.
Pacific Gas & Electric (NYSE: PCG) is in the midst of installing more than 5 million devices as part of its SmartMeter program. PG&E is funding the $1.7 billion installation project through rate increases, but says it expects that the costs will eventually be offset by operational savings.

Unbeknownst to many, the $700 billion bailout package that President George Bush signed into law in October 2008 included the Feds’ first-ever tax breaks for investments in smart grid equipment. The tax credits, worth $915 million over 10 years, allow companies to depreciate investments over 10 years instead of 20 years (allowing them to take bigger deductions each year). Once disrupted financial markets begin to stabilize, investment will transcend the pilot project stage, Faruqui predicts.