09/30/2011 09:01 am ET Updated Nov 30, 2011

The Consumer Driven Smart Grid

In 1983, a few lucky consumers around the world could talk to friends and relatives on the go with a nearly two pound block of a phone, the Motorola Dyna TAC, for the affordable price of just under $4,000. This foot-long, mobile phone held a battery charge for about an hour and stored up to 30 contact numbers.

It took nearly 10 years for IBM and BellSouth to add advanced functionality such as an address book, email client, pager and fax function into its Simon Personal Communicator mobile phone, all for the price of about $900.

Flash forward almost 20 years later, and the iPhone 4 now features video calling, HD video recording, a 5-megapixel camera and the ability to instantly switch between hundreds of apps that allow you to do nearly anything under the sun, including make mobile phone calls, starting at $199.

These changes weren't driven by cellular technology executives or telecomm companies -- they were driven by the consumer. Cell phone users were the ones who demanded convenience in terms of size, weight and convenient navigation. Users wanted increased accessibility in terms of surfing the web, keeping up with social networks, and managing multiple media files.

They didn't want to use their phone to just make calls, but as a single device that would enable them to abandon their portable music players, cameras, camcorders and other personal digital devices. Customers were the key source of innovation in mobile phone development. And this is what spurred the transformation and growth of the entire telecommunications industry.

Just as the use of smart phone technology with multiple consumer applications has transformed the telecommunications industry and the way we communicate, so too will the Smart Grid revolutionize the utility industry and the way we use energy.

As outlined in his forthcoming book, The Third Industrial Revolution, Jeremy Rifkin envisages five key aspects, or pillars, that will be essential in transforming the energy industry, changing our world into one that dramatically reduces the concentration of greenhouse gases.

One of those pillars, the distributed Smart Grid, is fundamental to enabling the other four pillars. The Smart Grid is already in its infancy in many locations around the world. However, it will take significant changes in technology, regulations, policies, and business approaches to truly achieve the comprehensive benefits to society that Jeremy's vision for the energy Internet can enable. 

There is no universal definition of Smart Grid -- it means different things to power producers, manufacturers, financiers and end-users. While it's often talked about as something concrete, it's best to think of the Smart Grid not as a single solution, but as a collection of new technologies, advanced applications, and operational improvements that can make the production, transmission, distribution, and consumption of power "smarter." This smarter power grid will enable utilities to incorporate more applications of cleaner, renewable generation resources and new consumer technologies like electric vehicles, smart appliances, and energy storage options.

In previous publications at KEMA, we have often talked about the "niche of one." It is the basic idea that when individual customers are allowed to create their own solution, they customize it to fit their particular needs. The energy industry, and Smart Grid development, is not exempt from this idea. We should expect that energy-related products and services associated with the Smart Grid will reflect consumer demands and be spurred by customer innovation so that each solution fits the needs of the individual.

All of us will have a multitude of choices when it comes to our energy use -- choices of technologies, suppliers, pricing models, and new energy-related services -- and as consumers, will heartily demand all of the above, and more. As with many emerging technologies, there are few, if any, single-stop solutions that embody the latest developments. Instead, the landscape will be characterized by many product suppliers, some systems integrators/installers, and retailers offering partial solutions.

The electric and gas grids of the future will be enabled by using technological advances in digital electronics and sensors, in two-way, high-bandwidth communications networks, and with a significantly increased flow in data and use of information technology (IT). In contrast to today's traditional utility model, where centralized power plants provide a majority of the nation's power needs, energy production will become increasingly decentralized. Households will be able to produce their own energy by means of solar panels or micro-generation units.

These applications will enable you and me to become active participants in the energy field, and although our individual shares will be small, our aggregate contribution can be significant.

To foster this new vision for Smart Grid, we have already seen considerable advances in emerging technologies such as new panels that capture solar energy more efficiently, in flywheels or advanced batteries that enable lower-cost electric energy storage, and even sensors and switches that enable more rapid and automated recovery of the grid during power outages.

These distributed elements are connected through public and private telecommunications networks that are becoming faster, more reliable, and more affordable. These, and many other options for Smart Grid systems, are attracting an increasing number of start-up ventures and new private source capital, and interest from established industrial and technology firms, further fueling innovation and new applications in the energy sector.

But a Smart Grid will not appear overnight, nor can it develop without significant changes in policy and regulation. Today's electric and gas providers operate in a market that is significantly controlled through regulatory and government authorities. Energy providers of the future will seek to operate under a market and customer-driven model, rather than our regulatory construct of today.

The advantage to all of us with a market-driven model is greater flexibility in product and service choices, pricing options, and increased innovation. Indeed, we have already witnessed some of these changes in the U.S. (e.g., Texas) where retail energy competition and consumer choice has been introduced.

Driving these changes will also require clarity from our federal policy makers, in the form of a national energy policy that sets the direction and confirms the vision underlying the fourth pillar of the Third Industrial Revolution.