Smart grid: What should be the government’s role?

by / Saturday, 25 August 2012 / Published in Smartgrid-CI Blog

“Innovation works best when government does least”, this is the point on view developed by Vivek Vahdwa and Vijay V. Vaitheeswarani on a blog hosted by Forbes.  , that we published a few weeks ago.
Anyone would agree with this statement if it actually means that anything works better when incompetence is not involved. The authors want to apply the idea it to today’s smart grid. Why not? But the fact that they support it using the example of the French Minitel remains a mystery; maybe their point is easier to make when backed with facts most people have hardly heard about.
The Minitel experiment took place 34 years ago and it was a phenomenal success.  Launched by the state owned French telecom company in 1978, its goal was to replace paper based phone books with an electronic on line service. It took four years only to come out with the concept, design a very low cost terminal that would physically replace the phone books, and start its mass manufacturing. It took four other years to roll it out to 9 million households across the country. This could actually be a source of inspiration for some utilities.
Vahdwa and Vaitheeswarani think that the Minitel was a failure because the “government” rejected open standards. Assuming the thought is relevant, we would appreciate them to tell us what they mean by that.  What actually happened is that entrepreneurs understood very quickly the value they could get from this innovation and just as quickly thousands of online services were offered to the consumers such as travel reservation, mail ordering, news, dating and so on, and thousands of jobs were created. Some say this is how the Minitel became in the 80’s a precursor to the Internet. The Minitel did not go any further (and was officially phased out two months ago) because of its intrinsic technical limitations. It was teletext based and could not compete with a much sophisticated Internet technology.
Contrary to what Vahdwa and Vaitheeswarani think the Minitel was a great example of successful government involvement in the development of a technology. True, this success had a negative impact on the development of the Internet technology in France at the beginning but, on the other hand, the know-how acquired with the Minitel helped local entrepreneurs catch up very quickly. Contrary to Vahdwa and Vijay V. Vaitheeswarani statement, and assuming they can explain what they mean, France is not an “Internet laggard”.

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And since when does government involvement mean rejection of industry standards? Does this mean that the opposite is true? Does private sector systematically embrace industry standards? Obviously, Vahdwa and Vaitheeswarani have never heard of Digital Equipment, the “BUNCH”, Sony and its Betacam and many others.
On the contrary, most of the time, governments have a positive impact on standard definition because standardization is in their vested interest. There would be no Unix and no GSM without government involvement.
Vahdwa and Vaitheeswarani are right when they infer that the issue of government involvement is central to the smart grid success but ”greed is good” is not enough to limit the scope of this involvement, especially since as far as the smart grid is concerned, “greed” does not seem to work so well. They actually recognize that when they write that the smart grid and venture capitalism do not agree too much with each other.  No doubt the smart grid startups have a lot of difficulty raising funds. So, what’s their point?
This debate is actually outdated. Truth is that government involvement in the smart grid is unavoidable and not just because new smart grid technologies cannot find financing. The task of rebuilding the grid requires a massive effort in a short period of time from a huge number of stakeholders, definition of standards, coordination, massive investment and risk taking. Very often, the government can take risks the private sector is reluctant to take. The biofuel industry could not get a head start without the navy committing to massive orders.
In the USA today, the government is mainly involved in the smart grid three ways.
1)      Part of the ARRA program that was launched in 2009 was aimed at starting the implementation of smart meters through the co-financing of 100 projects. This initiative met broad support even though some have criticized it because it put the “cart before the horse”. In other words, it would have been more appropriate to renovate the grid before thinking about the end points.
2)      The government granted loans to private companies for the development of new technologies, such a solar.  This led to the Solyndra case. Solyndra went bankrupt one year after being granted a $500M loan guarantee. This is very shocking but people familiar with the case thing that what went wrong is not the loan itself but the conditions with which it was offered, making reimbursement almost impossible. Maybe in this case Vahdwa and Vaitheeswarani are right. The government should not lend money if they have no clue about the business environment the recipients are struggling with.
3)      Another strong government involvement in the smart grid comes from the military. The US army is actually one of the main engines for the development of solar energy, biofuels, or microgrids. The army is not only a big energy consumer but also in a position of thinking forward and very often a precursor for new technologies. Should we curb their enthusiasm?
Furthermore, greed may be “good” but it is not always rational as Facebook investors have recently experienced. 
The issue is not with government involvement but where and when it is relevant, what governance comes with it, when too much involvement is too much and who decides, and when does the government need to withdraw and let the market forces prevail.
Both the Internet (with ARPANET) and the Minitel started with strong government involvement before becoming the frameworks for the development of numerous entrepreneurial success stories.
They remain a very good source of inspiration for the smart grid.

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