August 09 ElectroIndustry - 20

Electroindustry News NEMA Vice President and Chief Economist Donald R. Leavens Ph.D. has been tracking ARRA spending and will lead an informative seminar during Illuminations Weekend that will detail who is receiving federal funds and the nature of the projects funded. He will also share projections regarding how the spending will progress through 2010 and beyond and explain key aspects of the intricate structure of the federal programs. According to Dr. Leavens, “While it may come as a surprise to some, the spending rate is actually running slightly ahead of original Congressional Budget Office projections. Government officials recognized from the start that it would take months to draft the detailed specifications for how the money would be spent while at the same time taking into account input from the private sector on the most efficient way to structure programs. The government fully anticipated that less than 25 percent of the ARRA funds would be spent in 2009 and that the majority would be spent in 2010.” For everyone in the electrical industry struggling against the tide of a deflating economy, the prospect of a massive surge of government-induced spending in the energy sector offers the one potential solid market driver over the next several quarters. The traditional end markets such as construction and manufacturing will likely remain on life support heading into 2010, Dr. Leavens predicts. But the size of the economic impact of the ARRA energy funds will depend on a variety of factors. Dr. Leavens explained that “of the nearly $65 billion slated for energy-related projects at the Department of Energy (DOE), roughly $5 billion will cover weatherization projects such as insulation, doors, and windows, and another $4 billion is dedicated for environmental rehabilitation of nuclear waste sites. Eliminating these monies, which do not target electrical products, leaves a pool of just over $55 billion, which will be made available in a variety of ways.” One key point is that the government views the $55 billion as seed money and expects that it will elicit additional private sector investment upwards of $250 billion over the next two years. The alchemy of transforming $55 billion into $250 billion will depend on the magic of the incentive structure tied to the release of most of the DOE funds. For example, DOE is planning to offer loan guarantees on investments in renewable energy projects. As Dr. Leavens explained, “If the government offers to guarantee, say, 10 percent of a loan to invest in a renewable energy project, the borrower will likely receive a discounted interest rate on the debt since part of it is guaranteed by the government. By sprinkling 10 percent guarantees around on numerous loans, the government intends to use $6 billion to support $60 billion in the face value of loans.” Similarly, for Smart Grid, the government is offering $5.5 billion in grants to companies investing in Smart Grid technology. Typically, the government will offer to match 30 percent of the total investment level. “In this way, a government grant of $100 million could result in a total investment of $333 million,” Dr. Leavens said. While the potential windfall to the electrical industry is impressive, Dr. Leavens warned that fragile capital markets coupled with the weakest economy since World War II will severely dampen both the ability and willingness of investors to commit to substantial new stakes in the energy sector. He suggested “the government may find it necessary to up the ante at some point if it is to entice risk wary investors to open up their wallets.” For the latest information regarding the stimulus spending, plan to attend Illuminations Weekend November 12-13, 2009, in Scottsdale, Arizona. ei › What is Smart—NEMA Updates Classification for Levels of Intelligence A team of volunteers from NEMA member companies have completed the most recent update to the Levels of Intelligence white paper. The purpose of this paper is to establish a common framework for discussing issues associated with the Smart Grid in a manner that answers the question, “What is Smart?” The context for this material is based on the National Institute of Standards and Technology’s (NIST) description of an interoperable, standards-based, open architecture for an electricity supply chain. Because sweeping, wholesale change would be tremendously expensive, the question becomes how to meet increasingly higher standards in reliability, security, cost of service, power quality, efficiency, environmental impact, and safety in a step-wise manner. As the grid is truly a collection of interdependent systems, this document helps identify those steps. The end result of the actions taken by manufacturers and utilities is that higher levels of intelligence and functionality in the grid components create the potential for improved performance relative to the seven principle characteristics, and are therefore worthy of higher rewards by legislators and regulators. The paper is available on the NEMA website: http://www.nema.org/gov/energy/ smartgrid/upload/Levels_of_Intelligence_ White_Paper.pdf ei Paul Molitor | paul.molitor@nema.org 20 NEMA electroindustry • August 09

August 09 ElectroIndustry

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