Smart Incentives for the Smart Grid

Clean, renewable energy from the sun and wind — the green revolution is supposed to change the world. Since 2005, the United States has increased government investment in renewable energy generation, both from direct subsidies and indirectly through tax subsidies. But before renewable energy can change the world, it has to get to the customers who use it. Thomas Edison did change the world when he developed the first working electric power system. Unfortunately, the system for transmitting electrical power throughout the United States (the “grid”) has not changed much since then. The grid was designed and built around fossil energy generation. Wind and solar energy pose several problems for the grid. First, wind and solar energy are intermittent. The sun doesn’t shine all the time; the wind doesn’t blow all the time. Second, the best sun and wind resources aren’t always near large numbers of electricity users. Third, when the wind blows, sometimes it blows a lot, generating spikes of power. Electricity requires a steady flow of power. Intermittent renewable sources such as wind and solar pose logistical challenges to maintaining a consistent flow of electricity to users. This problem can be solved the hard way, or the soft way. The hard way is building more and longer transmission lines. The soft way is conserving energy and smoothing demand by smart grid technology. Smart grid technology can overcome logistical challenges at a much lower cost than building more transmission lines. This paper will examine the incentives provided through the tax system for development and implementation of smart grid technology, assessing the progress of the United States and considering strategies for the future. Tax policies that could facilitate the development of the smart grid include incentives for plug-in electric vehicles used to store and manage energy, the credit for qualified advanced manufacturing and enhanced cost recovery to facilitate additional investment in grid technology