President-elect Barack Obama has vowed to get more green power on the grid and to strengthen the aging infrastructure. Federal leadership in adding "smart grid" technology will aid the matrix of energy production and distribution, but experts say a bolder step that opens power production to private competition could spur investment and accelerate the switch to renewable power.

According to the Environment News Service, Obama recently pledged to update electricity transmission by building "a new smart grid that will save us money, protect our power sources from blackout or attack, and deliver clean, alternative forms of energy to every corner of our nation."

There's near unanimous agreement that the aging grid needs a major retooling so that solar, wind, and distributed natural gas power plants can easily connect and help to prevent service disruptions. According to a recent study by the Electric Power Research Institute, the U.S. economy loses between $119 and $188 billion annually because of power outages and quality fluctuations.

Smart grid technology, which enables bidirectional power transmission and adds intelligence for grid self-healing to avoid power outages, is getting considerable support from the Department of Energy. Utility Excel Energy is also embracing the idea, by spearheading a group effort to turn Boulder Colorado into the nation's first "smart grid city."

An idea that goes even further than the smart grid is the microgrid, a campus- or community-wide power system that, while relying primarily on the national grid for power, can produce its own energy and disconnect from the grid if needed. Microgrids can sell excess wind or solar power to local utilities and can pay for themselves within three to five years, according to Kurt Yeager, executive director of the non-profit Galvin Electricity Initiative.

Yeager, who was previously president of the Electric Power Research Institute, says commercial and residential customers that want to use green power and a more reliable grid "are often held hostage by utilities." State energy regulations, that largely limit the entities that can produce power, and the public utility commissioners that currently set local rules for adding renewable resources, prevent communities or companies from being part of the solution, Yeager says.

Congress and the incoming president should enact federal mandates that move control to municipalities and consumers, according to Yeager. "If [communities] can share in the benefits, we must allow someone besides utilities to do the work."

In many states, any entity that sells power is technically a utility and is therefore heavily regulated, and the corresponding labyrinth of rules and requirements effectively shuts out competition from small independent power producers.

The Federal Energy Regulatory Commission (FERC) currently has authority over bulk power sales, and transmission, while the distribution system and rates are regulated by the states. FERC has been reluctant to ask for broader authority in regulating distribution (like the EPA, which was unwilling to regulate greenhouse gas emissions and had to be forced into action), but should be required to do so, Yeager says.

Microgrids, which can be built and managed by universities, large corporate customers, or communities, could more quickly integrate renewable power on a project basis than a national plan to upgrade the grid to be clean-power friendly. Microgrids would include demand response capabilities to help avoid blackouts and would react to real-time price signals from the utilities to reduce demand and to sell power into the grid.

Yeager says that while studies show the cost of a microgrid per residence is significant (about $200 per year), the economic benefit from the energy savings, more reliable power, and additional revenue is approximately $900 per residence per year. The return on investment would attract the private capital and local bond measures to spur innovation in communications and grid management technology, according to Yeager. "Any technological change is best led by private sector."

Yeager's Galvin Electricity Initiative, a non-profit founded by former Motorola CEO Robert Galvin, is working on a state-by-state initiative to change the rules to allow microgrids and to then establish pilot projects. The first project is being done in conjunction with U.S. Department of Energy, energy provider Exelon, developer Endurant Energy and S&C Electric Company at the Illinois Institute of Technology.

Galvin Electricity Initiative, which is also working with local officials to change state regulations in New Mexico and Massachusetts to enable microgrids, expects the "Perfect Power" prototype at IIT to save $20 million over 10 years. The project will require replacing electromechanical meters with purely electronic devices, and adding nano-sensors that can move information about power pricing and quality at the same speed as the power itself, according to Yeager.

Microgrids are also being pursued as a solution to fixing and greening the grid by groups including the Lawrence Berkeley National Laboratory (LBL), the University of Wisconsin, the Consortium for Electric Reliability Technology Solutions at the Dolan Technology Center, General Electric, and a pilot project in Sendai, Japan.

Chris Marnay, who leads the forecasting group within the Environmental Energy Technologies Division at LBL, agrees that the grid infrastructure and energy regulations are in need of drastic change, as he writes in a recent paper:

"Our current power system may be entering a period of significant fundamental change of a kind not seen for a century... One viable possibility is through local control of [power quality and reliability] in microgrids. In addition to the technology needed to enable such a transition, effectively managing it will require new analytic tools and new regulatory regimes."

The federal government could take the lead by creating microgrids at its many large campus sites, Yeager says. The government recently announced it would spend up to $5 billion with building automation company TAC to green federal buildings. Microgrids should be part of the upgrade because they are not subject to state energy regulations and could implement renewable power and sell it to the utilities at a profit according to Yeager.

Yeager hopes for a federal "electricity constitution" that sets national guidelines because his organization's state-by-state approach of working with mayors and local regulators to change rules is too time consuming. Otherwise, "I won't live to see the results of [microgrids]."