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The following is an article written by Tom Deitrich, President and CEO of Itron.
It’s been more than five months since the bipartisan $1.2 trillion infrastructure bill was signed into law, and many projects across America are just waiting for the green light. The package called for a new national smart grid, with $65 billion for upgrades and $15 billion for a massive network of electric vehicle (EV) charging stations. We now have the technology, the political will and the funding – if the legal provisions do not block these projects before they start.
These investments couldn’t come soon enough. Our network is in dire need of modernization and upgrades as we face more extreme weather conditions, increased cybersecurity threats and increasing weather disruptions. These projects are not only plug-and-play, but worth running — they reduce carbon emissions, create jobs and drive economic growth.
The Infrastructure Investment and Jobs Act has many laudable goals, but also some of the strictest national content requirements. With more than half a million high-skilled jobs related to providing water and energy to American households, our industry is a strong supporter of Buy America. Domestic content requirements drive American manufacturing and, in the long run, make supply chains more resilient and enable broader economic growth.
But in the short term, most infrastructure projects will include foreign components. US industry is still recovering from the post-COVID global supply chain crisis. Lead times for production materials average nearly 26 weeks, with lead times for many other inputs exceeding 100 days. Given enough time, the 55% domestic content requirement enshrined in the IIJA is an achievable goal. And yet, as it is interpreter by federal agencies could delay critical infrastructure upgrades for years, while jeopardizing our carbon emission reduction goals and threatening existing factory jobs in the United States.
In the absence of a nail…
Most smart grid systems are made in America. This complex equipment is made up of smaller subassemblies, like printed circuit boards, and these are made up of thousands of smaller components, such as resistors, capacitors, analog components, and semiconductor microchips.
We can do anything in America. But we don’t everything. US utilities – and their suppliers – use these components and subassemblies to produce smart meters, electric vehicle chargers and other network technologies. The deeper we go into the value chain, the more likely not all components are made in America.
For example, a modern smart electric meter for a mid-rise apartment building might be made by a company in Minnesota. It features advanced circuit boards and power gauges all made in America. But these circuit boards contain tiny resistors — essentially ceramic balls wrapped in tiny copper wire. These resistors cost less than a penny each and are mostly manufactured in the Asia-Pacific region.
It’s not hard to imagine a US factory pivoting to manufacture resistors, but imagine doing so for each individual component, especially in this heavily supply-constrained environment. It’s just not scaling and it certainly won’t be fast.
Supply chains depend on many global sources. Of course, building American factories and hiring American workers is vital. But waiting for American companies to build new factories or recreate their entire supply chain would take many years. And it’s unlikely to be economically viable, with unemployment already at record highs and raw materials scattered across the globe.
While we wait for factories to come online for relatively cheap components, we won’t build the advanced smart grid technology that America’s growing renewable base and electric vehicle fleet desperately need. Without additional investment, our utility infrastructure will continue to age beyond its useful life. The high-skilled jobs that improve the grid will not be created, while carbon emissions continue to rise and growth is slower.
American products are more than the sum of their parts
We should make more components in America, but American ingenuity is a hundred years more advanced than most common electrical components. Fortunately, there are already federal regulations on the books that recognize this point and explain exactly what it means to be “Made in America”.
The last major infrastructure investment program, in 2009, used a “substantial transformation” rule, counting any manufactured good as domestic if it had been substantially transformed in the United States into something distinct from its component parts, regardless of whatever their origin.
The substantial transformation test is very rigorous. It guarantees that American equipment is made in American factories by highly skilled American workers. The manufacturing process must be “complex and meaningful” – not simply assembling or repackaging foreign materials.
While the substantial transformation rule is on the books today, the U.S. Office of Management and Budget remained silent on this rule in its recent guidance on Buy America requirements in the IIJA. We hope that the OMB will recognize the advanced state of American manufacturing and apply the rule to IIJA-funded projects, just as a previous administration did in 2009. We also hope that federal agencies will recognize that the smart grid equipment works with advanced software – also made in America.
The software is also American-made
Since 1985, the federal government has not considered computer software to be manufactured goods and has therefore excluded any software or service from the calculation of the 55% requirement.
It is not a reflection of the modern world. The Buy America Act was written almost 40 years ago, before PCs were installed on desktops. It does not reflect the work done by American programmers to solve the critical challenges we collectively face today.
Many types of smart grid equipment leave the factory pre-programmed with specialized software written only for that specific device. It’s called firmware, similar to much of the code running on your smartphone. Without it, the device would not work – and this software is massively developed in the United States by American workers.
To get smart grid projects off the drawing board, we need to include software as part of home content calculations – especially firmware for priority, planet-friendly projects like advanced metering infrastructure.
No time to wait
The way we currently define what’s made in America leaves a lot of engineers, technicians — and yes, factory workers — out of the equation. The administration’s goals of strengthening domestic supply chains and creating more US manufacturing jobs are important. But so do the administration’s other policy goals of addressing America’s infrastructure challenges, reducing our carbon emissions and switching to renewable energy.
Nobody wants a nationwide revitalization of the power grid to stop for lack of resistance. Americans in wildfire areas or regions affected by recent ice storms and flooding don’t have years to wait. With the work so critical, The OMB should reaffirm the substantial transformation standard and count firmware as part of the national content requirements.
Let’s buy the simple things and build the smart things. And let’s start today.