There has been a lot of talk about the need for us to develop and deploy a smart power grid in this country. It is often mentioned as one of the pillars of our new 21st century economy, and an area we are going to need to commit some serious capital to.

In an excellent article Follow the Money in yesterday’s WSJ Online, three prominent venture capitalists discuss this topic in the broader context of investment opportunities in the clean energy space. While the article is definitely worth reading in it’s entirety, there is one quote from it I’d like to focus on here.

In talking specifically about the need to build out our power transmission infrastructure, Vinod Khosla from Khosla Ventures had this to say:

By the way, we don’t need government to build transmission. If we solve the eminent-domain problem, there’s enough money in transmission that private industry would build all of it. They [governments] have to give you right of way and eminent-domain rights. So, it’s not that difficult a problem to solve, and it’s not about money.

Everything Vinod says about private capital being more than ready to build out the grid is completely true. I’ve verified this with my friend Edward J. Terillo, a former energy analyst who knows this space intimately. Money is sitting on the sidelines waiting for the chance to do this build-out.

What’s holding this money back is that these proposed power lines need to run somewhere – and nobody wants that ‘somewhere’ to be anywhere close to them.

The center of politics when it comes to rebuilding our aging power infrastructure isn’t in Washington. It’s in ‘Anytown, USA’. Most people probably don’t pay much attention to the specifics of this issue. They may not know the difference between traditional power lines and the proposed ‘smart grid’, and have no real understanding of the stress our current national power transmission system is under. But what they will pay close attention to – and in serious numbers – is the mere suggestion that new power lines might be running through their neighborhood. What they absolutely know is that a power line running anywhere near their house will reduce its value in a significant way.

And they will do everything in their power to oppose it.

Mr. Khosla points out that one solution to this is for the government to grant these companies “right of way and eminent-domain” so that they can make these investments unencumbered. Based on that, he believes that getting our power distribution infrastructure upgraded is “…not that difficult a problem to solve”.

I don’t see it that way.

While mandating ‘rights-of-way’ may be sound in theory, what it means in practice is that the federal or state government will need to co-opt the rights of local townships and force them to permit these build-outs on lands within their jurisdiction. It also means that homeowners impacted by these mandated rights-of-way, while probably being marginally compensated for any land taken from them, would be unlikely to receive compensation for any negative impact it may have on their home values. I can’t imagine that there are that many people in Congress or the state legislatures that would want to have their name tied to any legislation like this.

But even assuming that these government bodies could marshal the political will to wrest control of these lands from local municipalities (not a given by any means), they would still need to determine where any new power lines sould be run. And that is where this process would really spin out of control. A broad collation of local rights groups and environmentalists will certainly launch a range of challenges to tie the planning process up in court. Individual homeowners that are impacted by these lines will be able to do the same. Politics will come in to this at every level, with federal agencies going out of their way to present plans that won’t disproportionately impact any specific demographic, while local politicians will look to protect their electoral power base.

And somewhere in that mess, the actual engineers might have something to say as well.

Perhaps a more practical solution, when all costs are considered, is to run the grid underground when it passes near or through any populated area. On a per mile basis, it costs about five times as much to bury the lines as it does to run them on towers. However, taking that approach may stir up far less opposition – utilities lines of all sorts are buried all around us – and might even end up costing less on a full project life cycle basis than delaying implementation by decade or more and dealing with the cost of endless court challenges. We should probably also think more about local/edge based power generation – especially solar – and how that could change the demand profile a national level grid would need to handle.

Figuring out an approach that works for everyone is going to be tough. There are a lot of different interests with a stake in this, and political minefields are everywhere. Attempting to impose a federally mandated solution will meet fierce opposition that will cut across party lines. It will require all sorts of deal-making and back-scratching to get any type of agreement in place.

And it will take time.

As Tip O’Neill once said, “All politics is local.” And that will prove to be especially true when it comes to the politics of power…