The following is a contributed article by Tom Deitrich, president and CEO of Itron.
It has been more than five months since the $1.2 trillion bipartisan infrastructure bill was signed, and many projects across America are just waiting for the green light. The package envisioned a new national smart grid, with $65 billion for modernization 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 legal provisions don’t stall these projects before they start.
These investments could not come soon enough. Our grid is in vital need of modernization and upgrades, as we face more extreme weather, increased cybersecurity threats, and escalating climate disruption. These projects are not only shovel-ready, but shovel-worthy — lowering carbon emissions, creating jobs, and spurring economic growth.
The Infrastructure Investment and Jobs Act has many worthy aims, but also some of the most stringent domestic content requirements. With more than half a million high-skilled jobs tied to the delivery of water and energy to American households, our sector strongly supports Buy America. Domestic content requirements boost American manufacturing and in the long run make supply chains more resilient and enable broader economic growth.
But in the near term, most infrastructure projects will include some foreign components. American industry is still recovering from the post-COVID global supply chain crisis. Lead times for production materials are averaging nearly 26 weeks, with times for many other inputs running in excess of 100 days. Given enough time, the 55% domestic content requirement written into the IIJA is an achievable goal. And yet, the way it is interpreted by federal agencies could delay critical infrastructure upgrades for years — while jeopardizing our carbon reduction aims and threatening existing factory jobs in the USA.
For want of a nail…
Most smart grid systems are made in America. This complex equipment is made from smaller sub-assemblies, like circuit boards, and those are made of thousands of smaller components, such as resistors, capacitors, analog components, and semiconductor microchips.
We can make anything in America. But we don’t make everything. American utilities — and their suppliers — take these components and sub-assemblies to produce smart meters, EV chargers, and other grid technologies. The deeper and deeper we go into the value chain, the more likely it is that not all components are made in America.
For example, a modern smart electric meter to a medium-sized apartment building might be made by a company in Minnesota. It includes advanced circuit boards and power gauges all manufactured in America. But those circuit boards contain tiny resistors – essentially ceramic beads wrapped in a tiny copper wire. Those resistors cost less than one cent each and are predominantly made in the Asia Pacific region.
It's not hard to imagine an American factory pivoting to make resistors, but imagine doing that for every individual component, especially in this heavily supply-constrained environment. It just doesn’t scale, and it certainly won’t be quick.
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 already record-low unemployment and raw materials scattered across the globe.
While we wait for factories to come online for relatively cheap components, we won’t be building the advanced smart grid technology America’s growing renewable base and EV fleet desperately need. Without additional investment, our utility infrastructure will continue to age past its useful life. High-skilled jobs upgrading the grid won’t be created, while carbon emissions keep rising and broader growth lags.
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 the most common electrical components. Fortunately, there are already federal regulations on the books that recognize this point and address what – exactly – it means to be “Made in America.”
The last major infrastructure investment package, in 2009, used a “substantial transformation” rule, counting any manufactured good as domestic if it had been substantially transformed in the U.S. into something distinct from its components, regardless of their origin.
The substantial transformation test is very rigorous. It ensures 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 was silent on this rule in its recent guidance on the Buy America requirements in IIJA. We’re hopeful 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’re also hoping federal agencies recognize that smart grid equipment runs with advanced software — also made in America.
Software is part of American manufacturing too
Since 1985, the federal government has not considered software a manufactured good, and therefore excluded any software or services from counting towards the 55% requirement.
This is not a reflection of the modern world. The Buy America Act was written almost 40 years ago, before PCs were on office desks. 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 that is written only for that specific device. This is called firmware, similar to much of the code operating on your smartphone. Without it, the device would not operate — and that software is overwhelmingly developed in the USA by American workers.
To get smart grid projects off the drawing board, we need to include software as part of domestic content calculations – especially firmware for high-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 American manufacturing jobs are important. But so are the administration’s other policy goals of addressing America’s infrastructure challenges, reducing our carbon emissions, and transitioning to renewable energy.
No one wants a nationwide revitalization of the electric grid to stall for a lack of resistors. Americans in wildfire zones or regions hit by recent ice storms and floods don’t have years to wait. With the work so critical, OMB should reaffirm the substantial transformation standard and count firmware as part of domestic content requirements.
Let’s buy the simple stuff and build the smart stuff. And let us get started today.