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updated 10/15/2009 9:50:49 AM ET 2009-10-15T13:50:49

Food producer Cargill is taking a carving knife to its electricity bills. At a plant in Springdale, Ark., where the company handles about 50,000 turkeys a day, electricity bills run more than $2 million a year. But Cargill thinks it can cleave $680,000 from the total by using its own generators on high-demand days.

The secret behind this money-saving plan lies in what's known as the smart grid—a wholesale revamp of the system that distributes energy to homes and businesses around the country. Government bodies and utility providers are in the early stages of this multibillion-dollar upgrade to transform the existing grid into a two-way network where power and information flow in both directions between the utility and the customer, not just from the provider to the user.

Done right, the revamp will cut bills, reduce consumption, give users more say in the kinds of energy they use, and even let customers produce their own energy and sell it back to power providers. "What's going to happen with the smart grid is that we're going to create a network that's larger than the Internet," says Guido Jouret, chief technology officer for the emerging-technologies group at Cisco Systems (CSCO), one of the many companies working on the technology needed to modernize the electric grid.

A $20 billion market in five years
The Electric Power Research Institute, a nonprofit research and design group, estimates that it will cost $165 billion, or roughly $8 billion a year for 20 years, to create the smart grid. The market for the gear needed to overhaul smart-grid communications alone may reach $20 billion a year in five years, Cisco estimates. Other technology companies developing smart-grid software and hardware include IBM (IBM), Oracle (ORCL), Google (GOOG), and Siemens (SI).

The tech sector's interest is fitting considering the similarities between the energy-grid upgrade and the computing revolution of the 1980s that saw hulking, centralized mainframes give way to PCs. The existing U.S. power grid dispenses electricity but is limited in its ability to gather intelligence from end users—hence the monthly visit from a meter reader. Now utilities are replacing outmoded meters with so-called smart meters that foster a back-and-forth between customer and utility. In much the same way PCs opened the door to third-party software and services and use of the Internet, smart meters are paving the way for tools and services that make the system more responsive to shifts in energy demands.

Cargill is counting on smart-grid tech to lower its bills. Many utility vendors set rates for industrial customers based on peak-use patterns. So in a common practice known as peak-shaving, Cargill taps its own generators to keep its 365,000-square-foot Springdale plant cool on summer's hottest days rather than use energy from its electricity vendor, PowerSecure (POWR). The challenge is determining when peaks occur. PowerSecure keeps close tabs on Cargill's generators, as well as fluctuating electricity prices, and when it can tell that rates are on course to pass certain preset thresholds, it fires up Cargill's generators remotely.

Easier to opt for solar or wind
In the future, Cargill may choose to run its generators more often and sell power back to the utility when prices are high, says PowerSecure CEO Sidney Hinton. While Cargill's utility provider doesn't currently purchase energy generated by customers, other utilities, including PG&E (PCG) in California, have begun buying solar energy generated by customers on corporate campuses and residential rooftops.

Copyright © 2012 Bloomberg L.P.All rights reserved.

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