Back in August, Worldwatch researcher Philip Killeen wrote about how transforming electrical grids could be the key to achieving the greenhouse gas reduction goals agreed upon at the 2015 Paris climate conference. By coincidence, at about the same time, Bloomsbury Publishing released The Grid: The Fraying Wires Between Americans and Our Energy Future, by anthropologist Gretchen Bakke. The book supports Philip’s arguments and complements them with some interesting material on the history of the grid and other themes. Of particular interest is Bakke’s discussion of how recent technological developments could democratize the business of energy while making the grid both more stable and more secure.
A hundred years ago, the U.S. grid as we now know it didn’t exist. Electricity was an amenity for elites, not the universal commodity that it’s seen as today. In 1907, there were over 1,000 municipal power companies (city owned and governed), accounting for about 30 percent of all electricity generation. Most of the remaining production came from independent power generators such as industrial facilities. There was little standardization of basic attributes such as voltage or current (AC or DC) and minimal interconnection among the many separate small grids across the country.
Then, simplifying considerably, along came Samuel Insull. For an innocuous-looking guy, he wielded enormous influence over the subsequent course of events, being perhaps the most forceful champion of the idea that electricity production was a natural monopoly (a market dominated by a single seller, in this case tied to big, centralized power plants) and that those monopolies ought to be run by investor-owned, for-profit utility companies.
The outcome of Insull and others’ labors, Bakke writes, was that by 1925, “almost nobody in the electricity business could even imagine a system for making, transmitting, distributing, or managing electric power other than as a monopoly enterprise.” Today, there are over 3,300 U.S. electric utilities, but just 189 of them (about 6 percent)—all for-profit and investor-owned regional monopolies—supply almost 70 percent of Americans with their electricity.
This system has prevailed for decades and, in many ways, has worked just fine for most people, especially after the federal government created the Rural Electrification Administration in 1935 to ensure that costly-to-reach country dwellers and remote settlements—in which the big utilities had no interest, as there was no profit to be had—were also wired up.
The whole generation system was premised on what came to be known as the “regulatory bargain”: in a context of economic growth that drove electricity consumption more or less perpetually upward, utilities kept the generators humming and maintained the wires and substations in their own monopolistic service areas. In exchange, public utility commissions readily approved most requests for new power plants or other hardware and allowed the utilities to charge ratepayers for them, an arrangement that produced a generous and predictable rate of return. There was a time when utility bonds were the gold standard for low-risk and lucrative investments.
But things aren’t working quite so well anymore. In recent years, blackouts in the West, the Midwest, and along the East coast, plus grid failures due to big storms such as Hurricane Sandy, have laid bare the grid’s increasing vulnerability to everything from hungry squirrels and sagging tree branches to Category 5 storm winds. The emergence and growth of non-utility generators, plus the increasing inputs to the grid from renewable sources (including solar panels on private homes) and the development of so-called smart technologies, have buffeted the big utilities and now threaten to destroy their traditional business model. (As Bakke puts it, that model is based on the idea that electricity moves in one direction, cash the other.) In short, there are huge and unsettling changes under way that could make things better, or worse, down the road, depending on how we choose to respond to evolving circumstances.
The watershed moment for these changes was November 9, 1978, when (by a single vote majority) the U.S. House of Representatives enacted the Public Utility Regulatory Policies Act (PURPA). Buried deep within its many pages was an obscure clause, Section 210, which required utilities to buy power from any “qualifying facility,” defined as any generator with a capacity of less than 80 megawatts. Utilities were also required to pay avoided-cost rates for that power—what they would have spent to make the power themselves. A key effect of this law was to break utilities’ monopsony powers—their status as the only legal buyers of generation for the grid. Prior to PURPA’s enactment, if utilities didn’t want an outside generator’s power to upset the grid balance, they simply refused to buy it or offered absurdly low rates. PURPA opened the door, just a crack, to multiple non-utility generators.
The crack widened considerably with another disruptive law, the Energy Policy Act (passed in 1992 but held up in court until 2000). That law separated power generation from distribution and mandated greater competition in wholesale power generation. The regulatory landscape was so transformed that utilities made money only by transporting, delivering, and metering electricity. In many places they were also forced to shed most or all of their generating capacity. One consequence was that profits depended to some extent on squeezing budget line items like tree trimming—which, with other factors, led to several major blackouts.
Another effect of the Energy Policy Act was to boost energy trading, which abruptly skyrocketed as electricity was made into a commodity; Bakke writes that “electrons . . . have never looked so much like pork bellies or pig iron.” Henceforth the price of energy increasingly was set by the dynamic dance of supply and demand. The new opportunities for profit helped stimulate the entry into the generating market of a host of new players, including wind farms, rooftop solar panels, natural gas plants, and others.
Dem-energy, or Demented Energy?
These developments boosted the renewable energy boom, but Bakke argues that they also led to a less-stable grid. The explosion in electricity trading meant that many different players, acting as commodity brokers seeking the best deals possible, began buying cheap power in one place and sending it farther than before—even though the grid was not designed to handle such chaotic movement of power. Where utilities previously had a pretty good handle on the usage patterns in their own service areas and could anticipate the usual swings in demand from morning to evening and from season to season, suddenly demand for power from distant places at unpredictable times turned anticipating load into something of a guessing game. To solve that problem, utilities need better data and better control.
Enter “smart” grids and technologies. The public face of this change is wireless digital meters, which offer utilities several key advantages over the older analog meters. Smart meters can transmit detailed data about when a customer is using power, and how much (according to Bakke, in some cases they can even enable utilities to discern which appliances are in use). They facilitate more rapid and accurate assessment of outage location and scope. Since they are read remotely, smart meters enable utilities to cut their workforces, which improves the bottom line.
Most importantly, utilities see smart meters as the key to one of the few revenue streams left to them: the monitoring and control of consumers’ electricity use—say, by directly curtailing use at times of peak demand, or by easing the job of matching load and supply at any given time, or even by shifting consumption patterns through time-of-use (TOU) pricing. Those are critical to utilities’ revenues.
Consumers, of course, don’t always see things that way. Some believe that the monitoring potential of smart meters poses a risk of intrusion. Some resent TOU pricing, as it may seem to be just another way to charge more for the same electricity. On the upside for consumers, however, smart meters also enable net metering, which means that people can become their own power generators or, more accurately, generators of power that goes to the grid and for which they get paid.
That may or may not be an upside for utilities. On the one hand, customers installing their own rooftop solar panel systems, which go hand in hand with smart meters, means extra generation capacity. On hot days when air-conditioning demand spikes, that capacity can help utilities avoid running back-up plants—or even, over the longer term, building more of them.
On the other hand, if you throw in the other pieces of a fully-fledged smart grid—such as battery storage, either as home units (e.g., Tesla’s Powerwall), plug-in hybrids, or fully electric cars—it creates a level of energy independence that may lead people to “defect” from the grid altogether. The more this happens, the more utilities will be left with declining revenues and an expensive grid that fewer people want to pay for. This is the fabled “utility death spiral”: grid maintenance costs rise, yet more customers defect or become generators, which means that their willingness to pay for grid access declines. Yet the grid has to be paid for because customers rely on it for backup. And utilities remain stuck with stranded assets that they must still pay off.
The technologies now available are widening the envelope of potential futures. The ideal system might seem to be a large grid comprising thousands of interlinked microgrids, themselves made up of building-size nanogrids, with each unit able to operate independently or be tied with the others: maximum protection from grid failures, yet maximum ability to cooperate with other generators and consumers when that makes sense. Bakke argues that this democratization of energy would bring the whole electricity system into greater alignment with Amory Lovins’s soft energy path concepts, “reconceptualizing . . . our systems-in-common as smaller, more flexible, more self-contained, less polluting, and closer to home. . . .”
Crucial to this future, Bakke says, is better electricity storage capability—an important key to integrating large quantities of renewable generating capacity. There is a host of technically viable means of storing energy—ice, pumped hydro, gravity trains, compressed air, flywheels, hydrogen, capacitors—but advanced batteries might be the Holy Grail. As noted above, companies such as Tesla and Alevo are aggressively developing such devices for use in electrified cars and homes and in utility-scale applications.
The technical specifications of batteries (especially their energy densities) must improve markedly along with their market penetration rates. Bakke cautions that “. . . every concrete plan for the adoption of variable generation at a rate higher than 30 percent is premised in part upon the ‘fact’ that we the people will be buying electric cars by the millions ‘in 30 years.’” Sales of plug-in electric vehicles (both plug-in hybrids and pure electrics) in the United States accounted for a trivial 0.66 percent of the light passenger vehicle market in 2015. But if the 2016 Paris Auto Show is any indication, as the technology improves auto manufacturers are gearing up for greater commitment to electric vehicles.
Regardless, the march of renewables continues. Although global investment in smart technologies and renewable energy is down in 2016 from last year’s record levels of nearly US$350 billion, third-quarter 2016 investment still totaled over US$40 billion. A new report from Carbon Tracker argues that global average levelized costs of electricity (LCOE) for renewables are already competitive with coal- and natural-gas fired plant costs (see graph); their 2020 scenario, which incorporates International Energy Agency assumptions about carbon pricing and declining coal and gas utilization rates, suggests that the renewable cost advantage will only widen.
The graph makes clear that renewables can require bigger upfront investments (capital expenditures, or “capex”) but that their fuel costs (zero) and likely carbon costs (essentially zero) are vastly more favorable. So where will that capex come from? Energy sector investors, as Phil Killeen points out in another post, are shying away from the volatility of oil markets and beginning to look for growth opportunities elsewhere. It’s not unreasonable to hope that, as Bill McKibben and others argue, the time is ripening for carbon pricing to take hold in the United States. If enacted, a carbon tax or a rigorous cap-and-trade system would accelerate the transition to renewables by making them even more attractive as investments—thus encouraging some of the world’s dormant capital to bestir itself and get out into the sun and wind.
Tom Prugh is senior researcher at the Worldwatch Institute and co-director of the State of the World project.
Banner Photo: Nate Angell