New President, New Electric Grid?

A new set of leaders today entered the White House. As they consider measures to enhance roads and bridges, they also should focus on America’s electricity infrastructure. By focusing on investment, efficiency, and markets as their policy foundation, the U.S. will have a world-class electricity system that will advance our economy into the 21^st century.

Electricity is a marvel, something even physicists don’t fully understand, yet it is the foundation for our entire economy. Think for a moment about how many interactions you’ve had just this morning with electric power – from your alarm clock, to your radio or television, to your hair dryer or shaver, to your computer or smart phone, and on and on.

Moreover, electricity generation and delivery constitute our nation’s largest industry in terms of capital investment. Less flattering, electric generators are the biggest source of harmful pollution.

U.S. electricity infrastructure is old and frayed. More than 70 percent of our grid – the lines and transformers that deliver electricity to our homes and businesses – is at least 25 years old. The average power plant in this country is 34 years old. Luckily, modern technologies are transforming the grid. And what’s more, new players are entering – and bringing innovation into – the once-monopolized and risk-adverse electricity industry. Unfortunately, its regulation is still stuck in the past. Let’s change that, starting at the federal level.

The cost of America’s old grid

On any given day, this old system causes half a million Americans to lose power for two or more hours. Our system, in fact, is shockingly unreliable compared to those in every other developed nation, putting the U.S. at a competitive disadvantage: We suffer some 360 minutes of outages each year, compared with just 16 minutes for Korea, 15 for Germany, and only 11 for Japan.

One more statistic: The length of a U.S. power outage averages 120 minutes and that number is growing, while in the rest of the industrialized world it’s less than ten minutes and shrinking.

Such unreliability is expensive. You may not care much if your lights are off for 120 minutes, but computer-based businesses lose millions and millions of dollars when the electric current flickers even a tiny amount. According to Navigant Research, we pay for twice as many power plants as we actually need – and suffer their pollution – because of “the massive inefficiencies built into this system.”

How technology changed the energy landscape

Enter modern technology. Fracking and horizontal-drilling capabilities have vastly lowered the cost of natural gas. This has caused the dramatic and recent shift in how we generate electricity, from coal to natural gas – which has led to lower costs and less climate change causing greenhouse gas emissions.

The diversity of power options, moreover, is increasing. Prices for solar power modules have fallen 70 percent in the past six years. Wind power costs have dropped 58 percent in the past five years.  Battery prices have fallen approximately 14 percent annually since 2007.

These are remarkable advances, but arguably the most significant technological change in the electricity industry is the introduction of innovative sensors, smart meters, and advanced communication technologies. These tools are attracting hundreds of entrepreneurs and deep-pocketed players – as well as their investment and jobs – into what long has been an innovation-adverse, monopoly-dominated industry.

All these new smart-grid technologies provide enormous quantities of data. How we utilize that data will have major impacts on consumers, the environment, and the future electricity system. The proliferation of these sensors and digital communication devices, for instance, can allow traditional generators to improve the operation of their power plants. They allow small and intermittent generators, like rooftop solar panels and wind turbines, to integrate smoothly onto and bolster the electric grid. On top of that, they’re opening the door for clever companies to help consumers better manage their energy use in ways that save money and cut pollution. Some studies have found that just the availability of real-time energy-use data leads to energy efficiency gains of 15 percent.

Businesses are taking notice

New players are entering energy markets. Google recently entered the electricity business by buying big blocks of renewable energy for its large data centers, and by acquiring Nest, the maker of smart thermostats and home devices. Google sees opportunity and profits in using innovative technologies to help Americans better manage their energy use. Like Google, Silicon Valley innovators Apple and Facebook are also are well on their way to meeting internal commitments to 100 percent renewable energy.

It’s not just big tech companies who are starting to participate. Walmart, the world’s largest retailer, used to buy all its power from local utilities. Last year, however, it met 26 percent of its electricity needs from its own solar panels and wind turbines. And it’s planning to increase that number to 100 percent.

Google and Walmart are two of the big names, yet there are hundreds of new entrepreneurs and small firms bringing innovation and investment into the electricity industry. These new players are advancing modern technologies and introducing new services to consumers, all while increasing the grid’s reliability. They are transforming an industry long dominated by state-based monopoly utilities into something more diverse, vibrant, competitive, and innovative.

In short, this combination of new technologies and new players means this ain’t your grandfather’s power grid – unfortunately, it’s just regulated that way.

How can regulation catch up?

The regulation of the electricity industry is byzantine. While most electricity companies are privately or investor owned, the federal government controls some of the largest utilities (such as TVA and BPA), while others are managed by municipal governments or rural coops. In some states, electricity generators compete in open markets, while in other states the generation of power – as well as its delivery – is controlled by a monopoly that enjoys guaranteed profits and freedom from competitors.

Although electrons don’t care about state boundaries, state public utility commissions regulate power markets within those boundaries while the Federal Energy Regulatory Commission (FERC) oversees wholesale or interstate markets – and the feds and states often battle over jurisdiction. Separate agencies regulate the pollution that results from electricity generation. The complexities go on and on.

This is why our leaders should consider the following broad themes or goals when developing energy policies:

• Infrastructure-investment. As federal leadership considers infrastructure legislation, they should think of modernizing our frayed electricity system. This would provide some public-sector resources but, more importantly, stimulate investments from new private-sector players.
• Efficiency. Any environmental legislation should include a focus on efficiency – or stimulate the innovative technologies that cut costly waste from the system.
• Markets. Markets and competition – rather than bailouts and monopolies are key. We have a chance with modern technologies, the availability of massive amounts of data, and the arrival of new competitors to increase reliability, lower costs, as well as reduce pollution.

With these three guiding principles in mind, we at Environmental Defense Fund hope the new federal administration includes a focus on modernizing our electricity infrastructure when evaluating how to meet the country’s overall infrastructure needs.

This blog was adapted from a speech Dick Munson gave in December 2016 to the Congressional Research Service.