🇺🇸Mr. Trump, Make The Grid Great Again!

One of President Trump’s most resounding battle cries during the election was the bold promise to invest in infrastructure. I am going to argue that Mr. Trump should focus on upgrading the US electric grid, most of which is +25 years old and some parts are even +40 years old.

100 years ago, when the original electric grid was built, it was not conceivable to imagine consumers choosing their distributed generation because an energy generator would burn a fossil fuel and create electricity, which would be transmitted to consumer’s homes and that was that.

But the advent of renewable energy and small, private wind and solar producers means that today’s grid is nearing the end of its useful life both physically and functionally. Today the world is much more mobile, fluid, and flexible, but the grid has not kept up. A smart grid is set to provide real benefits to all stakeholders, including consumers, utilities, and regulators.

For starters, it will bring environmental benefits: through efficient use of energy and existing capacity by using digital communications technology to detect and react to local changes in usage and it will give customers options and choices to change their behavior when it comes to the price and type of power they use, and when to use that energy resource efficiently.

Efficiency is optimized thanks to a smart grid because of a two-way power flow and the integration of energy storage capacity, which would allow consumers to take energy when they need it, and the feed it back (in the case of solar/ wind producers) into the grid when prices are higher or store it. However, today, the grid is not really equipped to handle neither reverse power flows nor storage.

The Grid: An Economy Enhancing Investment

Although Americans bemoan the disrepair of their dilapidated roads, transit, and airports in countless NYT editorial pieces, the Trump Administration must consider the unseen but increasingly crucial issue of reinventing the power grid.

While the electric utility sector may not be the most riveting, the U.S. smart grid expenditures forecasts at more than $3 billion in 2017 (PDF) and the global smart grid market expected to surpass $400 billion worldwide by 2020. Navigant Research, a clean tech consultancy, reports on worldwide revenues for smart grid IT (information technology) software and services, are expected to grow from $12.8 billion in 2017 to more than $21.4 billion in 2026.

The private sector is stepping up. Not only tech companies such as Oracle, IBM, SAS, Teradata, EMC, and SAP but also utility giants such as General Electric, Siemens, ABB, Schneider Electric, and Toshiba are getting involved in smart grid IT.

Moreover, with historically low-interest rates (for now) and the potential for infrastructure projects to deliver long-run economic returns, many believe infrastructure investment could kick-start the country’s slowish GDP growth. Yet in spite of a body of economic evidence which points to clear benefits derived from infrastructure investment, simply building more roads will not guarantee economic growth on its own, as the textbook examples: Japan and China indicate. This lesson is particularly important considering the falling returns from public investment in U.S. highways.

U.S GDP Growth % 1965-2015

USAGDP
World Bank Data, 2017

And this brings us to the grid: aiming investment at the grid would improve conditions for millions of people as well as address the needs of the private sector.

The average American endures 6+ hours of blackouts a year, which amounts to at least $150 billion for the public and private sector each year — about $500 for every man, woman, and child, – that is remarkably bad for a developed country. Power outages in the USA are mostly caused by the effect harsh weather on the aging grid. Heavy industry tends to be most affected by tiny outages, and this example from Saviva Research is painfully illustrative:

A robotic manufacturing facility owned by Toshiba experienced a 0.4-second outage, causing each robot to become asynchronous with the grid; thus short circuiting chips and circuits. Toshiba spent the next 3 months reprogramming each robot, leading to an estimated economic loss of $500m.


International Grid Reliability

Capture
Source: Saviva Research 2013

In the U.S, investments in the power grid lag behind Europe. Across the pond, since 2000, the U.K., Italy, Spain, France and Germany have spent a combined $150.3 billion on energy-efficiency programs, compared with $96.7 billion for the U.S, according to data by Bloomberg New Energy Finance. Moreover, according to a 2015 report by energy consultancy, the Rocky Mountain Institute the, the U.S.  needs about $2 trillion in grid upgrades by 2030.

The Smart Grid: A Strategic Economy-Enhancing Objective

Yet there is much that the government and the private sector should seek to unpack about consumer behavior, strategic implications, governance, and decision-making regarding the grid, before committing to such a massive investment. The incoming investments in the next decades offer a historically important opportunity to rethink how the whole system of power generation, transmission, and usage operates.

Here’s just one consideration: ownership. Future smart grids are likely to have multiple ownerships, which will most likely span across:

  1. The government: through publicly owned power and transmission lines;
  2. The private sector: independent wind farms developers and operators or utility-owned generators;
  3. Private citizens: owners of household-level battery backup systems or rooftop solar panels.

All it really means is that combining forces for a specific project makes it possible to focus each parties’ inherent assets in the way that best reduces their shared risks, and reduced risk means a lower cost of borrowing, and therefore: cheaper projects.

As J. Michael Barrett explains: If the federal or state government can reduce the investment risk of the project by providing seed capital, issuing tax-exempt bonds, and/or signing a power purchase agreement to buy energy for a guaranteed period of time, the private sector can then provide investment capital at more favorable rates because total project risk is reduced. When all the parties share the up-front construction costs (and risk), promote open access to usable land, and lock-in the commitment of long-term users.

Finally, the most plausible way forward is to invest in new technologies opposed to retrofitting them later, an educated, unideological clear-eyed strategic effort to make the most of these investments would ensure both improved operations improvements in resilience and adaptability across the board.

tl;dr: A functioning integrated electricity system is a basic public good, imperative to the wealth, safety, and wellbeing of any modern society. In the context of a rapidly evolving energy infrastructure landscape, taking a strategic stance during the development of the smart grid in the USA will determine how much value is captured and who will capture it.

Read more: here The Energy Infrastructure that the US Really Needs

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The Energy Infrastructure That the U.S. Really Needs

A power grid is what transmits electricity from where it is made to our homes because electricity cannot be stored (efficiently…yet).

There are thousands of power plants that generate electricity using solar, wind, gas or coal. These generating stations produce electricity at a certain electrical voltage. Conventionally, this voltage is then “stepped-up” (increased) to very high voltages, to increase the efficiency of power transmission over long distance and minimize the dispersion of energy. Once this electricity gets near your town, the electrical voltage is “stepped-down” (decreased) in a utility substation to a lower voltage for distribution around town. As this electrical power gets closer to your home, it is stepped-down by another transformer to the voltage you use in your home. This power then enters your home through your electrical meter. All of this is very good, but given the evolution of energy production, it needs to modernize to meet consumer preferences and environmental requirements.

Enter the smart grid.  The core premise of a smart grid is to add monitoring, analysis, control, and communication capabilities to the grid to maximize the throughput (the maximum rate of production) of the system while reducing the energy consumption. A smart grid entails technology applications that will allow an easier integration and higher penetration of renewable energy, facilitating homeowners and businesses that wish to put their privately-produced energy on the grid. It will be essential for accelerating the development and widespread usage of plug-in hybrid electric vehicles (PHEVs) and their potential use as storage for the grid. Smart grids will allow utilities to move electricity around the system as efficiency and economically as possible.

Essential to efficient use smart grids are smart meters:  Smart meters help utilities balance demand, reduce expensive peak power use and provide better prices for consumers by allowing them to see and respond to real-time pricing information through in-home displays and smart thermostats. For example, you may want to run your dryer for 5 cents per kilowatt-hour at 22:00 pm instead of 17 cents per kilowatt-hour at 18:00 pm in the evening, when demand (and price) is highest. Consumers will have the choice and flexibility to manage your electrical use while minimizing costs.

The need for a smart grid is increasingly recognized by US policymakers at all levels of government, as ways to improve the energy efficiency of producing and using electricity in our homes, businesses, and public institutions become an entrenched imperative. Many believe that a smart grid is a critical foundation for reducing greenhouse gas emissions and transitioning to a low-carbon economy. Certainly, PHEVs and renewable energy have been of great interest to Congress.

In light of this brief introduction, I came across Ethan Zindler’s prepared testimony before the senate Committee on Energy and Natural Resources, here is the meat of what he had to say:

Before I get to my main points, a quick note about “infrastructure”. In the current climate, this term has become a Rorschach test of sorts representing different things to different constituent groups. In the case of energy, infrastructure can encompass a broad scope, including, among other things, building power-generating facilities, expanding oil and gas distribution pipelines, or hardening local power grids.

Those topics are worthy of discussion and I know my fellow panelists will shed light on them. However, my testimony today will focus on the next generation of energy technologies and the infrastructure that will be critical to accommodate them.

The U.S. is transforming how it generates, delivers, and consumes energy. These changes are fundamentally empowering business and home owners, presenting them with expanded choices and control. Consumers today can, for instance, analyze and adjust their heating, air-conditioning, and electricity use over their smart phones thanks to smart meters and smart thermostats. And they can make efficiency improvements through advanced heating and cooling systems and innovative building materials and techniques.

Consumers in much of the country can choose their electricity supplier and may opt for “green choice” plans. They can produce power themselves with rooftop solar photovoltaic systems. They can even store it locally with new batteries.

Consumers can choose to drive vehicles propelled by internal combustion engines, electric motors, or some combination of both (hybrids). That car can be powered by gasoline, diesel, electricity, ethanol, or perhaps even methanol, natural gas, or hydrogen. And electric vehicle drivers who own homes can turn their garages into fueling stations simply by using the outlet on the wall.

Now, realistically speaking, few Americans today have the inclination or income to become high-tech energy geeks. But that is changing as prices associated with these technologies plummet. In the case of electric vehicles (EVs), such cars can be appealing simply because they perform better.

We at BNEF believe that further growth and eventual mass adoption of these technologies is not possible, not probable, but inevitable given rapidly declining costs.

For instance, the price of a photovoltaic module has fallen by 90 percent since 2008, to approximately $0.40 per watt today. For millions of U.S. businesses and homeowners, “going solar” is already an economic decision. Last year the U.S. installed far more solar generating capacity than it did any other technology.

By the end of the next decade, cost competitiveness for distributed solar will arrive most places in the US – without the benefit of subsidies. We expect the current installed base of US solar to grow from approximately 3.6 percent capacity to 13 percent by 2030 then to 27 percent by 2040.

Similarly, the value of contracts signed to procure U.S. wind power have dropped by approximately half as the industry has deployed larger, more productive turbines. We expect current wind capacity to at least double by 2030.

Many of these new energy technologies are, of course, variable (no wind, no wind power; no sun, no solar power). Thus the growth in these and other new energy technologies will be accompanied by unprecedented sales of new batteries of various shapes and sizes.

Utilities such as Southern California Edison Co and others have already begun piloting large-scale batteries in certain markets while providers such Stem Inc and Tesla Inc offer “behind-the-meter” storage for businesses and homeowners.

In the past five years, lithium-battery prices have fallen by at least 57 percent and we expect a further 60 percent drop by 2025. That will contribute to 9.5GWh/5.7GW of battery capacity in the U.S. by 2024, up from 1.7GWh/0.9GW today.

Continuing battery price declines will also make electric vehicles (EVs) for the first time a viable option for middle-class US consumers without the benefit of subsidies. Last year, EVs represented 0.8 percent of global vehicle sales. By 2030, we anticipate that growing to one in four vehicles sold.

The most popular place to fuel such cars could be augmented gasoline stations… or the local grocery store, or simply your garage.

The changes we’ve seen to date are giving U.S. energy consumers unprecedented opportunities to manage, store, distribute, and even generate energy. However, the new, empowered consumer poses inherent challenges to the traditional command-and-control / hub-and-spoke models of conventional power generation and power markets. Already, we have seen examples around the globe where incumbent utilities were caught flat-footed by rapid clean energy build-outs.

In some cases, it has been heavy subsidies for renewables that have catalyzed the change. But more recently, simple low costs are allowing wind and solar to elbow their way onto the grid.

So, where does “infrastructure” fit into this changing energy landscape?

First, conceptually, we must accept that the empowered consumer is here to stay. To some degree, this acceptance is already underway in the private sector where companies that once focused mainly on large-scale power generation are merging with consumer-facing utilities, or buying smaller solar installers and battery system providers.

Second, policy-makers should seek to promote infrastructure that accommodates a new, more varied, more distributed world of energy generation and consumption. Most immediately, this can mean supporting greater deployment of so-called smart meters. To date, the U.S. has installed almost 71 million of these devices, which enable better communication between energy consumers and utilities. Compare that to Italy where all consumers have such meters and are now receiving a second generation with more advanced functionality, or China which has installed 447 million units, across almost its entire urban population.

Policy-makers may also seek to facilitate the development of high-voltage transmission across state lines. It has long been an adage that the Great Plains states represent the “Saudi Arabia of wind”, given the exceptional resources there. To some degree, those states might as well be in Saudi Arabia, given the major challenges of building transmission that would move electrons generated there to more densely populated states in the east or west. The US has added approximately 1.5GW of high-voltage direct current transmission since 2010. By comparison, China has added 80GW over that time.

Investment is needed at lower voltages too. Our passive, one-directional, electricity distribution system is under strain as new distributed generation capacity comes online. In addition, policy-makers might also consider ways to expand support for EV charging stations. As sales of such cars grow, consumers are already putting greater pressure on certain distribution nodes around the country. Ensuring that EV “fuel” demand is managed in an orderly manner will be important.

Finally, the changes afoot and to come will require what might best be described as infrastructure “software”. Most importantly and pressingly, this must include the reform of electricity markets to take into account the new realities of 21st Century power supply and demand.

It may also include expanded programs to educate energy professionals on the new realities of modern energy markets. And, yes, it could include more software to improve energy monitoring and optimize system performance.

In closing, I would reiterate that none of this need be done at the exclusion of investing in traditional energy infrastructure where the needs are also pressing. However, any rational discussion about energy infrastructure investment today must do more than take into account the current situation. It must also consider where we will be tomorrow.