Warren Causey, a well-known energy consultant, blogger and colleague of mine, regularly poses the following thought to the power industry. Although it’s a minority view today, I’d like to examine his idea to see where the discussion takes us.
To paraphrase Causey, “Why are we looking to energy rationing through increased complexity and inconvenience for consumers when what has made our quality of life and productivity of business so great in this country has been a ready supply of reasonably-priced energy?”
Another friend of mine, Brewster McCracken, who runs the Pecan Street Project in Austin today, has asked in presentations, “Hey, have you heard about the secret plan to kill the smart grid?” The audience suddenly is curious. They’ll say, “No. What’s the plan?” And he’ll tell them: “The plan is two-fold. First, we’re going to try to make Americans to quit using energy when they want it the most. Second, if they insist on using peak time electricity, we’ll bankrupt them.”
McCracken is engaging in hyperbole, of course. But I think he makes a really good point that we’re asking consumers to get smart because we’ve got a grid that’s not. Causey’s point, essentially, is that utilities should be focused on making electric service as economical and easy for the customer as possible rather than trying to “engage” customers to be responsible for the fact that the grid can no longer do what they want and need it to do. Along with Causey and McCracken, I believe that the onus should be on the industry, both utilities and regulators, rather than consumers to keep the lights on in the 21st century.
We do have a problem. The grid as it exists today will not continue to provide as reliable, economical and responsive service as consumers have grown used to. The industry operated under a totally different, dreamily ideal set of circumstances for its first 100-plus years. It was a combination of three things: persistent economies of scale, exponentially growing customer demand and a stable business model, the cost-plus, regulated monopoly.
Every time we built a power plant larger or a substation larger or a transmission corridor larger, the per-unit cost, the per-kilowatt-hour cost, or the per-customer cost was less, because of these economies of scale. The falling real price of electricity in turn stimulated even more consumption. And electric utility investors earned a safe, attractive, monopoly return on their investments.
All this led us to a monolithic, centralized grid consisting of large power plants, large transmission corridors, all distant from the load, and very little concern for maximizing the intelligence and efficiency of how electricity is distributed and used. The world was about the supply side. If we built enough capacity, everything else would work itself out.
Then, in the 1960s things began to change, and drastically. The costs of uncertainty and risk began to swamp economies of scale, reducing growth in demand, and eroding the cost-plus monopoly model. The Great Northeast Blackout (which led to the formation of the North American Electricity Reliability Council) caused us to focus on reinforcing the supply side with even more generation capacity and transmission corridors but, inadvertently, created an opportunity market in which utilities began to exchange energy with each other and some large customers at opportunity costs rather than monopoly costs. This was followed by OPEC oil embargos which caused huge increases in the retail price of energy, interrupted decades of exponential growth in customer demand and resulted in the advent of non-utility power producers. This, coupled with utilities’ growing difficulties in completing central station power plants, particularly nuclear, on time and on budget led to prudency reviews of power plants and disallowance of cost-plus as the basis for pricing. The industry also began to face serious new collateral challenges including consumers’ resistance to adverse environmental impacts, preference for sustainability and concerns about safety.
In short, the wheels were coming off of the supply-side paradigm. But we already had the worlds largest and best grid. How were we going to be able to move forward? The Smart Grid became primarily about curtailing demand (or, per Causey, rationing energy) not about re-architecting the grid itself. And, secretly, the industry maintained the hope that if we could eventually build enough power plants and transmission lines, everything would be okay.
Well, it’s become abundantly clear that we’re not going to be able to build as many central power plants and massive transmission corridors as we did when the focus was on constantly expanding supply. See the U.S. Department of Energy’s report, “Keeping the Lights On in the 21st Century
What can we do to make the grid smarter without making it less inconvenient for consumers? I don’t know many consumers that want to become energy experts or thermostat jockeys. Nor are they interested in sacrificing quality of life or productivity of business.
I see necessary changes and will articulate them in future blogs. They include decentralization, an emphasis on risk management rather than economies of scale, and alternative means of producing, distributing and consuming electricity. There are many ways that we can exploit substantial efficiencies and improvements in reliability and quality of service through the use of the latest and best electronics, telecommunications and information technologies.
For now, I’d like to hear from readers on the notion that utilities, regulators and customers should have a strong interest in wringing efficiencies from the grid itself first rather than just hectoring customers to change when and how they use electricity.
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