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Leonard Hyman & William Tilles

Leonard Hyman & William Tilles

Leonard S. Hyman is an economist and financial analyst specializing in the energy sector. He headed utility equity research at a major brokerage house and…

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The Future Of The Grid: More Government, Less Private?

  • Customers and independent power producers are often the same and some of their solutions may make more sense than the grid’s.
  • Much promising generation technology seems focused on small-scale or distributed resources which are likely to chip away at the grid’s monopoly on transmission and distribution.
  • Governments must develop policies to assure that a strong grid remains in place to utilize the renewable energy resources.

The European Space Agency proposes to build a solar power satellite, not a new idea. NASA looked at the concept over twenty years ago and did nothing. Too bad. The satellite would generate solar power with huge panels, and beam the power back to earth as microwaves. Each satellite would equal a utility scale power plant. If started now the demo project might be ready for operation by 2040.  

In the United Kingdom, Rolls Royce plans to develop modular nuclear power plants. Rolls Royce predicts  2030 for the first unit. American reactor developers have similar ideas. NuScale targets 2030 as the operating date for its first commercial reactor. Massive utility scale solar and wind projects, the renewable equivalents of a power station, may take five or more years from conception to completion, much of the time fighting over permits.

So, what’s the point? It always took years to put up a power station. Yes, but until recently, the customer had no choice but to wait. Nowadays customers and independent power producers are often the same and some of their solutions may make more sense than the grid’s. An Australian power company concluded that it could better serve rural customers by installing distributed energy resources (small generators, batteries and solar panels) rather than keeping its most rural customers connected to the grid via transmission lines serving only a few customers per mile. A major natural gas distributor on the Delmarva Peninsula proposes to build small power stations fueled by chicken manure, and says the area’s chicken population could support another 15 or so stations. It doesn’t take long to build these types of generators, either. 

Okay, not many potential electricity customers live in the Australian Outback or near chicken farms. But combined solar and battery in buildings, however, can be placed into service relatively quickly, too. We suspect, also, that research and development work on small-scale production of hydrogen to power fuel cells for electricity could come to fruition sooner than even modular nukes or the space satellite. Related: The EU Is Set To Strengthen Its Emission Reduction Targets

Interestingly a solar satellite, modular nukes and large scale renewables projects have one characteristic in common—they all need connection to the grid to reach customers. This means the grid, when these assets are expected to come on line, in 2030-2040, not now. In the meantime, much promising generation technology seems focused on small-scale or distributed resources which are likely to chip away at the grid’s monopoly on transmission and distribution. Well-to-do residential electric customers (along with commercial and industrial power users) disappointed by increasing grid failures from hurricanes, wildfires, and the like have increasing incentives to simply cut the cord so to speak, and leave the grid as self generation becomes increasingly economical. The problem is that the power grid, even though it’s a monopoly, has to furnish electricity at least as reliably and economically as the newly emerging alternatives. And that’s the problem. They can’t. Distributed power systems appear to be more resilient or less fragile than the legacy grid because electricity is generated and consumed at the same location—no need to use the utility’s generation, extensive transmission network, or distribution assets except perhaps for excess power sales back into the grid. One somewhat similar business analogy is the cable TV market and its deterioration. Customers suddenly presented with alternatives to an unresponsive monopoly will likely flock to the new offering.

One might ask, “Don’t investor owned utilities that own and control the electricity grid have a strategy to develop new products and services that will keep their formerly captive customers connected?” By way of an answer, the US electricity industry spends 0.1% (yes, the decimal point is in the right place) of revenues on research, technology and development. Of that minuscule amount 40% is dedicated to engineering advice for currently operating nuclear facilities. If these numbers represent industry potential for innovation we would not bet that the US electricity industry will be at the forefront of an increasingly electrified economy. At best the utility industry is likely to either respond slowly or reactively to the proliferation of non grid power alternatives, especially if they are not perceived as an imminent threat to revenues.

If increasing numbers of customers leave their utility for better reliability at comparable prices, could our current electricity grid evolve into a simple supplier of last resort? This could mean an obligation to serve customers who have no other choice because they do not have the capital to invest in distributed resources like the wealthy and commercial customers. If this dichotomy evolves, legacy utility power generation vs increasing low cost distributed resources — what financially motivated organization could ever commit to buy the power from new, high cost, carbon-free central station power generation that might come into service in 2030-2040? Are they hoping for electric vehicle owners? Maybe, but they too simply want a charge and should not care where the power comes from.

So here is the bottom line. If policy makers (and that ultimately means the government) believe that new, central station energy resources should play an important role in decarbonization they will have to start thinking on a system basis. This means policies to assure that a strong grid remains in place to utilize the new resources. However, because actual profitability may be increasingly difficult to realize, those policies might well include government ownership.

By Leonard Hyman and William Tilles for Oilprice.com

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