On Modernizing the US Power Grid

A Series of Related Investment Opportunities Emerge

The science of climate change is no longer in doubt – the human emission of greenhouse gasses has profoundly changed the atmosphere. While the exact impact of this change is still uncertain, scientists and policy makers around the world agree: the climate must be stabilized.

Unfortunately, mitigating global climate change is likely to cost trillions of dollars and necessitate change in every sector.

However, as with all potential investments, some have the possibility for greater returns; in the rush to the low-carbon economy, those investments that fundamentally change how we produce, consume, transmit, and store electricity will be the most beneficial. More generally speaking, all these upgrades can be considered as improvements to the utility grid. If the United States and other countries want to achieve meaningful change, the renovating their power grids is a smart investment.  

The American utility grid is the largest interconnected machine in the world, delivering on-demand power to hundreds of millions of Americans around the country. Yet, despite its massive scope and importance, the grid still relies on technologies developed in the Post-War Period; the grid has seen limited, if any, updating since its initial implementation. In the decades since, researchers and entrepreneurs around the world have developed new technologies that allow the cleaner production, more efficient transmission, and effective storage of energy.

It is time that the United States takes advantages of these advances.

First and foremost, the American utility grid needs to adopt the widespread use of renewable power. Other changes to the grid will be largely meaningless unless the country changes how it produces the power it consumes. Originally, it is true that renewable technologies were inadequate to meet national power demand, but in the decades since their original invention, the technologies have matured.

Specifically, solar and wind power have the capability, if deployed nationwide, to limit the United States dependence on fossil fuels. The United States is slowly embracing these technologies: for example, installations such as Cape Wind are poised to begin an era of offshore wind farming in the United States. Regardless, the United States must speed along the transition to renewable power if it wants to be a leader in the low-carbon economy.

Beyond changing how power is generated, America must also change how energy is transmitted and stored. The basic problem hindering the deployment of renewable technologies is termed ‘intermittency,’ namely that the sun does not always shine or the wind always blown. However, a nationwide network of superconducting cables and energy storage centers can help alleviate this. The majority of potential renewable power is in areas that are sparsely inhabited such as the American Southwest – superconducting or high voltage direct current cables could transmit power from such remote areas to either coast, where electricity is in far greater demand. In addition, an improved network of storage stations would allow renewable power sources to store excess energy for times of peak demand.

Specifically, solar power is most productive at mid-day and wind power during the night, both periods of low demand. By storing power generated during these periods for later use, the intermittency problem can be greatly diminished.  A great race is underway now to improve and scale energy storage technologies such as has been seen with the interest surrounding Tesla's Powerwall.

Finally, the United States must take advantage of the advent of computing to create an intelligent grid. With the Internet of Things attaching processors to increasingly mundane objects, it is unbelievable that the largest machine in the world has almost zero computing power. Real-time energy pricing and intelligent home appliances promise to shift demand to meet supply by moving non-essential actions such as dish and clothes watching to off-peak times.

Savings is the best way to motivate consumers, and so educating consumers on the monetary benefits of smart appliances such as Google’s Nest Thermostat are an important step in moving toward a low-carbon economy. The grid-wide adoption of smart appliances and technologies will substantially reduce the amount of electricity consumed by the average American household and greatly reduce the burden on the grid and utility companies to provide peak power.

With such a massive scope of work to be accomplished, it is natural to wonder how this will be financed. The cost may seem enormous, but the United Sates has tackled similarly gigantic tasks in the past such as the construction of the interstate highway system. For this project, carbon, oil, and gas taxes could provide significant revenue while driving innovation and adoption of existing green technologies. Likewise, a tax on electricity losses (which total nearly 7% of all power output) could raise funds for the creation of new and more efficient power lines. Finally, a private energy storage sector could prove to be self-sustaining and highly profitable, spurring innovation in battery technologies and dramatically increasing the availability of storage throughout the grid. The financial burden to renovate the grid is significant, but financial markets are up to the task.

The United States was at the forefront of the Industrial Revolution, and its place as an early adopter greatly benefitted the country and its inhabitants. If America acts now, it can also be at the forefront of the Low-Carbon Revolution that is poised to transform the world economy once more. Time is running out, though, and the time to act is now.

For more on this particular subject, see the related JEI Working Paper at the JEI's website here.