Will the Next Power Shift be Off the Grid?

TCLabz DER Future


The integrated North American power grid is the largest machine in the world.  This machine is amazing because supply of electrons to meet expected demand for electrons must balance every second of every hour of every day—or the light go out for someone or all of us. There are 3,200 utilities that supply the U.S. electrical grid with power they  sell for about $400 billion each year.

The electric power industry has been in a state of constant change for nearly fifty years.  So what, you ask?  What industry isn’t facing the same thing.  In the case of electric power these power shifts have billion dollar impacts on electric rates, capital investment and the growing regulatory cost of making the transitions.

Environmental Quality. The first power shift in this process of change began with environmental concerns over acid rain, smog and later carbon emissions along with concerns about energy efficiency and conservation that evolved into renewable portfolio standards to expand the market share of wind and solar energy and more recently to greenhouse gas emissions reduction policy goals and proposed US EPA regulations.[1]

Inflationary Impacts on Power Plant Construction. The second power shift in the utility business model began in the late 1970’s when rising inflation eroded the economics of new power plant construction – especially nuclear power after the Three Mile Island accident.[2] Until then, each new power plant built reduced the average cost of service and thus rates.  That virtuous circle turned vicious when inflation and regulatory delays caused power plant construction costs to skyrocket.

Wholesale Competition and Industry Segmentation Public reactions to rate spikes and regulator reactions to power plant construction cost increases and delays in construction schedule resulted in the third power shift as regulators ordered changes in industry structure breaking up the vertical energy company monopoly by introducing competition (1978 PURPA), regulated energy delivery in the wires and pipes business segment (1992 EPAct), and arm’s length transmission operation and the independent system operator (ISO) formation process to improve access and cost allocation and energy competition in many markets (FERC 888, 889, and 2000).[3]

So what’s next in the power shift  in the electric power industry?

  1. The War of Attrition between Fuels and Technologies
  2. When to Declare Victory in the Race to the Renewable Finish Line 
  3. Weak Demand Starves Utility Earnings Growth

The factors driving the fourth electric power industry power shift shaping up today include the growth of renewable energy to meet renewable portfolio standards (RPS) targets combined with low natural gas prices, regulatory changes designed to reduce greenhouse gas emissions and all within a low growth environment.  These factors reflect the implications for market equilibrium of what must be built (renewable energy), what can no longer pragmatically be built (new coal fired generation) and what’s left.  What’s left is essentially demand response and efficiency to optimize the performance of a portfolio or a regional market and, when new capacity is required for grid reliability, more likely than not will be gas fired generation if the economics for new power plant construction make such units profitable.

Prosumers go Off the Grid. What’s left is the fourth power shift creating the prosumer, a new type of ‘off the grid’ power customer, especially commercial and industrial customers who go ‘off the grid’ to take control of their energy costs and manage their energy use strategy in ways that are predictable, affordable, sustainable and flexible.

[2]  Cohen, Bernard L., University of Pittsburgh, Plenum Press, 1990, Chapter 9, The Nuclear Option What Went Wrong?  http://www.phyast.pitt.edu/~blc/book/chapter9.html

[3]  Report to Congress on Competition in Wholesale and Retail Energy Markets.