Jeffrey Leonard argues that though the natural gas boom is an encouraging development for America’s economic future, the fragile state of our electrical grid will limit our ability to take advantage of it:
Blackouts are estimated to cost the American economy about $150 billion each year in interrupted production, destroyed or lost products (like computers fried during power surges), and other costs—an average of more than $500 per person. The increasing dependence of the economy on high-quality, uninterrupted electricity is underscored by the fact that fully 40 percent of all electricity used in the U.S. now goes to power computer chips and automated manufacturing, and applications ranging from personal computers and “Cloud” storage to so-called mission-critical machines, which are used in manufacturing, health care, and air traffic control. Experts predict that by 2015, nearly 60 percent of our electricity will go to such uses.
Hurricane Sandy served as a recent reminder that the U.S. electrical grid is vulnerable to extreme weather events, yet it is also vulnerable to cyber attacks and other threats. With this in mind, Leonard calls for more regulation in the form of more stringent reliability standards for critical components of the grid, which would entail building more redundancy into the system. And of course he references the potential of a smart grid:
Electrical infrastructure has typically been built to meet so-called peak load demands—the highest amount of electricity needed at peak times on peak days. Today, this leaves a large portion of the electricity industry’s capital stock vastly underutilized most of the time—the average natural gas power plant today is only running about 42 percent of the time. But with a smart grid enabled for real-time pricing of electricity, peak load demand could be smoothed out, and wasted generation reduced. Smart grid enhancements could also allow transmission lines to send 50 percent to 300 percent more electricity through existing energy corridors. These outcomes could reduce congestion on the now-overloaded parts of the grid, and reduce the number of expensive new high-voltage transmission lines that we need to build or replace.
Leonard does not, however, spend much time on the cost of building a smart grid. Last May, Peter Behr of ClimateWire summarized a report on this subject from the Electric Power Research Institute:
Deployment of smart grid technology from U.S. utility control centers and power networks to consumers’ homes could cost between $338 billion and $476 billion over the next 20 years, but will deliver $1.3 trillion to $2 trillion in benefits over that period. The benefits will include greater grid reliability, integration of solar rooftop generation and plug-in vehicles, reductions in electricity demand, and stronger cybersecurity, according to a new study by the Electric Power Research Institute (EPRI).
The sticker shock is mitigated somewhat when we divide those first numbers to find annual expenditures in the range of $17 to $24 billion per annum. A key challenge, however, is that the benefits are presumably backloaded, as it will take time for utilities, appliance manufacturers, and households to learn how to take full advantage of the smart grid, while the costs of implementation will be comparatively front-loaded. Though Leonard doesn’t press the point, he hints at a lost opportunity in the 2009 fiscal stimulus law:
Thus far, the administration has neglected the basic infrastructure repairs necessary to keep the current grid up and running. It has also neglected the critical linkages between gas and grid. Instead, it has concentrated on adding what are in effect digital bells and whistles to a broken machine.
Take, for example, the American Recovery and Reinvestment Act of 2009, which allocated more than $90 billion in government investments and tax incentives “to lay the foundation for the clean energy economy of the future,” as a Department of Energy document states. Only $4.5 billion of this money went to what the DOE calls “grid modernization,” and $3.5 billion of that went to subsidize the installation of fifteen million “smart meters”—digital devices that automate the management of electricity for households and businesses.
Note that this money was spent as aging transformers threatened the basic integrity of the electrical grid. Leonard’s approach, which relies on a more active FERC, strikes me as a good one, though I wonder if there will be some other, more bottom-up route to a more reliable electrical grid, e.g., if more firms and households will start providing for their own power needs by making use of fuel cells, etc. This is hardly a cure-all, as the firms and households in question will continue to rely on existing natural gas distribution networks. But it is an intriguing possibility.