The pathway to alleviate the risks associated with dependency on conventional fuels is the rapid development of a smarter electrical grid. Public and private investments into smart-grid technologies are a critical part of both the business-as-usual scenario and the new business cases like the one developed by Project Butterfly. As the energy industry struggles to cost-effectively meet demand, the smart grid can help make better use of our existing energy infrastructure.
The development of a smart grid also presents the most interesting outcomes for yet-to-be-discovered innovation that can lead to rapid reductions in energy use and in the carbon intensity of final energy. Currently, an aging electrical infrastructure, an uncompetitive power market, and an extremely centralized means of transmission dominate the U.S. and global energy landscape.
Over the next 40 years, the U.S. electric power sector could require investments of as much as $3.5 trillion just to replace its aging infrastructure.1 When we look globally, the size of the problem only becomes greater. An investment in smart grid technologies eases the transition.
For example, with regard to the relatively uncompetitive nature of the U.S. power market, about 70 percent of all customers are served by utilities, which are regulated by state public utility commissions. This means it is up to the elected or appointed state regulators to fairly distribute the costs and benefits between customers and shareholders, while simultaneously maintaining oversight on the utilities’ investment activities. Within this system, the themes of reliability and consistency have dominated the energy industry, while operating efficiency and revenue growth, which are normally themes actively present in a free market system, have taken a seat on the sidelines.
These same sets of circumstances apply to the global energy market. Finally, inherent dangers exist within the complex and highly interconnected electric power grid if it is well maintained and part of any transition plan. Just as the financial crisis of 2008 spread quickly around the globe and caught many individuals and nations off guard, large regions and even entire nations can feel the effects of brownouts or blackouts. A move toward a more distributed and smart electric grid is crucial to any effort to mitigate these risks.
For example, in July 2012, India experienced a two-day blackout that left 600 million people without power. About half the country was literally operating in the dark. Market analysts immediately drew India’s economic ambitions into question. The concern was over whether India’s inefficient power sector would be able to electrify the country’s long-term growth. The Washington Post reported that the collapse of India’s electric grid led to the largest power blackout in global history.
The state of the electric sector in the U.S. is not that much of an improvement over India’s. One has only to recall the large August 14, 2003, blackout that impacted more than 50 million people over 9,000 square miles from Toronto to New York, closed 13 airports, and caused economic losses (as estimated by public officials) of between $4.5 billion and $8.2 billion.
All this was the result of a few power lines in Ohio, which were being fed by a poorly maintained nuclear plant, falling into some branches. On top of this, cyber attacks, very similar to the 2010 Stuxnet worm that targeted Iran’s uranium enrichment plants, are a growing concern to global security agencies. Though seemingly rare, these instances demonstrate the far-reaching effects of power grid failure and the susceptibility of a highly interconnected grid.
They also demonstrate the need for a change. Developing a smart grid is a way to add value for the energy user and to reduce costs to the energy supplier.
According to the EIA, demand for electricity in the United States is projected to increase at a 1 percent annual growth rate to the year 2035. While the demand for power is no longer increasing as rapidly as it once was, new energy sources will be as important as ever in meeting the demands of the energy user. More than 70 percent of existing U.S. coal plants are more than 30 years old, and 33 percent of them are more than forty years old.
The American Society of Civil Engineers released a 2011 report stating that the current electrical grid will ultimately break down by 2020 unless a staggering $673 billion is invested for repairs and replacements.2 This aging infrastructure, and the lack of a coherent plan to odernize it, is especially alarming when we take into account the actions that other nations are taking.
China, for example, already has plans to install 300 million smart meters to dispatch power by 2015 and will also invest $47 billion over the next five years to improve its energy infrastructure. While China is gearing up for the next generation of electrical grids, the United States appears to be pushing this issue to the back burner. The question that emerges is how to most effectively update existing energy infrastructure?