Reforming the grid: Can the US keep up with 21st century energy demands?

by @balloutd January 31, 2014 5:00PM ET

As America's demand for power continues to rise, poles and wires will no longer suffice

A power line pylon bent by a tornado remains on May 21, 2013 in Moore, Oklahoma
2013 Getty Images

During the cold wave that swept across the Midwest region in early January, more than 27,000 homes and businesses were without power in Indianapolis, Ind. in temperatures reaching 14 below zero. The blackout prompted dozens to pack into the city's shelters to find refuge from the extreme cold. The polar vortex also left thousands in Illinois and Missouri without power. And yet, in the midst of the record-breaking cold temperatures, utility companies nationwide could only urge their customers to turn down their heat in fear of a grid overload. 

The U.S. power grid reveals a trend where suppliers are at higher risk of failing to meet the steadily rising demand of consumers. The demand for electricity increased by around 20 percent from 1999-2009, yet transmission capacity only increased by around 7 percent in that time frame, according to a 2007 study by the University of Minnesota.

Blackouts have also been on the rise. From 2000-2004, there were 140 instances of power outages that each affected 50,000 or more consumers, according to analysis by Massoud Amin, director of the Technological Leadership Institute at the University of Minnesota. That number increased to 303 from 2005-2009. An annual blackout tracker report by power management company Eaton Corp. also confirms a steady rise in such blackouts. Between 2010 and 2012, there were 226 outages.

Hurricane Sandy stands out as 2012's most notable event for blackouts. More than 8 million people in 17 states reported outages.

"Without electricity, the whole point of New York seemed to fray, then disappear," wrote John Homans in NY Magazine. "For the abruptly powerless, this faith was shaken—if a cup of coffee was a struggle, what else could you aspire to?"

In 2012 alone, nearly 25 million people were affected by blackouts. Such power outages can cost the U.S. more than $70 billion in annual economic losses. 

"It’s not for lack of effort or money, but rather because the American power industry deploys technology designed in the 1800s to manage a system of wires and wooden poles that is ill suited to the weather challenges of the 21st century,” wrote David Crane, president and chief executive officer of NRG Energy.

“Rather than rebuilding our antiquated distribution system every time it gets torn down, we should be asking how we, as energy consumers, can rethink an industry that has been operated on the same model for almost a century,” Crane said.

The average age of a power plant is 30 years old, and around 75 percent of America's power lines are 25 years old, according to research by Hugh Byrd of Lincoln University in the U.K. and Steve Matthewman of Auckland University in New Zealand. The report warns of higher blackouts in many developed nations, and notes that the U.S. electric grid also "lacks automated sensors which could warn operators of mechanical failure."  

One of the biggest challenges when rethinking and reforming the electricity industry is lagging government investment in energy research and development.

“Presently the power industry spends a smaller proportion of annual sales on R&D than do the dog foods, leather, insurance or many other industries—less than 0.3 percent, or about $600 million per year,” said Amin.

“Yet all of society, our quality of life, fundamentally depends on reliable electricity,” he added.

Multiple obstacles

There are several reasons for low government investment in the electric grid. First, there is the assumption that high spending on R&D is often left to private companies. Second, the federal government's hesitance on spending taxpayer dollars do not yield immediate, short-term returns on investments.

However, the need for a smarter grid has been echoed even at the highest level of government. In 2011, the White House released a policy framework noting:

“In the face of an aging grid, investing in the grid’s infrastructure is crucial. Given this imperative, there is an opportunity to upgrade the grid’s efficiency and effectiveness through investments in smart grid technology.”

The technologies, according to the report, would help encourage renewable energy, reduce prices for the consumer through more efficient and reliable utilities, and create more job opportunities through technological innovation.

Sonia Aggarwal, director of strategy for policy firm Energy Innovation, agrees. She also adds that while R&D is important for long-term breakthroughs, a lot of the technologies to improve the grid are already available.

 “If we are thinking about moving forward, it’s going to look different now that we have information technology that we didn’t have before,” Aggrawal said. Among other benefits, information technology can help provide the data around consumer use of electricity and identify cost-saving measures in real time to help encourage energy efficiency.

And yet, despite serious concerns around the reliability and efficiency of the U.S.’s current power infrastructure, the North American Electric Reliability Corporation reported that, from 2008-2012, dependability of the power grid was stable with high reliability of transmission lines.

A third reason holding back innovation is policy regulating the power industry. The debate around regulation vs. deregulation of electric markets has been around since 1935 with the passing of the Public Utility Holding Company Act, when electric utilities fell under regulation directives. In 1996, the Federal Energy Regulatory Commission’s order No. 888 passed and allowed private competitors open access to public transmission lines.

“The power sector, which is heavily regulated at the state level, is especially fragmented, but energy markets more generally may be slow to adopt innovation because of regulatory uncertainty, lack of information, and distortions introduced by past policies – including numerous existing subsidy programs,” noted a 2012 report by the Bipartisan Policy Center.

Today, 15 states and Washington, D.C. have deregulated or partially deregulated their electricity markets. The map below shows average electricity prices for residential customers across America. Some of the country's highest rates are found in deregulated states, but these states allow consumers more options to choose the utility company that best serves their needs.

Click on your state to see its regulation status. Use the filter button to categorize by state or regulation status.

What is a smart grid?

While definitions vary, at the heart of a smart grid is a system of understanding, measuring and anticipating how, when and how often consumers use electricity – and adjusting an energy-diverse (i.e., wind, solar and nuclear) grid accordingly. The smart and self-healing grid would ultimately ensure more reliability, higher energy efficiency, lower utility prices and better service to the consumer.

Many areas of the country have already implemented steps towards a smart grid. One strategy that has been adopted by some utility companies like PG&E is ‘demand response,’ where the supplier offers lower utility prices in exchange for the consumer agreeing to reduce usage when overall energy demand could outpace supply.

Other technologies include gadgets like Nest thermostat that helps consumers regulate the temperature of their home through their phone and promises to significantly lower heating and cooling bills.

Embracing new technologies, investing in energy R&D on a government and private level, and greater consumer awareness on energy efficiency – these are only a few steps towards creating an electric grid that can withstand a growing demand while coping with an increasingly outdated power infrastructure. 

Listen to Massoud Amin explain his take on a smarter grid service.