America’s Power Grid

Hulking, Creaky and Losing Its Grip

Electricity thumnail

The biggest machine on Earth delivers $400 billion of electricity a year across 2.7 million miles of transmission lines. It’s the U.S. power grid, an interconnected system of generating plants, wires, transformers and substations that keeps the lights on for the homes, offices and factories of the world’s largest economy. It’s also an aging dinosaur that sorely needs an upgrade to its $840 billion in infrastructure. Improvements would make the grid more reliable, resilient and efficient, cutting the nation’s carbon emissions. It’s not clear where the money will come from. More and more power customers are bypassing the grid, many in search of cleaner energy, most often from solar panels. Every one that unplugs is another blow to the utilities that must keep the power flowing.

The Situation

U.S. consumers and businesses are increasingly making their own electricity. Instead of big, centralized plants that make power for utilities, these smaller sites pump out juice that goes straight to the user. U.S. homes and businesses had enough solar panels halfway through 2014 to produce 7.3 gigawatts of electricity, up 43 percent from a year earlier. Companies including Google and Apple have developed solar farms to power their data centers. Verizon has spent $100 million on solar panels and fuel cells for offices and call centers. Hospitals, universities and manufacturers have installed on-site fuel cells that turn methane into electricity through a chemical reaction. The Mandalay Bay casino in Las Vegas erected a 5-megawatt solar installation. President Barack Obama put $4.7 billion into the 2009 economic stimulus package to build a smart grid that combines remote monitoring, two-way information flows and automation to boost efficiency. But the administration has steered billions more to solar and other forms of renewable energy. Solar power’s share of electricity production is tiny — less than 3 percent — but as price barriers drop the trend has utilities worried. More than half the new electrical generation added in the U.S. this year was solar-powered. Similar trends have emerged in parts of Europe, helping to wipe out about $400 billion in the total market value of utilities there. Utilities in Japan halted new solar connections in the fall of 2014 after a $30 billion surge in investment.

Source: Solar Energy Industries Association
Source: Solar Energy Industries Association

The Background

The 3,200 utilities that operate the U.S. grid haven’t changed their business strategy since Thomas Edison switched on the first power plant in 1882. Massive, centralized facilities — think Hoover Dam and the 104 commercial nuclear reactors in 31 states — generate energy that’s sold to residential and commercial customers. It’s a monopoly industry that’s now facing a fundamental threat because customers who once had only one choice for purchasing electricity now have the option of producing it themselves.

The Argument

If a robust grid is a public good, even for households or companies that brew their own electricity, who should pay for its upkeep? Traditionally, grid maintenance has been a fixed cost for utilities, funded through kilowatt-hour charges. But power companies worry that folks going partway off the grid are acting as free riders. Worse, the more customers pull out of the system, the more heavily its costs fall on the ratepayers who remain. That could give them more incentive to install rooftop solar panels, setting off a vicious cycle that would hurt households that can’t afford them. California’s top three utilities say that trend could shift $1.3 billion in annual grid costs to customers without solar panels within a few years. Solar proponents say that distributed resources cause less strain on the grid and will reduce utility maintenance costs for everyone. The battle has been joined in states like Arizona, where utilities are pushing for rules that solar proponents say would bring rooftop installations to a halt. Regulators in all 50 states will determine who wins.

The Reference Shelf

(This QuickTake includes a corrected description of the chart data.)

First Published Oct. 17, 2013

To contact the writers of this QuickTake:

Christopher Martin in New York at cmartin11@bloomberg.net

Will Wade in New York at wwade4@bloomberg.net

To contact the editor responsible for this QuickTake:

John O'Neil at joneil18@bloomberg.net