July 29, 2013

Is the electricity industry next in line to be disrupted?  And are the disruptors the next powerful political grass-roots movement?

As the cost of green energy such as solar and geothermal has come down, in part due to government subsidies and in part due to technological advancement, traditional utilities are starting to cast a wary eye toward customers who are unplugging from their traditional energy sources. As a supporter of green energy (we have a geothermal-powered house) and as a member of a firm that works for a number of clients who produce lower or zero-carbon energy,  this is a welcome development — but with a caveat.

 

A contractor from Green Mountain Energy Company installs solar rooftop panels at a home in Northern California. The home solar systems decrease dependence on utility service, reduce electricity bills, provide some protection from energy rate increases and can increase property value. For more information, visit www.greenmountain.com. (PRNewsFoto/Green Mountain Energy Company)
A contractor from Green Mountain Energy Company installs solar rooftop panels at a home in Northern California.(PRNewsFoto/Green Mountain Energy Company)

One potential consequence of this shift could be less investment in the electric grid, and that is worrisome.  Here’s how this happens and why it matters: When you pay your utility bill, part of it goes to maintaining the network of wires and cables that shuttles electricity around the nation and your state and eventually to your door. The electricity grid, which has long been a bit of an orphan in the nation’s energy system because companies view it as a necessary cost  and not as a revenue generator, is absolutely essential to national security, energy reliability and the wide distribution and dispersion of green energy. (Disclosure: My father-in-law is the former chairman of the Federal Energy Regulatory Commission and a leading expert on the grid, but don’t blame him for these comments.) As fewer people pay utility bills, there is less money to maintain the grid, which is a bad thing.

We saw something similar happen in the communications industry.  Cellphones completely revolutionized the industry, and then broadband did. The industry went through massive consolidation as only larger companies had the capital and staying power to make the transition. They faced the prospect of their old networks becoming relics and the need to invest hundreds of billions of dollars in new broadband networks, often in advance of new revenue. This investment enabled the disruptive genius of companies such as Apple and Facebook and countless other technology start-ups. But when the network builders wanted to tier their pricing to recoup their investment and make a profit, a powerful political combustion happened: A bipartisan, ideologically diverse group of early technology adapters went crazy and pressured Congress and the Federal Communications Commission to block anything that interfered with “network neutrality,” which could be defined broadly as any action that interfered with unfettered access to the Web. (Charging content or gaming companies higher rates for faster access fell under this category, for example.) This loose coalition remains a powerful political force even as network neutrality has faded some as an issue.  In January 2012, it launched a massive protest against legislation to stop online piracy, arguing that some of the bill’s provisions amounted to censorship of the Internet.  Within days, the bill, backed by many powerful interests, was dead.

Now back to the energy industry. It faces some unpalatable options to maintain investment in its network: Try to charge customers who unplug; try to raise rates for everyone else; fight subsidies for green energy so it becomes less attractive. Good luck with all that. It will run into a new brick wall of grass-roots opposition, people who have become empowered by unplugging from traditional utility bills. This movement will have environmentalists and tea-party libertarians among their ranks, and it will be strong.  I just hope this movement gives consideration to the larger consequences of disinvesting in the grid, but as I read that phrase it seems awfully naïve.