The biggest machine on Earth delivers more than $400 billion of electricity a year across nearly 7 million miles of transmission and distribution 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 more than $1 trillion in infrastructure. Improvements would make the grid more reliable, resilient and efficient, cutting the nation’s carbon emissions. But it’s not clear where the money will come from. Electricity sales have flatlined as users have become more energy-efficient. More and more power customers are bypassing their local utility, in search of cleaner energy, including some of the nation’s biggest corporations.  Every one that unplugs is another blow to the utilities that must keep the power flowing, edging them closer to what’s often described a “death spiral.” At stake is not only the health of the grid, but the nation’s ability to shift to a greener energy future.

The Situation

Utilities are facing serious business challenges. Large users like Google, Amazon, Facebook and Wal-Mart are defecting, opting to buy power directly from renewable power developers while still using the grid for delivery. Distributed energy technologies such as rooftop solar that offer customers greater control over their energy use are becoming more popular as they fall in cost. Monopoly utilities in Virginia and Arizona are threatened by efforts that would allow residents and businesses to pick their electricity provider and make it easier for renewable power producers to compete. In California, more than 10 million customers now get their power supplied by a local government agency instead of an investor-owned utility; in December, the state hit the milestone of 1 million solar rooftops. At the same time, utilities are making $100 billion in investments annually to upgrade their aging grids. They also face pressure to make their infrastructure more resilient to extreme weather events, which are becoming more frequent because of climate change. PG&E, California’s largest utility, filed for bankruptcy in large part because of costs from wildfires in 2017 and 2018 linked to its equipment — fires whose increased frequency and severity have been tied to climate change. In 2019, the utility dealt with the threat by cutting power to millions of customers on high fire-risk days.

The Background

The nearly 3,000 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 58 operating commercial nuclear plants in 29 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 or getting it from alternative providers. So-called net metering – in which customers with solar panels are allowed to sell unneeded power into the grid – is in place in 38 states as well as the District of Columbia and Puerto Rico.

The Argument

The hunger from customers for more green power has ignited a fight over what the future of the energy system should look like. Utilities argue that there is still economic value in a big, centralized grid where large power plants deliver electricity over long distances to customers. In states that have aggressive clean energy goals, power companies have been phasing out some fossil fuel plants and replacing them with renewable energy projects. Utilities are also investing billions of dollars to modernize their grids for emerging technologies such as energy storage and electric cars. Some clean energy advocates say the power companies have been moving too slowly and have sought to go around them. They see local, distributed systems as doing a better job of managing the array of smarter, cleaner and more flexible power resources that customers are seeking. They also think smaller systems can be more resilient against climate-fueled extreme weather. In California, Humboldt County has built its own microgrid — a self-contained energy island that can keep the juice flowing when the larger grid goes down; other counties and even PG&E are considering doing the same. Still, the vast majority of Americans get their power from the bigger grid and will likely do so for some time.  

The Reference Shelf

• The Edison Electric Institute conducted a study of the disruptive challenges facing utilities.

• A Bloomberg Businessweek article explored “Why the U.S. Power Grid’s Days Are Numbered.”

• The Institute for Local Self-Reliance, which favors distributed generation, sees its mission as “democratizing the energy system.”

• A Bloomberg QuickTake assesses the growth and promise of solar energy.

To contact the writers of this QuickTake: Chris Martin in New York at cmartin11@bloomberg.netWill Wade in New York at wwade4@bloomberg.netMark Chediak in San Francisco at mchediak@bloomberg.net

To contact the editor responsible for this QuickTake: John O’Neil at joneil18@bloomberg.net

First published Oct. 28, 2014

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