The Future of Electricity
By Mike Troupos, CEM, CEP
This original Op-Ed was published by the Grand Haven Tribune on January 19, 2021 in partnership with the West Michigan Environment Action Council.
Have you taken time to think about how much the world has changed in the past 30 years? You are probably thinking, “Forget 30 years ago; the world from a year ago is almost unrecognizable to today.” Sure, we need to wear masks and can't gather in large groups. However, 30 years ago, cell phones and the internet were just in their infancy. The pace of innovation in our society is dizzying.
Although all sectors of our economy feel these drastic changes, only a few garner the attention. We talk about the scope of Facebook’s influence. We talk about how interesting the highways would look if everyone owned a Tesla with autopilot. We lament how expensive college and health care have become. But the electricity grid is consistently overlooked. Despite countless innovations in the world, did you know the electricity that shows up at your house is the same as the electricity delivered 30 years ago?
The Rapid Innovation of Electricity Technology
While nothing fundamental may have changed, just about everything else with electricity has. The invention of the Smart meter drastically improved how we measure electricity. A smart meter allows utilities to know when each kilowatt-hour (kWh) of electricity is used during the day; old meters could only tell how many were consumed over the month. As of the end of 2020, the US is projected to have over 100 million active smart meters. This allows utilities to charge different prices for electricity depending on when you consume each kWh. You can get discounts on electricity consumed on nights and weekends, but you pay a hefty premium for those kWh used on a hot summer day. Think of it like Uber's surge pricing for electricity.
Appealing Economics of Wind & Solar
Beyond smart meters, another major change has been what sources the US uses to generate electricity. The US’ generation mix was 41% coal in 1990 but cut in half to 23% in 2019. Over the same time, wind and solar went from nearly non-existent to over 8% of the grid. That may not sound impressive, but the growth for renewables is still accelerating. In fact, it is hard to project just how much grid penetration renewables will see over the next 30 years. If sweeping federal legislation gains momentum, we could see a carbon-free grid within the next decade or two. However, renewables still make sense even without policy support.
Unlike coal, natural gas, and even nuclear energy, renewables produce no generation emissions and have no fuel cost. That lack of fuel cost is the biggest reason why wind and solar economics are more appealing than traditional generation sources. We see utility-scale solar projects in sunny areas of the country crack the unimaginable 2 cents/kWh. For reference, natural gas is at about 5 cents/kWh, and coal and nuclear are over 10 cents/kWh. Quite simply, coal usage is decreasing because renewables cost one-fifth as much to operate. Many people perceive policy as to why coal is dying in the US, but the reality is economics has been the final nail in the coffin.
Options After Retiring Fossil Fuels
The above context is why Grand Haven wisely retired the JB Sims coal-fired power plant in early 2020. For the past few years, the power it generated was not economically competitive, resulting in higher electricity rates than most other municipal utilities in the area. Now, the GHBLP and the community are weighing their options moving forward. Many ideas have been proposed, including a natural gas power plant, smaller peaker natural gas engines that would only run in the summer, batteries, and renewables. Building any fossil-fuel-powered assets opens the community up to significant risk.
If greenhouse gas legislation is enacted at a federal level or significant renewable energy subsidies surface, GHBLP could be sitting on an uncompetitive asset if they build a fossil-fuel-powered plant too quickly. That happened with Sims, and it didn't end well for the ratepayers. It is just too risky to build an asset with a 30-year rated life that could be stranded in less than ten years. Renewables are an interesting option, but Grand Haven isn't well situated for either solar or wind. As renewables become a more mature technology, the cost curves continue to decrease.
Battery storage is the wild card, and why GHBLP should wait to build anything. Over the next three years, there are incredible tailwinds for battery storage. First, the Federal Energy Regulatory Commission (FERC) has made rulings in the past few months that open the door for battery storage to be appropriately valued in the marketplace. Further, the cost of batteries is in the middle of a massive drop, similar to where solar was five years ago. Battery storage will fill a niche in the marketplace and become economically advantageous for those who invest early.
The electricity grid will surely look different in 2050 than it does now; just how different is the question. If we make smart decisions not to construct stranded assets, it will likely look simultaneously more green and less green – more sustainable and less expensive. Here's to that future!
