To save humanity from the existential threats that confront it through climate change, which President Biden recognizes, the US needs leadership. The DOE acknowledges this, “There is no greater challenge facing our nation and our planet than the climate crisis.”
Yet in the DOE’s Solar Futures Studies Report, which offers a blueprint for the zero-carbon grid, the US has not risen to the occasion. Instead of undertaking fundamental industry structure analysis, with examination of strategic, technical, and economic evaluation of options in the electricity industry, what we have is obvious, anticlimactic: “deploy solar.” Solar electricity’s contribution rises to 45% of total capacity by 2050. How? Grid-tied, massively, and with almost no other options considered. This is no policy, no strategy. Why was a study needed for this?
It is tiring to read, and irrelevant, “The U.S. electric grid is one of the world’s largest machines, comprising millions of miles of transmission and distribution lines.” But it is obsolete. Fundamental economic forces and technical advances make such size an unmanageable liability, vulnerable to sabotage and breakdowns, fires, and hurricanes. Why is the DOE arguing for a prominent role for the existing yet dying electric utilities? The US should embrace its historical strengths – innovation and entrepreneurship. This report’s recommendations undermine the US’s global competitive position, undercuts broad-based economic growth. It says, “We estimate that roughly 80%–90% of that capacity will be utility-scale solar, with the remainder coming from smaller-scale distributed solar.” In other words, a paean to the dead.
Microgrids missing: No understanding of the microgrid revolution
Microgrids are resilient, reliable, and allow for entrepreneurial entry into the industry, support innovation and local management, and more. They are poised to not only rid the world of carbon dioxide emissions but also give a boost to national competitiveness and innovation, the core strengths of the US. Microgrid technologies are largely mature. You would not know this by reading this report. It devotes all of one page out of 300+ to mention microgrids.
And that text mentions the cliched “resiliency,” “isolation from the grid in an emergency” type truisms. Should the topology of the future “grid” be a “federation of microgrids,” a constellation of peer-to-peer networks, sharing power and information among each other, we would have a broad-based economic and technological revolution and a substantial impact on the GDP itself. But no recognition of this is in the report.
New electricity can be as transformative as telecommunications
History of industrial US favors bold steps. This was accomplished with breath-taking structural innovations in telecommunications – wireless spectrum auctions of MTAs (Major Trading Areas) and several hundred BTAs (Basic Trading Areas); allowing competition in the local loop telephony; the embrace of Wi-Fi, the Internet, the plethora of apps; wireline telephony moving from circuit-switched to packet-switched; the emergence of OTT (Over The Top) streaming entertainment, to mention but a few industry structure innovations. Now the Internet of Things (IoT) is poised to revolutionize industry after industry. What happened in telecom is poised to happen in electricity, too, if only national leadership rises up to the challenge of providing a favorable context.
Parallels with AT&T – Telecom transformed, so can electricity
Once upon a time in telecommunications, during the early days of MCI, Bill McGowan did legal battle with the historic, regulated giant AT&T. And won. Who will do battle with the electric utilities? This would normally and naturally happen in the US, leading to industrial restructuring, as in telecommunications. AT&T’s monopoly for telecommunications – “natural monopoly” once believed, and thus heavily regulated – was first challenged and then overturned by the FCC. Then followed the wireless revolution that upended the traditional wireline telecommunications applecart. The boom in telecommunications, wireless, and the Internet, is the result. Something similar needs to happen to replace old electricity. Who should lead the charge? President Biden?
Fundamental industry structure change, not tinkering
The enabling policies have to be right – entrepreneurs will do the rest. The technological fundamentals and economic forces are aligned too. Consider: In the new electricity industry, Economies of scale is dead – unit costs of electricity are no longer a function of the scale of generation. Small generation, at the level of a home or a retail store, is at least as economical as grid electricity. New electricity is not capital intensive, therefore, even for a homeowner, the capital costs are comparable to the price of a car, with negligible operating costs. The electricity does not need to travel over large distances – local generation, local consumption, local storage, local ownership works well. Barriers to entry in new electricity generation are gone. Unlike giant coal plants, costs of capital are no barrier to get into the electricity business.
“Network Effects” – a demand-side phenomenon – do not exist in new electricity, certainly not to the same extent as in telecommunications. “Telecommunications are a classic example of a platform that exhibits network effects. Having a phone is worthless if there is no one else who has a phone that you can call. Yet if everyone in the world is connected and can call each other, there are enormous benefits to the phone network through improved communication. Thus, as the scale of the network increases, the value to everyone on the network increases.”
The grid – a one-way, hierarchical, and top-down network- offers no comparable benefits to an electricity user. Benefits remain local. That I can “call” a remote user or email her, and vice versa, is a benefit due to telecommunications. No such benefits in electricity; there are no increasing returns to scale as the electricity network expands. In other words, why bother with the network called the “grid”? At most, a local area network – a microgrid – is necessary. None of these technical and economic features are tackled in the DOE report.
Economics of the grid from first principles
In fact, a DOE report of this kind should have undertaken a fundamental strategic analysis of the grid. It might have concluded that the grid is obsolete. In the age of distributed generation, battery storage, and sophisticated software managing generation and storage, do we need monopolistic utilities anymore?
With solar and storage, we have local generation, local storage, and local consumption. The age of towers and miles of transmission cables, acres, and acres of solar over land, are so yesterday. Inefficient, an eyesore, lossy, and unnecessary. Given the technological miracles – electricity without moving parts, battery storage, and electronics for control and operations, why haven’t we junked the coal and gas-based centralized, capital-intensive, monolithic, one-way electricity system? The US has not caught up with the possibilities of our age.
Value of electricity is distinct from the value of the grid
We ought not confuse the value of electricity, which is rising, with the value of the grid that delivers it today. The grid is like a horse-drawn cart. Valuable as transport, but past its prime. Electricity will continue to be critically needed in our daily lives, more so than today, for new uses, such as EV (electric vehicle) battery charging. But the electricity should come from locally generated power from renewables like the sun, wind, and storage.
Of Microgrids Representing Schumpeterian Creative Destruction – No Understanding
Microgrids have extraordinary innovation potential, be it with software controlling the various generation sources and storage, the demand side management built-in, and the emissions light generation of the electricity itself. They also have a longish history now, and worldwide participation – see the proceedings of the Microgrids Symposium. Even retailers, campuses, shopping malls are creating their own microgrids. They are thus primed to create a world “nearer to our heart’s desire” to address the climate emergency. Why should they not see a greater role in the emerging electricity future? Creative Destruction is a norm of economic life, with microgrids we embrace it.
New thinking for a novel topology
What is needed is industry structure change, a new topology for the infrastructure of the future, for instance, a locally owned, managed, cluster of electricity operations. The emphasis should not be on individual technologies – solar, wind, batteries, hydrogen, fuel cells, and associated controls. The core issues are industry structure transformation, public policy, business strategy, and fewer technologies. The public policy question should hence be: How do we transform and radically alter the electricity infrastructure?
Many utility companies have fought against rooftop solar panels because they see a threat to their business and would rather build large solar farms that they own and control. What about ownership of the emerging infrastructure in private hands, as Chick-fil-A is trying to do? And as numerous microgrid communities are doing?
The World Looks Up to US leadership
This was true in telecommunications and is true in energy. Microgrids are revolutionary – the US will do well to back them big time. Political leadership must take time to understand microgrids and their implications in the industry structure context. This is once in a generation moment, historic, and addresses a danger comparable to nuclear war – a threat to humanity’s survival on earth.
“One of the things we’re hoping that people see and take from this report is that it is affordable to decarbonize the grid,” said Becca Jones-Albertus, director, Solar Energy Technology Office in the DoE. “The grid will remain reliable. We just need to build.” On the contrary, when looked at from the first principles of economics, and technical advances already in place, the grid is obsolete. And build by whom? The momentum for solar and other renewable energy deployments — some centralized, some decentralized — should be led by individuals, entrepreneurs, innovators, across the nation, at local levels.
Our children’s and grandchildren’s futures are at stake. US leadership must pay heed to the despair of the young. We know that fossil fuels-based electricity production is the principal cause of our angst expressed by the youth. The stakes are higher than in telecommunications. Breath-taking leadership is called for, not ho-hum “more solar.”
The US as an innovation leader? No.
The report should have had “a man on the moon” ambition. The US’s history of innovation would be acknowledged. Instead, we have the pedestrian recommendation: Increase solar penetration to 45%+ in 25 years. This would happen, more or less, anyhow and worldwide.
Were I a young man between 16 and 25, as in the student group survey led by Bath University (five universities, 10,000 responses, 10 countries), and written in The Lancet, I too would despair. Those questioned “perceive that they have no future, that humanity is doomed, and that governments are failing to respond adequately. Many feel betrayed, ignored and abandoned by politicians and adults. The authors say the young are confused by governments’ failure to act.” Instead of charging up the younger generation toward a desirous future, what this report does is a genuflection to the grid, to the past, to the dead, to the reason for the impending catastrophe.
President Biden has spoken of the existential threat climate change represents. Mr. John Kerry, US Special Presidential Envoy for Climate, is crisscrossing the world to rally support toward climate goals. However, if this report is the kind of recommendation that originates from a prestigious US National Renewable Energy Laboratory, further despair of youth is understandable.
Armed with the arguments presented here, US Secretary of Energy Jennifer Granholm, must champion the cause of transforming and radically altering the electricity infrastructure.