Modernizing the Electric Grid, Part 1: Striving for Efficiency in Energy and Capital

Posted by Ryan Katofsky and Matt Stanberry on May 21, 2014 2:59:00 PM

epa-tech-report-gcOur electricity system has served us well as an engine of economic growth for many years, but it is increasingly out of step with the needs of a 21st Century economy and society, both of which rely more and more on electricity – and the services it enables – around the clock, every day. Changes are under way to modernize the electric power system, but the Environmental Protection Agency’s (EPA) upcoming rulemaking on greenhouse gas (GHG) emissions for existing power plants presents a unique opportunity to accelerate the transition to a high-performing grid.

What defines a high-performing grid? It is one that is efficient, reliable, resilient, clean, affordable, and consumer focused. Can it be all of these things? Yes. The same advanced energy technologies that make the grid more efficient and resilient can also keep it affordable and make it more responsive to customers. In this series of blog posts, we will address all of these. But for now, let’s focus on three aspects that are closely related: efficient, clean and affordable.


Maintaining affordability in electricity service has long been a central tenet of utility regulation, whereas policies to promote a clean grid, especially with respect to GHGs, is a more recent development, one that has been pursued unevenly across the country. A cleaner grid can be achieved by increasing the use of low- and zero-emission energy sources and by raising the efficiency of the grid, from generation to end-use.


Deploying a clean, efficient grid will require investment. Can this investment be made while maintaining affordability? Yes. Building and maintaining the grid as it exists now requires significant capital deployment and operating costs. Investor-owned utility capital investment was about $90 billion per year in 2012 and 2013 and 2012 operations and maintenance costs were about $168 billion. At the same time, the need to maintain sufficient generation, transmission and distribution capacity to meet demand at times of peak demand means that much of the capital invested is poorly utilized. For example, average power plant utilization hovers around 43%, calculated from EIA generation and capacity figures, and some power plants run just a handful of hours per year to meet peak demand.


In the past, this investment model worked just fine: Economies of scale in power generation and rising levels of electricity consumption meant that unit costs (¢/kWh) fell even as investment rose. This situation is now changing in fundamental ways. Overall retail electricity sales are flattening out or even declining in some regions, due to greater end-user efficiency and more customer-owned distributed generation. But the need to invest to meet growing peak demand remains, not to mention the investments needed to replace aging infrastructure and make the grid more resilient in the face of severe weather. This leads to rising costs, but not rising revenues, and is calling into question the underlying model of utility regulation and investment that has supported the inefficient utilization of capital in the past.


At the same time, the grid remains shockingly inefficient, because older fossil fuel power plants, many built in the 1960s and 1970s, waste most of the energy they consume. As of 2012, 74% of U.S. coal-fired capacity was more than 30 years old, and averaged efficiency of about 33% – that is, 2/3 of the energy is wasted, mostly as excess heat. A modern natural gas combined cycle plant, by comparison, is nearly 60% efficient. Low efficiency, combined with a carbon-intensive fuel like coal, means high GHG emissions. For nuclear power and renewable resources, efficiency still matters, but more from an economic standpoint, not with respect to emissions. Transmission and distribution infrastructure is generally efficient, but less so when demand is high and equipment is running near capacity.


Advanced energy technologies and services can make the grid both more energy efficient and capital efficient, thus lowering emissions while maintaining affordability. Some examples: Efficient, flexible natural gas generation can support deployment of renewable resources that are increasingly cost-effective. High-voltage direct current (HVDC) transmission can connect wind and large-scale solar installations to population centers with minimal transmission losses. Intelligent grid management solutions and demand response technologies, coupled with granular energy use data, can lead to customer choices that respond to price and other signals to flatten the demand curve. This can avoid the need for investment in peaking capacity and T&D upgrades – freeing up capital and leading to greater asset utilization across the network.


But that’s just a start. Emerging technologies such as electric vehicles and bulk energy storage can also help to manage an increasingly dynamic grid comprised of variable sources of generation and more flexible, responsive load. We would need fewer specialized power plants to generate electricity only at times of peak demand if we could save electricity for use when we need it most. Energy efficiency technologies, like LED lighting and intelligent building controls, will continue to drive down total electricity use while providing superior energy services and comfort.


The transition to a high-performing grid will reduce fossil fuel use per kWh delivered, thus greatly increasing the efficiency of the grid while also reducing emissions. A high-performing grid will free up capital that would have otherwise been used on traditional energy investments, which are becoming less financially viable. The key is unleashing technology and service innovation, powered by advanced energy.


Earlier this month AEE released "Advanced Energy Technologies for Greenhouse Gas Reduction," a report that details 40 technologies that reduce greenhouse gases while growing the advanced energy industry. Click below to download.

 This blog is the first in a three-part series. Read part 2 here and part 3 here

Download the Report


Topics: EPA GHG Regs