05/03/2015 12:14 pm ET Updated Dec 06, 2017

Keeping the Lights on, Part 2

The Quadrennial Energy Review that the U.S. Department of Energy issued on April 21 describes the state of the nation's energy infrastructure. Part 1 of this post challenged public and private investors to build infrastructure for a 21st century clean energy economy rather than repairing and expanding infrastructure designed for fossil fuels. Part 2 describes how the evolution of a clean energy economy is putting increased pressure conventional electric utilities and their regulators.


When Elon Musk introduced the latest in battery technology last week, it was a Steve Jobs moment. Musk wants to do for energy technology what Jobs did for information technology: Revolutionize it.

In an auditorium whose lights and media equipment were powered by sunlight stored in his latest invention, Musk unveiled wall-mounted and surprisingly affordable battery packs as elegant-looking as Apple's iPhone (see the unit in the photo with one of Musk's electric vehicles). They even come in a choice of colors.

The electric battery was invented more than 200 years ago. In modern times, it has been the weak link in applications such as electric vehicles and energy storage; by most accounts the technology still has a distance to go before it is optimized for applications like these. Musk's vision is to allow households and communities to become as independent from the aging electric grid as smart-phone users are from landlines. In customary big-think, he says that two billion of the devices could eliminate the world's use of carbon fuels, slow down climate change and give reliable electric power to people in less-developed countries.

Last week's rollout was a happy event for renewable energy enthusiasts, but it was another rude reminder for America's electric utilities and regulators that their business and regulatory models lag years behind our rapidly emerging clean energy technologies. It's as though Musk unveiled a new automobile that can travel safely at 250 miles an hour while the nation's speed limits are stuck at 55. Innovation is not going to slow down so regulators can catch up.

Some of the challenges that utility regulators face can be described with several terms that are familier in policy circles.

The first term is load defection. It is what occurs when customers put solar panels on their roofs to produce more of their own electricity and buy less of it from their utility. These distributed solar systems grew more than 400 percent between 2010 and 2014 according to the Energy Information Administration. Solar homes usually use the conventional grid as backup when the sun doesn't shine; in many states, homeowners can sell or "net meter" excess power back to their utilities when they produce more than they use.

An even more disruptive development is grid defection. Batteries that do a good job storing power are one of the advances that will enable households and communities to divorce themselves entirely from the conventional electric system. Navigant Research reports there is growing interest in micro-grids -- small electric generation and distribution systems that can allow a community or large institution to separate from the utility system during a power outage, or to become completely independent of the grid. Navigant predicts the micro-grid market will grow to $20 billion by 2020.

A third issue has to do with stranded assets in the fossil energy sector. These are assets that end up unused and investments whose returns are not fully realized. An example of stranded assets are coal plants that shut down before the end of their useful lives because they cannot compete with cleaner fuels like natural gas, or because of the cost to comply with regulatory constraints on pollution.

Investments in oil and gas wells, pipelines and related infrastructure could become stranded if it becomes necessary to limit fossil energy production to prevent climate change from growing worse. Investments in new electric transmission and distribution lines could become stranded by a proliferation of micro-grids and distributed power generation.

The flip side of stranded assets is committed carbon. If we were to build new pipelines and fossil-fired power plants and insist on using them until the end of their design lives, they lock us in to future carbon pollution unless acceptable technical solutions such as carbon capture and sequestration can be devised.

Dealing with these trends and issues requires forward thinking by investors, power companies, legislatures and regulators. That is difficult because we do not have a consensus national energy plan to provide reasonable certainty about which investments will pay off. Investment also would be safer if Congress established a price on carbon pollution to give accurate market signals about which resources and technologies are most competitive in a carbon-constrained world. It seems unlikely we will get these tools in today's political environment, but without them we will see more false starts, more wasted money and more committed carbon in the years ahead. In a more rational world, the hundreds of billions of dollars we must spend to modernize America's energy systems would not only accommodate the clean energy revolution; they would empower it.

Our old electric power system has been called the greatest engineering achievement of the 20th century. The innovations by the many ingenious pioneers of the past contributed to a remarkable system that delivers modern electricity to virtually every part of America. The reinvention of that system, led by a new generation of pioneers, has the potential to become one of the greatest engineering achievements of the 21st century. But only if we are smart enough to let it happen.