Grid Modernization: We Must Rebuild Our Innovation Engine
By: Erik Kobayashi-Solomon
Tags: Infrastructure, Climate Change, Investing, Grid System

Grid Modernization: We Must Rebuild Our Innovation Engine

The Biden Administration has a wonderful opportunity to make far-reaching infrastructure improvements that will fight climate change and have a good chance of garnering bipartisan support Erik Kobayashi-Solomon Nov 19, 2020·9 min read

The present grid paradigm has reached its sundown. Source: Alexander Popov via Unsplash

Our electrical grid is a stunning example of human ingenuity and engineering. It spans hundreds of thousands of miles, is fed by thousands of production facilities, and serves hundreds of millions of customers. It is the largest machine ever built and one that empowers every computing, networking, and communications innovation of the Internet Age. (See also my article entitled You’ll Never Guess The Two Most Important Words In Tech Investing.)

As impressive as it is, the North American grid is showing its age. After all, it was built on a 19th century paradigm, its backbone was established before the 1929 stock market crash, and it still maintains equipment of the same vintage as Robby the Robot.

Robby the Robot in the 1950s sci-fi thriller Forbidden Planet. Source: Wikipedia.org

The future is undeniably electric. But all future technological innovations — from Tesla charging stations to Direct Air Capture facilities to the Internet of Things — require a significantly improved, strategically redesigned and renovated grid system.

The change in presidential administrations provides perfect impetus to do this vital work.

A grid-focused infrastructure project has great potential for garnering bipartisan support. Jobs will be created in urban and rural areas alike, and infrastructure improvements will bring lower energy costs to voters in every state of the union.

If crafted strategically, the program might also be engineered to build climate resiliency into legislative budgets. Doing so would give lawmakers on both sides of the aisle a dog in the climate fight. Want to see a member of Congress fight like mad? Threaten to axe a program popular with his or her constituency.

This topic is so important, I am going to be doing an extended series about it. This article delves into how our current grid came into being and how it functions today. Later articles in this series will focus in on what we need to renovate the grid and highlight a few of the companies working on these problems.

Our Current Grid

Our electrical grid is based on the model of 19th century gas lighting, which was itself a poster child for Industrial Revolution planning.

The Industrial Revolution was all about the centralization and scaling up of production resources. Goods were produced in massive factories, then shipped out to consumers in a one-way flow. In the case of natural gas and, later, electrons, the delivery infrastructure (i.e., pipes and cables) had to be built before the goods could be delivered, and this dynamic naturally favored the establishment local monopolies and public-private cooperation.

500 horsepower alternating current generators at the 1893 World’s Fair in Chicago. Source: Wikipedia.org

At the start of the 20th century the electric grid was a patchwork of local monopolies, owned in whole or in part by municipalities.

The local monopoly system worked okay in the early days of electrification — as long as the demand for electric power remained low and stable. However, as electricity began being widely used for urban transportation (cable cars) and as electric lights began to replace gas fixtures, local monopolies struggled to supply power during periods of peak demand.

Neighboring monopolies pooled resources to invest capital in new facilities, lowering the risk and financial burden on each one. The first “power pool” — founded in 1927 — was an entity now known as the PJM Interconnect that connected the generation and distribution resources of three power companies in the densely populated Pennsylvania-New Jersey industrial corridor.

Power pools established a new network that allowed high voltage electricity to move between pooling partners; this bi-directional system is known today as the transmission network. Each partner maintained its unidirectional network — known as the distribution network — which delivered lower voltage power to end customers. The transmission network connects to the distribution network at local “substations”.

A simplified schematic diagram of the generation, transmission, and distribution systems. Here, we see the three types of customers: Industrial, Commercial, Residential (top to bottom on right). Source: Wikipedia

By the 1930s, only around two-thirds of American homes had access to electric power — the homes left out were mostly those in rural areas. In fact, during the Great Depression, a full 90% of farms did not receive electrical service.

Roosevelt’s New Deal established the Tennessee Valley Authority in the Southeast and the Bonneville Power Administration in the Northwest to supply electricity to rural homes. Both entities are still large, influential players in the North American power market.

As electric distribution became widespread in both urban and rural areas, power pools began to link together in even larger regional pools. A complex system of geographical hierarchies developed over time to coordinate communication and enforce standards in each region and, eventually, throughout the US and Canada (one of the regional authorities, the Western Electricity Coordination Council, has a nice series of maps illustrating this hierarchical system.)

The four North American Interconnections and the regional reliability organizations. See the WECC website for more information about the grid hierarchy. Source: NERC

One of the most stunning features of the old grid paradigm is that the entire system operated with absolutely no “inventory”.

Power could not be stored (and still is not stored at scale), so if customers were demanding more (or less) power, generating facilities needed to instantaneously produce more (or less) to balance with the demand.

Even today, if a small imbalance between supply and demand occurs, very bad things happen.

This miracle of Just-In-Time electrical production is made possible by the fact that while any individual can turn on a light switch at any time, in aggregate, all the light switches being turned on between certain hours usually sum up to a predictable range of demand, so transitions from one demand state to another are slow and manageable.

Consumer energy demand has a certain amount of behavioral “inertia” and the enormous gas and steam turbines used to generate energy are characterized by physical inertia. The offsetting inertias makes it easier to balance the entire system until there is a spike in demand or a technical issue that leads to a sudden collapse of supply.

A steam turbine this large builds up an enormous amount of angular momentum. The current electrical grid relies on inertia to keep in balance. Source: Wikipedia

Grid operators generate and distribute electrical energy as an alternating current, a form of electricity produced naturally by rotating generators like steam, gas, and wind turbines. Alternating current’s voltage can be easily “stepped up” for efficient transmission or “stepped down” for customer-friendly distribution, but, unlike direct current, it cannot be stored and it is subject to losses caused by resistance the longer the transmission lines become.

Overall, the grid is keeping pace with our present demands on it — when I flip on my wall switch, most of the time, I am 100% confident that a light will come on.

However, our aging grid is becoming a bottleneck that is throttling economic development and — due to its heavy reliance on fossil fuels and the fact that it does not have the capacity to provide for the electrification of transportation — is impeding civilization’s chance to survive and thrive into the next century.

Where The System Must Be Improved

There are three areas that desperately need reform if our electrical grid is to continue as a source of competitive advantage for the US economy:

Centralized, far-sighted strategic planning

Better technologies for monitoring and coordination

Better technologies for generation, storage, and transmission

The US’s number one competitor in the developed world, the European Union, is already years ahead of the US with respect to all these points.

Strategic Planning

The regional hierarchy mentioned above might make you think that power rests in the top level of the hierarchy. It does not. Regional and super-regional entities can affect operators within their region through rule and standards setting, but does not, by and large, set the vision of where the grid needs to be in 2050 or establish a developmental roadmap.

Essentially, the US grid remains a confusing patchwork of local pools, all of which are under pressure by state regulators to keep the lights on and the rates reasonable. Operators are acutely aware of local resources and demands but are not particularly incentivized to consider the efficiencies that might be gained or opportunities available with access to more distant markets.

Monitoring Technology

Under the old, centralized grid paradigm, operators received relatively little data and an experienced engineer could tell immediately by glancing at his or her screens if there was a problem.

However, with the move toward renewable generation and the development of the Internet of Things (IoT), the pool of generation and transmission-related data has increased exponentially. Each turbine in a wind farm has multiple sensors, each of which is generating massive amounts of data every minute the turbine is in operation.

Huge amounts of potentially profitable and predictive data are available to grid operators — the kind of data that could lead to large pick-ups in efficiency and safety. The fact is, though, that utilities’ processes have not kept up with the technology enough to be able to take in the data being generated, let alone to apply data mining, machine learning, and other statistical control methods to it.

One of the organizations I’ve been speaking with LF Energy (an offshoot of the Linux Foundation), is working with European operators to create new monitoring and risk control tools using an open source framework. I’ll be delving more into LF Energy’s groundbreaking work in a future article.

Generation, Storage, and Transmission Technology

We have already seen enormous changes in the generation world with the rapid growth of solar and wind. However, no matter how impressive the growth in renewables has been, the hard fact is that in the US, nearly two thirds of electrical power is generated through the burning of fossil fuels.

Even with the recent rapid growth in renewable generation capacity, nearly two-thirds of electricity in the US is generated by burning fossil fuels. Source: US Energy Information Agency

This reliance on fossil carbon is existentially untenable. We simply must develop zero carbon generation capacity at a rapid pace if our civilization is to thrive and survive.

Nuclear generation needs to be rethought. TerraPower, funded in part by Bill Gates, has several innovative designs for nuclear plants that are much safer and cheaper than those that came before. One design in particular has gone through such extensive testing and is so promising that the company won an $80 million government grant to construct a 350-Megawatt next generation nuclear plant. We are looking forward to digging into TerraPower’s technology and business plans, along with its next-gen nuclear competitor, x-energy.

As for storage, while Elon Musk’s Tesla battery arrays get a lot of press, it’s clear that lithium ion chemistry has some significant issues for grid-scale storage. One cutting-edge start-up EnerVenue, has made important innovations to a type of battery with well-understood and long-tested chemistry that can withstand an enormous range of temperatures and conditions. I am looking forward to introducing EnerVenue in an upcoming article as well.

For transmission, a recent Atlantic article about High-Voltage Direct Current (HVDC) lines’ role in the creation of a continent-scale supergrid caught my eye. I will delve into this in more detail in a later article and will also explain why the Europeans are already moving full speed ahead on this innovation.

No matter what advances we make to develop renewable and zero-carbon electrical generation, they will be hobbled if the grid system is not modernized.

The electrical grid is a topic that affects every business that relies on electric power. Climate change affects every person that lives on earth. Intelligent investors take note.