The Coming Wave of Grid Defections and the Consequent Utility Death Spiral
"Grid Defection", "Utility Death Spiral", "Stranded Assets" -- these terms may be new to you now, but soon you'll be seeing them used in popular media. The phenomena they refer to are symptoms of our new reality, the reality of the Energy Transition.
Our society uses a lot of energy, mostly in the form of electricity. The supply of electricity has historically been a simple matter -- utility companies bring electricity to you via their power supply lines. They spend considerable amounts of money to build out this transmission infrastucture, which includes transformers and other paraphernalia. They build power stations which house giant steam turbines that spin, surrounded by massive coils, pruducing a steady stream of electricity for our refrigerators, computers and televisions.
Again historically, this steam has come from coal-fired boilers. While coal is now fading into the history books, gas (also a fossil fuel resource) has come into vogue. Gas plants have different operating characteristics than coal, but generally fit into the same generating space as coal plants, which is to say "burn some fossil stuff to boil water to make steam to drive a turbine". This conversion process is also lossy, with heat being the greatest of those.
Regardless of your position on the number line of climate crisis ideology, some incontrovertible trends have emerged:
- Solar panels have become stunningly cheap. So cheap in fact, that it makes a certain kind of sense to use them as fencing materials. It's not just the panels, it's the inverters and the associated components too.
- Solar panel use of silicon per watt has halved in the last ten years
- Power from wind turbines and solar panels is cheaper than gas and much cheaper than coal
In case you're tempted to counter with "but the sun doesn't shine at night", we'll remind you that batteries do exist, and moreover, they are becoming rapidly cheaper, with the cost per kWh halving since 2018. A 10kWh battery now costs approximately $9,000, with prices dropping almost monthly. You can trivially charge your batteries during the sunny daytime and run your life off batteries at night.
These two facts -- ever cheaper panels and batteries -- are the lynchpins on which my thesis turns. As the marginal cost of generation and storage of each additional kWh falls, the prospect of energy freedom, or "grid defection", depending on your perspective, comes ever closer.
We have established that renewable energy (solar and wind) is cheaper than coal or gas. Nuclear power generation costs tend to compare with those of coal and gas. Solar makes cheap power, that's incontestible. Sure, it's constrained to daylight hours, but during those daylight hours, solar is plentiful and effectively looking for someone to use it. Our current grid arrangement doesn't fit well with the idea that there could be a plentiful supply of something that is cheap, but only for a short time.
Pundits have enjoyed bandying about the idea that an Energy Transition is possible, but not certain -- positing that there are multiple pathways forward, not all of which involve an Energy Transition.
We come now to the problem of Rate Design. Utilities compensate suppliers of energy, being required to do so by the government in order to promote open access to the grid, theoretically encouraging independent energy producers to invest in a diverse range of energy generation schemes, to the benefit of all. Theoretically. Much has been said by industry observers on the recalcitrance of the utility companies, their intransigence in permitting and their baldly self-interested protectionism. Rates are designed to account for the many complexities intrinsic to the problem of generating electricity reliably, injecting it into a grid responsibly and doing so in a predictable and manageable way. Utility companies each design their rates to account for the variables unique to their situation. It will come as no surprise that rates are the thumbscrews of the modern energy system in the US. A regime of regressive control and best and a gruesome instrument of torture at worst, rates are both the carrot and the stick.
Theoretically, rates can produce any desired outcome. Do you need additional generating capacity? Easy, just compensate new generators for bringing new capacity to the table. Need to tamp down competition from rooftop solar? Easy, just eliminate feed-in tariffs, or deny connection requests, the latter not being strictly related to rate design.
Rate design is a tool that can be used for good or evil. For good: encouraging potential defectors to remain connected, providing stabilization and capacity services to all grid participants. For evil: to drive those capable of doing so to create their own energy generation and storage capacity.
Distributed systems design is fundamentally utilitarian and rate design is as perfect an example of the opportunity for utilitarian maximization as I can think of. As Jeremy Bentham posited, one must always act to produce the greatest good for the greatest number. A rate design that produces the greatest good for the greatest number must necessarily bow to the needs of people, for are people not the greatest in number? Do they not outnumber corporations, even if we embody them as people? A genuinely equitable rate design must unavoidably recognize the needs of the people using the energy. Thus we come to the challenge of our times — that utility companies can never implement utilitarian (in the sense that Bentham uses it) rate schemes because their interests lie with … shareholders. Profits must direct rates.
Inevitably, as utility companies face headwinds, they will turn to their ratepayers to make up those profit differences. Even as renewable sources get cheaper, we must expect energy as supplied from utilities companies to get more expensive.
Why a tsunami?
I hinted earlier that there is a tsunami of Grid Defections coming. Here’s why tsunami is apt:
As those who witnessed the 2004 Indian Ocean Tsunami remember, tidal waves aren't waves that break per se, they're vast volumes of water that come to shore like steam trains, like flooding rivers in reverse. They are barely perceptible as they travel across the ocean, but rise and grow as they encounter shallowing sea bottom profiles. The Energy Transition too, has been moving through our society like a tsunami across the open ocean, barely perceptible, but it's about to become a gigantic wave as it comes ashore, shoving aside incumbents and traditionalists like tsunamis shove aside palm trees.
If you've been listening carefully, you will have heard the reverberations. The coming of the heat pumps for one, the switch to LED lighting for another. Solar panels have been around for a while and electric vehicles are becoming commonplace. Even domestic batteries are no longer the sole domain of early adopters and off-gridders. Together, these incremental changes form the shoreline the tsunami will rise up on -- the sudden rush of Grid Defectors and their localized power supply schemes will swamp the traditional suppliers of electricity, both from a fluidity and flexibility of supply perspective, but also from a simple desire to unbind themselves from the Faustian bonds of "grid connection".
Sources and Data
The threat of economic grid defection in the U.S. with solar photovoltaic, battery and generator hybrid systems: https://www.sciencedirect.com/science/article/pii/S0038092X24006054?via%3Dihub
John Stuart Mill and the Canonical Statement of Utilitarianism (Wikipedia)
Trends in Solar panel silicon usage and costs of power
These tables summarize the decrease in silicon usage per panel for the last ten years and the relative energy cost for Solar, Coal and Gas.