by Bracken Hendricks and Adam James
In a political season dominated by divisive electoral politics and obstructionist legislative strategies, the future of America’s energy policy has been a casualty, caught in the political crossfire.
Whether debating drilling for oil on public lands, extending the production tax credit for wind energy, or the role of fossil fuel subsidies in an “all of the above” energy plan, federal policy makers are scoring lots of political points but coming up short on building a durable foundation for transformative energy innovation.
No matter who wins the election this November, the fact remains that in order to govern well the next President and Congress will have to place energy innovation at the center of any plans for economic growth.
There is one simple reason for this. The energy sector is already changing rapidly and radically beneath our feet, right now. It is being driven by disruptive technologies that are fundamentally altering the old ways of doing business. Utilities can’t wait to plan for future growth and reliability; they must place their bets on tomorrow’s smart energy technologies today. Banks need to put capital to work right now in infrastructure investments, as a hedge against inflation, to earn stable returns for the pensioners whose savings they manage. And upstart companies are already building new, wired, and IT enabled technology businesses to tap the hundreds of billions of dollars of energy we waste each year as a new market for growth.
These changes are durable, structural, and the result of technology innovation. Together, they are building the foundation for a fundamentally different, more efficient, and more productive economy. Only Washington seems to lag behind the curve in understanding this state-change that is underway in our energy grid.
In a new Center for American Progress report released today called “The Networked Energy Web,” we argue that this upheaval in the energy sector can best be understood as the next wave of the Information and Communication Technology (ICT) revolution. Just as previous waves of technological change in wireless communications or digital data management brought with them fundamentally different engineering approaches, new business models, and ultimately dramatically changed industry structures, so too a new wave of growth, restructuring, and reinvestment are coming as our 19th century energy infrastructure collides with 21st century information management tools. In this paper we offer a framework for understanding the fundamental differences between coming energy networks and our historical electricity grid, and we show how this network will unleash dramatic new efficiencies for the economy and important benefits for consumers.
A Conceptual Framework for Managing Rapid Transformation of the Energy Sector
Central to understanding our emerging energy network is the realization that energy production, transmission, and use are increasingly interconnected. In fact, three core technologies are rapidly converging. First, distributed energy generation is enabling efficient, decentralized renewable energy production close to the point of use by consumers — integrating energy generation more fully into our homes, offices, and factories.
Second, this trend coincides with new potential for improved energy efficiency in buildings, which substitutes better use of information for the wasteful use of energy and dramatically reduces the need for electricity production overall.
Finally, both of these changes are being enabled through the integration of smart grid information technology into the transmission and distribution network, moving both electrons and information more efficiently between producers and consumers. This convergence is creating a fundamentally new engineering model for managing energy.
Understanding the Historical Grid:
The American electric grid is the largest machine on earth, and has heroically served its purpose for many years: to deliver affordable, reliable energy with nearly universal access. One way of understanding the electrical system is as a “one-to-many” and fundamentally linear system. The electricity grid was built around large, centralized generation from power plants, transmitted one-directionally across transmission and distribution lines, to wasteful consumers who had very little insight into the real costs of their energy use. In this model, demand fluctuates but can’t be managed. The only thing the grid can do is respond by turning on more power plants. The diagram above maps out this linear system, with the physical infrastructure (generation, transmission and distribution, and end users). Along with the functions of each of those pieces of infrastructure (supply, management, and demand), there are a set of technologies which enable these functions, from power plants to high voltage lines and appliances in homes.
The problem is that new technologies are emerging that are turning this model on its head. Whether software enhanced (such as demand response) or hardware based (like distributed generation behind the meter), these technologies present a host of challenges for the traditional utility business model. They also present a tremendous opportunity for economic growth and employment, if managed correctly.
Toward a Networked Energy Web:
A new model is emerging. The functions of supply, network management, and demand management can now occur at many points across the grid network, from generation at the power plant to end use in a consumer’s home or office. These new capabilities are enabled by an emerging suite of smart technologies. The chart above maps out this transformation and offers a schematic for understanding how a host of new activities are now possible across a truly integrated network that differs fundamentally from our historic “linear” power grid design.
Unlocking the transformative economic potential of the Networked Energy Web should be a high priority for the next Administration. In coming months, the Center for American Progress will work closely with industry and advocates to build a national plan of action for improving deployment of energy IT and building bi-partisan consensus on the urgency of improved market rules to speed innovation. When viewed as a technology deployment challenge, energy can move from the fierce domain of partisan politics and into the highly practical realm of creating wealth, unlocking new business models, and moving capital into projects. The energy sector is changing. The only question before us is whether the United States will show leadership or cede our competitive edge to others.
You can access the full report here.
Bracken Hendricks is a Senior Fellow at the Center for American Progress. Adam James is a Special Assistant for Energy Policy at the Center for American Progress.