The US electric grid, EVs, and power plant retirements
Risks and challenges facing the US electrical grid from power plant retirements to the growth in demand from electric vehicles.
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The North American power grid is said to be the world’s largest machine. A vast, interconnected network of generation, transmission and distribution lines, and load centers blanket the continent making modern life possible. For the past century, electric utilities were tasked with one core focus: reliability. Other initiatives and interests have encroached upon that primary duty in recent years providing challenges for the industry to balance political considerations with practical needs. In this article, we will explore the current state of wholesale power markets and the near-term risks facing the industry.
Electricity is a commodity unlike any other with its production and consumption occurring simultaneously. Supply must always meet demand with minimal tolerance and no scalable storage to speak of (yet). Being a product with necessary immediacy, this makes wholesale power by far the most price-volatile commodity in the world. Any shortfall of electrical generation can swing prices 100-fold within a matter of minutes. A surplus of power also presents a complicating factor for entities tasked with ensuring a balanced system. With the introduction of renewable production tax credits, the phenomenon of negative pricing — literally paying utilities to consume more — is a common occurrence within the wholesale power industry. These unique characteristics are what make these markets so exciting to follow.
Every segment of the economy is facing some degree of disruption. The electric utility industry, often viewed as a legacy sector, is no different. Traditional generation resources such as coal and nuclear are facing mounting headwinds from ESG investing, political wrangling, technological innovations, and old fashioned economics. Nonetheless, these abrupt changes are beginning to unveil concerning developments resulting in unintended consequences.
In February 2021, the US experienced its largest forced blackouts in its history. Bitterly cold temperatures swept deep into Texas wreaking widespread disruption of electrical service for customers. Wind turbine blades iced up, coal piles froze, and natural gas pipelines ran into physical constraints due to subzero conditions. Reliability Coordinators, the highest level of authority responsible for the reliability of the Bulk Electric System, issued Energy Emergency Alerts at Level 3, the highest EEA possible, indicating severe deficiencies in operating reserves to the point where firm load shedding is imminent. The central plains states were forced to conduct controlled blackouts bringing the grid back into balance in order to avoid catastrophic uncontrollable loss of the system. ERCOT, the grid encompassing much of Texas, was within 4 minutes and 37 seconds of facing an uncontrolled cascading blackout. If such an event were allowed to persist, a collapsed grid could have taken weeks or months to restore.
Events such as this past February may evidence themselves more and more in the years to come. Utilities have faced public and political pressures to decarbonize their generation portfolios. This has resulted in shuttering fossil fuel power plants years or decades ahead of their useful lives, replacing the shortfall with intermittent resources that may not be available when needed by the demands of customers. Storage devices like utility-scale batteries offer promising symbiotic solutions when paired with these resources; however, these developments are still decades away from being able to substantially mitigate scenarios like February 2021.
Compounding the complexity, the US is aggressively transitioning away from liquid fuels and replacing our transportation fleet with electric vehicles drawing more demand from the grid. Roughly one-third of total energy consumption in the US is from transportation with over 50% of that being fueled by gasoline. Each day in the US, roughly 1,000 additional electric vehicles are being plugged into the grid that didn’t exist yesterday with calls for further incentives to compound that growth. The substitution of our power generation fleet combined with the conversion of liquid fuel transportation to electric batteries will challenge the core function utilities strive for: reliability.
