The Time Is Now for Federal Investment in Grid Modernization

David M. Hart July 2, 2020
July 2, 2020

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At the turn of the millennium, the U.S. National Academy of Engineering (NAE) named the electricity grid the greatest engineering achievement of the 20th century. This “story of public and private investment,” wrote the NAE, made possible “the modern world as we know it.”

Sadly, that great achievement is falling apart. The American Society of Civil Engineers (ASCE) gave the grid a D+ in its 2017 Infrastructure Report Card. As it ages in place in coming years, consumers can expect more frequent and longer outages disrupting their lives.

The COVID-19 crisis provides an unexpected opportunity for the federal government to do its part to avert this looming disaster while simultaneously advancing national economic and environmental goals. The time is now for Congress and the president to make investments that will help make this wonder of the past century into a wonder of the present one.

A few numbers provide a sense of the 20th century achievement. The United States is crisscrossed by more than 700,000 miles of long-distance transmission lines, which would cost something like $5 trillion to replace. These lines feed distribution systems that serve nearly 150 million customers, ranging from the Department of Defense (the nation’s largest energy consumer) to one-bulb shacks in remote valleys. The grid supplied Americans with 3,900 terawatt-hours (TWh) of power in 2019, enough to run about 4 quadrillion loads of laundry in an energy-efficient washing machine.

Our dependence on the grid is obvious to anyone who takes a moment to reflect as they turn on a light, open a refrigerator door, or surf the Internet. When things go wrong, whether due to natural disaster, hackers, or equipment malfunction, the costs can be devastating. The 2018 Camp wildfire in California, which was caused by sparks from a power line, burned more than 153,000 acres, caused $16.6 billion in damage, and killed 85 people.

The system that we use today was built mainly in the 1950s and 1960s, and many components of it are reaching the end of their useful lives. The ASCE estimates the shortage in investment in the U.S. grid between 2016 and 2025 will be $177 billion. The only silver lining in this sorry situation is that the technology available for modernization has advanced rapidly even as the grid itself has languished. The gains from new investments have grown considerably as a result.

For instance, 21st century grids equipped with robust sensor networks and managed with sophisticated data analytics can avert outages before they happen and respond far more rapidly and effectively when they do. These smarter grids also require strong and constantly evolving cybersecurity, a new technological domain with no 20th century counterpart.

Distributed electricity generation and storage devices also have advanced significantly in recent years. Solar panels now dot rooftops across the country. Grid-connected batteries are proliferating to back-up distributed generation and to power electric vehicles (EVs). The 20th century grid mostly sent power in one direction from a few large power plants, but the 21st century grid must route two-way flows to and from millions of such distributed devices. That requires advanced software to control and balance each system as well as power electronics and other hardware to carry out its commands.

Modernizing the grid would create jobs and spur the economy. The International Energy Agency estimates that each $1 million invested in the distribution grid creates six construction jobs. Two more jobs are created manufacturing semiconductors, sensors, transformers, and other equipment. As Harvard Business School Professor Willy Shih has written, domestic content rules or tax incentives would help build new domestic supply chains for such equipment, which the COVID-19 crisis has revealed to be deeply inadequate.

Modernizing the grid will also enable significant further reductions in U.S. greenhouse gas emissions. Renewables are now the cheapest energy resources in many parts of the United States, but without a better transmission system, customers cannot connect to them. At the distribution level, system upgrades will enable more rapid and widespread adoption of distributed resources, including EVs. Numerous studies project that emissions from the electricity sector could be cut by 80 percent or more if a robust push were made to do so.

Even more remarkably, these studies conclude that grid modernization investments will pay for themselves. The National Renewable Energy Laboratory, for instance, found that each dollar spent connecting the three regional grids of the United States to one another would save consumers at least $2.50, without even counting the environmental benefits. A recent study from the Goldman School of Public Policy at the University of California-Berkeley finds that shifting to a grid powered 90 percent by zero-carbon resources by 2035, which they calculate would require about $100 billion in new transmission investment, would lower wholesale electricity costs by 10 percent, while avoiding an estimated $1.2 trillion in health and environmental costs.

Grid modernization is a great opportunity. We can build a modern miracle that provides better service at lower cost while boosting the economy, supporting U.S. technology leadership, and helping the environment. It’s a no-brainer.

But: As is almost always the case with energy policy no-brainers, there’s a hitch—actually many hitches. Inadequate planning, weak investment incentives, and burdensome permitting processes are among the most important barriers to grid modernization. Governance of the grid is fragmented between the public and private sectors and among the federal, state, and local levels of government, drastically complicating decision-making, especially when those who receive the benefits from modernization are not the same as those who bear the costs, which is frequently the case.

The federal government should cut through this Gordian knot. Federal money, expertise, and authority, if deployed skillfully as well as forcefully, can radically accelerate grid modernization. Upcoming recovery and stimulus packages should provide the means to begin to do so, while longer-term planning should be initiated to follow through on this opportunity.

ITIF has called on Congress to fund large-scale projects to demonstrate first-of-a-kind grid technologies, including long-duration energy storage, at commercial scale as part of a long-term recovery package. ITIF also recommends that Congress appropriate funds to DOE to provide technical and financial assistance to states and localities to upgrade distribution grids and management systems to accommodate more rapid EV adoption.

The Congressional Sustainable Energy and Environment Coalition (SEEC) endorses measures similar to those proposed by ITIF and adds the reinvigoration of DOE’s Smart Grid Investment Grant Program, which collaborated with utilities to support 99 projects between 2010 to 2015. SEEC also advocates federal financial incentives and technical support for transmission project planning, siting, permitting, and construction. The Bipartisan Policy Center has led the way in developing a balanced reform of permitting under the National Environmental Policy Act, which has slowed many worthy clean energy projects to a crawl.

The recent report of the House Committee on the Climate Crisis lays out a longer-term plan of action centered on the Federal Energy Regulatory Commission (FERC). FERC must take steps to foster transmission planning, adjust cost allocation, and create performance incentives for investment. Congress should fund it to do so. The committee also calls on DOE to use its loan authority to support transmission projects, including those serving offshore wind farms.

It’s time for federal action to modernize the grid. The United States Government and the American public have for too long taken the great engineering achievement of the past century for granted. Paying this overdue bill at a time when money is cheap and public investment is sorely needed will create jobs, revitalize neglected industries, and help address some of our most pressing environmental challenges.