A cleaner, more energy-efficient future — maybe

We are on the threshold of technological advances in electricity that have the potential to profoundly change our lives and significantly reduce carbon emissions. For it to happen, however, we must overhaul an outdated regulatory structure and replace it with a system that encourages experimentation and product development by a multitude of players within a vibrant, robust marketplace. 

Today’s system was designed in the days of Thomas Edison, when electricity’s greatest challenge was laying wires.  In a modern system of two-way electricity distribution, digital technology and an integrated grid, we may soon think not so much of “electricity,” but, rather, of “energy” – a commodity platform in which each of us will be both buyer and seller (and, for some of us, producer as well).

{mosads}Imagine your home equipped with solar generation that powers both your house and your car, with excess kilowatt-hours sold back to other customers to help you recoup the cost. Think of devices within both your home and your car that will monitor and adjust your energy usage — both stationary and mobile — so you can maximize energy efficiency effortlessly. 

The effect could portend enormous improvements in energy efficiency and achieve transformative reductions in carbon emissions. Products will be invented, services developed and jobs created. 

The technology already exists. In the Mueller neighborhood of Austin, Texas, researchers at the University of Texas have partnered with Austin Energy and other providers to develop one of the largest concentration of homes with rooftop solar panels in the United States. 

Residents enjoy reliable electricity, use monitors to gauge consumption — and have reduced their electricity bills, some by more than half. 

In New York, meanwhile, an innovative “Reforming the Energy Vision” initiative, a top-to-bottom makeover of the state’s $22 billion electricity market, utilities are no longer simply serving as the operators of local electricity grids. Instead, utilities will coordinate and manage a vibrant new system, providing a cleaner, more resilient and a more affordable way to provide power.

What’s standing in the way is a regulatory structure better suited to the electricity markets of 100 years ago.

During electricity’s infancy, we had to build an entire infrastructure, from the bottom up: power generators, transmission facilities, even the poles and wires that delivered electricity to our homes and businesses.  Our singular policy goal was to incentivize the capital investment needed to assure safe, universal service at an affordable price. 

Electricity’s supply chain was linear and vertically integrated, with companies providing every element, from generation through transmission and distribution to retail. Electric companies developed into geographically contiguous, integrated enterprises that provided a uniform service at an affordable price.

Sustaining such a large-scale, vertically integrated market structure required legal barriers to entry that protected the electric companies from competition. The regulated monopoly model maximized economies of scale, keeping costs low and stable for consumers. 

Thanks to technological advances, however, the traditional electricity grid has been transformed. What was once a linear, one-way delivery of electricity from generators to the public has instead started to morph into an integrated network with multi-directional flows.

Thanks to these advances, products and services like residential solar, microgrids and energy management devices are already available, with others just over the horizon — provided we can modernize our regulatory structure to keep pace with our technological advances.

In today’s system, we need free market incentives to develop new participants in the marketplace, not restrictions that keep them out.

At stake is not just lower-cost electric power and a cleaner planet; in the balance, ultimately, are untold thousands of jobs in new industries that today we cannot even begin to imagine.

Let’s learn from the lessons from internet development: minimal barriers to entry and incentives to innovation and experimentation led to an astounding array of goods and services – from Amazon to Uber and everywhere in between. A regulated monopoly, with cost-plus pricing and legal barriers to entry, would have suffocated these developments.

If our successes (and our failures) in adapting to the transformative technologies of the Internet taught us anything, we will undertake a new regulatory structure for energy that is more suited to the challenges of the 21st Century than those of the 20th.

Kiesling is an associate professor of Instruction in the Department of Economics at Northwestern University specializing in the electricity industry. More information at: http://www.leadingwithconservation.org/wp-content/uploads/2015/07/Kiesling_Paper.pdf