EXECUTIVE SUMMARY
Electricity—not oil—is the heart
of the U.S. energy economy. Power plants consume
as much raw energy as oil delivers to all our
cars, trucks, planes, homes, factories, offices,
and chemical plants. Because big power plants
operate very efficiently, they also deliver
much more useful power than car engines and
small furnaces. Electricity is comparatively
cheap, we have abundant supplies and reliable
access to the fuels we use to generate it, and
the development of wind, solar, and other renewables
will only expand our homegrown options. Our
capital-intensive, technology-rich electrical
infrastructure also keeps getting smarter and
more efficient. With electricity, America controls
its own destiny.
From the beginning, electricity has progressively
displaced other forms of energy where factories,
offices, and ordinary people end up using it
day to day. Electrification has been propelled
not by government mandates or subsidies but
by normal market forces and rapid innovation
in technologies that turn electricity into heat
and motion. Over 60 percent of our GDP now comes
from industries and services that run on electricity,
and over 85 percent of the growth in U.S. energy
demand since 1980 has been supplied by electricity.
And the electrification of the U.S. economy
isn’t over. Electrically powered heaters,
microwave systems, and lasers outperform oil-
and gas-fired ovens in manufacturing and industrial
applications, and with the advent of plug-in
hybrids, electricity is now poised to begin
squeezing oil out of the transportation sector.
While power plants operate very efficiently
from an engineering perspective, the electricity
market could operate much more efficiently than
it currently does. Across the country, peak
wholesale prices vary by 1 to 3 cents per kilowatt-hour.
On average, over the course of an entire year,
about half of the total capacity available nationwide
stands idle. And over the course of the same
year, one-fifth of the electricity is generated
with very expensive fuel.
These problems are the result of highly variable
demand. Enough power plants have to be built
to meet peak loads, but the peaks move from
east to west with the sun, because they track
human activity and the weather. Where the cheapest
power is available and the expensive power is
being bought shifts in tandem. Wide spreads
in the price of electricity available at different
points in the country at almost every minute
of the day reflect huge economic opportunity
still waiting to be captured.
A backbone grid built with state-of-the-art
high-voltage technology and spanning the continent
could readily move 25 percent of America’s
power over very long distances, at a cost well
under 0.5 cents per kilowatt-hour moved. Overlaid
on the existing, fragmented system, a backbone
grid will let cheap power chase high demand
around the clock and across the country. It
will squeeze significantly more electricity
out of every dollar of invested capital and
every dollar spent on raw fuel. The economic
benefits can be shared at both ends of the line,
whichever way the power moves. And the savings
that a backbone grid delivers will only increase
as environmental costs are progressively folded
into the economic spreadsheets.
The U.S. grid is the most ubiquitous and advanced
energy delivery network in the country and on
the planet. Building out a backbone grid—a
financially modest undertaking for an industry
as large as the power industry already is—will
unleash innovation and competition on both the
supply side and the demand side of our energy
market. To get over $4 gas, we should let American
capital, labor, and know-how get on with what
they already do so well, and connect us to the
4-cent electricity.
ABOUT
THE AUTHOR
Peter W. Huber
is a senior fellow at the Manhattan Institute
and a columnist for Forbes magazine.
He is the author of numerous books and articles
on energy, the environment, science and technology,
legal policy, scientific evidence, and telecommunications.
He taught mechanical engineering at the Massachusetts
Institute of Technology, and clerked for Judge
Ruth Bader Ginsburg of the D.C. Circuit Court
of Appeals, and for Justice Sandra Day O’Connor
of the U.S. Supreme Court. He has a Ph.D. from
MIT, and a J.D. from Harvard Law School. His
most recent book, co-authored with Mark P. Mills,
is The Bottomless Well (Basic Books,
2005).
Electricity—not oil—is the heart
of the U.S. energy economy. Power plants consume
as much raw energy as oil delivers to all our
cars, trucks, planes, homes, factories, offices,
and chemical plants. Because big power plants
operate very efficiently, they also deliver
much more useful power than car engines and
small furnaces. On their own, our passenger
cars consume less than half as much raw energy
as our power plants, and turn it into useful
power at the wheels about half as efficiently.
If we could plug our cars directly into the
electric grid, and choose the best time and
place to plug them, idle capacity in existing
plants could power almost all the miles we drive.
With a 10 percent boost in production, the grid
could also take care of all the heating supplied
by oil-fired home furnaces.
Electricity is also comparatively cheap. If
we could deliver electricity straight to electric
motors connected to our wheels, it would deliver
miles at a price that most current car engines
could match only on gasoline priced under a
dollar a gallon. Delivered to our homes at off-peak
prices, electrical heat would cost homeowners
a lot less than $4-a-gallon heating oil. Electricity
is cheap because the gigantic furnaces and boilers
that spin million-horsepower turbines and generators
run almost entirely on fuels that cost much
less than oil. As a result, we spend roughly
half as much on electricity—about $350
billion a year—as we’re currently
spending on $100-a-barrel oil, and electrically
powered systems do more, faster and better,
than oil-fired alternatives.
And finally, our electricity is made in America.
Tomorrow’s power plants, like today’s,
will be powered by anything but oil. We have
abundant supplies and reliable access to all
the fuels we currently use to generate electricity,
and the development of wind, solar, and other
renewables will only expand our homegrown options.
Moreover, and in any event, the cost of our
electricity depends mainly on the cost of capital,
labor, and know-how, the most inexhaustible
and renewable resources on our planet. With
electricity, America controls its own destiny.
ELECTRICITY
AND OIL IN THE 7-11 ENERGY ECONOMY
If
many people don’t realize that electricity
is bigger than oil, it’s surely because
most of the huge infrastructure behind the plug
stays far out of sight. Just three very high
voltage lines delivering power from eleven plants
could deliver all the power that the 8 million
residents of New York City use on the hottest
day in summer. It would take about 110,000 Pontiacs
racing neck and neck, pedal to metal, to send
that much shaft power to the cars’ wheels.
New York in fact generates much of its power
within the city’s limits, though most of
its residents probably don’t know where
the plants are located. The rest of the city’s
electricity comes from nuclear and hydroelectric
facilities in upstate New York, Connecticut,
and Quebec, and from coal-fired plants in the
Midwest.
Through much of the twentieth century, America
generated significant amounts of electricity
with oil. When oil prices spiked in the early
1980s, however, utilities quickly switched to
other fuels; our oil-electricity link has been
reduced to low-grade “residual” fuel
oil that’s used to generate less than 2
percent of our power. We have abundant supplies
of coal and substantial supplies of uranium,
and we can readily obtain more uranium from
Canada and Australia. Hydroelectric power provides
almost 7 percent of our electricity, and other
renewables are rising fast. The winds that sweep
north through Texas and across the prairies
make this wide, spacious, thinly populated corridor
ideal for wind farms.
What all this adds up to is a 7-11 energy economy.
America consumes about 7 billion barrels (BBO)
of oil a year and gets the 
energy
equivalent of about 11 billion barrels of oil
(BBOE) from coal, gas, uranium, and hydroelectric
dams. We generate almost all our electricity
with fuels from the not-oil side of the ledger,
and electric power plants consume over half
of the not-oil fuel.
Looking to the future, power plants can run
on almost anything. They can spin their turbine-generators
with steam—which they can produce by burning
coal, gas, oil, wood, trash, or other combustibles—or
they can replace the furnace with a uranium
reactor, or they can replace the steam with
water in a hydroelectric plant, or wind turning
a windmill. Solar cells skip the spinning stage,
transforming sun directly into electricity.
The electrical grid offers the only ubiquitous,
immediately practical, efficient link between
windmills, large solar plants, other renewable-fuel
technologies, and the rest of America.
The most important economic fact about electricity,
however, is that most of its cost isn’t
tied to fuel at all. The expensive part is the
hardware that turns cheap, raw fuel into high-grade
power at the plug. We generate almost 80 percent
of our electricity in plants that run on coal,
uranium, or water behind a dam; in all these
plants, the amortized cost of the hardware dwarfs
the cost of the fuel. Roughly half of the hardware
is in the plant itself, and the other half is
in the far-flung network of wires that moves
the power from the plant to half a million (or
so) dispersed users. The wires alone cost more
than the fuel.
This
capital-intensive, technology-rich infrastructure
also keeps getting smarter and more efficient.
As a result, even as fuel prices have fluctuated
and fuel mixes have changed, the average retail
price of the kilowatt-hour has fallen almost
without interruption since Thomas Edison fired
up his Pearl Street generators in New York in
1882. Where electricity rates have risen sharply,
as they have in some states in recent years,
the principal causes have been domestic regulatory
choices and policies—some economic, some
environmental.
From its beginning, electricity has progressively
displaced other forms of energy in factories,
offices, and homes. Electrification has been
propelled not by government mandates or subsidies
but by normal market forces and rapid innovation
in technologies that turn electricity into heat
and motion. Most recently, electricity has emerged
as the only form of energy that can power the
information technologies responsible for our
burgeoning post-industrial wealth. Over 60 percent
of our GDP now comes from industries and services
that run on electricity; in 1950, the figure
was only 20 percent. Over 85 percent of the
growth in U.S. energy demand since 1980 has
been supplied by electricity.
The
electrification of the U.S. economy isn’t
over—quite the contrary, it’s picking
up speed. Industrial, commercial, and residential
heating, welding, chemical processing, and things
of that sort currently use about 15 percent
of the oil we consume, along with about as much
energy from natural gas. New technologies allow
electricity to do the same jobs cheaper and
better. Electrically powered heaters, microwave
systems, and lasers outperform oil- and gas-fired
ovens in manufacturing and industrial applications,
just as kitchen microwave ovens are usually
quicker and cheaper than gas stoves. And if
the recent, sky-high prices for gas and heating
oil persist, they will propel a sharp shift
to electrically heated homes. At the 2008 peaks,
the raw energy in natural gas and crude oil
cost 4 to 8 cents per kilowatt-hour, which is
more than the off-peak price of electricity
available in many areas. Oil-fired household
furnaces and boilers are also at least 10 percent
less efficient than electric heaters, and half
as efficient as heat pumps.
Electricity is now set to begin squeezing oil
out of the transportation sector as well. First,
there’s a cushion shot. The gas that electricity
displaces from heating systems in factories
and homes can be used for transportation instead.
Heavy trucks, delivery vehicles, and buses,
which currently burn about 20 percent of the
oil we use, are easily modified to run on natural
gas—many already have been—and gas-powered
passenger cars are following close behind. And,
as discussed further below, coal, uranium, and
renewable alternatives could free up much of
the 1 BBOE of natural gas that’s currently
used to generate electricity. That’s enough
gas to displace another 15 percent of all the
oil we use.
Beyond that, plug-in hybrids will soon be recharging
their batteries directly from the grid. Most
fuel-hungry trips are shorter than six miles
and therefore well within the range that can
be delivered by the nickel-metal-hydride batteries
in hybrids already on the road, and easily within
the range of the automotive-class lithium batteries
that are expected within a couple of years.
The power generated by current hybrid-car engines
costs at least 30 to 50 cents per kilowatt-hour
when the car runs on $4-a-gallon gasoline. Many
utilities sell off-peak power for 2 to 4 cents,
and the nationwide average residential price
is about 9 cents. So the technology for replacing
(roughly) one pint of gasoline with coal, uranium,
water power, or wind used to feed 1 kilowatt-hour
of power to the wheels is now very close at
hand.
SUPPLY
AND DEMAND
Running
an economically efficient electricity market
is enormously important because electricity
already occupies such a central role in our
energy economy, and doubly important because
plentiful supplies of cheap electricity can
displace a great deal of oil. By comparison
with the rest of the energy economy, the electricity
market is already very efficient indeed. It
could, nevertheless, operate much more efficiently
than it currently does.
A major study recently released by the U.S.
Department of Energy, for example, explores
the feasibility of using wind power to generate
20 percent of U.S. electricity by 2030.5 America
certainly has plenty of windy sites in unpopulated
areas, windmills are already up and running,
the technology continues to improve, and costs
will continue to fall. But wind is a fickle
fuel, and the grid must deliver steady power.
A new, national “transmission superhighway”
will be required, the report concludes, to pool
the intermittently available power from many
different sites.
But why limit that kind of thinking to wind?
Seen from a distance, every power plant is a
fickle source of power—some of the time
nearby residents need all its power, so none
of it can be used farther away, but when they
don’t, the surplus power can be shipped
out of town. The flip side of less demand is
more supply, and demand varies a lot from hour
to hour, day to day, and season to season.
The
cheapest way to meet highly variable demand
is to generate baseload power in big, expensive
plants running on cheap fuel, and to take care
of the peaks with smaller, cheaper plants running
on expensive fuel. In practice, that currently
means generating baseload power with cheap coal
or uranium, while meeting peaks with expensive
natural gas. This minimizes the average, combined
cost of capital and fuel.
But the trade-offs are much more complicated
than that. Capital costs are sunk—investors
can’t ship a billion-dollar plant back
to Sears and get their money back whenever it’s
idle. The cost of both power plants and fuels
also depends a lot on where the plants are sited.
The biggest plants are best sited far from population
centers, scenic coastlines, and fragile ecosystems,
in places where land is cheap, where conventional
or renewable fuels are readily available, and
where safety and environmental concerns can
be addressed at the lowest cost. Coal plants
have landed disproportionately in coal country,
while much of the U.S. nuclear capacity is concentrated
in several regional clusters. Texas is home
to the world’s two largest wind farms and
accounts for almost one-third of U.S. wind capacity
and almost half of the current growth. Arizona’s
Solana Generating Station will produce 280 MW
of solar power when completed in 2011, and today
would rank as the largest solar plant in the
world.
The
grid cuts across all the varied costs of capital,
fuel, and environmental impacts, and all variations
in demand as well. A grid with a broader reach
shifts the economic advantage toward bigger
plants, more capital, cheaper fuel, lower environmental
impacts, and cheaper mitigation of those impacts,
because more grid pools more users and thus
turns fickle peaks and valleys into flat, steady
baseload demand. But the grid’s wires aren’t
free, either. The hard part is working out just
how much capital invested in grid will minimize
costs overall.
The price of electricity is the best (though
imperfect) indicator of how these various factors
play out across America today. Across the country,
peak wholesale prices vary by 1 to 3 cents per
kilowatt-hour. Some states export a lot of power
to their neighbors, while others rely heavily
on imports.
Much larger price spreads lurk beneath the
surface. Every state generates both cheap and
expensive power. The cheap power comes from
baseload plants, which are used heavily but
not fully; the expensive power comes from peakers,
which are often idle, though not often enough.
On average, each company responsible for delivering
power to consumers aims to ensure that peak
loads never exceed about 85 to 90 percent of
the generating capacity that it either owns
or can count on buying from independent suppliers.
But on average, day and night over the course
of an entire year, about half of the total capacity
available nationwide stands idle. And over the
course of the same year, one-fifth of the electricity
is generated with very expensive fuel.
The price of electricity sold in wholesale markets
tracks rising and falling demand in the area
where it’s generated. Demand moves from
east to west with the sun, because it tracks
human activity and afternoon peaks in air-conditioning
loads. Demand also shifts from place to place
as weather and seasons raise and lower the temperature.
Where the cheapest power is available and the
expensive power is being bought shifts in tandem.
Somewhere in America, some community is always
paying significantly more for power—20
to 50 percent more—than the market is selling
it for elsewhere. Several hours later, many
of the cheap sellers and expensive buyers will
have traded places.
To illustrate what that implies, the maps on
the following page compare peak wholesale prices
in one time zone against off-peak prices in
the other three. Using time zones as a surrogate
for all the factors that determine where costs
are high and where they’re low oversimplifies
things considerably. But when analyzing electricity’s
economics, time of day is the place to start,
and on a continent that stretches 3,000 miles
east to west, that means starting with four
times of day, not one.
THE
GRID
As the Federal Energy Regulatory Commission
has noted, price spreads between different locations
“signal infrastructure needs” in the
markets for electricity itself or the fuels
used to generate it.[11]
If sellers at one location are offering electricity
for 2 cents less than buyers are paying somewhere
else in the country, and if the electricity
could be moved from seller to buyer for less
than that price spread if only transmission
capacity were available, more wire is needed
to get the market working efficiently.
High-voltage
wires mounted on towers erected on narrow (200-foot)
rights of way can quite easily move huge amounts
of power, over thousands of miles, with very
modest losses. Direct-current systems operating
at about 600,000 volts are optimal for certain
applications; alternating-current systems operating
at close to a million volts are more suitable
for many others. A single line operating at
765 kV AC can transmit almost 1 percent (4 GW)
of the total average power generation of the
entire United States, or 0.5 percent of the
power that Americans collectively consume during
the most power-hungry minute of the year.
According to one recent analysis, windmills
located principally in the heartland could meet
over 25 percent of current U.S. electricity
requirements (or 20 percent of projected demand
in 2030) if linked to population centers across
the country by 19,000 miles of high-voltage
grid.[13] Such a grid would
cost an estimated $60 billion to build. A somewhat
larger, 21,000-mile grid designed to network
all major sources of electricity, including
wind, might look something like the one shown
in the accompanying conceptual map, and would
cost about $75 billion. That would add roughly
0.3 cents to the current 9-cent average retail
price of electricity.[15]
Backbone
lines operating at very high voltage are extraordinarily
efficient, both electrically and economically.
This isn’t drawing-board technology; thousands
of miles of these very high voltage lines are
already up and running. But they certainly don’t
constitute a national network—the wide
price spreads in the wholesale electricity market
prove it. A kilowatt-hour of electricity toasts
as many Pop-Tarts in Palo Alto as it does in
Poughkeepsie; an efficient, integrated market
with cheap, long-distance transmission available
would charge everyone the same price for toasting
them. America doesn’t.
Until quite recently, the technology needed
to knit electricity markets together via a backbone
grid spanning the country wasn’t practical—and
policymakers weren’t interested, in any
event. The lines used to transmit power over
larger distances had quite limited capacity,
and because they operated at much lower voltages,
they had much higher losses. Power plants and
wires were owned and operated as a unit and
regulated as a single, monopoly service. Utilities
were franchised to provide power within a designated
geographic area. When they were authorized to
build new plants, it was to keep the local wires
lit, and state regulators often made sure that
the cheap power stayed close to home.
As utilities serving adjacent areas gradually
linked their grids, three largely discrete interconnection
areas evolved: one east of the Rockies, one
west, and one serving most of Texas. Except
for a few limited interties, these three areas
remain electrically independent. And even within
each area, the grid was designed mainly by engineers,
working for many different owners, each one
serving a smaller market.
Economists
began muscling in on the engineers in the 1970s,
when changes in state and federal laws began
requiring utilities to offer some competing
producers of electricity “open access”
to their wires. In the 1990s, Congress defined
a new class of independent wholesale generators
and expanded Washington’s authority to
deregulate the price of power transmitted across
state lines. Competitive “merchant generators”
now supply about one-third of the nation’s
power and account for most of the new plant
construction. Before it ever lights a bulb or
a computer screen, close to half of all our
power is now traded, commodity-like, among wholesalers.
Economic policy is still constrained, however,
by engineering reality. Power is traded over
wires, and the trading ends where the wires
end, and stops when the wires are fully loaded.
By enabling the development of huge power plants
that use cheap fuels and operate extremely efficiently,
capital invested in the existing grid has already
done far more to raise efficiency and push down
fuel costs in the U.S. energy economy than all
the improvements made in our car engines since
Henry Ford first rolled out the Model T. But
wide spreads in the price of electricity available
at different points in the country at almost
every minute of the day reflect huge economic
opportunity still waiting to be captured.
GRID
ECONOMICS
Overlaid on the existing, fragmented system,
a backbone grid would let cheap power chase
high demand around the clock and across the
country. It would squeeze significantly more
electricity out of every dollar of invested
capital and every dollar spent on raw fuel.
Just how much money this would save is quite
easy to calculate in principle, but the details
get complicated fast. The numbers included here
are very rough, but they’re good enough
to show that a good bit of easy money lies scattered
across America’s 3-million-square-mile
electrical table.
While
fuel costs don’t account for most of the
9-cent average price of electricity, they do
largely determine how much the price varies
from hour to hour, place to place, and year
to year. A kilowatt-hour contains 0 cents worth
of raw fuel if generated with wind or sun, about
0.5 cents if generated with uranium,17 2 cents
if generated with $50-a-ton coal, and about
7 cents if generated with natural gas priced
at $8 per thousand cubic feet. The fuel-cost
spreads, in other words, are almost as large
as the average price of electricity. A grid
that pools demand enough to let cheaper fuels
displace the more expensive can thus cut the
cost of electricity by as much 40 percent wherever
and whenever it does.
Still more can be saved by using invested capital
more fully. An analysis of 2002 data by the
Pacific Northwest National Laboratory (PNNL)
concluded that using idle nighttime capacity
in existing power plants and wires to recharge
plug-in hybrid cars would lower the average
cost of electricity in a fairly typical urban
market (Cincinnati’s) by about 8 percent.[18]
These savings would come from making productive
use of power-plant capacity that currently stands
idle—“valley filling” in the
figure on page 4. But why limit that kind of
thinking to hybrids? The grid fills valleys,
too, by allowing idle capacity to power distant
air conditioners rather than nearby hybrids.
Some areas have considerably more idle capacity
than others. PNNL’s analysis indicates
that half of the idle capacity is located in
just three areas located in the southeast and
east-central regions and in Texas.
Any
plant linked to a grid that spans four time
zones need not be idle often. With current transmission
technology, a plant located in, say, Lebanon,
Kansas, the geographic center of the contiguous
United States, would be within easy reach of
peak loads on both coasts and everywhere in
between, as the peaks roll from east to west
across the continent. If a backbone grid allowed
the average plant to be fully used an average
of fifteen hours a day rather than the current
twelve, the average capital-related cost of
electricity would drop 20 percent.
These savings would be realized wherever more
grid puts idle capacity to productive use, whatever
the fuel used. By flattening demand, however,
a backbone grid would also shift generation
toward bigger plants that use cheaper fuels—coal,
uranium, water, wind, or sun. With a backbone
grid in place, new plants will also be built
where the capital costs are lower from the get-go.
Windmills and solar plants occupy very large
amounts of real estate, and land costs alone
make these technologies prohibitively expensive
in all but the most rural areas. Building conventional
coal and nuclear plants on existing sites alongside
plants already up and running is usually much
cheaper, too, but that means adding new capacity
where it’s least needed by anyone nearby.
The
savings that the grid delivers will only increase
as environmental costs are progressively folded
into the economic spreadsheets. Emission-abatement
technologies, trading schemes, and waste-disposal
costs raise the effective cost of both power
plants and fuels. By shifting demand toward
bigger, more centralized power plants, a backbone
grid will also shift it toward plants that run
very efficiently, that are maintained well,
that can afford a lot of pollution control,
and that are easy to monitor and regulate. Per
unit of useful energy produced, very big power
plants are, on average, much cleaner than all
other widely used alternatives, with the exception
of smaller gas-fired facilities, which limit
their emissions by using very expensive fuel.
The cost of wind power depends especially strongly
on finding buyers for the electricity around
the clock. Most Americans live within 100 miles
of the coast, while the best locations for windmills
are in the heartland. A backbone grid’s
ability to wheel wind power across the continent
in sync with the sun would allow free wind to
displace expensive gas electricity at least
several additional hours per day, and coal-fired
electricity the rest of the time.
CHEAPER
ELECTRICITY
A backbone grid built with state-of-the-art
high-voltage technology could move 25 percent
of America’s power over very long distances,
at a cost well under 0.5 cents per kilowatt-hour
moved. Price spreads tied to fuel costs alone
often run 5 cents or more, and idle capital
currently adds about 1 to 2 cents to the average
cost of generation. Moving that much power across
a 5-cent price spread would cut America’s
electricity bill by about 10 percent directly,
and by considerably more than that over the
longer term.
Boosting consumption of electricity by 30 percent
for heating and recharging plug-in hybrids during
off-peak hours would lower the average price
of electricity by another 15 percent or so.
These savings would result from fuller use of
the expensive wires. Long-distance transmission
is cheap, but the wires used for local distribution
account for about one-quarter of the average
price of electricity. And most of the time,
these local wires are severely underused because
their usage so closely tracks the ups and downs
of local demand. Using them more heavily entails
no additional cost and allows their capital
cost to be spread across more kilowatt-hours.
San Diego Gas and Electric, for example, owns
one nuclear power plant and buys the rest of
its power (almost two-thirds of it) from others.
The PNNL analysis concludes that using idle
capacity in the wires to recharge plug-in hybrid
cars during off-peak hours would reduce their
average cost by almost 60 percent. Cincinnati
Gas and Electric, which generates most of its
own power close to its customers, would realize
a 6 percent reduction in average wire costs.
Significantly
increasing energy consumption of any kind isn’t
generally viewed as desirable, but the pathologies
of the global oil market and the convergence
of the not-electric and electric sectors of
our 7-11 energy economy make such an increase
on the electric side of the divide inevitable
and desirable. The PNNL analysis concludes that
idle capacity and today’s grid could power
about 85 percent of all the miles driven by
passenger cars, pickups, and SUVs. That would
displace about one-third of total U.S. oil consumption.
By allowing Texas to export power to other areas,
a backbone grid would boost the total by several
more percentage points. By providing access
to more idle capacity and significantly cheaper
off-peak electricity, a backbone grid would
also accelerate the transition to plug-in hybrids
and support close to 100 percent electricity-for-oil
displacement in vehicles that are themselves
idle enough of the time to be refueled at the
plug rather than the pump.
Residential heating presents a similar opportunity—current
electrical loads peak on summer afternoons when
all the air conditioners are running full blast;
heating loads peak at night in winter. Together,
the heaters and cars could pick up the electric
load when most of the air conditioners, appliances,
and lights shut down. And because heating and
transportation require so much energy, their
electrification would flatten out demand for
electricity almost completely. The electricity
market’s strange cost structure aligns
perfectly with the needs of the two biggest
sectors of the U.S. energy economy that don’t
yet run on electricity: transportation and plain
old residential heat.
Pinning down just how much a backbone grid
could save will require much more detailed analysis
than has been sketched out here. What’s
beyond dispute is that the U.S. market for electricity
currently operates very much less efficiently
than it might. The price spreads in the wholesale
market far exceed what it would cost to haul
the cheap power to the expensive buyer. On average,
half of our generating capacity and even more
of our distribution capacity stand idle. We
also generate about one-fifth of our electricity
with natural gas, which costs considerably more
than other widely used fuels. A backbone grid
will deliver big savings by addressing price
dislocations in a very big market.
The economic benefits can be shared at both
ends of the line, whichever way the power moves.
A community near a plant with low-cost power
to spare can lower its own electric bill, too,
when it puts idle capacity to productive use.
And most areas will end up buying distant power
when their own loads peak, and selling it the
rest of the time. It is sometimes suggested
that trading power can only lower prices for
some by raising them for others. That view is
simply wrong. Purchases and sales can be structured
so that everyone connected to the grid saves
money when capital assets are used more fully
and when cheaper fuels displace more expensive
ones.
Going forward, a backbone grid will lower costs
much further by allowing investors to site new
plants where they’re welcome, where land
is cheap, where environmental objectives can
be attained at the lowest cost, and where renewable
fuels are most readily available. And further
still by propelling the use of cheap electricity
to displace large amounts of more expensive
oil in the heating and transportation sectors
of the energy economy.
DOMESTIC
POWER, GLOBAL STAKES
Visionary schemes for getting over oil generally
end with a call for more money from Washington.
The grid doesn’t need government money;
it just needs better government. Its oversight
currently depends on a tangle of local, state,
and federal authority that reflects its past
and obstructs its future. Private investors
can’t make plans to invest $60 billion
in a backbone grid because no one has concomitantly
broad authority to approve the construction.
Oil is very portable. That’s why it’s
used to power cars and jets, and why its price
is set by the global market. If it’s light
enough to run your car, it’s light enough
to be shipped 5,000 miles to run a higher bidder’s
in Paris or Shanghai. Our electricity, by contrast,
is tightly tied to the U.S. grid and is under
the complete control of U.S. capital, U.S. fuel,
and U.S. policy. We already trade significant
amounts of power with Canada and Mexico, and
further integration of the North American grid
is both likely and desirable, but a high-voltage
line to Caracas isn’t coming anytime soon.
Electricity is also the one immediately practical,
affordable, near-term answer to oil, because
technologies that substitute electricity for
oil are here and now, and because we already
generate electricity in quantities huge enough
to displace really serious amounts of oil. Electricity
is therefore the key to U.S. energy independence.
On the electric side of our energy economy,
we’re far better off than all the countries
that worry us because they own or want to buy
so much oil. Our grid weaned itself from oil
almost thirty years ago. Much of the rising
demand for oil in China, India, and other developing
countries, by contrast, can be traced to diesel
generators. We are poised to propel cars with
cheap electricity, while they are still scrambling
to generate expensive electricity with truck
engines and string wires to form their first
real grid.
They’re going to get past that stage as
fast as they possibly can, and then past oil
in their heaters and cars, too. Japan has good
reason to focus so heavily on hybrids—it
has little but nuclear electricity to count
on for its energy going forward. India and China
will be firing up a new coal-fired plant about
once a week for the next 25 years and will be
adding nuclear plants equally fast. The rest
of the world will catch up; our challenge is
to keep improving our energy economy fast enough
to maintain the competitive edge that affordable,
high-grade energy supplies.
Attempting to spell out exactly what mix of
fuels and power-plant technologies will provide
the cheapest, greenest, most reliable power
going forward isn’t useful—generating
technologies change too fast, and fuel prices
are too volatile. The grid, however, embraces
them all. Whether generated with coal, uranium,
gas, water, wind, sun, or biomass, electricity
is the stock exchange and common currency of
the energy market. Ships and airplanes aside,
it can power anything.
The U.S. grid is by far the most ubiquitous
and advanced energy delivery network in the
country and on the planet. Building out a backbone
grid—a financially modest undertaking for
an industry as large as the power industry already
is—will unleash innovation and competition
on both the supply side and the demand side
of our energy market. It should therefore be
built, and on the double. To get over $4 gas,
we should let American capital, labor, and know-how
get on with what they already do so well, and
connect us to the 4-cent electricity.
