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The Million-Volt Answer to Oil

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The Million-Volt Answer to Oil

October 1, 2008
Energy & EnvironmentOther

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.