Even readers who are only experiencing the Texas electricity disruptions from afar may wish to consider a new report from an expert panel at the National Academy of Sciences, The Future of Electric Power in the United States (2021, prepublication copy downloadable for free).
Here's a summary of a few of the main economic and technological changes facing the US electricity industry.
In the last couple of decades, per capita demand for electricity has been fairly flat in the US, while per capita demand for energy has actually declined. This is in part because of greater energy efficiency, and also in part because the US economy has been shifting to service-oriented production that is uses less energy for each dollar of output produced.
But looking ahead, at present about 0.1% of energy for US transportation come from electricity. If the market for electric cars expands dramatically, this will clearly rise--and given that much of the recharging of electric vehicles would happen in homes, the transmission of electricity to residences could rise substantially. Also at present, "12 percent of energy used by industry came from electricity in 2019, almost all deep-decarbonization studies suggest that electrification of certain industrial end uses will be important." More broadly, pretty much all aspects of the digital economy run on electricity. One estimate is that for the world as a whole, "data centers and networks consumed around 380 terawatt hours (TWh) of electricity in 2014–2015, about 2 percent of total electricity demand."
Of course, continual increases in efficiency of electricity use--say, by large household appliances and new light bulbs--could offset this rise in demand for electricity. On the other side, changes in more people using electricity in their homes or all purposes, rather than using natural gas or oil, could also shift electricity demand higher.
Even if the demand for electricity doesn't risk, there is an ongoing push toward generating electricity in different ways that produce less or no carbon emissions. As the report says: "An economy that decarbonizes is an economy that electrifies." Here's a graph showing the current sources of electricity in the US.
Obviously, coal and natural gas still dominate electricity generation in the US. As the report notes: "So far, the United States is making modest progress in decarbonizing its power sector primarily
through the replacement of coal with natural gas—sometimes called `shallow decarbonization'—but the path to deep decarbonization is not yet widely agreed upon."
There doesn't seem to be much of a push for more nuclear or hydro (although there probably should be), which means that we're talking about here is expanding the green and yellow areas to account for a much larger share of electricity generation over the next 2-3 decades. Maybe other technologies like carbon capture and storage or hydrogen can make a difference, too. My sense is that most people (and politicians) have no realistic sense of what would be needed to make solar and wind the main elements of the electrical grid. It's not just expanding wind and solar by a factor of maybe 10, with all that implies for building additional solar and wind facilities, but it's also building the new transmission lines needed to get the power where we want it to be and building the electricity grid so that it can deal with the intermittent nature of these sources of electricity.
The old traditional method of producing and selling electricity involved a few big generating facilities: the report calls this the "make it-move it-use it" model. The new method involves decentralized electricity generation from a variety of possible sources, right down to rooftop solar panels that can supply electricity to the grid. In addition, electricity providers are gaining the capability to charge different amounts at different times of day, or for different levels of household usage, or even to cycle your air conditioning or heat on and off at times when demand is especially high. There may also be rising demand for different kinds of electricity provision: for example, homes may want "fast-charging" capability for their electric car, but status quo electricity elsewhere in the grid. Certain areas may have industrial or information-technology facilities that need especially large quantities of electricity. Issues of physical security of the grid and also cybersecurity of the grid are important, too.
Factors like these mean that the electricity grid itself is becoming enormously more complex to manage, with a much wider range of options for generation, distribution, and usage.
The report discusses an array of other topics, including jobs that will be lost and gained, global supply chains for the kinds of equipment that will be needed (much of it based in China), effects for people with lower-incomes who may have less access to reliable electricity, and so on.
But in my mind, perhaps the key point is recognizing that the evolution of the electricity industry is heavily shaped by physical realities and by regulations at both state and federal levels. With many industries, I'm happy to let private companies struggle in the market to get my business, with a relatively mild background of government regulation. But for most of us, electricity is delivered from a common grid, and I don't have a choice of competing providers. The rules for how my power company will buy power, and how it determines what it will charge me, are heavily regulated and largely opaque to the public. Questions about where new generating facilities and new transmission lines will be built often seem to involve one separate dispute at a time, rather than as part of an overall strategy. The incentives for a given electricity utility to invest in research and development or to experiment with different kinds of service provision,, given the realities of regulation, can be quite limited.
In short, the electricity market is facing needs for transformational change in a regulatory and economic context where change has traditionally been constricted and piecemeal. It's all too easy to imagine how pressures for change and limits on change will collide.
Timothy Taylor is an American economist. He is managing editor of the Journal of Economic Perspectives, a quarterly academic journal produced at Macalester College and published by the American Economic Association. Taylor received his Bachelor of Arts degree from Haverford College and a master's degree in economics from Stanford University. At Stanford, he was winner of the award for excellent teaching in a large class (more than 30 students) given by the Associated Students of Stanford University. At Minnesota, he was named a Distinguished Lecturer by the Department of Economics and voted Teacher of the Year by the master's degree students at the Hubert H. Humphrey Institute of Public Affairs. Taylor has been a guest speaker for groups of teachers of high school economics, visiting diplomats from eastern Europe, talk-radio shows, and community groups. From 1989 to 1997, Professor Taylor wrote an economics opinion column for the San Jose Mercury-News. He has published multiple lectures on economics through The Teaching Company. With Rudolph Penner and Isabel Sawhill, he is co-author of Updating America's Social Contract (2000), whose first chapter provided an early radical centrist perspective, "An Agenda for the Radical Middle". Taylor is also the author of The Instant Economist: Everything You Need to Know About How the Economy Works, published by the Penguin Group in 2012. The fourth edition of Taylor's Principles of Economics textbook was published by Textbook Media in 2017.