Taking the Power Back

• Author: Mustafa Jamal

Taking the Power Back Finance & Development, December 2015, Vol. 52, No. 4

Mustafa Jamal

U.S. consumers will play an active role in shaping the energy system of the future

The U.S. electrical grid is the largest machine in the world. In 2014, over 3.8 trillion kilowatt hours of electricity (nearly a fifth of the world total) flowed through its 4.3 million kilometers of power lines to reach over 315 million consumers, who paid $400 billion for it.

But this behemoth of a system has changed little except in size in the 133 years since Thomas Edison launched its earliest iteration, The Pearl Street Station in lower Manhattan. Electrical grids in most countries remain quite primitive.

Given the risks of fuel price volatility and potentially catastrophic climate change, and the availability of new technologies for mitigating these risks, consumers and regulators are demanding a greener and more efficient U.S. electrical system. Just as the telecommunications landscape was rocked when landlines gave way to cell phones, the grid infrastructure is being forced to undergo a sea change: become smarter or fade into irrelevance.

This is not the best news for U.S. utilities. In the face of pressure from their regulators to modernize, these monopolies have hesitated to assume the risk and cost of implementing changes that could cut revenue. But it’s great news for consumers. Until now relatively powerless over their energy use or carbon footprint, consumers will have new tools to help them better understand and control their energy use, carbon footprint, and electricity costs.

Controlling demandThe most promising and established of these new tools is demand-side management (DSM).

DSM helps address the problem of peak load. Utilities must have sufficient generation on hand to provide the electricity needed to meet demand at its highest point—the peak of the demand curve (see chart). Otherwise, the system will crash, resulting in blackouts that incur significant economic and social losses, especially since peak load often coincides with the busiest hours for business and industry. DSM uses financial incentives to modify the demand curve by encouraging industrial, commercial, and residential consumers to use less electricity and shift discretionary use to off-peak times, such as nights and weekends.

If the peak of the demand curve is flattened or shaved, fewer new power plants will be needed, requiring less additional infrastructure investment, reducing the...