A vast network of power plants, transmission lines, and distribution centers together make up the U.S. electrical grid. The grid constantly balances the supply and demand for the energy that powers everything from industry to household appliances. Out of sight for most, the grid usually only comes to public attention due to large-scale failures, such as the blackout that struck the Northeast in 2003.
With the rise of renewable energy and so-called "distributed generation," or the ability of individual homes and businesses to produce their own power, the traditional grid is under increasing pressure. It is losing customers at the same time that its aging infrastructure requires majorand expensiveoverhauls, and the EPA imposes unprecedented greenhouse gas regulation. Meanwhile, private and public investments in "smart grid" technologies are increasing the system's efficiency while accelerating trends that threaten to shrink the grid's customer base, increase consumer energy prices, threaten the reliable delivery of power, and raise questions about the network's vulnerability to cyberattacks.
How does the grid work?
The U.S. electric grid dates back to 1882, the year that Thomas Edison unveiled the country's first power plant at the Pearl Street Station in lower Manhattan. While the grid has expanded from Edison's original fifty-nine customers to hundreds of millions of users, for decades its basic structure has remained much the same. According to the Energy Information Administration, fossil fuel-based power plantsburning coal, oil, or natural gascreate nearly 70 percent of the nation's power, while nuclear power accounts for about 20 percent. Electricity is sent across long distances using high-voltage transmission lines, and local facilities, known as substations, convert that high-voltage power to a lower voltage (a process called "stepping down") and distribute it to nearby homes and businesses.
Taken together, the grid has been called the largest machine in the world, comprising 5,800 power plants, 3,200 utilities, and over 2.7 million miles of power lines. In practice, however, there are three separate U.S. grids, or self-contained interconnections of power production and transmission. These are the Eastern, Western, and Texas interconnections.
Due to the high costs of constructing all of this infrastructure, electricity transmission and distribution is considered a "natural monopoly," meaning that only a company large enough to control an entire market will generally be able to afford the necessary investments. As a result, most energy utilities are granted monopoly control over a local market with the mandate to provide low-cost, reliable energy as a public good. To enforce this mandate, utilities are either publicly owned or, more commonly, heavily regulated by state regulatory commissions that set the prices that utilities are permitted to charge consumers.
How is the grid regulated?
Local grid systems arose with little national oversight. But after the 1965 New York blackout left thirty million people without power, utilities created a voluntary association, the North American Electric Reliability Council (NERC), to improve grid coordination and apply higher standards for operation across the continent.
Historically, most utilities controlled everything from the power plant all the way to the household electrical outlet. In 1978, Congress passed legislation to partially deregulate the sector, allowing for non-utility power generators to enter the market. The 1992 Energy Policy Act provided for further deregulation, especially the separation of power generation (wholesale markets) from transmission and distribution (retail markets). The ostensible purpose of these efforts was to promote competition and lower energy prices. However, the California energy crisis of 20002001 raised questions about such restructurings after the state's reforms led to rising prices, energy shortages, and near-bankruptcy of major utilities.
Today, oversight of the grid is the responsibility of a patchwork of federal and state authorities. The 2005 Energy Policy Act designated the Department of Energy's Federal Energy Regulatory Commission (FERC) as the primary authority over power generation and transmission across the United States. However, jurisdiction of local-level retail power distribution, which actually delivers that power to end-users, remains in the hands of state and municipal governments.
How are renewable energy sources affecting the grid?
In contrast with the grid's original, highly centralized economic model, decentralized forms of energy productionknown as distributed generationare on the rise. According to GTM Research, the market analysis division of the energy news site Greentech Media, solar energy usage has more than tripled since 2010, with more than 45,000 businesses and nearly 600,000 homes across the United States now using solar photovoltaic (PV) panels to produce their own energy.
Solar combined with wind, biomass, and geothermal sources still make up only a small fraction of U.S. electricity productionaround 7 percent nationwide (see Figure 1). But utilities worry that distributed generation will undermine the grid, particularly through the policy of net metering. Under net metering, first adopted by Minnesota in 1983, regulators require that utilities buy any excess power back from solar users at the full retail rate of electricity. Utilities argue that by receiving the full retail price of electricity, those users effectively avoid paying for grid upkeep.
However, the vast majority of homes and businesses that use distributed generation still rely on the grid, using it at times when the sun isnt shining or the wind isnt blowing. Those customers should still have to contribute, says David K. Owens, executive vice president of the Edison Electric Institute (EEI), which as the largest U.S. utility association reflects a broad consensus within the industry.
Source: Council on Foreign Relations
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