Low-Energy Fridays: Is the future of the grid off the grid?
Across the country, policymakers and market participants are struggling to adapt to an explosion in projected growth in electricity demand. At R Street, we have written previously about the need to take such demand projections with more than the recommended daily allowance of salt. Yet more projections are indicating a dramatic upswing in electric demand in the coming years.
Meeting this speedy growth in demand will require equally speedy growth in power production and related infrastructure. Unfortunately, speedy is not an adjective typically applied to the electric sector. It takes a median of five years for a new power plant to get hooked up to the grid, and it may take twice as long to permit and build a high-voltage transmission line.
The mismatch between the time it takes to build electric supply and how fast demand can grow has inspired a variety of possible solutions ranging from the terrestrial (reform permitting to speed up approval times) to the extraterrestrial (build data centers in space). But even companies that aren’t quite ready to have their employees commute to low Earth orbit are exploring ways to get power without connecting to the electric grid.
People have been generating their own “off-grid” power since before there was an electric grid, and there is no reason to prevent a company, no matter the size, from doing the same—at least in principle. Many homes and businesses today generate some or all of their power via off-grid or “behind the meter” sources. In most cases, these consumers remain connected to the electric grid and thus remain subject to grid rules. But if a company were to completely disconnect itself from the grid and procure all its own power, then it could avoid many of the delays and costs associated with the regulated grid.
While self-generation may allow companies to sidestep numerous regulatory hurdles, it also has some limitations. Not taking advantage of the grid’s economies of scale means that self-generated power is liable to be much more expensive—just as it requires more work to raise your own chickens than to buy a dozen eggs at the supermarket. To mitigate these costs, some scholars have proposed what they call “consumer regulated electricity” (CRE), which would treat third parties that produce and sell power to totally off-grid demand sources as if they were self-generating and therefore subject to fewer costly and time-consuming regulations.
A company interested in CRE would contract with an energy provider, which would deliver power to the company through its own private infrastructure network. Potentially, this could provide a less costly source for companies who need power faster than the grid can provide it and would not require companies to develop their own electricity expertise or generation assets. New Hampshire has passed legislation explicitly allowing this model, and other states are currently considering it.
But even CRE is likely to be more expensive than getting power directly from the grid, at least in the short term. A private electrical network would have to be constructed from scratch, whereas the existing grid has been built up over more than a century and is much larger than any private generation system could expect to be. Nevertheless, because grid interconnection could be delayed by decades, companies might be willing to bear the extra expense if they knew they could obtain CRE-sourced power quickly. In fact, some companies might choose to use CRE in the short-to-medium term with the hope of interconnecting to the main grid later on. While a company would need to accept all the requirements and costs of grid connection in order to do this, the price might be worth it. Laws permitting CRE should therefore be clear that consumers are free to switch to grid service without penalty if they are willing to abide by the normal requirements for new sources of demand.