Low-Energy Fridays: Grid Reliability Faces Dark Challenges, but Bright Opportunities
In good times, we take a reliable power supply for granted. But when the lights go out, society is immobilized. And grid reliability authorities warn of tougher times ahead. Such developments have catapulted electric reliability to the predominant domestic energy policy issue. Last week alone, concerns over rising electric demand and dwindling supply prompted a congressional hearing and headlined The New York Times. R Street provided a detailed statement for the record at that hearing, but today’s edition of Low-Energy Fridays cuts right to the chase.
Two themes are important to understand. The first is that power demand is once again increasing, while supply restrictions have never been greater. The second is that the bulk of unresolved reliability threats, including most supply restrictions, are outside the electric industry’s control. This is further complicated by the fractured electric regulatory landscape, which varies by state and region—leading to inaccurate finger-pointing and insufficient problem-solving. For example, a supply capacity shortfall in the Midwest was mislabeled as a regional market failure rather than properly recognized as a state-level government failure.
Recently, the biggest reliability concern has been generator outages during severe weather. Though power supply capacity is typically sufficient during these incidents, poor performance results in operating supply shortfalls. In other words, if a car runs out of gas (or the engine block freezes), a lack of horsepower is not the issue. While the power industry has made strides in weatherization to reduce generator outages, efforts to ensure fuel availability for power plants haven’t accomplished much at all.
Insufficient capacity could become a problem before long because even if power plants operate effectively, there may not be enough supply to meet demand. The biggest capacity problem within industry control is massive generator interconnection backlogs. (Interconnection refers to the rules new generators must follow to connect to the grid.) Meanwhile, the primary concern outside of industry control is an upswing in state policies that restrict supply. Together, these issues are pushing power plant development timelines from a few years to a decade in many regions. The exception is Texas, which boasts the lowest barriers to market entry and met “remarkable” demand growth reliably by ushering in a wave of new supply. Texas may not be perfect, but it serves as an example of how freer electricity markets are better at managing load growth.
Reliability problems can also result from insufficient transmission capability to move power from generators to demand centers. Transmission lines get congested like roadways, and lines become increasingly saturated. This stems from outmoded regulation, which renders transmission development cost-inefficient and anemic. Similarly, regulatory structures make power demand too rigid rather than letting markets reflect how consumers value reliability for different end uses. Unlocking flexible demand through voluntary markets would dramatically reduce the likelihood of involuntary rotating or prolonged outages.
Fortunately, many core reliability issues are resolvable with cost-reducing policies. These include liberating electricity systems by expanding markets, streamlining permitting and siting, and finishing generator interconnection reform. Modernizing transmission regulation and unleashing demand flexibility would also reduce costs and boost reliability.
Other priority solutions require changes external to the power industry. Resolving performance deficiencies in natural gas markets requires better transparency and oversight in addition to gas infrastructure reinforcement. Congress must close gaps in reliability responsibility and authority, such as ensuring reliability authorities’ concerns are incorporated into federal regulatory actions. Congress should also consider a variety of federalist carrots and sticks where state actions undermine interstate grid reliability.
Policymakers must prioritize core reliability threats and reduce political distractions. For example, the Inflation Reduction Act (IRA) and the proposed power plant rule of the Environmental Protection Agency (EPA) often dominated last week’s hearing. But the truth is that grid conditions would be comparable this decade without either policy, as evidenced in 2022 before the IRA was proposed and after the Supreme Court narrowed EPA authority.
Additionally, policymakers must base reliability policy on data—not convenient political narratives. Changes in technology make freer, liquid, and transparent markets more conducive to a reliable energy transition. Both parties should commit to improving market institutions to drive a reliable energy future.