How will the technology and policy changes now sweeping through the industry affect the architecture of the utility grid? Will America build an increasingly robust transmission infrastructure, or...
Economics, not politicians, will determine what tools are best.
Everybody knows about buggy whips. When Henry Ford began cranking out Model-Ts for a few hundred dollars each, he changed the business of building wheeled vehicles. But in the process, he destroyed the apparently burgeoning industry of buggy-whip manufacturing.
Apart from Luddites and the Amish, nobody much misses the buggy whip—least of all the horses. And although some environmental advocates might regret the fact, petroleum-burning engines created modern civilization as we know it—and saved us a lot of shoveling.
However, when the first Model-Ts sputtered down the street, few people could’ve imagined the remarkable transformations they’d bring. Instead, they only saw a threat to their way of life. This went beyond the ranks of buggy-whip makers, and inspired lawmakers to enact ordinances to forestall the future. Some such laws are still on the books; in Pennsylvania, when you see an oncoming horse-drawn carriage, you’re required to pull your car to the side of the road and cover it with a blanket so as not to alarm the horses. In South Carolina, drivers must stop 100 yards before reaching an intersection and fire a shot into the air to warn horse traffic of their approach.
As amusing as such examples might seem, they illustrate something seriously backwards about the way public policy handles technological change. Rather than looking ahead and embracing a better tomorrow, we work pretty hard to keep things the way they are—familiar and predictable—especially if we have a lot of money riding on the status quo. But in the end, technology always wins; when a new machine or process is more economical, then it inevitably will replace the old way. No regulatory or business construct can trump pure economics.
Or can it?
Big Grid Bias
In last month’s issue, we analyzed the growing high-voltage transmission business from a few different angles. In one article, for example, Brattle Group analysts quantified the less-obvious social benefits of investing in long-distance transmission systems, showing that such benefits as increased competition and system efficiencies can produce major paybacks from new high-voltage lines (see “ Transmission’s True Value ,” February 2012) . But among the several perspectives we featured in that issue, all of them seemed to assume the status-quo industry model would remain valid for the foreseeable future; namely, that the central-station system that Thomas Edison created in the late 1800s would continue as the most economical way of generating and delivering electricity.
After we went to press, I had a conversation with someone who suggests this is the worst kind of buggy-whip thinking.
George Crocker is an environmental advocate who has been challenging long-distance transmission projects since the 1970s, when he led civil opposition to an infamous DC power line in central Minnesota. And while utilities might be justifiably wary about a guy like Crocker, who spent most of his career fighting against them, his perspective seems increasingly valid as rooftop solar power becomes more economical. In a future