Everyday we turn on the light switch and expect the lights to turn on and part of the reason is the Grid of electricity that has been developed. It has increased our expectations and most of us would have no clue what to do if the grid did not operate. However, things are not as perfect as our expectations believe they are. In a book called The Grid – The fraying wires between Americans and our energy future by Gretchen Bakke, published by Bloomsbury Publishing, NY, 2016, the author examines the history of the Grid and is it the best solution for the future?

What happened in 1969?

Part of the business model was improvements in technology meant increased plant efficiencies. There is a limit due to physics. The second law of thermodynamics, and its corollary Carnot’s theorem. dictate temperature ratios limit the amount of work any given fuel can be expected to do in a heat engine. A tradition power station changes fuel into heat. The efficiency tops around 50%.

The closer a steam plant comes to 40% efficiency, the more routine maintenance it needs, thus most plants run around 34%.

OPEC raised oil prices, which meant electrical bills went higher rather than stayed very low. The dreaded word of conservation happened across the system.

In Washington, slowly with the Carter administration and then with the deregulation of Reagan, one of the forms of regulation from the government was long-term guarantees coupled with assured profit on investment. Governments did this because electricity for all was seen as a public good.

Historically utilities money when people used electricity, the more we used the more money they made. Now they do not. They make money by transporting power and trading it as a commodity.

The conservation movement lead to decreased consumption. The brand new power plants are smaller, more dispersed and more variable than anything the grid has seen. In addition more solar panels on rooftops, wind farms providing variable power. Some of the construction of farms of solar panels or wind are owned by investment firms. Those investments tell a viewer which parts of the grid is falling apart. Money flows into investments, money does not necessarily go to the upkeep of old, lumbering power plants which is the backbone of America’s electrical generation facilities.

If we jump into the present, there are many micro systems and in places such as California, new homes are encouraged to have solar panels on them. This is a good thing and over the years, every utility company has figured out either the electricity is sold to the grid and the home owner pays the bill, but receive a chq or net metering and if the home owner uses more pays the difference or receives a credit. It took a number of years to determine what to do with micro systems.

Many utility companies installed smart meters, they can be read without someone coming to the house, but the other thing they do is which is more important for the utility. The data produced by the smart meter is proving essential to the creation of predictive models of electricity use, minute by minute. This allows the utility to monitor and distribute the electricity better and can ask large consumers of electricity to ramp down consumption for a few hours to balance the grid. Network enough of these power-savers into a flexible smart piece of software and you have your platform.

The demand-response capacity, called DR in the business, not only brings energy saved into the mix of resources available to grid operators, when enough of these are scattered but existing resources are networked together it is possible to create what is called a virtual power plant.

At the beginning of the invention of electricity, there were many micro grids primarily large users who could do it themselves. When electricity prices fell, they were change to a system with central making power, as prices rise, more and more large users are making their power or a reversal to what the system was. The issue is who pays for the upkeep of the infrastructure? There will be challenges in the future.

Linking to dividend paying stocks, for generations one of the safe investments was utility stocks because they operate in a monopoly situation. The companies together with the government saw electricity as a greater good and ensured the system made profits to pay dividends and ensure electricity flowed to all parts of the area. Most of us use electricity every day and our lives dependent on it which is a good thing. Utilities are changing and have changed and many investors, including me own them for their dividends. Similar to other industries when prices go up, people look for alternatives. As investors you want to ensure there is not enough alternative the company does not make profits, but so far many utilities have paid dividends for generations and able to increase the dividend.

There are more questions than answers, till the next time – to raising questions.