Publication: Yale Economic Review
Date published:
Language: English
PMID: 99111
ISSN: 1932037X
Journal code: YAER

What was the most important technological development in the last 100 years for the advancement of human civilization and society? Perhaps the microchip, penicillin, the Internet, or DNA sequencing? According to the United States National Academy of Engineering, the answer is North America's electric grid. Experts at the Academy report that "widespread electrification gave us power for our cities, factories, farms, and homes - and forever c h ange d o u r live s ... fr o m street ligli t s to supercomputers, electric power makes our lives safer, healthier and more convenient."

One might be surprised at the Academy's finding; most are unaware of the full technological complexity behind America's mammoth power generation and transmission operation. But though most of us may not realize it, the grid touches on every facet of our lives each day. From our cell phones to our appliances, the grid is important. And more importantly, the grid is in trouble.

A product of 1950's technological design, the grid is a rapidly aging, antiquated machine. Domestic energy demand has far outstripped investments in increased capacity over the past twenty-five years, and with growing electricity needs predicted for the future, our attitude towards the electric grid must change.

The Crisis: Problems Facing our Energy Infrastructure

The North American electric grid faces a spectrum of important, fundamental challenges in the near and long term future. Twentieth century designs and dated technology in a modern, computerized era have put the grid at its capacity limit. Its problems can be summarized by four primary categories: reliability and afford ability, efficiency and environmental impact, security, and consumer choice.

Reliability and Affordability

The most pressing challenge facing America's electric grid is the question of reliability and affordability. The issue stems from one, simple fact: America's energy demand has been expanding exponentially over the past 25 years while investments in capacity and transmission technology have declined. Since the 1990s, domestic electricity demand has risen over 25 percent while energy challenges while construction of transmission facilities has decreased by about 30 percent. Furthermore, NREL estimates that, through the implementation of energy efficiency programs and increased use of renewables, we have the potential not only to displace that growth in carbon emissions, but to actually reduce our domestic carbon output to below 1,000 million tons by 2030. The figures speak for themselves: we simply cannot afford to ignore the efficiency issue any longer.


Electricity is the lifeblood of our society, powering everything from households to hospitals. Our reliance on the grid becomes clear with each blackout, when our way of life comes to a screeching halt without power. Thus, it is critical that the electric grid remain safe and operational. However, the growing reliance of utilities on internet-based communication has increased the vulnerability of grid control systems.

Our grid's vulnerability is clearly exposed when we consider the potential ~ikngers T;om c~Eerspace. In April 2009, spies traced to China and Russia penetrated the U.S. electrical grid system and left behind software packages capable of destroying system components. Intelligence officials are aware that the Chinese and Russian governments have attempted several times to map our infrastructure, and, according to the 4 Department of Homeland Security, the number of intrusions into the system is growing Given the frmnctional importance of the electric grid in our society, these cyber attacks pose a major risk to national security Spies and hackers can operate from almost anywhere in the world with nearly complete anonymity, and hacking is cheap enough to be a potential tool for a significant terrorist attack The costs of cyber attacks are staggeringCin just the past 6 months, the Obama administration has spent over $100 million repairing cyber damage to our electric grid. A large-scale attack would have the potential to paralyze the economy

Consumer Choice

Our current energy grid places immense constraints on consumer choice. Consumers in the 21st century have evoivea compiex urestyies, tastes, prererences, ana uving habits. We live in an age in which we have come to expect access tci more information~less time and with greater ease of use. With more information, we try to make more informed decisions. Accordingly, the way we think about spending money is changing, and electricity is long overdue to adapt to our new lifestyles.

With our current electric infrastructure, we are locked into antiquated pricing models for energy Consumers do not have the option to avoid peak hour cost increases and adapt more efficient lifestyles based on energy pricing Furthermore, our grid is ill-equipped to handle what many anticipate will be a wave in "green" technology implementation. Experts warn that the grid, as it stands, will not be able to handle the large-scale use of plug-in hybrid electric vehicles, as the massive spike in energy demand will overwhelm urban transmission lines. Households with solar panels are generally barred from transferring excess capacity back into the grid, and the technology in place makes it nearly impossible logistically to incorporate the thousands of newt renewable power generation stations we need to build. In summary, the technology behind our electric grid has become outdated, and if we hope to expand reliability, affordability, efficiency, security, and choice, we need to make a renewed, concerted investment in our grid.

Solutions to the Challenges Facing Our Energy Future

We know that much of the electric grid will need to be replaced within the next thirty years. Therefore, it is important to put policies in place now that will set the grid's future on the right track. There is no single, "silver bullet" solution with which to addressing the challenges facing the energy grid in the coming decades; rather, the U.S's approach needs to be more like a "shotgun slug"-a number of coordinated reforms, incentives, and investments to change our attitude towards energy and create market conditions that will facilitate so?ially optimal investment decisions. These policy changes can be targeted to three main areas of grid reform: .. I upgrading the physical transmission and distribution systems, expanding power generation infrastructure, and aggressively promoting energy efficiency The following provides an outline of several promising solutions addressing each of the three principles above. While the following outline certainly does not encompass every solution, it nonetheless provides an insightful look at the kinds of approaches needed to ensure America's energy future.

Upgrade Physical Transmission and Distribution Infrastructure

Investing in upgrades to America's energy grid transmission and distribution infrastructure is arguably the most important step in addressing the issues facing the grid, because the right improvements open the grid up to a number of other powerful improvements. Many experts agree that we need to pursue what has become known as a "smart grid." In today's system, utilities need to predict exactly how much electricity will be needed at different times throughout the day, and power plants must either ramp up or slow down generation to conform to these predictions. These calculations require an incredible amount of computation and manpower, and any blip in the system-any transmission line that dies or plant that goes offline-can be tremendously complex to rectify.

A smart grid would use digital technology to collect consumption, generation, and transmission data in real time and incorporate this data in making automated decisions as to how to most efficiently manage the grid infrastructure. This would require the installation of sensors at power plants and along transmission lines, as well as smart meters-consumer end, digital readers that relay information about energy pricing, capacity, and demand between the utility companies and the end user.

The economic benefits of creating a smart grid infrastructure would be enormous. With automated technology, prittisly intensive work such as determining which transmission lines to use or locating breaks in the infrastructure could be done by computer, making the grid more efficient and reliable. According to the Electricity Sector Framework for the Future, these changes could result in $1.8 trillion of annual additive revenue by 2020, and power disturbance costs to the U.S. economy could drop b?as much as $49 billion per year. A flexible, dynamic smart grid would also give consumers more decision making ability, as they would be able to see the cost of peak hour use through the use of smart meters and reduce their energy consumption at those times to save cash. A smart grid would also be able to accommodate the integration of decentralized renewabl~sources such as local wind turbines and solar arrays. Widespread use of PHE\Ts would be feasible with automated grid management as well. Finally, smart grids, if designed properly, would allow for added security against external cybersp ace threats.

Expand Power Generation Infrastructure

In addition to upgrading transmission and distribution systems, we need to ensure that future investments in power generation infrastructure work to achieve two major principles: expanded use of renewable energy and decentralization of power generation. One interesting solution with which to expand the U.S. electric grid's power generation capacity would be to foster the A widesp read development of "community wind" projects. "Community wind" refers to a class of wind energy ownership structures through which wind developments are at least partially owned by individuals or businesses in the local area surroundin2 the Drolect. Community ownership provides a new source of income for the area as newly created construction and maintenance jobs bring additional wages into the community By letting local citizens tap into the wealth generated by wind energy, communities will be more open to the idea of wind as a source of energy And because the electricity would be generated locally, there would be no need for expensive, leaky long distance transmission lines. Finally, community wind projects would help to develop electric infrastructure in new areas of the country, thereby decentralizing our power grid and increasing energy security

Aggressively Promote Energy Efficiency

The third and final component to solving America's energy crisis is to aggressively promote efficient energy usage on the part of the consumer. Standards for conventional household appliances and home electric wiring can be established to ensure greater efficiency in energy use. State governments can begin to promote "smart" building codes, mandating higher standards for thermal insulation and wider use of efficient building materials to decrease energy demand. Furthermore, a building code that requires the implementation of smart meters ensures that friture construction in America can be easily integrated into an evolving energy grid.

Finally, the government needs to change the way in which we address externalities. The release of greenhouse gasses by businesses affects human health and the environment-huge external costs that can be completely disregarded by firms. Whether through a carbon tax, cap and trade policy, or some other legislative measure, the government needs to work to internalize these costs.


It is clear that America's energy grid faces a number of critical challenges in the future. From issues of capacity, reliability, efficiency, security, and choice, our aging grid is in dire need of repair. And while the specific policy choices we should folloow address the issues ahead are still up for debate, it is clear that any effort to solve America's energy crisis will reauire a joint concerted effort of government, businesses, and households. But above all else, one thing is clear: whether we realize it or not, the electric grid is one of the fundamental cornerstones of modern society. Our living styles are cnanging, ana to support tnose cnanges, we neea to change the way we harness and manage electricity. It is our duty to, info~qurselyes abp.ut the grid and support the investments we need in the system now-America's energy future depends on it.

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