February 2007

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Modernizing the Grid
Today’s average generating plant was built in 1964 using technology from the 1950s. Utilities have not improved their delivered efficiency in some 50 years. With stagnant efficiency at 33 percent, we essentially burn three lumps of fuel to generate one lump of electricity. Put another way, two-thirds of the fuel burned to generate power is wasted.


Richard MunsonRichard Munson
Executive Director
Northeast-Midwest Institute

Author of "From Edison to Enron: The Business of Power and What It Means for the Future of Electricity."

Presentation by Richard Munson
Lenox, Massachusetts, 26 June 2006

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A few years ago, professional engineers were asked what they thought was the twentieth century’s greatest technical feat. Some suggested the automobile or the internal combustion engine. Some argued for the airplane or the computer chip. Yet the vast majority concluded that the last century’s most significant accomplishment was to generate and harness an invisible stream of electrons.

We care about electricity, in part, because it is a superior energy form – clean at the point of use, capable of performing many tasks, and easily controlled. Such attributes have increased its share of total energy use over the past three decades from 25 percent to nearly 40 percent. Electricity powers our high-tech economy, and its precision and flexibility make it critical to future growth.

We also care about electricity because its generation and delivery is a huge business. Electric utilities hold assets exceeding $600 billion and have annual sales above $260 billion. They are this nation’s largest industry, roughly twice the size of telecommunications and almost 30 percent larger than the U.S.-based manufacturers of automobiles and trucks.

But we also care about electricity simply because it is so critical to our lives. Some of you might remember the movie from the 1950s entitled The Day the Earth Stood Still? When the alien in that film tried to impress upon the U.S. military his seriousness and his clout, he decided on the one thing that would stall modern society – he turned off electric power for half an hour.

When power now gets turned off – as it did for 50 million folks during the blackout of summer 2003 – we can no longer watch television, microwave dinners, obtain cash from ATM machines, pump water through sewage treatment plants, check emails, or run modern factories.

When doing research for “From Edison to Enron,” I was struck by how relatively new is our ability to put electricity to work. Although we’ve known about – and been entertained by – static electricity for more than 2,000 years, it’s been only a little more than a hundred years that we’ve harnessed this unique form of energy. In that short period, electricity has changed our lives. Electric lights lengthened our days. Electric-power elevators and streetcars heightened and enlarged the cityscapes. Motors transformed industrial societies.

Electricity’s profound impacts can be traced over only a few generations. Although this will date me, my grandparents were born in houses that relied on candles and kerosene lamps for light and on wood-burning stoves for heat and hot water. Their first refrigerator was a leaky chest on the back porch into which my grandfather regularly placed fifty-pound blocks of ice. Only by the time my father entered high school did his family began to enjoy running water warmed by an electric heater. Only when I became a teenager did wall-mounted air conditioners make hot summers more tolerable, and my own children now cannot imagine that I suffered through school without a computer or electronic games.

As my grandparents attested, now-simple tasks often were drudgery. Wash days, for instance, required boiling water, which required wood to be chopped, stacked, and carried to the house. Starting and regulating the stove proved to be an art form, and the burning wood produced unbearable temperatures in the summer. Most of this burden, of course, fell on women.

Electric-powered lights and appliances curtailed these challenges and lessened life’s burdens. In essence, over the course of a single century, electricity brought relief from drudgery.

Future opportunities appear to be at least as substantial. Our job over the next couple of days, to be blunt, is to help prepare for electricity’s second 100 years.

As we think about electricity’s future, the obvious initial question is why isn’t the status quo sufficient? There’s no doubt the current U.S. power system is impressive. It instantaneously balances supply and demand for a product that’s traveling at the speed of light. After Enron’s machinations and California’s restructuring debacle, why shouldn’t we just be content with the “good old days” of regulated monopolies and traditional technologies?

The short answer is that the status quo is not sufficient for the 21st century. Today’s average generating plant was built in 1964 using technology from the 1950s. Utilities have not improved their delivered efficiency in some 50 years. With stagnant efficiency at 33 percent, we essentially burn three lumps of fuel to generate one lump of electricity. Put another way, two-thirds of the fuel burned to generate power is wasted.

Electricity generators, moreover, are this nation’s largest polluters, spewing tons of mercury, sulfur dioxide, carbon dioxide, and other contaminants into America’s air and waters. Despite significant government and industry effort, 46 of the top 50 emitters are power plants.

The consequences of the system’s inefficiencies and stresses are staggering, if little noticed. Unreliable supplies – ranging from milli-second fluctuations that destroy electronic equipment to the summer-2003 blackout that left 50 million without power – are annually costing Americans more than $150 billion. To provide some perspective, this unreliable power adds more than a 45-percent surcharge to the cost of U.S. electricity. To personalize this cost, one microchip executive stated, “My local utility brags to me that they had only 20 minutes of outages all year. I remind them that these four five-minute episodes interrupted my process, shut down and burnt out some of my controls, idled my workforce. They cost me eight days and millions of dollars.”

Why do we need to change? Put simply, because we cannot afford to drain away our nation’s productivity.

The U.S. economy, in fact, is being transformed from one based on an analog mechanical structure to one based on digital electronics. The U.S. electric system must undergo a similar transformation if we are to obtain reliability, quality, and economic vitality.

Consider that only 20 years ago, the share of the nation’s electrical load from sensitive electronic equipment – such as computerized systems, appliances and automated manufacturing – was limited. In the 1990s, that share grew to roughly 10 percent. Today, the load from chip technologies and automated manufacturing is 40 percent, and it is expected to grow to more than 60 percent by 2015.

The Department of Energy has stated that the nation’s aging electro-mechanical electric grid cannot keep pace with innovations in the digital information and telecommunications network. We need, says DOE, an electric superhighway to support our information superhighway. Even more critical, if we are to enjoy the benefits of information and telecommunications innovation, we need an innovative electricity system.

Unfortunately, we are falling behind our international competitors. China, India, the Gulf States, and Eastern Europe are investing in electric power infrastructure at rates that far exceed ours. As Steve Pullins has put it, Taiwan, Scotland, Denmark, and Istanbul have grid performance and capabilities that we can only dream about.

Grid modernization is particularly important for the Northeast, which already faces relatively high power costs and relative shortages of coal, oil, or other indigenous fuels. Fortunately, however, the Northeast has an array of strengths, including many of the world’s foremost universities and research centers, a strong investment and finance community, a tradition of entrepreneurship, and leadership on environmental issues. Relative to other sections of the country, moreover, the Northeast has a history of cooperation and coordination on electricity.

If we get grid modernization right, this region will become the center for electricity innovation, which will make it a magnet for investment, a place where high-quality businesses want to locate.

Going back to my original theme, we care about electricity in the Northeast because the results of innovation and modernization will be a more vibrant economy and a better quality of life.

As we’ll discuss over the next couple of days, modern technologies are available. Grid modernization is doable. No doubt we need to create U.S. demonstrations and to examine international successes. We need to focus on the consumer, who will become increasingly involved in electricity decisions. We need a sophisticated, real-time information infrastructure.

Of course, we also need to overcome several barriers, but many of the most formidable barriers are non-technical. We face, for instance, political inertia and an uncertain regulatory climate that has dampened grid modernization.

So we can move to our discussions about building on strengths and overcoming barriers, let me again thank you for attending and participating. No doubt the transformation to a modern grid is daunting, but it is both doable, as well as essential to our nation’s and our region’s economic future.


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