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How do utilities decide what they want — and need — to build? It’s one of the most important problems driving the data center and clean energy conversations right now. But it’s hard to get a sense of what constraints and ideas actually drive utility decisionmaking from the inside.
Alice Yake is the vice president of GRIDS at Breakthrough Energy, and the former senior vice president of system strategy and chief planning officer at Xcel Energy in Colorado. On this episode of Shift Key, she walks us through a half century of the grid’s biggest decisions — what constraints utilities and planners thought they faced, what choices they made, and what it means for the future. She also discusses Breakthrough’s work to build an open-source grid planning tool and how it could
Shift Key is hosted by Robinson Meyer, the founding executive editor of Heatmap News.
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Here is an excerpt from their conversation:
Robinson Meyer: We tell a story about liquified natural gas being ... The U.S. was preparing to import a ton of LNG, correct? That’s why we built a lot of terminals. And then after fracking happened and we were able to access gas and shale, we had to reverse-engineer all of them so that we could export LNG. But of course, we expected all these power plants to fall off the map, too.
Alice Yake: Exactly. And so that’s why we ended up with a system that was overbuilt. And, you know, different stories, people like to demonize — it’s like, the utilities push this. No, it was a national call to action because of this hypothesis around the availability of this type of fuel. And those plants were no longer going to be assets that we could use. So now we end up in this situation where we’re at the tail end of the energy crisis, we’ve overbuilt the system, and we’re investing in efficiency. And so therefore, then we don’t need as much and we’ve overbuilt. So we have a lot of time to grow into this. But prices went up because all that capital had been spent, right? And the prices went up. And so therefore, people started looking at, well, what can we do about this? Well, how do we build a market that makes the prices come down or have people compete? And so a lot of this was happening at the same time. You saw telecom deregulate. You saw other industries — you know, pipeline infrastructure. You know, all of those things were happening. This was the grand idea at that point in time that this was going to save people money.
I would argue it did in some places, it didn’t in others, right? And we’ve learned from that as well. But then it stabilized because how much have people really paid attention to their electric bill in the past 20 years? Not a ton, right? When we have bad storms or there’s some kind of excursion or maybe natural gas prices spiked or something along those, that’s when they were looking at it. I remember coming into the utility sector 15 years ago and one of the comments was, what’s the average amount of time that people spend thinking about their utility? It was 12 minutes a year, 12 minutes a year, one minute a month when they had to pay their bill and whether that was writing a check. And then when it got automated, you know, it was even smaller. It was maybe doing your budgeting every month, one minute a month. So that tells you a lot about how stable it was, right? And also where prices were.
Now you can’t go a day without seeing a headline about rising energy prices and what’s happening. And so moving forward through time, where we got to was, is, we had all this infrastructure. So we really, we didn’t have to be good at building a whole lot anymore. We didn’t build a ton of plants. If you look at the grass or the transmission infrastructure, but we know that we need it. And we also know that it’s aged now because do your math. If you go back, it was built in the 1970s and 80s. We’re now looking at things that are on average, 55 years old with asset lives of around 60 years. So that means you have a lot of things that you have to replace.
It’s not unique to the utility sector or the energy sector either look at our highways look at our water infrastructure this is happening across the board and for those of you that are math nerds and financial out there you go back to the rules of Bondbright which are applied to utilities and straight line depreciation we had a really expensive brand new system like we were talking about in the 80s now we’ve got our 55-year-old gremlin clunker that takes a lot of maintenance investment, but we have to buy a new car. And when you buy a new car, you have to spend the new capital, right? And when you spend that new capital, you start your depreciation over. So right now we have a really old system that’s low cost, but we have to replace a ton of it.
You can find a full transcript of the episode here.
Mentioned:
California Burning, by Katherine Blunt
Jesse’s paper on uncertainty-aware grid planning in the real world
James Bonbright’s landmark work on public utility rates
This episode of Shift Key is sponsored by ...
Lunar Energy is building the technology to turn homes into active participants in the power system. Learn more about Lunar’s vision of the future at lunarenergy.com.
