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Undervaluing Wires (2000)
February, 2000
The electric industry remains firmly entrenched in the 19th century. Value is derived mainly from the generation and distribution of colossal quantities of energy. However, the industry is on the verge of a great change. With the implementation of a more distributed architecture and adding digital intelligence to the system, a new industry economics will be created –an economics that values wires as greatly for the information they communicate as the energy they transmit.
Nothing better illustrates the industries archaic methods than the reliance on massive old coal generation plants for over fifty percent of the nation’s electricity supply and the hopelessly antiquated analog electric meters mounted on every building across the nation. Connecting this entire system together are the wires rioting across the continent like an unruly vine.
The value of the electric utilities are based on industrial capitalism. The more power consumed, the more power generated and distributed, the more value for the stakeholders. The distribution system, seventy years old or more, operates like a flood irrigation process. Giant channels are opened and the entire system is flooded, with no direction and little system intelligence. Each consumer takes what they need, but even more importantly, much of the time consume what they don’t need.
The dog days of summer are peak demand time. Heat and thus air conditioning are at their highest. Demand at its greatest. In August between noon and five pm, the California grid is stretched to the limit. Attempting to meet a seemingly unquenchable demand, energy floods the system from massive centralized generation plants across the West. During this time under the newly developing market structure, electricity prices reach their height as supply strains to meet demand.
During peak, generators, electric service providers, and the monopoly distribution companies all see great profit as energy surges through the system. The losers are the environment and the electricity consumers. The environment loses as the most inefficient, dirtiest and most toxic waste producing plants are fired to their maximum. Consumers lose as an inefficient system raises prices.
Currently, meeting peak demand and forecasts for ever greater generation is the electric industry’s business plan for future growth. The traditional utility mentality wishes to answer increasing demand by constructing new centralized generation and more wires for transmission and distribution. By contrast, the environment and consumer friendly answer would be to restructure the grids architecture by building distributed generation sources, and more importantly make the system intelligent. Wires should be used not simply to transmit energy, but transfer information.
The electric grid is in dire need of intelligence. The distribution and transmission system, electric appliances and machines, need to begin sending and receiving information, thus capturing the great value of intelligent efficiencies. The greatest value gained by an intelligent distributed system would be during peak times.
Under the current centralized generation system, a demand increase of 1000 megawatts is met by firing up Orwellian size generators and sending energy hundreds of miles across wires to meet a demand with limited or no sophistication. A 10 to 20% loss of energy occurs just from the process of transmission.
Instead of simply increasing the load by a thousand megawatts in the middle of an August afternoon, an intelligent system would send signals to consumers communicating it would be more beneficial to bring the temperature of the building up several degrees, not run unnecessary appliances, and ask freezers and refrigerators to wait several hours to ask for energy. These information signals could be sent by a hundred thousand separate entities. Each signal would use a fraction of a milli-volt of energy and taken together would decrease demand by a thousand megawatts.
Instead of wires being used to transport a thousand megawatts of electricity, the wires would transport almost negligible energy in the form of information, cutting the need for both energy generation and transmission. The gross savings in energy would translate almost entirely into net profit for both consumers and the environment.
In addition to the adding of intelligence to the system, greater efficiencies, value, and environmental benefit can come from a more distributed architecture. Instead of transmitting electricity hundreds of miles, electricity can be generated at or near the point of demand by using photo voltaic and fuel cell technologies. Just as importantly, the intelligence of a system which allows a home or business to cut demand at peak times would also allow facilities using small distributed generation systems to sell power to large users, thus cutting demand and creating revenue for formerly unsophisticated and captive consumers.
A more intelligent system and distributed generation architecture is a seismic shift in power for an industry controlled by an atrophied oligarchy that focuses only on macro supply and distribution. In the last twenty years initial efficiency efforts have proven there is great value in focusing on demand. The ability to send information over electric wires is developing and most obviously exists over phone or cable systems. The computer industry is creating both the software and hardware to make appliances smart and network them through electric wires.
The generation and distribution of electricity is a 250 billion dollar a year business in the United State alone. Yet in the future, the value of wires will increasingly come not from the transport of gross amounts of energy, but the communication of sophisticated bits of information.
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