Is the US power grid doomed?
The electric utility industry is facing a revolution. Rooftop solar cells, gas-powered micro-turbines, and software-based switching technology are allowing some electric utility customers to go off the grid and still keep the lights on. They just use traditional power lines as a backup.
Distributed generation is becoming more and more common. Rooftop installation is especially popular in the southwest, and it’s not just homes any more. Wal-Mart President Bill Simon recently remarked that solar is often cheaper than grid power, and Wal-Mart has a lot of roofs. And because there’s little advantage to having a large, centralized arrays, individual homes and businesses can generate their own power and feed their excess back into the grid.
But because line charges are built into the kilowatt-hour rate, these folks aren’t paying for the infrastructure that brings this power to their homes. Rate increases on non-generators can make up the difference, but only for a while. Eventually you get into a death spiral: higher rates kick more folks off the grid, which leads to higher rates for those remaining, and so on.
Technology costs fall; utility costs rise. Eventually, those lines cross. When that happens, watch out. And put on your sunglasses.
Douglas R. Tengdin, CFA
Chief Investment Officer
17 1/2 Lebanon Street
Hanover, NH 03755