As electric demand grows and generating resources become smaller and more diversified, the current model of the electric grid needs fundamental change, according to a new report from the Silicon Valley venture capital firm of Andreesen Horowitz. Instead of the conventional approach of a bigger, heftier, more interconnected grid, a radically different, decentralized and localized, is necessary.
The report by Andreesen Horowitz partner Ryan McEntush says, “To seize a future of energy abundance, we must simplify the generation, transmission, and consumption of electricity; this entails decentralizing the grid. Big power plants and long power lines are burdensome to build, but technologies like solar, batteries, and advanced nuclear reactors present new possibilities. It will be these, and other more ‘local’ technologies, that can circumvent costly long-haul wiring and be placed directly on-site that will help support significant load growth over the coming decades.
The woes of the current interstate high-voltage grid are well known. It’s an enormous machine with only three robust interconnections: East, West, and Texas, managed by 17 North American Electric Reliability Corp. coordinators. Regional Transmission Operators, (aka Independent System Operators), oversee “regional economics and infrastructure.”
While the big lines deliver the bulk power, local private and public power systems handle generation and local delivery. “This structure functioned in an era of low load growth, but expanding the grid’s infrastructure to meet today’s demand is becoming increasingly challenging and expensive,” writes McEntush.
The result is the interconnection traffic jam, with more than 2,000 GW in long lines waiting to get their electrons onto the grid. That compares to the size of the entire U.S. grid of 1,200 GW of installed capacity. The report adds that “many projects withdraw after confronting the costs of grid connection. Historically, only 10-20% of queued projects have materialized, often taking over 5 years post-application to finally connect — and those timelines are only lengthening. Developers frequently submit multiple speculative proposals to identify the cheapest interconnection point, then withdraw unfavorable ones after costs are known, complicating feasibility studies. Because of this surge in applications, CAISO, California’s grid operator, was forced to stop accepting any new requests in 2022, and plans to do so again in 2024.”
Compounding all of this, the big grid “still faces supply chain hurdles, including lead times of more than 12 months and a 400% price surge for large-power transformers, compounded by a shortage of specialized steel. Achieving a federal goal to grow transformer manufacturing hinges on also supporting the electric steel industry, especially with upcoming 2027 efficiency standards.”
As for the impact on ultimate consumers, the report notes that the problems with the grid, and the high costs of trying to fix them, come with a high price. “Critically, while the price to generate electricity has declined with cheap renewables and natural gas, the price to deliver it has increased by a far greater amount.” Utilities add “distribution charges” when facing losses from customer-generated power (cost shifting), a phenomenon that has roiled electric regulation in California.
“A core challenge in grid expansion is carefully balancing the shift between centralized and decentralized systems, considering economic and reliability concerns.” Andreesen Horowitz partner Ryan McEntush
What to do? The Andreesen Horowitz paper says, “A core challenge in grid expansion is carefully balancing the shift between centralized and decentralized systems, considering economic and reliability concerns. Centralized grids, while straightforward and (generally) reliable, face issues with complex demand fluctuations and high costs—for example, most large nuclear plants globally are government financed and China can build a ton of big power assets, but it does so very inefficiently. Decentralized grids, while still in early stages of deployment, are cheap but don’t automatically ensure reliable power, as preferences in some rural Indian communities indicate.”
The future will require the legacy centralized grid, but it “will be consumed by networks of decentralized assets growing around it. Ratepayers will increasingly adopt self-generation and storage, challenging traditional electricity monopolies and prompting regulatory and market reform.”
Andreesen Horowitz (aka a16z) was founded in 2009 by legendary software engineer Marc Andreesen, 52, one of the authors of Mosaic, the first graphical internet web browser and a founder of Netscape, and Ben Horowitz, 57, a businessman and investor. Their VC firm was a prime investor in Open AI, Instacart, gaming company Roblox, BioNTech, Groupon, and Zoom Communications, among others.
–Kennedy Maize
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–Kennedy Maize
To subscribe: The Quad Report