Local Power Networks

The Economics of Energy Abundance

A Policy and Practice Project

on

Building Electricity Generation and Supply Optimized for

Accessibility, Affordability, Security and Resilience

PROJECT SYNOPSIS

Electricity has become a fundamental human need. Solar energy is an abundant, non-depletable energy source for producing electricity. But access to this energy source is limited by our current electricity supply system and by the transition models now being configured by the energy and technology industries, policymakers and consulting companies.

The U.S. energy supply system, both currently and as being planned for the future, reflects the orthodox economics precept that markets are the optimal method to allocate resources, which are assumed to be uniformly scarce. However, unlike fossil fuels, solar energy is not a scarce resource. Enough solar energy falls on the earth in one hour to supply global power needs for one year, without depletion. What is scarce is the ability to access this energy source — access that has been gated, and therefore limited, by the market-organized electricity supply system prevalent in the U.S. The system is designed to optimize for profit generation — for investors, developers and operators — which controls, limits and can deny access to solar energy. This project will investigate and illuminate the institutional and technological attributes of an alternative organizing principle: optimization for user benefit. The project will investigate the potential for decentralized, locally-controlled and -owned solar generation and storage as potentially the most effective and efficient approach to both: 1) decarbonize the U.S. electricity system; and 2) assure secure, reliable and least-cost electricity for users, including households, small businesses and communities.

This project is supported by grants from the Rockefeller Brothers Fund and the Rockefeller Family Fund.

PROJECT DESCRIPTION

At this stage in human technological and social development, and in view of the effects of climate change, electricity is arguably a fundamental human need. In addition, electricity production is a prime contributor to climate change, and the electricity supply system can be disrupted by climate-related impacts; system decarbonization becomes ever more urgent. In view of the basic human need for electricity access and the biophysical need to decarbonize, it follows that the electricity generation and supply system should be designed to optimize for accessibility, reliability, security and affordability as well as maximal decarbonization.

However, in the electricity system transition now underway in the U.S., neither of the two dominant pathways being rolled out is optimized to address either the societal or the biophysical need. One strategy takes a conventional top-down approach, relying on utility-scale generation sources delivering power over expanded transmission grids. The other is an emerging “distributed energy resources” approach in which devices are distributed but control remains top-down and the system is grid-services centric. Both are market-driven systems that are optimized for commercial success and profit production.

These two strategies flow from the orthodox economic theory and the market framework that shape energy supply in the U.S., with the inherent assumption that resources are uniformly scarce. However, solar energy is an abundant, non-depletable energy source, unlike legacy sources of energy for electricity generation — principally fossil fuels, which are limited in supply and depletable.

Energy abundance — a different economics

The physical properties of solar and wind as primary energy sources can revolutionize electricity access. With solar and wind, once the infrastructure to utilize it is in place, the fuel itself is costless, and the cost of generation approaches zero, because the fuel source does not have to be purchased. In contrast, with fossil fuels, even when the electricity generation and delivery infrastructure are in place, there is perpetually a cost to obtain, transport and utilize the fuel. These properties mean that whereas a market system might be suitable for fossil-fueled electricity supply, the dynamics of a market system can be unsuitable and even counter-productive when the energy source is free and abundant.

Examples of issues that are new for this novel environment include: curtailment of electricity production, the zero value problem and the deflationary effect of an abundant energy source. “Curtailment” occurs when grid operators block or impede electricity from solar and wind in times of “excess generation” which occurs when the electricity produced has zero value, and sometimes negative value, in electricity markets. Downward price pressure from the low- or zero-marginal cost of production reduces profits for producers and discourages new investment. For energy users, the deflationary impact of abundant renewable energy is a benefit — or would be if it could be realized. In sum, the use of a market system to allocate solar energy to users can lead to inefficiencies, waste, high cost and inaccessibility to a vital human need.

Precepts of orthodox economics also influence the emerging model of “distributed energy resources”. This model is shaped by the idea of people as monetizers and casts electricity users as energy price arbitrageurs. Ordinary energy users are expected to be motivated by, and become adept at, monitoring and responding to price signals from their smart devices so that they can shift times of usage to capitalize on electricity market volatility. This approach may be attractive to financially well-off customers who have the technology to track prices and time flexibility to shift consumption. But it can be unrealistic for, and even disadvantage, many customers, particularly low-income homeowners and renters whose breadwinners may work multiple jobs and could scarcely afford the expense of the technology and the new home appliances to engage in “load shifting” for electricity market arbitrage.

Electricity supply — a different model

A different model of electricity generation and access is needed.

Evidence suggests that the most effective and likely least-cost model for a decarbonized electricity system that can enable affordable access, including for renters and low-income households, will be one in which generation and storage are sited close to load and under local control. The foundational layer of this system is photovoltaic solar — on rooftops, parking lots, and other sites in the built environment — which are integrated with community level generation and storage.

This approach reflects the view of electricity as a public good, not in a moral sense nor (necessarily) through public provision, but recognizes the reality that public action – policy and finance – are required to ensure that electricity is universally accessible and affordable and its supply is secure and maximally decarbonized.

This project will address crucial aspects of electricity system architecture – institutional, technological and financial – as well as issues of equity, affordability and universal access. The project will: 1) research the options for, and then produce a pragmatic model of “Local Power Networks” of solar self-generation, storage and power-pooling among all income levels; 2) identify the barriers that have precluded the creation of such networks thus far in the U.S.; 3) undertake outreach and communication on project findings; and 4) if a viable model has been developed, prepare to pilot it in several locations in the U.S.