The Upcoming Electric Power Revolution: You’re the Centerpiece

The Upcoming Electric Power Revolution: You’re the Centerpiece

In the years ahead, the future of electric power will be vastly different, and that’s a good thing.

The Natural Monopoly Backdrop

Electric utilities up to this point are natural monopolies, meaning that there needs to be a winner for consumers to get lower pricing. Imagine, for instance, if you and your frenemy (we’ll call him ‘Joe’) set up competing electric plants in 1898. You each shelled out $20k (a good chunk of change back then). He won this one because in the first few months, he got 150 clients and you only got 75. And, let’s say it was pretty minimal to serve those clients once you got your plants, your transmission lines, your transformers, and your local distribution system all dialed in. Coal at the time was cheap, and you needed a bit more than half of the amount of coal he used to keep your voltage steady for your customers. Joe’s paying very little more to service his 150 customers than you are for your 75 customers. What does Joe do? He lowers his prices and tells your customers to come join him. The nerve of that Joe! Well, that, in essence, is why the leading electric utilities in any area had the power to force smaller ones to come join them or to go out of business. There was no need for two plants and two sets of wires going to everyone’s house. The consumer would (surprisingly) pay more in a competitive landscape since all competitors would need to keep pricing high to clear their substantial overhead.

So, for over 100 years now, public utility commissions (PUCs) have been around to keep electric utilities semi-honest. Ostensibly, they are advocates for us consumers. They review the costs that utilities compile, and they come up with a reasonable profit that utilities should be allowed. But, with this ‘cost-plus’ mode, how motivated are utilities, really, to shear off expenses?

The Lay of the Land

You can’t love utilities, but you can’t envy their positions, either. Cases in point of what’s driving up their anxiety, their costs, and our power bills…

Past transgressions: Utilities haven’t done the best job of keeping their infrastructure up to date. Brush around power lines and older equipment means fires and outages. Outages are inconvenient, but fires are deadly. And costly. Pacific Gas and Electric, for instance, agreed to pay $13.5 billion (yes, with a ‘b’) in 2019 to settle claims from fires, most notably the 2018 Camp Fire. Again, somehow there was enough in the budget to pay their CEO $31 million and change over the past 2 years, so possibly it’s not a matter of availability of ratepayer dollars, but of allocation. Anyway, yes, the grid’s getting older and more vulnerable.
The current situation: So, utilities are now getting funded to update all their old equipment. And, utilities didn’t ask for wind and solar to be added to their grid (or our grid?), but they got them. It’s easy to control the required voltage and frequency for the grid’s alternating current with natural gas and coal. Modulate the power available by burning a bit more. But, yes, public pressure and PUC conscience (and regulation) are requiring these new cleaner-but-variable-output sources be added to the grid. It’s a herculean engineering effort, let alone the bureaucracy (lawyers/consultants/accountants) to stage all of this up.
The short-term future: Finally, electric consumption was relatively stable at around 10,000 kWh per person in the U.S. for the past 50 years. A tad higher recently, since we all have our devices; then again, our devices are more efficient than 50 years ago (e.g., tube TVs were power hogs). But, all of a sudden, electric power is en vogue and in demand. People are embracing plug-in hybrid and fully electric vehicles. And heat is more often being generated by heat pumps, not by burning natural gas, home heating oil, or propane. Outside of our homes (and our garages), AI (artificial intelligence) data centers are forecasted to soak up 8% of our total national electricity consumption, equivalent to around 31 million households (Statistica; Goldman Sachs). Utilities move slowly, but the future is moving quickly. How will the grid operators and their bureaucracy cope?

With Their Expenses, Can You Beat Them?

And so, paying for the past, present, and future is making it such that, in many cases, it costs electric utilities more right now to get a kWh of energy to your home than it costs you to do so. You heard that right. Even without utilities marking up their energy costs to make a profit off you, their costs are still higher. How? The aforementioned areas all add up, as outlined (U.S. Energy Information Administration https://www.eia.gov/electricity/annual/).

Production Cost: 4.6 cents/kWh (for natural gas, solar, coal, nuclear, etc. fuels, and for the infrastructure and maintenance to get the power onto the grid )
Transmission and Distribution Cost: 4.3 cents/kWh (debatably, this is now higher if the wind and solar pipeline controls and infrastructure are added in, as some utilities do https://thundersaidenergy.com/downloads/us-electric-utilities-transmission-and-distribution-costs/)
Additional Costs (Administrative, General Infrastructure, etc.): Approximately 2-3 cents/kWh (for all the folks needed to run the machine, including customer service, lobbyists, attorneys, consultants, accountants, public relations, high salaries, and bonuses)

So, assuming the additional costs are $.025/kWh, that gets ups up to $.046 + $.043 + $.025 = $.114/kWh. But, as of August 2024, national rates are $.167/kWh, from EIA data. (https://www.eia.gov/electricity/monthly/epm_table_grapher.php?t=epmt_5_6_a). So, yes, there are some extra charges in there for forecasted expenses, plus a 10% profit margin, plus or minus, depending on the utility and the local PUC. But, let’s go with the premise that we can actually have DC power from your rooftop at a lower rate than the average U.S. cost price. So, we’re gunning to be under $.114/kWh.

Power of the People, by the People, and for the People

Edison was right. He was just 140 years too early. He was working to make DC power plants the norm back in the 1880s. But the problem he ran into was he couldn’t easily step up (increase) the voltage for less line loss on transmission lines, and even if he could, he’d have trouble stepping it back down and distributing it to businesses and residences. So, he needed to set up too many power plants with too much coal dust. Meanwhile, alternating current purveyors Tesla and Westinghouse could switch the voltages on their transmission lines with simple induction, as in having two coils of wire near each other, and, like magic, the one with more wire on the coil would take the power from the one with less and increase its voltage (thanks, Michael Faraday).

But, times have changed. Complex electronics now make it viable to change DC voltages pretty easily. Plus, yes, you can now install a power plant on your roof with photovoltaic solar panels. These panels create DC power. Do you know what runs on DC power these days? Just about everything. Your phone, your computer, and your TV all have a little transformer box on their power cords to rectify the AC power of your home to make DC. Your electric vehicle or plug-in hybrid both have DC power engines, and it makes more sense if they can be charged inherently with DC power. Blenders, toasters, and other household goodies will need some modifications, but it’ll ultimately be no problem to run them natively on DC. And, Airspool’s motors run on DC power. Since the solar panels plug directly into Airspool, there’s no efficiency lost in making use of this DC power. So, your power plant in the future is DC, and for many of you, that DC power is right on your rooftop 20 feet away. So, there are no transmission losses for the energy needing to travel dozens of miles. There’s no payroll and payouts to a gaggle of contractors, maintenance crew, marketing staff, attorneys, executives, lobbyists, etc. who frankly don’t probably care too much about you saving money…no alignment with you. There’s no markup.

And in Practice…

Great, in theory, right? But what do the numbers look like in 2024 dollars? Let’s cite an Airspool heat pump (naturally) as an example DC device. Currently, this runs on the DC power of the panels during the day, and at nighttime, egad, the alternating current from the grid must be rectified to make DC. Sure, we could set up batteries, an inverter, and more solar panels to supplant this grid power at nighttime, but let’s assume that we’re buying this power at nighttime from the grid. And, let’s assume that we’re in Las Vegas where the energy rate is currently around $.14/kWh and is fixed for most residential users for each hour of the day. Well, there are 6.41 hours of solar per day (nooutage.com) in zip code 89101. So…

Cost of the recommended 1,500 watts solar panels based on $.35/w (quite workable if you look around, as of today): $525

Cost of solar panel mounting hardware: $350 (rails, nuts and bolts, drill bits)

Cost of your time or your brother-in-law’s time: $300 (4 hours x $75/hour)

Cost difference of Airspool allowing direct-connect solar vs. standard (and a bit inferior, in our view) quick-connect mini split: $500. So, that is, we're assuming a mini-split is needed for heating or cooling, and the user is opting for solar-hybrid Airspool.

Total cost: $1,675

But wait, there's more savings. Are you one of those who pay U.S. taxes to support our American way of life? Thank you! The Inflation Reduction Act actually saves 30% off the cost of both the Airspool unit (since it's Energy Star approved) and the cost of the solar panels, as well as the cost of any labor paid to an outside source. So, instead of using the $500 cost difference of the Airspool, use the actual price of the Airspool, currently $1,895. So, take 30% of the actual total amount spent...

($525 + $350 + $300 + $1,895) x .3 = $921 tax credit (same as cash off of your taxes due)

Total cost adjusted for the Inflation Reduction Act: $1,695 - $921 = $774

The cost of this if paid monthly, amortized over 15 years at 8% borrowing rate: $7.40

Hours/day our power plant is operational: 6.41 (summer days are longer, and that’s when you’re unit is most likely to run, but let’s be conservative and just use the average number of hours/day that has a workable solar base on an average for ever day of the year in Las Vegas)

Hours/month our plant is operational, based on 30.5 days/month (taking into account leap year every 4 years): 6.41 x 30.5 = 193.6

Cost/kWh to run Airspool when it’s sunny: $7.40/193.6 = $.038/kWh. So, that's less than 1/4 of what you'd be paying for the same energy from the grid (statistically speaking, depending on where you live), and 1/3 of what the utility's cost (approximately) is to deliver this same kWh to you. Of course, some of you may live in a place that’s much higher than the national average, and a place that has variable rates that are higher during the daytime where the savings are much greater using direct-connect solar devices like Airspool (we feel ya, California). Anyway, you can see why utilities are scared of this DC power stuff.

Did you see any net metering requirements or utility approval needed here? Nope.

Plus, utilities aren’t what they once were. They’re less reliable. Power outages are more frequent now than 5, or 25, years ago. So, their product isn’t as good. You’re paying more and getting less. And, that doesn’t have much appeal. Devices like Airspool run even when the grid is down.

Meanwhile, the cost of solar panels and the cost of battery continues to plummet, making DIY solar projects even more attractive.

Conclusion

So, in the future, if you’re opting into DC-powered (that is, solar) devices and DC-powered storage, you’re still going to need utilities, but very likely for much less of your power. When you need them, you’ll really need them, the same as you need them now virtually every instant of the day. For instance, you may need them only when there have been 5 cloudy days in a row, but then you’ll really need them. And, the utilities may need you, too. If you have a grid-tied solar system, you’ll be able to sell back your power to them when they need it (likely to avoid turning on another peaker plant to fill in when there’s high demand) and when you want to sell it (likely at a nice beefy rate which makes you money but below the cost of them for turning on that peaker plant).

So, will we all be able to coexist? It’s hard to say. It’s going to be very disruptive for a staid industry that had, in effect, guaranteed profits for the last 100 years. But, you’re going to be more important to utilities, as the balance of power, in both electrical and negotiating terms, will be shifting in your favor.