The Hobbit Theory of Grid Modernization

Last month's column discussed what’s changed over the last year. This month begins a series of discussions on how different mindsets look at grid modernization. Since this could be rather dry, we will try to keep this a bit lighter. I hope you are familiar with the Lord of the Rings trilogy, or else this month’s parallel will make little sense.

The Hobbit Theory of Grid Modernization

Theorem #1: In the midst of greatly troubled times, Pippin says, “We will always have the shire.” To which Merry responds, “The fires of Isengard will spread, and the forests of Tuckborough and Buckland will burn. And all that was once great and good in this world will be gone. There won't be a Shire, Pippin.”

Will we always have our customers? The trends show rapid growth in customers finding their own solutions for energy independence, show most innovations are taking place on the consumer side of the meter, and show electric prices will increase 50% over the next decade.

The very nature of the US culture regarding technology use is changing. It appears the industry is not matching this consumer interest in technology. Are we the rotary-dial phone in an iPhone world?

Theorem #2:  "Do we really have to go through [Mirkwod]?" groaned the hobbit. "Yes, you do!" said the wizard, "if you want to get to the other side. You must either go through or give up your quest. There are no safe paths in this part of the world."

The traditional approach to a build-out of new transmission and distribution does seem to support that there are no “safe paths in this part” of the industry. Most of these lines have large impacts, yet they are needed. However, this should not diminish our search for alternative solutions that present less impact, cost, and / or future risk in our Integrated Resource Planning (IRP).

The natural human condition is to delay uncomfortable decisions. But, decisions about long-term strategy do not go away; they must be addressed. Plus, delays in decisions usually add risks to the process, not diminish them. So, moving the industry along a path that addresses the robust trends in the industry by adding more technology solutions and shared/consumer-involved solutions is a decision that should be embraced now.

Theorem #3:  "If more of us valued food and cheer and song above hoarded gold [as the hobbits do], it would be a merrier world."

The industry’s overriding focus on rates may lead us to missing the point with customers. There are places in the US where customers pay more for more reliability, more green power, and more services. The next generation of electric customers have completely different goals for electric service than we who grew up during the massive build-out of the industry; but that is another story.

Problem with the Hobbit Theory?

Last month we discussed “cathedral thinking” from the aspect of change over time. We need to be on the correct side of cathedral thinking. Large cathedrals could take 75 years to complete, but last more than 1,000 years. Cathedral thinking means that we have to establish a proper vision, then stay the difficult course to achieving the vision over a long period of time. We should not apply “shire thinking” that once the cathedral is built, we do not have to do anything for 1,000 years. In the US, we aggressively built the electric delivery infrastructure for 40 years, then decided we will always have transmission capacity (the shire) and essentially stopped (including research).

The industry is pointing in a direction it has for forty years, which is actually a good example of cathedral thinking. But, the consumer has changed direction, so the industry and consumer are no longer (aligned) on the same path. Avoiding the discussion and decision, about hard issues such as alternatives to building large generation and transmission and empowering the consumer only widens the gap between the industry and consumers.

Assuming the consumer will pay 50% higher rates in 7 – 10 years on the current (traditional) path is a bad assumption not born out by the robust industry trends. During the period rates will climb 50%, the cost of distributed energy independence will continue to come down. You can plot the intersection. At that point, 7 to 10 years from now, it will be cheaper in many parts of the country to self-generate than to buy the service from the electric company. This is why we see such emphasis by consumer electronics and services industries on the consumer side of the meter; all providing alternatives to buying from the electric company. Can this lead to some utilities becoming irrelevant?

The Bottom Line

Elrond raised his eyes and looked at him [Frodo]; "This is the hour of the Shire-folk, when they arise from their quiet fields, to shake the towers and counsels of the Great. Who of all the Wise could have foreseen it?"

Could this be true of our industry? As we continue to raise the debate, will some part of the industry or segment of the consumer-base  surprise us and take on the mantle of leading the industry to a modern grid that truly empowers the 21^st century economy?

Next month, we will take a look at the Rainsuit Theory of Grid Modernization.

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