AOE Part II: DERs and Local Resilience

Transitioning from the Hydrocarbon Age to the Age of the Electron requires a complete reframing of how we build and interact with our energy systems. Burning fossil fuels for heat, electricity, and transportation (whether in a car, power plant, or boiler) is a fundamentally different process than using AC or DC power to drive motors or photovoltaics and wind turbines to generate electricity. As the tools we use change their mechanism for energy conversion and consumption, the electricity grid that feeds them will go through a paradigm shift as well.

This shift of end-uses to more critical tasks like heating our houses and charging our cars leads to the resiliency of local grid infrastructure becoming more important than how “efficiently” we build our bulk grid. Most power outages today result in some minor inconveniences: you bust out candles and flash lights, and realize that you may lose a few days of perishable groceries in the fridge. But in the future, having mission critical uses like heat, internet connectivity, and transport depend on electricity makes the prospect of losing power far more dangerous. The problem is that, today, our grids are designed in such a way that they will continue to fail, despite our best efforts to harden them.

This need for local power sources and resilience will lead to the proliferation of Distributed Energy Resources. DERs is a category of new technologies ranging from electric vehicles, smart thermostats like Nest, battery storage, rooftop solar, backup generators, heat pumps, electric water heaters, and more. These so-called DERs are distinguished by the fact that they are digitally enabled, small, modular, and owned by end-consumers, not utilities, and can shift your power consumption to times when it’s most available and cheapest. Most importantly, some of them can store or generate power in your home, so if the grid goes down, your lights stay on. When considering all of their benefits in aggregate, it is easy to understand how a DER-heavy grid will be better than the system we currently have.

But for over 80 years, the grid has functioned with wholesale market bulk power operational uptime in mind, which we call reliability, and has not factored the importance of individual nodes (like your house) staying active on the grid, which we call resilience. In order to build efficient, combustion-based generators, we needed to build them at economies of scale and extensive transmission and distribution networks to transport power along with them. Those wires are vulnerable to being knocked out by storms (or even squirrels), leading to blackouts, or supply shortages leading to cascading failure. That was the deal we made: reliability and efficiency of bulk generation and transport over the resilience of local nodes in times of crisis. But in the Age of the Electron, we must invert the relationship and value resilience over efficiency.

We need a radical new way of building electricity grids. Over the past six months, we’ve witnessed three distinct grid failures in three different regions and climates of the US across three different market structures and for three different reasons. In each of these crises, experts have offered rationale for the outages such as market design, poor regulation, lack of weatherization, and more. But all of these analyses miss the forest for the trees and fail to address that the underlying system design across each of these markets are functionally the same.

Our grids are highly centralized, and will continue to fail regardless of our best efforts at planning for worst case scenarios. Whatever the cause of the recent and future outages, the frequency of them is expected to increase as climate change brings more extreme weather events and intermittent solar and wind present challenges in firm generation supply. Furthermore, the conversion of end-uses to more critical tasks makes it all the more dangerous. In fact, the gravity of the recent tragedy in Texas was due in part to homes being more reliant on electricity for heat than natural gas (unlike the northeast).

We take for granted that our current energy — not electricity — infrastructure that supports fossil fuel driven processes is remarkably distributed and resilient because of our ability to store these fuels cheaply. Boilers and cars are devices that turn potential energy (fuel) into work, or actions that are useful to us. For this work, we store fuel in propane tanks in backyards, gas tanks in cars, storage tanks underneath gas stations until needed. And when was the last time you tried to go to fill up your tank and you couldn’t because there was no fuel? The 70's? That was one of the worst existential crises our real economy has faced since the Great Depression. This is a far more frequent occurrence on the electricity grid: nodes can’t function individually, unlike how cars and boilers can.

We’re already witnessing how dangerous this is becoming, and it’s only going to get worse. In August of 2020, California grid operators had to institute rolling blackouts due to a power supply shortage during a heat wave, and soon after had to shut down power to customers to deal with the risk of wild fires being started by the distribution grid (two separate reasons for blackouts!). In NY in August 2020, Hurricane Isaias knocked down enough wires that some customers were left without power for 7–10 days. This past week, a supply shortage in generation due to a variety of factors has left Texans without power for multiple days in frigid temperatures, leading to untold damage that we have still yet to comprehend.

We are not prepared for a world with high degrees of electrification of end uses, in any of these geographies. Currently, most of you still have a propane tank in your back yard to heat your house if it’s cold when the power goes out. You also have a full tank of gas or can likely get to a nearby gas station if you don’t, using a jerry can to lug the fuel back. On an electrified grid, if power lines in your neighborhood are taken out by falling trees, you now will have no heat and potentially no ability to drive anywhere. Your nearby EV charging station won’t have power either, so there’s no jerry can to save you. Furthermore, local municipal resources like bus lines, snowplows, and utility trucks to fix the lines may be handicapped. It could be 5 days without heat or any ability to move around, and supply chains may even be disrupted. You won’t be able to work because your router doesn’t have power and you can’t charge your computer. You best hope is that there are some community centers with microgrids nearby, or you were smart enough to install a generator or battery in your home.

Sound far fetched? This is exactly what it looked like in Texas this past week. Despite the rest of the country’s better preparedness for winter weather, the exact same problems will occur on an electrified grid. For example, as with Isaias, most storms in the Northeast take out wires on the grid, so efforts to further harden our grid are futile. As heat and transportation (or even industrial processes) transfer from natural gas distribution to electric, we will leave ourselves exposed. And what matters is that centralized systems are designed in such a way that it is impossible to build a perfect defense against all possible tail events. These outages are just the beginning, and we need a new way forward.

Our grid was built this way because of technological constraints that now no longer exist. In the past, our power generation sources relied on combustion to drive them, so building larger and larger centralized power plants would lead to maximum thermodynamic efficiencies at scale, and thus would yield the cheapest power. This then required large transmission networks to transport the power from low population density areas, generally where cheap land was to build power plants on, to high density areas, like cities.

We did what we could with the technology we had, and structured our markets in a particular way as a result. Edge users that need constant uptime like hospitals, data centers, etc. all had to pay for resilience via onsite generators. Building onsite resilience is redundant to the bulk grid and thus “inefficient”. So current market structures don’t see these resources as useful, and compensate them in a haphazard way — not for resilience, but for them acting like bulk power plants. But in the future, how do we value keeping a communities’ heat on in the winter?

Furthermore, this structure presupposed and required a high degree of public spending on infrastructure to move power around. On an aging grid with inept politicians in charge, we can’t count on public money bailing us out. So we need to invert the focus: in the future, uptime and costs of the wholesale market aren’t the primary concern, but rather the ability of and ease with which a community, business, school, home, hospital, or office building, can maintain power through a bulk grid outage to power critical tasks. The future grid will be built from the bottom up, driven by new technologies, DERs, that are in many ways superior to their predecessors.

Individual actors are able to adopt these solutions on their own, so we don’t need to wait around. Until now, average users didn’t have a need for local resilience or many options to provide it. So, they primarily cared about cost. Of course users care about gas being $2/gal instead of $6/gal, but they care more about availability, if cost is reasonable. What’s so striking about DER’s is that they actually have the potential to lower customer bills as well. While a wholesale solar farm in West Texas will produce power for less than the rooftop panels seen above on a $/kwh basis, when taking the system in aggregate — the fact that rooftop solar doesn’t need to be transported very far — the costs end up being more comparable. But more importantly, when the bulk grid goes down in a hurricane, the home in the image above would still have its lights on. There are benefits to decentralization that transcend cost.

Resiliency is DERs killer app. I’d like to do a study of how much search traffic from users asking “how can I install a battery in my house?” spikes after wildfires in CA, hurricanes in NY, or big freezes in Texas once again knock out the power grid. This is a now universal problem and overtime, resiliency benefits will lead to more and more users adopting these superior technologies. And as more individual users adopt, the collective will benefit (our co-founder didn’t lose power in Austin this past week because he lives near a microgrid).

And what this amounts to in the macro is that we shouldn’t care if the overall costs of a distributed system are higher than a centralized one (which still remains to be seen). Talking about power costs is just the wrong question, as it frames the debate on the old paradigm’s terms. The right one is how do we organize our energy systems to fulfill individual needs? How do we provide value? How do we make sure lower income communities get microgrids too? And as resilience and efficiency are antitheses of each other, I’m arguing that in the future, one is more important than the other. This is not to say that the grid will become hyper fragmented. Bulk power plants like nuclear, hydro, geothermal, solar, and wind will all play their role, but the underlying architecture of institutional powers on the grid must change.

Thus, while in the past the God of Efficiency decreed that “reliability” mattered more than individual or distribution grid (local) outages, or “resiliency”, the future grid will invert that relationship. Micro resilience over macro reliability. Local redundancy over bulk efficiency. Safety over cost.

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Thought Follower. Co-Founder at David Energy. I’m on Substack now! https://jamesmcginniss.substack.com/

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