Climate Change Adaptation: The Case of Our Electricity Grid’s Reliability

In the NY Times, John Broder has written a good piece  where he notes that climate stress could lead to both supply and demand shocks for electricity that threaten the reliability of the grid.     For a full copy of the DOE report click here.  We need consistent access to electricity so how do we adapt?   I predict that the following trends will emerge because we know that we face a future challenge if we don’t make investments now.

  1. We will see more distributed generation to reduce the risk of catastrophic electric utility failure.   In-basin solar generation is one policy being discussed in Los Angeles. Read my colleague J.R DeShazo’s work.
  2. Electric utilities will work harder to get more commercial electricity consumers to sign up for demand response incentives such that the utility can reduce such consumers’ electricity consumption on high net demand days.
  3. The wide diffusion of Smart Meters being installed in people’s homes and businesses will allow people to have real time access to the price of electricity.  Households and firms will opt in to face dynamic pricing and will be incentivized to do so.   When the price per kwh jumps, such households won’t run their dishwasher at peak price hours.  This is the small ball of adaptation.
  4. Improvements in battery technology will allow us to store electricity that we can use during a crisis to live our daily live.
  5. Those cities that do not offer reliable power to households and firms will lose the footloose who will move to cities offering higher quality of life and service reliability.  “Voting with your feet” is a powerful force for motivating a monopolist electric utility as the mayor yells at its leaders to step up.  Cities and states are always trying to attract new businesses.  Reliable power will be a key determinant (just like local wages) of whether businesses view a location as “business friendly”.
  6. Electric utilities will invest more in backup power generation.  The utilities know what Broder knows.  As risk goes up, they will introduce contingency plans that help to mitigate risk.  Perhaps more transmission capacity will be built so that cities have more alternatives from where they can import power.

This is the flavor of my Climatopolis logic.  I’m now selling the paperback version!   Items #1 to #6 represent small ball changes to our society.  None of them alone “saves us” but together they lead to a more robust system that allows us to continue to thrive.


Author: Matthew E. Kahn

Professor of Economics at UCLA.

13 thoughts on “Climate Change Adaptation: The Case of Our Electricity Grid’s Reliability”

  1. Matthew, I like the way you think, but the pessimist (realist) in me says you’re too optimistic about how all the Mr. and Mrs. Smiths will get with the program to such a degree that the utilities will be forced to get with the program, and the cities will be forced to get with the program.

    Voting with their feet will only be effective if the number of votes is huge, and I doubt that’s possible. Here’s why:

    I lived in Virginia Beach for 36 years. During that time my home had many power outages due to storms, which seem to come in quite frequently off the Atlantic. Some lasted for several days. Most of the storms were during hurricane season, which is very uncomfortable without power. My solution was not to move far away from the coast. Rather, I bought a generator. The cost of a whole-house generator, including the electrician to install it with a transfer switch, was trivial compared to the cost of selling my house and buying an equivalent house somewhere else. And then, of course, there was the job to consider. Voting with my feet would have been a ridiculously expensive solution to a problem I could work around far more cheaply.

    Voting with my feet was only a possibility when I retired, and then I moved to Florida. The vote was cast not because of power outages, but because I hate winter cold and now I can play golf year round. So I voted with my feet, not in response to some dissatisfaction with my government and/or my power company (both of which were at fault), but because of my dissatisfaction with the mid-Atlantic climate, which was not within human control.

  2. One observation: ~60% of the US population does not get its electricity from classical regulated utilities, but rather from an assembledge of Chicago School-designed semi competitive entities that participate in various, supposedly competitive and “efficient”, auctions and markets. And in whose operation the customers and state regulators have very little say.


  3. The real issue here has more to do with solar, rather than terrestrial weather. Sooner or later a major solar flare is going to hit the Earth straight on, instead of missing, and our entire power grid is going to go down, with major pieces of long lead time equipment toasted. And we will suddenly be a third world country. Rather than worrying about the impact on the power grid from something which is going to come on gradually, if it happens at all, why aren’t we doing something about THAT?

    1. NERC Project 2013-03:

      = = = Background:
      FERC issued order 779 in May 2013 directing NERC to develop reliability standards to address the potential impact of geomagnetic disturbances (GMDs) on the reliability opertion of the Bulk-Power System. Since 2010, industry has taken steps to address the GMD risk scenario identified in the 2010 High Impact Low Frequency (HILF) Event joint report through the Geomagnetic Disturbance (GMD) Task Force, which is comprised of industry representatives, government partners, and GMD experts. The GMD Task Force published an interim report on the effects of GMD on the Bulk-Power System in April 2012 and provided recommendations to manage risk. The task force’s current project is focused on providing tools for system operators and planners to assess GMD effects on the system and implement mitigating strategies when needed.
      Purpose/Industry Need:
      Project 2013-03 will develop reliability standards to mitigate the risk of instability, uncontrolled separation, and Cascading as a result of geomagnetic disturbances (GMDs) through application of Operating Procedures and strategies that address potential impacts identified in a registered entity’s assessment as directed in FERC Order 779. = = =

      1. Mr. Bellmore‘s comment is a useful one, however. The provision-of-electricity industry has historically (1950 forward) been run by very conservative, slow-to-change people, and this is still largely true even with all the “competitive” changes that have occurred from 1994. And largely this is a good thing: reliability of system such as the Eastern Interconnection shouldn’t be subject to the fads of the day. However it also leads to some extreme cognitive dissonance in which very knowledgeable, capable, and thoughtful people fight hard against situations that their technical brains tell them are correct but their emotions say otherwise. The generator operators in particularly are well aware that climate change is approaching and that it will affect them, possibly severely, but many in the industry are fighting against _thinking about it_ just as they fought against dealing with the Clean Air Act in the 1970s. As with Mr. Bellmore.


  4. 1. I dunno.
    2-3. Yup. Marginal-cost pricing is the wave of the future. The incentives and technology are there.
    4. I doubt it. Battery improvement has been slow, resembling improvements in internal combustion, more than improvements in processing power. Maybe Matthew knows of some gonzo technology-in-development of which I am unaware. Technological improvement curves tend to be S-shaped in time: initially slow for a given technology, then fast as some key things fall into place, then slow again as improvements become incremental. Is there some reason I should expect us to be near an inflection point in this two century old technology?
    5. Here is my basic disagreement with Matthew. I agree that a reliable power grid is important to development. But I don’t think that politicians respond to quality-of-life incentives–they respond to the local power structure, which may have very different interests than the long-term economic growth of the region. Look at the popularity of the “Moonlight and Magnolias” economic development strategy down South. It’s been proven not to work nearly as well as my dynamic knowledge-based development strategies. But it’s not socially disruptive, so it continues to be the pattern down there.
    6. I don’t know if utilities will invest more in backup generation. Capital markets don’t handle tail events very well.

  5. American consumers have already adapted to a (by international standards) very unreliable grid: well behind Greece in the SAIDI league table, and an order of magnitude behind Germany, which has an order of magnitude more renewable energy. Against that, they pay a low price. The main ingredient in grid reliability is willingness to pay for it. German towns don’t have utility poles, the cables are underground.

    1. Well, Germany does have the advantage of being about 1/30th the size of the United States (it’s slightly smaller than Montana with about a quarter of the population of the US), which tends to simplify infrastructure problems by making everything that has to go from A to B (energy, public transit, roads) considerably cheaper to establish and maintain.

      1. That actually comes up quite a bit in the NERC standards-setting process. The committees and meetings tend to be dominated by representatives (both provision-of-electricity and government entities) from the densely populated areas east of the Mississippi and close to DC, and they tend to design and recommend standards of operation that are appropriate for dense grids with high availability of qualified personnel. These standards (many of which have the force of law, including civil and in some cases criminal penalties) often are impossible of attainment in the Great Plains and Intermountain West. One back-and-forth stuck in my mind: the standards-setters were quite pleased with a requirement that a certain piece of equipment be attended within an hour after events of type B, to which a representative of a western utility replied “We have units of that type installed in locations where it takes us more than an hour to get a mule out of the stable, trucked to the trailhead, and saddled up. Do you plan to fund a helicopter for us?” The response was bafflement on the part of the Easterners.


  6. With the price of decentralized generation and storage rapidly approaching parity with the price of grid-supplied power, utilities are going to have interesting issues attaining the goal of higher reliability. The worst case is a customer who consumes almost no grid-based power under normal circumstances, but maintains a connection purely for those times when the local system fails to provide enough juice. Minimal revenue, but the same requirements for infrastructure and capacity.

    (It’s sort of iron that this is the opposite of the Ken Rhodes scenario: instead of a local backup for occasional loss of grid power, people will be looking at a grid backup for occasional losses of local power.)

    1. = = = utilities are going to have […] = = =

      Sorry to be annoyingly repetitive, but it is crucial to understand that the provision-and-delivery-of-electricity industry in the US has in large part been restructured based on Chicago School, everything-is-a-market, de-verticalized lines. And that the Bush-appointed members of the FERC are very hostile to those states that have retained classic regulated utilities – they are trying very hard to undermine that model regardless of what the Tea Party might think about the 10th Amendment. Having worked for one of the largest integrated utilities back in the day I report that there were many disadvantages to that model, but one advantage was that its leaders had the knowledge and the power to take large-scale, long-term, sweeping actions once convinced of the necessity to do so. Today you’re going to have to jigger “price signals” in 20 or 30 “markets” and wait 10 years to see if that had the intended effect.


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