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Leonard S. Hyman is an economist and financial analyst specializing in the energy sector. He headed utility equity research at a major brokerage house and…
After two weeks of darkness, power has been restored to all the citizens of Gary, Indiana, an old, low income, lakefront, industrial city within sight of Chicago. The outage did get some national publicity, TV stories showing the residents of Gary roaming around in the hot nights, showing empty refrigerators in dark apartments, complaining bitterly. But, you know, not a story as spectacular as when an electric company burned down an entire island or when another one managed to set fire to Pacific Coast towns with glamorous names. Just two weeks in the summer without electricity. Not a big story.
A violent storm had hit Gary. Trees fell. Some people complained that the trees had not been trimmed properly. The local utility had infelicitously announced a reorganization of assets to attract data center business, too. Not paying attention to the core business? The governor will investigate. So what is the big deal? It’s an isolated incident caused by freakish weather. Sort of like all the other incidents caused by freakish weather, drought, storms, blizzards.
Well, we have another take on events. Freakish weather has become normal. That’s what scientists predicted more than two decades ago, predictions the electricity industry, by and large, chose to ignore. Add together years of unpreparedness, changing climate, aging equipment and rising demand on the system and that produces a decline in reliability, a trend demonstrated by the statistics over the past 25 years. In other words, two weeks without power in Gary is just part of a pattern. Related: Asia Spot LNG Prices Hit 5-Month High as Hormuz Blockage Drags On
We have argued that technology has begun to favor a scenario in which those who want and can afford high quality standalone electric service (solar, batteries, propane back-up) will arrange it for themselves and the public network will become a provider of last resort for those who cannot afford the best. This scenario has equity implications, of course. People need electricity in the same way they need water. We don’t furnish (not usually, anyway) second rate water to those who have trouble paying the water bill. There is, however, another implication of our scenario, for fusion power, the unlimited energy source that will (we hope) bail us out of our current energy dilemma. Backers of fusion are tackling their projects in the same way as backers of electric vehicles did, that is, build the device and expect that the market will furnish the infrastructure in a timely manner. Fusion power plants will require a robust electric grid ready to transmit their power. The grid is an interconnected system. The invisible hand won’t produce one. If it sinks into a second rate state, it won’t have the resources to support new fusion technologies. Delivery system first and power source second. (As an aside, one of the top AI executive said that connection to the grid can take years, maybe 4-12 years depending on the situation. But that a comment brings up the question of why the AI people were making plans without understanding the limitations of the network. You would think that all that artificial intelligence would lead to a better planning process.)
Finally, a nasty and cynical thought. Would the outage have lasted two weeks if it had occurred in Beverly Hills, CA or Greenwich, CT or Georgetown in Washington, DC? Just something to think about.
By Leonard Hyman and William Tilles for Oilprice.com
Leonard S. Hyman is an economist and financial analyst specializing in the energy sector. He headed utility equity research at a major brokerage house and…
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