President Obama’s speech Tuesday highlighted (again) the enormous challenge of climate change, and the fact that we need to make some major changes in the way we do things. First and foremost on that list of things to change: energy. As the president mentioned, reducing our dependence on fossil fuels is part of the solution, but it’s not the whole answer.
We need to use less energy. Period.
Efficiency — specifically in the electrical system — is the focus of work the Citizens League is convening. This is important not only for environmental reasons, as the president laid out, but also because it’s the most cost-effective answer.
Today, the electrical system is incredibly inefficient. Somewhere between 60 and 80 percent of the energy that goes into the system is wasted.
And the electrical system is being bombarded by all kinds of other pressures. Our infrastructure is old and much needs to be replaced, which means we have big decisions to make. Technology is moving fast – creating new demands, new ways to meet them, and new expectations from customers. And, for the first time, electrical energy use is actually not growing. (Why this is so important will become clear in just a minute.)
Bottom line: The electrical world is changing. And we’re facing this new world with yesterday’s solutions.
In the last century, the United States was electrifying. The country needed to get more electricity to more people in more places for more uses. Out of this need grew our regulated monopoly utilities. In this setup, utilities are given a monopoly over a certain territory and expected to deliver all the electricity the customers in this area ever use. (And to meet these needs at the speed of light.)
In exchange, utilities are allowed to make enough money to stay in business and, for investor-owned utilities, provide a return on investment to their shareholders. Utilities make this money in two ways: Through customers’ bills and, for investor-owned utilities, through the return on investments in infrastructure.
Both of these sources of revenue require selling more electricity – to earn more from bills and to create the need for investments in new infrastructure like power plants. Sell less, and it threatens utilities’ sustainability as a business. And, with today’s flat demand, some utilities are already facing this problem.
This worked great when expansion was the goal — but today, the goal is the opposite. We need to conserve and be more efficient.
All this points to a huge question: What is the utility model for this new reality? A model that builds in market incentives for efficiency? A model that makes efficiency align with the bottom line for utilities and their customers?
Minnesota is taking the lead in answering this question. Since 2010, the Citizens League has been convening Minnesota utilities, businesses, environmentalists, government leaders, and unaffiliated citizens to set an electrical energy vision for the state and figure out the best way to get there.
We’re in the middle of this process now – the messy and exciting part. Contact me if you’re interested or want to get involved (firstname.lastname@example.org, 651-289-1072), and stay tuned.
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