This blog is the seventh in a series, “The ABCs of the AJP.”

Grid Modernization and Resiliency

Grid modernization and resiliency are critical and intertwined issues that only grow more important as climate change increases the frequency and severity of extreme weather events. As the Biden Administration notes in its American Jobs Plan fact sheet, recent power outages in Texas took a tremendous human and economic toll, and power outages generally cost the country $70 billion dollars a year in lost productivity. In light of that figure, the American Jobs Plan’s proposed $100 billion dollar investment in grid modernization may be too conservative. When factoring in health and environmental benefits, the return on investment for an improved grid looks to be extraordinarily robust.

The American Jobs Plan proposes to modernize the power grid through direct investments in physical infrastructure, regulatory changes to facilitate construction (in part through establishing a new Grid Deployment Authority), and tax incentives to spur and leverage private investment. This commitment to building out the grid and better connecting disparate regions marks a major shift after years of stagnation. In fact, according to the NRDC, regulatory malaise has contributed to a situation in which, in spite of rapid build-out of renewable generation facilities, “no major transmission lines between regions have been approved in nearly a decade.” There are high hopes that the AJP, and the Grid Deployment Authority, can reverse that trend.

 Grid Modernization and Greenhouse Gases

The benefits of newer, safer transmission infrastructure are obvious. Power lines in California have been tied to major wildfires, and power outages in the midst of severe weather can subject whole regions to dangerous conditions, especially when outages occur during extreme heat or cold. Perhaps less obvious is the role that smart and well-connected grids can play in replacing fossil fuels with renewable resources.

As critics of solar and wind power are quick to point out, the sun doesn’t shine at night and there’s no wind power when it isn’t windy. Many renewables, that is, provide intermittent power, and our society’s energy needs are not particularly well-attuned to the earth’s cycles. Further, many of the sunniest and windiest parts of the country are situated in remote, low-density regions, while many areas with the greatest need for energy have comparatively low capacity to generate solar or wind power.

Modernizing the grid addresses both of these concerns. Although it is intermittent, we can safely assume some level of wind generation across the continent, so a well-connected grid can route that power where it is needed and provide a reasonably consistent minimum supply. Likewise, a modern grid can take advantage of the full span of the sun’s traverse over our hemisphere and can ensure that sun-swept deserts may effectively power distant cloud-covered cities. This does not obviate the need for storage or demand-responsive incentive structures, but it does mitigate intermittency concerns.

Further, as renewable generation capacity increases – especially in rural areas – facilities will regularly generate more power than can be used locally. Improving and expanding the grid makes it possible for power to be transmitted wherever it is most needed rather than trapping it in local markets. This is a necessary precondition for sufficient build-out of renewable generation capacity, because it makes it economically feasible for firms to invest in generation capacity where sun and wind is most plentiful (even if there is relatively little energy demand in those regions).

Moving renewable energy between markets in the interconnected grid can also be made more efficient by integrating regional power markets. California Independent System Operator’s (CAISO) Energy Imbalance Market (EIM) is a real-time energy market that allows balancing authorities from British Columbia to El Paso trade power more seamlessly, which, by avoiding curtailments of renewable generation, has achieved more than 500,000 tons of carbon dioxide reductions since its inception in 2015. While improved market design can produce marginal reductions, most experts conclude that new long-distance high-voltage transmission lines are indispensable to integrate enough renewable generation at the volume needed to decarbonize the electricity sector. This demand for new transmission capacity also presents significant opportunity for investors.

That’s where the AJP is intended to come in. Much of the AJP’s grid modernization plans rely heavily on incentivizing private investment that may or may not ultimately materialize. That said, the AJP’s plan for grid modernization exemplifies the Biden Administration’s general approach – an ambitious attempt to leverage regulatory and tax policy to generate large-scale private and state investment, with the hope of achieving transformative economic and environmental change. This strategy incentivizes private firms to meaningfully participate in the roughly $100 billion project of transforming the U.S. power grid to support a significantly cleaner energy mix. In turn, this modernized grid will pave the way for substantial investment in renewable energy generation capacity.