Towards the Energy System of Tomorrow

Modernizing the U.S. Energy System: Opportunities, Challenges, and the Path Forward
Find out more about the briefings in this series below:
June 04	Towards the Energy System of Tomorrow
June 11	Modernizing America’s Transmission Network
June 25	Leveraging Grid Edge Integration for Resilience & Decarbonization

The U.S. electric grid started in 1882, with the construction of the first central generating station in New York. Today, it comprises over 7,700 power plants and transformers delivering electricity to millions of customers over 2.7 million miles of transmission lines. More than 160,500 miles of pipelines deliver oil and gas for heating, transportation, and other basic necessities. Today’s energy system faces new challenges in delivering affordable and reliable energy to customers. Energy system managers from the local to the federal level must account for technological innovations and new security threats, and must make decisions that both adapt to changing climate conditions and reduce greenhouse gas emissions.

Panelists discussed the state of play for the nation’s energy system and presented opportunities for improvement using real-world examples of solutions in action. Panelists also discussed the role of Congress, the Department of Energy, the Federal Energy Regulatory Commission, and state and local entities in creating the energy system of tomorrow.

 

HIGHLIGHTS

Dr. Jennifer Chen, President, ReGrid; Senior Fellow, R Street; Senior Policy Counsel, CO2Efficient

• Changes are underway in the electricity system due to shifts in policies and consumer preferences. For example, wind, solar, and distributed energy resources are on the rise.
• Wind and solar offer the distinct benefit of being zero-emission energy sources, but they are more variable and influenced by weather than fossil fuels. The ongoing electrification of buildings and transportation is an opportunity to use and store wind and solar when they are available.
• Another challenge presented by wind and solar energy is that sites of energy production are often far away from population centers, requiring long distance transmission infrastructure to connect these resources to customers, and a means to trade these resources. Long-distance transmission, while initially expensive, is expected to produce cost savings and jobs.
• Regional collaboration offers a potential solution to some of the challenges of wind and solar energy distribution. Sharing electricity resources over a large area helps decrease variability, flattens out peak electricity use across different time zones, and can improve reliability.
• Currently, electricity trading is organized into fragmented local and regional markets, hindering optimal organization.
• Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs), which are overseen by the Federal Energy Regulatory Commission (FERC), are made up of individual utilities within a region that trade resources and oversee electricity markets. These regional organizations can help optimize transmission and distribution, but at present, utilities can voluntarily leave RTOs and often face disincentives to joining them. Many utilities maximize profit for shareholders by building more power plants, which discourages the sharing of resources through an RTO.
• Possible solutions include:
  • Congress could direct FERC to require utilities to share resources as part of an independently operated market. This would protect against overbuilding and overcharging customers.
  • Congress could fund the Department of Energy (DOE) to develop and improve upon open-source energy trading platforms in order to improve trade across borders and reduce costs for new RTO formation.
• The regional nature of planning and siting for transmission lines is an additional obstacle to developing an efficient nationwide network of electricity distribution.
• Local projects in aggregate cost about $20 billion a year. Despite being less efficient than large-scale planning, local projects are popular because they are not subject to FERC planning process requirements. Upcoming FERC reforms could fix regulatory gaps at the local and regional level to help incentivize planning on a larger scale.
• Equity is another element to be considered when planning projects in terms of who pays and where projects are sited. Congress could fund DOE to improve open-source mapping tools to identify siting risks and find corridors that maximize efficiency and equity while avoiding environmentally sensitive areas and cultural heritage sites.
• Customers also have a role to play. Customer use of devices such as electric vehicles, pool pumps, and HVAC systems will continue to rise, so that distribution systems will need to manage higher levels of smaller, distributed resources discharging and storing electricity. These customer devices can help balance supply and demand, which will, in turn, help integrate wind and solar and maintain reliability at least cost.
• A better system of demand response can also help avoid power outages.
• FERC is trying to facilitate integration of smaller resources by allowing demand response, storage, and distributed energy resources to participate in a wholesale electricity market.
• In order to tap into the flexibility these resources offer, transmission and distribution systems need better coordination, prices that reflect the value of electricity, and better forecasting.
• As transmission expands and consumers' relationship to the grid changes, there is a need for collaboration between federal, state, and local governments to find solutions.
• To help maximize the potential of these resources, Congress could fund DOE to provide technological support to states, RTOs, utilities, and distribution system operators.

• Summary of potential Congressional actions:
  • Congress could ask FERC or DOE to convene state and local authorities and stakeholders to develop a coherent, equitable, and implementable large-scale national backbone transmission plan.
  • Congress could fund and provide technological assistance to states to study the benefits of market and transmission expansion and improve distribution systems to accommodate distributed electronic resource proliferation and participation.
  • To reduce costs, Congress could fund DOE to improve open-source mapping tools.
  • Congress could fund DOE to develop an open-source energy market trading platform to optimize energy trading across borders.
  • Congress could direct FERC to require utilities to trade electricity and share resources.
  • Congress could enable DOE to investigate setting standards to encourage greater efficiency for the transmission system.

Juan Torres, Associate Laboratory Director, Energy Systems Integration, National Renewable Energy Laboratory (NREL)

• Trends in sources of U.S. energy supply over time show a decline in coal since the late 2000s, a rise in natural gas, and a rise in renewable energy. Within renewables, wind and solar are increasing most rapidly because of their declining costs. As of 2019, about 17 percent of U.S. energy came from renewables—7 percent hydroelectric, 7 percent wind, 2 percent solar, 1 percent biomass, and 0.5 percent geothermal.
• NREL recently conducted a series of studies on the future of electrification, which predict that industrial, residential, and commercial consumption of electricity will not rise substantially by 2050 because of increasing efficiency in electricity use. Electricity use in the transportation sector, however, is expected to increase due to the electrification of vehicles. Thus, vehicle electrification will greatly impact the future of electricity usage, and by extension the design of the power grid.
• As we forecast into the future, we need to understand how different sources of energy generation will affect the dynamics of energy flow at different times of day in different time zones, and what this means for transmission needs. Different times of day correspond with different energy needs as well as different generation sources. For example, solar energy is produced during the day, while wind constitutes a larger percentage of electricity generation at night.
• It is also crucial that new energy sources integrate with the existing infrastructure that has existed for over 100 years.
• Historically, the electricity system consisted of power plants, transmission lines, distribution centers, and customers. Power plants produced electricity by burning fossil fuels to heat water in order to create steam, which then turned a turbine. This method of generation has a high degree of inertia, allowing for reliable and consistent electricity production throughout the day.
• While the current grid contains many of the same features as the historical grid, one key difference is that there are energy sources that are more variable in their electricity generation. Additionally, consumers have become a more active part of the grid, with batteries and devices—like solar panels—that allow them to generate electricity that connects back to the grid.
• Smaller electricity-generating devices, such as solar panels, microturbines, and fuel cells, use power electronics to connect to the grid. In contrast to large fossil fuel-driven power plants, power electronics do not produce the same kind of inertia and reliability. This makes them more viable to have as a large percentage of energy generation for small grids rather than large ones. More research is needed to elucidate how these devices will affect the grid.
• Artificial Intelligence (AI) is another potential technological advance that can improve the grid. Because of the sheer volume of information coming from the system, AI is better equipped to receive this information and control specific devices in response to the needs of the system at large.
• Tools to track and visualize energy generation, transmission, distribution, and use are necessary for meeting load demands and remaining resilient.
• As we look to the future, we must also consider the threats to the energy system:
  • Natural disasters, which are increasing in frequency and severity;
  • Space weather, such as solar flares, which can disrupt electricity;
  • Physical threats like terrorism targeting generation and distribution sites;
  • Cyber threats, which are on the rise due to the increasingly digitized system; and
  • Directed energy weapons such as electromagnetic pulses.

Daisy Robinson, Associate, Oil Demand, BloombergNEF

• The transportation sector consumes only 26 percent of energy in the United States, but releases the most emissions of all sectors.
• Emissions in the transportation sector are expected to fall as electrification of vehicles continues. It is predicted that by 2040, 40 percent of the U.S. vehicle fleet will be electric and 60 percent of cars sold will be electric. Electric vehicles (EVs) are expected to reach price parity with internal combustion engines by the mid-2020s.
• Because EVs will take several decades to dominate the fleet, it is necessary to find other solutions to implement in parallel to reduce emissions from liquid fuel (i.e., gasoline and diesel).
• Currently, biofuels like ethanol and biodiesel are displacing some demand for fossil fuels. For example, the liquid fuel at many pumps is a gasoline/ethanol blend that is 10 percent ethanol. However, vehicles can only tolerate a certain percentage of these biofuels as their fuel source, which limits the potential for these biofuels to replace fossil fuels. This also presents a challenge to the ethanol industry because as EVs continue to proliferate, ethanol percentage in liquid fuel would have to rise to approximately 20 percent by 2040 in order to keep ethanol demand stable at 2019 levels. This is a rate that is incompatible with car engines at present.
• Drop-in biofuels are low-emission fuels made from organic materials that have nearly identical properties to fossil fuels. This means that unlike ethanol and biodiesel, drop-ins easily fit into existing infrastructure—including pipelines, pumps, and car engines—and in theory could replace fossil fuels in transportation entirely. Because they integrate into existing infrastructure, they are extremely cost-effective and able to be deployed rapidly.
• Renewable natural gas (RNG), a drop-in fuel that is made from a variety of waste materials, can replace conventional natural gas. It is extremely low-carbon emitting, and could even be net-carbon negative by capturing methane that otherwise would have gone into the atmosphere.
• RNG is expensive, so its market is largely driven by policy measures supporting it and it is primarily used in the transportation sector. A number of credits exist to incentivize its use.
• RNG accounts for one third of the natural gas usage in the transportation sector. This means that the demand for RNG could be leveling out soon as it saturates the market. A possible solution would be to convert some diesel vehicles to natural gas. Outside of the transportation sector, governments could also offer subsidies and incentives for utilities to provide RNG to customers in places where it is not currently offered due to high prices.
• Renewable diesel is a promising drop-in biofuel to replace diesel. Renewable diesel is made from lipids found in organic matter, such as used restaurant oil and animal fats. Unlike biodiesel, it does not need to be blended with conventional diesel to function in engines, so it could replace diesel altogether.
• Renewable diesel is expected to rise, with a tenfold increase in the United States expected by 2025 due to a high number of projects currently underway.
  • About half of these projects are in refinery conversion. The refining process for renewable diesel is similar to that of conventional oil, which means that refineries can easily be modified to produce renewable diesel. This is a huge cost-saving measure, and a boon for owners of refineries because it allows them to maintain the productivity of their assets despite falling demand for gasoline during the pandemic. It also retains jobs, and leverages the technical expertise of those in the refining industry to be applied to a renewable energy source.
• The biggest challenge to renewable diesel is the availability of waste-based feedstocks. Some renewable diesel producers are partnering with restaurants to collect used cooking oil to be used in the production of renewable diesel. For example, Neste, the world’s largest renewable diesel producer, acquired a United States-based company that collects used cooking oil. They also entered into a contract with McDonald's in the Netherlands to collect their used cooking oil. However, even if all 35 million tons of global cooking oils identified by Neste as potential feedstocks were converted to renewable diesel, this would still account for less than 20 percent of the U.S. demand for renewable diesel.
• Research and development is needed to scale up technologies that convert other waste products into renewable diesel. More abundant feedstocks, such as household waste and forestry and agricultural residues, can be refined into renewable diesel but the technology to do so is less well developed.

Q&A session

What do we do with existing energy infrastructure? In practice, how can we make use of and repurpose existing infrastructure to realize emission reductions, increased energy efficiency, and cost efficiency?

• Chen: We want to make sure we are not making decisions based on sunk costs. We need to use existing infrastructure in a way that is consistent with policy goals, which often include emission reductions. It is worth noting that transmission is a fuel neutral infrastructure. As we decommission power plants, locating wind and solar to use the associated transmission infrastructure could be helpful. Existing infrastructure can also be made to do more with advanced transmission technology, like advanced conductors. Some of these technologies can extend the capacity of existing rights of way to carry more electricity, and some conductors can also reduce power loss. The power grid is one large machine and, currently, we do not have any energy efficiency standards on that machine. But we can search for ways to make that existing infrastructure more energy efficient. Another example is that power flow could be better directed along transmission lines with new technology. We also can tap into the demand side to help cost-effectively enhance the flexibility and reliability of the existing system. Look at devices that customers are buying anyway for none-grid uses, like HVACs, EVs, and hot water heaters; these things are essentially batteries that can also help provide balancing services on a variety of timescales. Enabling these resources to obtain revenue from the market and improving ways these resources can communicate with the grid can help them provide appropriate grid services.

• Torres: There are some pros to the existing infrastructure; it has operated extremely reliably for decades. But there are things we can add to the grid. This could include increasing interconnections between the major grids (DC ties) and increasing voltage. At a local level, there is no one-size-fits-all solution. Solutions are based on policies and resources. For example, why are low-carbon generation sources like solar so popular in California? It is because California is extremely water limited and legacy generation plants (coal and nuclear) are very water intensive. Forty percent of water use in the United States goes towards thermoelectric cooling. We really need to look at local resources and economics to assess what makes most sense to build upon from the legacy infrastructure and use resources that are more plentiful.

• Robinson: It is definitely a challenge that we cannot just discard current infrastructure. This highlights the difference between conventional biofuels and drop-in biofuels, which can literally drop into the existing system. In terms of end uses, drop-in biofuels really solve a problem here. That is not to say they are the whole solution, and alternative technologies, like EVs and hydrogen eventually, which require new infrastructure, do play a role. For now, fleet turnover takes a long time, and if we wait for natural turnover, we will be waiting for several decades. Time is of the essence in the energy transition. This is where biofuels can step in and really add value.

In a lot of discussions, it is implied that fossil fuels are more reliable, resilient, and affordable than renewables. However, we know that renewables are cost competitive, so they do not have to have a negative impact on affordability. What can we do to ensure that the modernized energy infrastructure that we will build and expand upon remains reliable, resilient, and affordable for everyone?

• Chen: We have to overcome the collective action problem to build the transmission we need in order to tap into cost-effective resources and ensure that the energy transition is affordable. The other piece is leveraging the demand side and the technologies that consumers are going to purchase anyway to make the most of these technologies. For example, smart devices in homes, business, and transportation can be used to balance the variability in wind and solar. We also need to ensure we maintain and continue to study reliability. Wind, solar, and batteries can also react more quickly than conventional power plants, so if we appropriately harness them this could improve reliability. Finally, a robust transmission and distribution system can help ensure reliability.

• Torres: We have become accustomed to really low rates for electricity and gas, but things are changing. How do we do this in the context of increasing storms and cyber threats? We do not want to pay more than 10 or 11 cents per kilowatt hour of electricity, but we want it to be secure and robust against the most equipped adversaries in the world. That is a big challenge. However, there are some things we can and have done. An example is the SunShot goal to drop the price of solar technologies. That was done through advancements and investments in research, demonstrations of effectiveness, and achieving economies of scale. The other piece is setting standards as lots of competing technologies come to market. This will require a coordinated effort from the public and private sectors. It will be important to have open channels of communication to establish common goals. If you let the market take care of it, resilience and security might lapse; sometimes you need the government perspective. Resilience and security can be thought of like insurance in terms of understanding the level of risk we are willing to sustain. In summary, common goals, coordination across standards, and a strategic investment in research and demonstration will be required.

• Robinson: Affordability is a challenge with these advanced biofuels, because unlike wind and solar, they are not getting cheaper. There is a chance that biofuels will always be more expensive than the fossil fuels they replace. This is particularly true of renewable diesel because it relies on a feedstock supply that is relatively finite and the technology is fairly well-established, meaning that there are fewer opportunities for cost reduction over time. This is why it is important to keep investing in newer technologies that are capable of converting different types of feedstocks, such as household waste, into fuel, since we are not at risk of depleting such stocks. Additionally, because these technologies are new, their price could come down over time. There are some benefits to homegrown biofuels. Compared to fossil fuels, they are less at the mercy of external geopolitical events, which contributes to greater energy independence.

One thing we think about a lot at EESI is the impact of climate policy and investment on communities that have been historically marginalized and underrepresented, particularly low-income communities and communities of color. Fossil fuels have had a bad track record with these communities. As we take steps to modernize our energy system, what should we do to ensure that new infrastructure does not negatively impact low-income communities and communities of color?

• Chen: It is important to give traditionally disadvantaged communities a voice. Some process changes could help here. As an example of that, FERC is creating an Office of Public Participation that would help with infrastructure siting decisions that FERC influences, such as natural gas pipelines. There are also creative solutions that could be win-win solutions. For example, transmission siting is often an equity issue. There are overall benefits to building a more robust transmission network, but some communities might object to siting these lines over their land if they do not see direct benefits. If we come up with a transmission planning process that is more transparent and inclusive, and engages stakeholders early, we have a better chance of developing creative solutions. One example is of a transmission siting where a Native American tribe was given equity in a transmission line and was thereby able to obtain revenue from siting the line on their land. We can also think about just transition and regions that might be looking for jobs. We can bring those stakeholders to the table to see if they would be willing to site infrastructure with protections for their communities.

• Torres: NREL has done a lot of work in the environmental justice space. In our experience, it comes down to understanding the stakeholders. Historically, marginalized communities were not taken into consideration. Maybe in the past, getting something done at the lowest cost was prioritized. We need to strategically ask questions and engage stakeholders early on to have a better understanding of their needs, as well as the short- and long-term impacts.

• Robinson: When it comes to liquid fields, converting waste to liquid fuels is a win-win because it takes up waste products that have no other use. When thinking about other benefits in addition to cleaning up the transportation mix, advanced biofuels also divert waste from landfills.

One of the things policymakers always want to know is, what are the job implications? What workforce development opportunities are possible as we reduce emissions and make improvements to the energy system?

• Chen: We need to look at opportunities on a community-by-community basis. We know that clean energy creates high-paying, good quality jobs, but a lot of communities that are losing jobs may not see one-to-one job replacement. There is an important effort to see what kind of jobs and workforce development could benefit these communities today. Expanding horizons, listening to communities, and looking on a community-by-community basis could carry us further in the just transition.

• Torres: We are going to need a workforce that understands new technologies, and the computer interfaces and cyber aspects thereof. As we develop new systems, we need to understand the lifecycle for the new systems. There will be jobs created throughout the life cycle. Another aspect is the supply chain. We need to consider where we will get the components, including hardware, electronics, rare earth materials (which may be controlled by other countries), and software. All of these aspects are opportunities to be strategic in creating jobs and identifying the workforce.

• Robinson: We will continue to see demand for liquid fuels in the foreseeable future. Therefore, another benefit of drop-ins is the synergy with existing infrastructure. Technical expertise in liquid fuels can be applied to drop-in biofuels. The knowledge and skills of those working in oil refineries are transferable to this new, cleaner technology.

 

Highlights compiled by Anna Sophia Roberts