As an investor in industrial scale RenEng, Grid. Grid. Grid. My obsession during the Biden Admin where they were not taking this seriously - time to build out this infra is not like playing in IT.
Transmission (long distance), Distribution (local)
Interconnections (regional interconnects) expanded and reinforced to enable at-scale power exchange and RenEng timing arbitrages to reduce issues of wasted production and equally
Capacity on existing lines (lower cost up-front capital upgrade w new tech) increased to reduce congestions.
Expanded lines
Without grid expansion like crazy, RenEnergy is going nowhere, prices are going to skyrocket overall no water generation sourcing.
It would be highly appropriate to have a national funding backing this rather than putting on the backs of local and regional ratepayers
PJM has been spectacularly incompetent at this to the point where Shapiro is trying to persuade the governors of other states within the interconnection to *sue them to force transmission development.*
How fucking incompetent does a quasi-governmental organization need to be to have a bunch of state governments, including those of *New York* and *New Jersey* sue it for failure to do its job?
Yeah - the entire elec energy system of the US is now collossally out of date and as one says in international situations "Not Fit For Purpose."
This really now screams out for a massive reform along the lines of the Eisenhower effort in 1950s (again kind of semi-crappy analogy but what comes to mind) - need not nationalise fully but carrots and sticks, andnational level not local level long-term financing - and one can make it PPP (public-private-partnership) funding methods as this kind of infra asset is very much loved by long-term capital as like insurance pools - once it's been risk-mitigated.
Exactly. And remember that the interstate highway system was sold for both national defense and economic infrastructure.
Eisenhower backed it in part because WWII had shown how weak U.S. internal logistics were compared to Germany’s autobahn network. It was federally financed because the benefits were national and strategic.
That same logic now applies to electricity.
AI sovereignty, advanced manufacturing, and electrification all depend on abundant and reliable power. A fragmented, congested grid is the 21st-century equivalent of those painful pre-interstate dirt roads — locally managed, unevenly built, and not fit for national-scale mobilization.
And just as in the 1950s, this is too important to finance solely through local users. National defense and national economic competitiveness justified federal highway funding. The same drivers justify big--really big--federal grid spending.
The interstate system created the physical platform for postwar American growth.
A national energy super-grid would do the same for an AI-driven economy.
Absolutely. 100%, 200%! This is spot on " A fragmented, congested grid is the 21st-century equivalent of those painful pre-interstate dirt roads — locally managed, unevenly built, and not fit for national-scale mobilization."
Economics, Defense & Security stability, hand in hand.
ETA: "advanced manufacturing, and electrification all depend on abundant and reliable power."
This is extremely important as there is the naive and partially innumerate populist idea that the single driver here is AI and Data Centers
Data centers are only part of the equation
Industrial process electrification driven by the huge primary efficiencies that new Elec tech industrial equipment brings is also driving and will accelerate (unless US self-handicaps to be backwards 'traditional' 60s style factories) - as well as broader electrification.
As it happens I have a cousin in N.E. in major utility mgmt whose job is grid and he was climbing the walls during Biden Admin (and not as an anti) as the mandates were not in line with the actual grid, and as a case of a line guy who climbed the ladder, he saw a huge train wreck coming with demand outstripping either Transmission or Distribution ability to effectively handle.
and as originally a blue-collar guy, he knew the hands on problem of even under blue-states Regs & Permits situ getting marginal expansion done in a timely way or marginal upgrades or servicing... slow, and slow = more cost....
Transmission expansion is slow, expensive, ugly, and thus extremely unpopular politically. I just saw a post from a Louisa County substack detailing a pretty lively political fight to build a new transmission line within Virginia. It sounds like it will have a very visible effect on the affected communities.
Maybe look at more generation closer to where it gets used instead. At data centers, in brownfields and over parking lots and offices for residential. Some data centers have proposed building their own dedicated power plants.
It's no easier to get gas pipeline permits than transmission line permits.
Now, if the Maine NECEC precedent were applied generally - once a permit is issued and work begun, the permit can't be revoked or the project made more costly made more costly by any changes afterward - the problem would be 90% solved. But that was clearly a "one law for things MA wants and a different law for everyone else" situation.
I was working at the Princeton Plasma Physics Laboratory (non-scientific part of the staff) when in August 1978 we had the biggest!breakthrough!ever! on fusion power that promised to lead sooner rather than later to commercial power. For a period it was the biggest news story perhaps in the nation (except in the NYT which was on strike at the time).
Needless to say, we're still waiting almost fifty years later.
Well on one level fusion technology is now actually reaching levels where it is no longer fantasy to think that execution might be achievable in say my GenX lifetime, so much more than 70s.... (and AI support to solve the devilish plasma problems)
On other hand counting on it for either decarbonisation or solving energy issues in current (10yr) timeframe is beyond silly.
I am absolutely pro-nuclear (fission) but it's magical thinking to see SRMs making grid upgrade and expansion not-needed as a general matter.
AWS is making a deep-pocket play on risk diversification.
It is entirely rational play to make. But it is deep-pockets private capital play that should not be mistaken as the basis for a national policy OR mistaken for something that is ready (commercially, technically, etc) to be deployed in a manner that would make it in the least a practical near-term solution that would replace need for grid modernisation / upgrade and expansion (although equally even if SMRs [why do I keep writing SRM, I shall claim dyslexia or I just a shitty typer] were of such maturity, the idea that the grid does not need expansion and upgrade is just nonsense technically and economically period, esp. on nonsense NIMBYism like grid is ugly).
It seems people have trouble with the Fallacy of the Excluded Middle with black-and-white either-or thinking.
Noting that SMRs are (a) unproven, (b) not yet liscended, (c) have faced on deployment severe challenges (as unproven and not yet scaled tech) does not = Opposed to SMR.
Quite the contrary, I think the development needs to be pursued and it is perfectly appropriate for deep-pocket private capital to make the moderately risky bet on these as it is such capital that will be needed to allow SMR to work out kinks and become viable.
BUT it is delusional magical thinking to have a national policy that bets on SMR and opposes grid modernisation.
Regrettably the most promising SMR approach I am aware of is Danish which makes it no-go for US...
In any case, immediate execution of grid upgrades on multiple technological paths - new transmission wire tech, adoption of direct long-distance as the PRC has done, improved grid management / smart grid is actionable now and largely held back by the overall archaicism of the US power grid regs, policy and operators that remain resolutely stuck in 70s thinking.
Oh, and I should add - best guess as to WHY Dominion Power would be trying to build a major power transmission line from Louisa to Northern Virginia would be that they anticipate expanding nuclear capacity at Lake Anna.
So this specific plant probably would not stop that specific line.
Building existing traditional reactors at existing traditional facilities sounds like a reasonable (if extraordinarily expensive) plan. It’s the ubiquitous short-term deployment of SMRs and fusion to power AI data centers that isn’t going to happen. Nor are data centers in space. This is all bubble talk.
The links are to projects announced as having current agreements.
Lake Anna already has two existing nuclear power plants. Putting another in is not a fantasy, especially as it is currently seen as a more publicly acceptable option than the alternatives.
What China is doing. I would copy them slavishly, particularly their transmission line buildouts and state-driven electrification plans. Huge amounts of renewables everywhere. I’d even build nuclear at large scale with subsidies using SOE-style enterprises (think the TVA), rather than outsourcing nuclear construction to the private sector which seems incapable of doing it affordably at scale. I’d treat this as a major national project like the Interstate Highway system and assume it will pay for itself in time.
Fusion my dear does not even exist. It is neither small nor local
SRMs - fission not fusion - are not yet liscenced out and in actual invesmtent reality are not modular, but really at current stage like building a normal
Getting the permits may be easier (I'm very much not an expert). But the permits don't override local opposition and flyspecking (centrally co-ordinated contesting, of every possible location based on whatever idiosyncratic criteria makes that location contestable) the way the NECEC permit did.
Honestly, just substantially upgrading existing corridors would be a huge improvement, but at the end of the day this is the same NIMBY crap that this Substack was founded to decry.
If Matt decided to focus exclusively on transmission line construction, I think it’d be very useful. This is a place where nationalization is practical, government power is very useful, and concretely targeted “abundance” policies could make a visible difference in a short time. Better yet: the people who pursued those policies could plausibly take credit, whereas broad permitting and housing reform will get you zero political credit in future elections.
It is something which is neglected, badly needs nationalisation in various forms (mostly I think practical to achieve in ways similar to the national highway system reforms of the 1950s [not perfect analogy to be sure however]) and a nationalised funding
Plus it is absolutely critical to the successful cost-effective electrification of the economy which is Double Plus Good in terms of economic effeciency and energy efficiency as electric processes are just fundamentally thermodynamically more efficient - 30-60% (depending on specific application) more efficient in Power-to-Work which fundamentally impacts economic upside, is the future, and of course reduces for Same Level of Activity actual energy needs for same level of economic activity, efficiency being how we all get richer. (this ignored detail is what is referred to in the phrase The Primary Energy Fallacy - the confounding of many of Primary Generation needed versus Final Energy (i.e. energy doing real work, not in losses).
The Iberian black-out example where Spain and Portugal got their integrated grids back online in astonishing time on what was essentially pure black-start is an added reason to engage in massive modernisation on both transmission and distribution as the US has extensively an archaic system that's heavily 60s-70s era cap
Most if not all of US grids (sadly the plural should be used) would absolutely struggle with the getting the restoration they achieved - 6-10 hours for most, full restore by about 12 hours
(on flip side that blackout was also a lesson on caution on complex interactions for frequency stability, the main apparent trigger)
But overall efficiency gains / loss reducations and ability to do continent level power arbitrage for generation has huge potential economic gains.
I'm a planning commissioner in central VA and our local/regional environmental non-profit is lobbying against upgrading existing transmission lines because Dominion would replace existing towers with taller towers. It's infuriating! How are we supposed to get the energy we need to replace our gas furnaces with heat pumps, etc.? If environmental orgs can't countenance the possibility of having to occasionally look at transmission towers in an existing transmission ROW, they are truly useless.
I have for several years - because of my Ren Energy investment / financing work come to see the Green NGOs as my enemy as the combination of Purity Ponyism, irrealism, bait-and-switch (they love to use industrial scale numbers to promo tiny stuff), and blocking everything.
Upgrading existing corridors isn’t adequate for the demand or the distribution of that demand. Not even close.
No, it’s not NIMBY to point out that generating power closer to ultimate usage greatly speeds up its availability, and avoids costly and destructive construction. You’re building it either way. A lot of the opposition is not local to the lines. It is a real and growing political problem.
Transmission is a huge bottleneck to getting power used. Doesn’t help to build it out if no one is using it.
The goal is to get power where needed, not to destroy the maximum amount of attractive countryside possible. Doing the latter just costs you support.
I am more or less fine with that (with the usual quibbles of "how do you force this outcome?"), but we're also talking about industrial facilities that require other inputs, labor, outbound logistics, etc, as well as rapid growth in electrical demand from existing and new housing for the first time in a long time.
This comment falls into the area of Completely Wrong.
Generation close to asset does not in anyway for almost all use cases speed up as generation at scale runs immediately into (a) NIMBY and (b) land availability for siting as such require major acreage.
This analysis is like the fooishness of Lefties who think Buy Local Ag is helping the world and the environment. Wrong and magical thinking.
Louisa has both a good sized technology district for data centers (which is of course also controversial, no free lunch) and extensive existing nuclear infrastructure including land owned by Dominion enough for additional plants and a huge lake for cooling. Existing nuclear plants there generate 20% of the states power.
Fiber optic expansion was slow expensvie and ugly...
And it happens and happened.
If the US is to avoid an utter train wreck in energy, grid expansion and upgrading is needed.
Data centers building their own dedicated plants means Fuck All - unless the entire siting is on same site one needs the bloody Transmission & Distribution - and almost never can one co-site the amount of generation needed for AI centers and most even bog-standard centers (never mind people don't adore have massive power plants there either, people having magical thinking - gas turbine or nuclear or whatever)
NIMBY whining and blocking is how the US got to where it is.
Louisa has multiple proposed data centers (that they are also currently fighting over, some approved, some not), so yes, potentially it would be local. There are also multiple proposed data centers in surrounding counties.
Louisa literally currently has two existing nuclear power plants at the proposed location. Has since 1978. They generate about 20% of the states energy now. The other big nuclear plant at Surry generates another 20% or so, so about 40% total of current state power generation is nuclear.
Generally speaking, people afraid of nuclear power don’t move to a county whose most notable physical feature is a huge lake originally built to cool the nuclear power plants. In fact, Louisa is the fastest growing county in Virginia, with over 15% growth since 2020. So apparently a decent number of people are good with it.
Grid expansion to take power to data centers one to thirty miles away is a LOT cheaper and less destructive than long distance transmission. That’s not NIMBY.
There are definitely cases where co-location is beneficial, and many large loads will have some form of on-site backup. But I think your comments are dramatically underselling how congested the grid is, how important transmission is for reliability, and how needed transmission is for facilitating interconnection. There is no way to get around the fact that we have to dramatically expand the transmission system and need regional/national planning, like FERC Order 1920 gets at.
We need grid expansion already - but most of the growth we are seeing in Virginia is from data centers. If you can keep that local, the problem becomes a lot smaller.
It doesn't, though. Each grid has a reliability target that determines how much generation they need. That requirement is in part a function of transmission build out, because you need less redundancy if you have transmission. It gives you a more diverse portfolio of resources and weather. If I build a gas plant on site and the customers want extremely infrequent outages, I either need to build a second gas plant or build a power line to other resource.
The load growth in VA is also increasing pressure on capacity prices in the entire region. Part of alleviating that is again building transmission to speed up resource interconnection.
As a case example of attempts at government strong arming just look at the current Australian transmission line project VNI West, whose goal is to to connect (coastal) capital cities with the vast interior regions that are sparsely inhabited but well situated for solar and/or wind.
There is already imminent domain of sorts ("compulsory land access for transmission lines are already in force under the Electricity Industry Act"). But what do you actually do on the ground when a farmer blocks access despite that law? One group of farmers has said:
“It’s going to be a war, essentially, and people are prepared for it,” he said.
“People are prepared to go to jail for this. It’s going to be a bit of a massacre, I think, when it happens, but it’s going to happen.”
So first there's just the terrible optics of putting dozens or hundreds, possibly thousands if things snowball, of farmers in jail.
But more prosaically, all that pushback adds cost. Every invocation of imminent domain costs money because staffers need to do tons of paperwork to dot-i's and cross-t's. Politicians spend limited time debating new laws for carrots & sticks. One law being debated would add new penalties for refusing access to land ($12,000), failing to provide identification ($4,000), and removing official notices ($1,200). Another would provide them "payments of $8000 per kilometre of typical easement area per year for 25 years, indexed to inflation. This payment is in addition to the existing compensation arrangements for hosting transmission."
Net result is not only is the project now 2 years behind schedule and several billion dollars over budget.
Not to mention all of this becomes fodder for any opposition. In any political system, the opposition is going to see this sentiment and adopt it as their partisan rhetoric to court votes: "We're against any and all transmission lines and these fines are illiberal and authoritarian and go against our ideals as a nation".
As we saw with Trump recently, even politicians with authoritarian tendencies to deploy brown shirt troops, are sensitive to public sentiment and back down.
"Just do it" doesn't even really work for Trump with immigration enforcement, so what are the chances a less authoritarian politician attempts in on a less salient issue?
You make is sound like it's this impossible thing. But we have done this before, in our country with the highway system. We bulldozed whole neighborhoods to get the highways built.
If people interfere you arrest them.
As for the politics, the key of course is doing this in a bipartisan bill. That means you will have to give goodies to the other side.
I feel like the actual history of the highway system isn't quite what you're suggesting.
The project declared "Mission Complete" in 1992. It began in 1916, so if a 76 year roll out isn't what you envision, it might not be the best model.
And it wasn't actually completed in 1992 anyway. Both I-95 and I-70 weren't completed due to local opposition. Nobody went to jail. They just stopped it from happening.
I-40 was changed due to local opposition. I-66 was cancelled. I-69 was cancelled. I-70, I-80, I-83.
There's an entire Wikipedia page on all the cancellations, not to mention the entire history of "highway revolts" on things that are arguably a different thing, showing local opposition to the Dwight D Eisenhower highway system often won out and literally nobody was put in jail for it.
I'd prefer for it not to literally go through my backyard (I already have a telecom/power pole there already) but if I can see it from my house that's fine and dandy.
Distributed generation is good too. But for places with little sun and wind (PJM/east coast), we need to transmit the energy from where it’s generated to where it needs to go (transmission lines)
Getting transmission lines and then disribution upgraded as physical infra already is going to take more time and complexity than snobby eggheads used to moving words around (of which myself before I started doing physical infra financing) think.
Perhaps but.... In the early days of blogging I blogged while at my first PE fund, then I started getting journalist calls.... put me off public visibility. Certainly in current US environment I am very allergic
Loved the wonkiness of this and glad Matt is digging into this. Utility regulation doesn't get much attention aside from occasional superficial "the rates are too dam high" takes.
My opinion on the competitive generation vs centrally planned generation debate is that the electricity sector more dynamic and less predictable than it's been in decades. When times are uncertain and rates of innovation and risk are at their highest, market competition generally does much much better than central planning.
IMO, looking at a paper analyzing electricity restructuring in 2008 misses the biggest stress test of restructured markets we've had so far. When fracked gas dramatically lowered the cost of gas generation vs coal, restructured markets proved themselves much better at reacting to the shift and at saving ratepayers money quickly. Uneconomic coal plants were retired much faster in restructured markets because investors knew their plants were sunk costs that couldn't and wouldn't be able to compete. They ate the losses and moved on. In monopoly markets, regulators didn't want to admit to the huge losses that would show up on ratepayer bills as stranded costs. So they kept the uneconomic plants running for much longer at ratepayers' ultimate expense.
The example above shows the real benefit of competitive generation. The main distinction between the two models is who holds onto risk. In the competitive generation model, investors hold risk and if things don't go as expected (eg a plant becomes uneconomic), they take the hit rather than ratepayers. In the monopoly model, ratepayers hold all the risk and have to guarantee payments to utilities even if a plant turns out to not be economic down the road.
The thing is, we're in a period of rapid load growth from data centers and electrification. On top of that, innovation on the generation side is going like gangbusters. Ten years out, we just don't know what load will be or what the most economic generation mix will be. This dynamic environment is where competitive markets outshine central planning by a huge margin.
IMO, anyone that thinks monopoly regulation of power generation is going to serve ratepayers better over the next 10 years is badly mistaken.
This is an interesting comment. Do you have a more detailed citation supporting that narrative? I'm struggling to find something that paints it as cut and dry as you are, especially when the plants retiring in ISONE/PJM in that period were on average, older (as far as I can find), than plants in vertically integrated portions of the country. It does seem like a larger percentage of coal plants have retired in destructed areas, but in gross quantity vertically integrated utilities have retired more.
If a coal plant is depreciated, then it's not in rate base anymore and can be run in a manner that saves ratepayers money, but if you environmentally retrofit it, then you're adding expenses back into ratebase. Anyway, just curious if you have something walking through this.
On your last point, I do think someone can make an argument that in a well-regulated vertical structure would allow for clear cost allocation to large loads, whereas in deregulated structure the prices are going to hit everyone in the energy and capacity markets who isn't hedged with bilateral agreements.
In response, first I'd assert it doesn't matter if a coal plant is brand new or very old in determining retirement economics (let's ignore repair /upkeep costs). It's short term variable costs going forward that really matter. Plant capex (whether depreciated or not) is a sunk cost. This is often called the sunk cost fallacy. If a coal plant's opex is higher than a competing gas plant's going forward, the economic thing to do is likely to shut it down (ignoring capacity or other system benefits). This is even more true if the coal plant's opex is higher than capex+opex for building new competing generation, which was often the case.
On the cost allocation for large loads argument, I agree it's tricky to get the cost allocation right with competitive generation. OTOH, if costs can get assigned in a vertically integrated model, I don't see why they can't get assigned in the competitive model using out of market surcharges of some sort. Really it's the same challenge in both cases - figuring out the net cost shift a new large load is likely to cause. Also, the non-generation part of the cost-shift (tx, dx, resilience) has to be figured out as well in both cases, and that could be just as big or a bigger line item.
"if costs can get assigned in a vertically integrated model, I don't see why they can't get assigned in the competitive model using out of market surcharges of some sort. Really it's the same challenge in both cases - figuring out the net cost shift a new large load is likely to cause"
I'm enjoying this discussion, but I don't think I agree here with your assertion. I don't think we can ignore the repair/upkeep costs because those are significant! The O&M costs aren't going to increase linearly with age, but the coal plant will have more maintenance needs and more forced outages as it gets older. Due to longer maintenance needs, the plant's accreditation gets worse, and it won't earn as much in the capacity or energy markets. For much older plants, the parts are less common and more expensive. So if you're a 40-year old plant in PJM in 2010, maybe you see that you have expensive retrofitting to do ($200m+), and as you said you're not getting dispatched in the energy market with the amount of new gas on the system and won't make enough in capacity payments to stay online. Or you won't even clear the auction at your $/MW. But if you're a few years away from the retrofit in a vertically integrated utility, you stay online through the gas boom. However, I mostly agree with your narrative partially explaining what is happening, to be clear.
On the other point, in the deregulated model, the issue with cost allocation is the RTO likely is not (and may not be able to) going to assign charges like that. IIRC PJM has a co-located load proposal right now that doesn't look like what you are describing. If Virginia is adding load at a rapid rate, that puts upward pressure on capacity prices and LMPs for everyone in the market. But vertically integrated utilities are mostly bringing all their own capacity to the auction and self supplying, so they're always going to be more hedged. Then within the utility that is contracting with a data center, the regulator can assign new capacity costs in the tariff to the large load.
Look, I'm a defender of the well-regulated vertical utility model, having previously worked at a commission, so I'll be up front that I'm biased :) but the literature has never concluded that deregulation lowered costs for retail customers
Sorry, I didn't mean upkeep should get ignored. I was clumsily trying to simplify and shouldn't have even mentioned them, since they're already included as part of opex. But again, the key to the decision is whether the go-forward costs (incl upkeep) make the plant competitive. Sunk capex doesn't factor in.
In terms of cost assignment for new load, I agree it'll be a political and legal mess to get this right. I also agree that new large loads suddenly showing up will shift-costs to incumbent loads (and ratepayers). The crux of the challenge will be pricing that and assigning the cost. Maybe you're right that jurisdictional/legal challenges will be too tough with the ISO model versus state regulated monopolies, but I'd guess FERC can make the needed rule-changes just as easily (or maybe more easily) than state legislatures.
This is getting out of my depth, so I don't really have a strong opinion on how the cost-allocation stuff will work out except to say it'll be a tough challenge with either model and I doubt either will get it even close to right. OTOH, my original point about who holds onto risk still holds and I just don't think it's likely to work out for ratepayers if they get stuck holding all the risk right now.
One huge factor is that a lot of the DC buildout is not actually on the balance sheets of the tech majors. The ownership/finance models are often pretty byzantine and there's likely lots of hidden counter-party risk in many of the contracts getting signed around this stuff.
"I also agree that new large loads suddenly showing up will shift-costs to incumbent loads (and ratepayers)."
I don't see why that needs to be the case. Why can't you have a policy (or mandate it) that new large loads need to entirely pay their own way? There is no reason why existing rate payers have to absorb part of the cost for new generation.
This depends on the participation model. If one participant in a deregulated market is adding a high amount of load with no corresponding generation, or it takes longer for generation to interconnect than the load (generally the case), capacity and energy costs go up for everyone participating. Look at the PJM forward capacity market. Maybe your provider didn't add any load, but if they're exposed to the capacity market, then you're going along for the ride.
In the wholesale energy market, deregulated areas or not, there isn't really a clear way to isolate cost increases to a large load and make them pay that share. At a minimum you would be doing two runs of the market solve, with and without the large load, but no one is doing that. It's an interesting question
The trick is figuring out exactly how much the cost shift would be and figuring out how to structure the charge within existing rules and laws.
Also, the relationship between the size of the load and the cost-shift isn't straightforward. If the new load can "flex" and reduce consumption during peaks (either by idling or firing up onsite generation during peaks), the new load could actually reduce costs for everyone by increasing utilization rates of existing infrastructure (eg move more kwhs through same fixed cost grid infrastructure). OTOH, if generation supply is already tight or even a little tight, there probably would be a cost-shift.
"but the literature has never concluded that deregulation lowered costs for retail customers"
I have seen a fair number of "mixed results" type analyses but never a thoroughgoing hypothetical analysis comparing projected rate trends before and after deregulation. Depends on the market structure and dynamics of each unit being deregulated.
I'm not saying the discussion is settled by any means. But the academic literature doesn't support what I've seen elsewhere in the comments, which is presenting it as a fact that deregulation has lowered prices.
Is anybody really proposing this though? Almost half country is already served by deregulated markets and if PJM ever figures itself out that will add another 20%. I agree that competitive generation markets are essential to accommodating future growth, especially in solar and battery buildouts, which have and will continue dominate new supply, but also for emerging sectors like advanced geothermal and non-chemical storage systems. But that doesn't get us transmission, which needs some independent deregulation/reformation legislation. There are a few successful merchant operations out there, but also a lot of painful failures. Regulatory capture by incumbent utilities is the biggest issue.
In terms of proposals to eliminate/change the competitive generation model, I'd say there's a steady drumbeat of background noise on that but nothing has picked up steam. One common thing is distribution utilities in restructured markets trying to justify getting back to owning/rate basing some generation for some reason (eg a clean project that market won't build, etc). There's also a lot of talk of distribution utilities owning battery storage in restructured markets (maybe some already do, not sure).
Of course, incumbent generators throw a fit about all of this, so the politics make it unlikely to go anywhere, but it's in the background. There's also a steady stream of think pieces and papers about vertically integrated being better for this reason or that.
You’re a bit off on this one. Deregulating grids has consistently lowered prices. It also makes it easier to build because you can finance speculative power generation based on hedged forward merchant curves. A lot of power gets built in Texas not just because they let you build, but because you can secure financing based on a forward hedge of the market price. If you need a power purchase agreement for every new build, it increases the time to build significantly. In Texas, you essentially have the power version of wildcatters building speculative generation capacity without having to sign a power purchase agreement first.
The winter power spike issues Texas experienced weren’t because their grid doesn’t work. They happened because Texas intentionally chose not to have a capacity payment structure.
Actually keeping customer power bills down with all this new demand is going to be incredibly difficult and could require a complete market restructure. I’ve been out of the industry for too long to have a strong current view, but I’d talk to some people about this. For regulated utilities, power is priced on a return on capital investment. For states with deregulated utilities, which is a lot of them, it’s a reverse auction system. Since the marginal cost of new build is above the cost of existing infrastructure that has been fully depreciated, any additional power consumed on a sustained basis will push up the market clearing price.
See if you can find some investment bankers to talk to about this. After you’ve bought and sold a bunch of power assets across different markets, you develop a good feel for what buyers are looking for and what the market can bear. I worked on a deal about 10 years ago where a large wind farm was built in Texas instead of California, even though California was offering significant subsidies, simply because the cost of construction and the construction risk in Texas were so much lower.
Bankers have their issues, but they have a very neutral “what makes money” view. They look at the market the exact same way the decision makers at large utilities and development companies do, because that’s what they’re paid to do.
"You’re a bit off on this one. Deregulating grids has consistently lowered prices." For whom, and are we talking retail or wholesale prices? Retail prices increase faster on average in deregulated states, and are also higher on average, even when we account for things like climate. At best I think you can summarize the academic literature as saying there is no conclusive evidence it lowered prices for the residential end use class, but iirc there is evidence supporting that more knowledgeable industrial customers have benefited
Speaking as a natural gas market analyst, the dirty little secret of why the ERCOT approach works is that the places where people live (Texas Triangle) are close enough to the producing basins (west Texas, east Texas, south Texas) that the oil and gas producers can reasonably backstop the needed gas pipeline capacity investments to move their gas to the liquid markets near where people are.
The Southeast utilities fund gas pipeline capacity investments because they have a rate base. Pennsylvania and Virginia are similar to Texas in that the producers can afford to fund it, same with the Rockies.
Everywhere else is kind of screwed--there's plenty of gas in the ground, but the gas pipeline development model (committing to pay $X/MMBtu for 15+ years, so the midstream company can raise project finance) and the deregulated power industry model really don't work together at all. Gas-fired generation has grown so far by free-riding on gas pipeline capacity funded by either producers or gas utilities (who do have a rate base), but this is not going to work in an environment when gas utilities' demand isn't growing but gas-fired generators' is. It's why the DOE plans to keep coal plants around aren't as insane as they seem--the coal plants have a stockpile on site.
Nothing will undermine the role of gas as a decarbonization fuel faster than a reliability crisis sparked by having enough gas plants but not having enough pipeline capacity to get the gas both to them and to utilities.
Is it completely impractical to move gas in some way other than pipelines? (genuinely asking, since you seem to be an expert on this subject) what about LNG trucks and tanks?
A standard 36" pipeline carries as much gas per day as 2000 tankerloads of LNG. You can move gas without pipelines, but it's dramatically more expensive and considerably more dangerous.
What if you have 2000 individual tankers going to a bunch of smaller, more decentralized factories? Just thinking out loud here, but you don't necessarily need a ton of energy to run, say, a paper mill, or something making very specialized high-end equipment.
As I understand it, part of what makes gas generators more efficient is the extremely large generators that are now built. If you scale them down, I think you lose efficiency.
Pipelines are very unobtrusive (you can bury a 6-inch pipeline in a suburban yard, run it under railroad tracks, and etc), so unless there's concerted political opposition, they're not usually particularly controversial.
short answer is that it's not crazy, especially since the real reliability challenge is for the peak day, not everyday usage. But to Sam's point, LNG is really, really expensive. The liquefaction process in particular (you need to be running it every day for the capital costs to make sense) and to a lesser extent keeping it cool all the days you don't need it. Notably, New England does have some distributed LNG storage, but it's pretty small relative to peak-day needs. Not crazy to think this could scale up given the trajectory we're looking at.
Democrats have routinely opposed “everything” for decades. The Sierra Club even opposes Fusion Reactors, which produce no radioactive material. When you have a party that wants everyone on bicycles and believes energy should be free, you are right. Where do you go?
NYMBYism is not strictly a one tribes problem. I remember when Sen Kennedy opposed a wind farm off of Martha’s Vineyard. Now, Trump opposes wind generated enegery and wants even more coal plants. CA politicians wanted to lower fossil fuel inputs to its grid, so it closed down nuclear plants and oil-fed plants, only to now be dependent on out-of-state utilities.
This has disrupted energy supply in the state and, at times, caused brownouts. I am in favor of making date centers produce their own energy through small modular reactors and or natural gas-fed generators. Of course, the issue is that we cannot manufacture the numbers required.
Just recently, Utah is going to run a test on an SMR, but like everything else, it will take time, and I have no doubt some environmental group will sue.
None of this may matter. While Germany is deliberately starving itself of energy by shutting down their nuclear reactors, with their insistence on wind and solar, it may be effectively shutting itself out of the AI boom. The same here.
The anti-AI numbers among the public in America are growing. The demand for electricity is only growing and is a problem we are unable to meet. China generates twice the electricity, they may win the AI race because of it.
The Sierra Club basically just wants a world with some roof top solar and living standards that hover right around where they were before the industrial revolution.
If Americans ate less meat, we would free up a lot of land that could be re-wilded, and that would achieve what the Sierra Club wants without taking anyone back to "before the industrial revolution."
There is room for more of both. The rise in wealth of the west has been accompanied by substantially more forests, cleaner water and air. Environmentalists are often a threat to this green flourishing, not a protector. Extreme environmentalism is a destructive, human-hating, self loathing religion.
Before the industrial revolution people ate much less meat because it was more expensive. You're just picking a pre-industrial state that you personally enjoy.
My point is, just reducing your meat consumption is nothing like *going back before the industrial revolution* (no electricity, no modern medicine, no food other than what grows locally, 25% infant and young child mortality rate, etc.)
It seems like what they want is a Hallmark Movie small town that exists by itself in nature. All the industrialization and technology that support such a place are assumed away, yet the fruits of it magically appear as needed.
The dangers posed by the probable releases of tritium used by fusion plants, the problems with decommissioning these plants, and their high costs lead the Sierra Club to believe that the development of fusion reactors to generate electricity should not be pursued at this time. We are not opposed to safe and proper research as long as it is not at the expense of more benign "soft energy path" technology.
The comparison to China is a little misleading because per capita electricity generation is what matters to standard of living. It’s interesting to compare this across countries: https://en.wikipedia.org/wiki/List_of_countries_by_electricity_consumption. In some ways it might even be a better measure of standard of living than GDP per capita (like if you go off of GDP per capita, Cuba is close only slightly poorer than China while being dozens of times richer than North Korea, while going by electricity consumption per capita, Cuba is close to North Korea while only being a fraction as rich as China—that seems a lot more realistic). And because nearly all our modern goodies are based on electricity, the fact that many countries are consuming almost no electricity is shocking and suggests that the people living there are suffering the harms of modernity without any corresponding benefits and may be worse off than their preindustrial ancestors. There’s a lesson about the risk of AI apartheid in there.
Matt's chart truly is stunning but it's worthwhile to point out that in the past 15 years, China's rate of electricity growth is only somewhat greater than India's (whereas in the previous 25 years, China's growth rate was twice that of India).
Needless to say, India's gross and per capita electricity generation is still way below China's, but that gap may not persist indefinitely.
Climate control. Quebec and BC hydro and a nuclear build-out that was pretty large on a per capita basis ensure that even with resistance heating, electricity was competitive in much of the country. Now that cold-capable heat pumps are commercially viable and increasingly cheap (I installed a basic model built by a domestic manufacturer last year, for which the cost of the unit was US$4700), it's really going to dent natural gas as a heating source even in Ontario.
If I understand correctly, the final rate for residential customers in Quebec, including distribution charges, works out to around US$0.07 per kWh, which is a third of the cheapest rates in the NE right now, which are already found in places like DE, PA, and OH, not NY, MA, or NJ.
When you say you installed a heat pump, do you mean you personally? I can't find any or the more efficient models that will sell to me directly as a consumer, and instead require I pay an installer to do the work.
I used my usual HVAC guy for the physical install and then did the technical side of the configuration myself since he'd never installed ducted heat pumps before, only the very basic minisplit models.
This is a pretty basic model that doesn't really use or want a communicating thermostat, the control unit in the condenser does most of the thinking for it in setting condenser and air handler fan speeds to optimize performance and keep up with heating needs.
Yesterday: The party needs fewer big ideas, not more
Today: Democrats need to think bigger on utilities
Today's take is better :)
Good ideas are good. More good ideas are more good. They don't have to be expensive, and in fact might be money saving. Might include institutional, administrative, legal reforms. Having your brand identity be that of generating and executing good ideas is good.
Matt outlined the three basic flavors of production/delivery, and compared the second two a bit. But what about publicly owned utilities? What are the tradeoffs between investor and publicly owned?
The piece doesn't explain the headline "Democrats need to think bigger on utilities." It outlines a serious problem that government policies need to address, be it Republican or Democrat government. That is, unless Republicans have already figured out a good solution.
Republican aren’t also trying to drive a lot of increases in load growth (EVs, heat pumps), or at least they weren’t until data center boom started, they’re kinda just OK with the 2008 mentality.
If anything, some of them are trying to go all Canute with the tides by forcing people to buy gas cars and gas stoves even when they want electric/induction.
On the utility ROI question, I have a radical and hugely unpopular take. Under current monopoly regulation model, regulators set a guaranteed ROI that utilities earn on all capital investments. The flaw with this approach is that the ROI is a one-size-fits-all blanket rate that isn't tied to the riskiness (to the utility) of specific projects.
This results in misaligned incentives. Finance 101 says ROI should be tied to the riskiness of future cash flows. Meanwhile, utilities earn the same ROI for replacing a 70 year old transformer with a new one that uses the same tech as they do for overseeing a risky reconductoring project using state of the art tech they've never used before. The same thing happens with things like implementing VPPs and demand response. This setup gets the incentives all wrong and makes utilities shun new tech in favor of more tried and true, and often less efficient/effective, solutions.
One way to fix this is to restructure utility ROI to make it project based and tied more closely to risk of a specific project. This gives utilities some skin in the game to try innovative and riskier tech rather than relying on outdated tech. As an extreme example, utilities could be forced to finance mundane capex expenditures like transformers using ratepayer backed muni bonds instead of getting any ROI. After all, this sort of capex is really more like opex from a risk standpoint. Why should utilities earn any ROI for what's essentially a risk free project management task?
It is reasonable to not want ratepayers to bear the costs of additional utility infrastructure — higher household electricity costs are one of the most regressive financing mechanisms on Earth.
That does not seem "reasonable" at all and certainly not if it means residential ratepayers. Yes there is dilemma of wating users to pay marginal costs in a highly capital intensive activity where marginal cost is not going to cover total cost, but there is nothing special about electricity in this. And we do want ratepayers as a group to pay for the costs of additional infrastructure -- electricity, transportation, water and sewerage, whatever.
We do in fact regularly ask new customers to bear the infrastructure cost for water, sewage, and transportation -- this is written into the zoning and development rules for many places. And to the degree that we don't it's a major argument used against new development.
Rural and exurban areas typically don’t have public water and sewer. Well and septic are private.
If I remember correctly, it costs about 60k for enough solar and battery storage capacity to independently power an average sized home (at least when I priced it out.)
Are you fully grid-independent? Because using the grid for time-shifting is a huge expense shift from the solar-and-battery approach (expenses shift from the user to the grid overall).
Pretty much, but not completely. When we have extended rainy periods (like last week), I need to go to the grid for a third to a half of that day's consumption. Other than that, I rely on the grid for at most 10% of my demand because I lock my batteries at a floor of about 40% reserve capacity (you know, in case a pesky earthquake decides to come along unannounced).
So while I do impose *some* cost on the grid, I'm also providing a ton of free electricity for them when I export my excess.
Really more thinking of it as an analogy to more decentralized power generation in general, which removes the lag and expense of major transmission costs.
No, it’s not. People should pay for what they use, and that’s not a controversial statement, it’s literally the basis of the entire economy.
We would NOT say the same thing about agriculture, smartphones, or ANY other consumer product. “It’s reasonable for people to not want to bear the costs of Apple building an iPhone plant” sounds ABSOLUTELY FUCKING BRAIN DEAD, because it IS.
The plain fact is, the biggest source of utility infrastructure costs is the “last mile” problem. And guess what exacerbates that? Sprawl and low density! The best way to minimize per-person infrastructure costs is to build dense housing. Period. This is a no-brainer.
I took him to be saying that long distance transmission, not last mile distribution, is the bottleneck in our grid today.
I don’t know which of you is factually correct, but his contrary claim seems perfectly coherent to me so I don’t know why you are yelling at him instead of refuting him (for my benefit since I am too lazy to look into the issue myself!).
Even if he’s superficially on the right track, I’m not going to reward kookery. SB here is an inherently intellectually snobby space — there’s a reason why we’re not inundated by cranks like ACX or FdB.
Kook, I am writing as someone who actually does energy investment who pointed out your riding the suburb sprawl we must have housing density Hobby Horse of urbane urban Leftie is not relevant to the issue. And for clarity, I love urban density and am 100% in favor of it. However, that is not the real issue on energy.
Now if you want to declare Snobbery, well voila here is a fine example of the Failure Mode of the Democrats and notably the Progressives over the past 10 years.
Pretentious snobbery and twattery doesn't serve you except to continue the idiocy of BlueSkyism.
You don't necessarily want to build all of your residential areas right next to your power plants; he's not talking about inefficiently distributed rurals requiring wasteful levels of infrastructure. Falous has an odd way of writing but it's fully intelligible with careful reading (and it's good stuff too!).
Even conceding his point, though, as soon as we fix transmission — which is a SINGLE national permitting bill away — we’re right the fuck back to fixing the last mile and building more actual capacity.
Transmission suffers from one big man-made obstacle to an otherwise difficult but totally solvable problem. Last-mile is only solvable if we fix density — in fact, if we fix transmission, last-mile all of a sudden becomes a HUGE problem, because transmission is bottlenecking sprawl in lower-tier cities that are currently facing the same densification pressure as higher tier ones.
IMO, you're oversimplifying the transmission challenge.
Permitting is a big problem and a national fix would help for sure, but imo an equal challenge is opposition from skilled lobbyists working for incumbant generators..
Power plant owners generally don't like competition and more tx means more competition. These folks are very adept at using political power and even astroturfing to block tx projects to protect profits. Permitting reform may make their job tougher, but they'll likely seek out other ways to block projects that put profits at risk.
Permitting reform is only start point and it's exactly the kind of naivete that hamstrung the Biden Administration (whom I was initially quite favorably inclined to).
Transmission is not merely permitting but equally financing and new tech
And tranky you have no bloody idea what you're talking about re distribution systems: it is not "only solvable" to fix density - which is a decades long issue to resolve (density in any case driving up not reducing power line costing)
The fixed costs of power transmission infrastructure are mostly geographic in nature. More people in a piece of lands means that you can divide those fixed costs more easily.
In lieu of starting a dumbass flamewar, I’ll leave you with a dumb old joke you reminded me of.
I knew this chick in college who would, whenever she couldn’t quite hear what someone had said but kind of intuited from tone that it was intended as an insult, would respond in this really loud voice, “tWHAT did you say?” and keep repeating the “tWHAT” to make it even more obvious that she was calling the person a twat. Pretty sure she was carping from an old SNL joke, but she executed on it pretty well.
Sprawling rural areas have LOWER - not higher - electricity costs - compare KY and MA. Yes, it's less miles of infrastructure per kWh, but it's vastly cheaper to maintain infrastructure where there's enough space that you don't need to bury powerlines, and close roads to service them.
It’s not “MA = cities vs KY = rural”; MA’s rural areas are undoubtedly more costly even than KY’s, and that’s mostly due to differences in state regulations and price levels.
But what I was talking about is that it’s cheaper per unit to wire up a 300-unit 5-over-1 apartment building with a single interconnect than a SFH subdivision with several miles of cabling to build out and maintain. A city that packs 500k people into 5-over-1’s on the same footprint as a 100k SFH suburb may still have higher total costs and “look” more expensive, but the per-unit cost is lower.
I think we shouldn’t mistake a cost crisis for wealth.
Kevin Erdmann puts it best when, to paraphrase him, he basically says it’s not a sign of wealth that his adult children live with him and thus increase the household income ratio well into the stratosphere, because the plain fact is they’re living with him to avoid paying absurd rents or overpaying for a house.
Sure, those overpriced houses are SOMEONE’S wealth, but they’re not a healthy form of it. If we had a functioning housing market wherein several million Millennials and Zoomers were 25-50% paid down on mortgages for various condos and houses — like my city of 500k in 5-over-1’s — that’d be a MUCH richer and more prosperous society than the city with 100k people, many of them bunched up in their parents’ stratospherically inflated homes because they can’t afford to buy one themselves.
Except the housing cost issue has very little to do with sprawl and much more to do with housing regulation limiting *all* building. In fact, sprawl is the biggest reason the cost issue isn't worse as there are areas that can actually build in the country.
To be clear, I'm very supportive of allowing more 5-over-1s. But also recognize that while many people love living in those, *most* people don't. And if NIMBYism was truly sent to defeat, there would be far more townhouses, rowhouses, and SFH built than 5-over-1s.
Which is good! I'm fine with people paying more to get what they want. I don't want people to pay more because of bad regulation.
Correct, both distribution and transmission assets are at scale cheaper to execute on in rural for multiple reasons (rights of way, but as simple as the actual space to execute the work on)
In any case for any of the coste effective power generation soucing - utility/industrial scale PV, utility scale wind, utility, NatGas peakers, Nuclear one generally needs to place not smack dab in your residential or urban areas, ergo
TRANSMISSION - and solving transmission congestion which is now one of the critical binding constraints of getting connection even for wheeling power for dedicated own-gen
I think I did not make myself clear. I was just pointing out that the prpbem of marginal cost picing not covering investment cost is pretty general, not a prolem for just electricity use.
Fair, but your phrasing made it seem like you were arguing for something VERY different.
To be charitable, most normies, who we all know are very dumb, DO think it’s reasonable to only pay marginal costs. They think capital expansions are all magically paid for out of the wild monopoly margins they assume utilities are making, and they think it’s an illegitimate failure of market capitalism that digging into those profits is seen as a bad thing on the stock markets that actually PAY for capital expansions.
Which I kinda sympathize with! I wish market capitalism didn’t routinely fail us like this, didn’t sacrifice us on the altar of shareholder value!
But I also think those people are dumb, and that expecting stuff you benefit from to get magically paid for is dumb.
To the extent it’s “reasonable” from a political reality standpoint can’t it be addressed by some simple regulation in electricity pricing structure? E.g. a household’s first X MWh are at a base price and above a certain usage level the rate increases?
Yes, I did not mention that the kind of two part schedules we have now is almost the reverse of pricing the marginal use at the marginal cost of genertion on a real time basis.
Getting power for data centers is a trivial issue. Big tech is swimming in capital. All it needs to build captive solar and wind farms is permitting reform. Ideally, it would be able to sell excess load to the grid at a Pareto optimal price, but the big boys have enough capital to eat a bit of waste.
Not trival as congestoin in grid unless co-sited is a huge issue - this is a physical infra problem.
Capitive self-gen - which is what I finance in part - unless it is co-sited (which is not always possible, and almost always nowadays not investment optimal on overall sizing) needs to be able to wheel power to consumption point.
this needs at minimum back-bone distribution reinforcement and typically transmission upgrade.
There is significant new grid tech (even wire advancements) to enable this even within existing footprint, but it requires immediate investment action as physical infra needs time,
Not that permitting reform is not also massivley desirable for the generation assets, but reform on Grid, that's the ignored point - the overall grid regulatory set-up is set for a slow moving incremental situation that has prevailed since the 1970s or so. It needs to change and rapidly and at scale.
Humor me here. Why not build your data centers where the sun is? You frack where the oil is, why not manipulate data where the electricity is cheapest?
I don't finance data centers(RE assets going with but not the centers) but generally understanding
(1) Siting for Latency, notably re AI but not only
(2) Cooling costs and water availability (although there are new approaches to cooling to mitigate) - data racks produce internal heat that is incredible when running flat out
But this is not my area, only my 2nd hand understanding from being involved in the RE side of such things (domestic, and international, obviously international nicer biz at the moment).
It is necessary to add that Data Centers are not the sole driver and in certain areas not even the major driver on elec demand, generalised electrification in industrial processes is significant, it's a popular error to see this uniquely via data center lens, they are partially scapegoats.
I don't think most voters in the Northeast are aware of how much more than pay than residents in other parts of the country. We're in many cases paying 2x what they are paying in TX.
Dismissing the work of Rocky Mountain Institute and Amory Lovins as "downstream of the degrowth strain of environmentalism" reveals a profound misunderstanding of what RMI and Lovins' "soft energy" is and has become over the decades. Although Lovins' original PhD thesis work of 1976 was motivated by a desire to eliminate the need for nuclear power, it is actually a proposition for increasing global standard of living and quality of life via a very obvious engineering principle: efficiency first. Lovin's organization pursues this goal through coordinating research and advising corporations and states on efficiency measures that deliver significant operating cost reductions while preserving or advancing living standards.
That's not degrowth - that's smart growth. It has been used in the corporate sphere - Walmart's distribution network upgrade is a famous early success - as well as by several U.S. states and emerging economies - India and China have been two long-time clients of RMI. Lately a notable project has been to accelerate the development of high-efficiency air conditioning to support climate warming adaptation efforts. The results have seeded productization of air conditioning systems that are up to 5 times as efficient as current technology.
With the rise of AI and its vast energy demands, the whole economic infrastructure, energy grid, and energy use profile has to rapidly become more efficient to support it. RMI has been wildly successful in using ROI strategies to do this. Yes, they remain skeptic of a heavily nuclear power grid. But they're not stupid, and they know that the solution to our energy demands requires more than just power generation. The success of their approach has been well-documented and will be absolutely essential.
The Lovins of 1976 is not the Lovins and RMI of 2026. We dismiss their holistic engineering approach at our peril.
As an investor in industrial scale RenEng, Grid. Grid. Grid. My obsession during the Biden Admin where they were not taking this seriously - time to build out this infra is not like playing in IT.
Transmission (long distance), Distribution (local)
Interconnections (regional interconnects) expanded and reinforced to enable at-scale power exchange and RenEng timing arbitrages to reduce issues of wasted production and equally
Capacity on existing lines (lower cost up-front capital upgrade w new tech) increased to reduce congestions.
Expanded lines
Without grid expansion like crazy, RenEnergy is going nowhere, prices are going to skyrocket overall no water generation sourcing.
It would be highly appropriate to have a national funding backing this rather than putting on the backs of local and regional ratepayers
Analagous to the 1950s-1960s highway expansion.
Except it's energy super-highways.
PJM has been spectacularly incompetent at this to the point where Shapiro is trying to persuade the governors of other states within the interconnection to *sue them to force transmission development.*
How fucking incompetent does a quasi-governmental organization need to be to have a bunch of state governments, including those of *New York* and *New Jersey* sue it for failure to do its job?
Yeah - the entire elec energy system of the US is now collossally out of date and as one says in international situations "Not Fit For Purpose."
This really now screams out for a massive reform along the lines of the Eisenhower effort in 1950s (again kind of semi-crappy analogy but what comes to mind) - need not nationalise fully but carrots and sticks, andnational level not local level long-term financing - and one can make it PPP (public-private-partnership) funding methods as this kind of infra asset is very much loved by long-term capital as like insurance pools - once it's been risk-mitigated.
Exactly. And remember that the interstate highway system was sold for both national defense and economic infrastructure.
Eisenhower backed it in part because WWII had shown how weak U.S. internal logistics were compared to Germany’s autobahn network. It was federally financed because the benefits were national and strategic.
That same logic now applies to electricity.
AI sovereignty, advanced manufacturing, and electrification all depend on abundant and reliable power. A fragmented, congested grid is the 21st-century equivalent of those painful pre-interstate dirt roads — locally managed, unevenly built, and not fit for national-scale mobilization.
And just as in the 1950s, this is too important to finance solely through local users. National defense and national economic competitiveness justified federal highway funding. The same drivers justify big--really big--federal grid spending.
The interstate system created the physical platform for postwar American growth.
A national energy super-grid would do the same for an AI-driven economy.
Absolutely. 100%, 200%! This is spot on " A fragmented, congested grid is the 21st-century equivalent of those painful pre-interstate dirt roads — locally managed, unevenly built, and not fit for national-scale mobilization."
Economics, Defense & Security stability, hand in hand.
ETA: "advanced manufacturing, and electrification all depend on abundant and reliable power."
This is extremely important as there is the naive and partially innumerate populist idea that the single driver here is AI and Data Centers
Data centers are only part of the equation
Industrial process electrification driven by the huge primary efficiencies that new Elec tech industrial equipment brings is also driving and will accelerate (unless US self-handicaps to be backwards 'traditional' 60s style factories) - as well as broader electrification.
As it happens I have a cousin in N.E. in major utility mgmt whose job is grid and he was climbing the walls during Biden Admin (and not as an anti) as the mandates were not in line with the actual grid, and as a case of a line guy who climbed the ladder, he saw a huge train wreck coming with demand outstripping either Transmission or Distribution ability to effectively handle.
and as originally a blue-collar guy, he knew the hands on problem of even under blue-states Regs & Permits situ getting marginal expansion done in a timely way or marginal upgrades or servicing... slow, and slow = more cost....
Transmission expansion is slow, expensive, ugly, and thus extremely unpopular politically. I just saw a post from a Louisa County substack detailing a pretty lively political fight to build a new transmission line within Virginia. It sounds like it will have a very visible effect on the affected communities.
Maybe look at more generation closer to where it gets used instead. At data centers, in brownfields and over parking lots and offices for residential. Some data centers have proposed building their own dedicated power plants.
Powered with what?
It's no easier to get gas pipeline permits than transmission line permits.
Now, if the Maine NECEC precedent were applied generally - once a permit is issued and work begun, the permit can't be revoked or the project made more costly made more costly by any changes afterward - the problem would be 90% solved. But that was clearly a "one law for things MA wants and a different law for everyone else" situation.
AWS has signed up for dedicated small nuclear reactors in multiple states, including Virginia. https://www.aboutamazon.com/news/sustainability/amazon-nuclear-small-modular-reactor-net-carbon-zero
There is also an experimental fusion reactor being built in Virginia, with publicly discussed hopes of data center usage longer term. https://cfs.energy/news-and-media/commonwealth-fusion-systems-to-build-worlds-first-commercial-fusion-power-plant-in-virginia
Fusion is not in any way happening in near-term, the fundamentals are not even solved.
SRMs are not in fact proven nor liscenced - for all that I am fine with them they are at this time vapor-ware
This is utterly magical thinking ill-informed also by the grid requirements, isues of co-siting etc.
I was working at the Princeton Plasma Physics Laboratory (non-scientific part of the staff) when in August 1978 we had the biggest!breakthrough!ever! on fusion power that promised to lead sooner rather than later to commercial power. For a period it was the biggest news story perhaps in the nation (except in the NYT which was on strike at the time).
Needless to say, we're still waiting almost fifty years later.
Well on one level fusion technology is now actually reaching levels where it is no longer fantasy to think that execution might be achievable in say my GenX lifetime, so much more than 70s.... (and AI support to solve the devilish plasma problems)
On other hand counting on it for either decarbonisation or solving energy issues in current (10yr) timeframe is beyond silly.
I am absolutely pro-nuclear (fission) but it's magical thinking to see SRMs making grid upgrade and expansion not-needed as a general matter.
I suggest that AWS has done adequate due diligence to justify its decision. With the reform of NEPA and nuclear licensing regulations I’m hopeful.
AWS is making a deep-pocket play on risk diversification.
It is entirely rational play to make. But it is deep-pockets private capital play that should not be mistaken as the basis for a national policy OR mistaken for something that is ready (commercially, technically, etc) to be deployed in a manner that would make it in the least a practical near-term solution that would replace need for grid modernisation / upgrade and expansion (although equally even if SMRs [why do I keep writing SRM, I shall claim dyslexia or I just a shitty typer] were of such maturity, the idea that the grid does not need expansion and upgrade is just nonsense technically and economically period, esp. on nonsense NIMBYism like grid is ugly).
It seems people have trouble with the Fallacy of the Excluded Middle with black-and-white either-or thinking.
Noting that SMRs are (a) unproven, (b) not yet liscended, (c) have faced on deployment severe challenges (as unproven and not yet scaled tech) does not = Opposed to SMR.
Quite the contrary, I think the development needs to be pursued and it is perfectly appropriate for deep-pocket private capital to make the moderately risky bet on these as it is such capital that will be needed to allow SMR to work out kinks and become viable.
BUT it is delusional magical thinking to have a national policy that bets on SMR and opposes grid modernisation.
Regrettably the most promising SMR approach I am aware of is Danish which makes it no-go for US...
In any case, immediate execution of grid upgrades on multiple technological paths - new transmission wire tech, adoption of direct long-distance as the PRC has done, improved grid management / smart grid is actionable now and largely held back by the overall archaicism of the US power grid regs, policy and operators that remain resolutely stuck in 70s thinking.
Oh god we’re three comments in and into nuclear fantasies.
Oh, and I should add - best guess as to WHY Dominion Power would be trying to build a major power transmission line from Louisa to Northern Virginia would be that they anticipate expanding nuclear capacity at Lake Anna.
So this specific plant probably would not stop that specific line.
Building existing traditional reactors at existing traditional facilities sounds like a reasonable (if extraordinarily expensive) plan. It’s the ubiquitous short-term deployment of SMRs and fusion to power AI data centers that isn’t going to happen. Nor are data centers in space. This is all bubble talk.
The links are to projects announced as having current agreements.
Lake Anna already has two existing nuclear power plants. Putting another in is not a fantasy, especially as it is currently seen as a more publicly acceptable option than the alternatives.
What do you propose to 𝙙𝙤?
What China is doing. I would copy them slavishly, particularly their transmission line buildouts and state-driven electrification plans. Huge amounts of renewables everywhere. I’d even build nuclear at large scale with subsidies using SOE-style enterprises (think the TVA), rather than outsourcing nuclear construction to the private sector which seems incapable of doing it affordably at scale. I’d treat this as a major national project like the Interstate Highway system and assume it will pay for itself in time.
Fusion is the exact opposite of "small and local."
Not really, no. The Chesterfield plant mentioned is both small and local.
Fusion my dear does not even exist. It is neither small nor local
SRMs - fission not fusion - are not yet liscenced out and in actual invesmtent reality are not modular, but really at current stage like building a normal
I thought the rules FERC runs by made permitting gas and oil pipelines far easier than for transmission lines.
Getting the permits may be easier (I'm very much not an expert). But the permits don't override local opposition and flyspecking (centrally co-ordinated contesting, of every possible location based on whatever idiosyncratic criteria makes that location contestable) the way the NECEC permit did.
Honestly, just substantially upgrading existing corridors would be a huge improvement, but at the end of the day this is the same NIMBY crap that this Substack was founded to decry.
If Matt decided to focus exclusively on transmission line construction, I think it’d be very useful. This is a place where nationalization is practical, government power is very useful, and concretely targeted “abundance” policies could make a visible difference in a short time. Better yet: the people who pursued those policies could plausibly take credit, whereas broad permitting and housing reform will get you zero political credit in future elections.
I agree 100%
It is something which is neglected, badly needs nationalisation in various forms (mostly I think practical to achieve in ways similar to the national highway system reforms of the 1950s [not perfect analogy to be sure however]) and a nationalised funding
Plus it is absolutely critical to the successful cost-effective electrification of the economy which is Double Plus Good in terms of economic effeciency and energy efficiency as electric processes are just fundamentally thermodynamically more efficient - 30-60% (depending on specific application) more efficient in Power-to-Work which fundamentally impacts economic upside, is the future, and of course reduces for Same Level of Activity actual energy needs for same level of economic activity, efficiency being how we all get richer. (this ignored detail is what is referred to in the phrase The Primary Energy Fallacy - the confounding of many of Primary Generation needed versus Final Energy (i.e. energy doing real work, not in losses).
As an added point
The Iberian black-out example where Spain and Portugal got their integrated grids back online in astonishing time on what was essentially pure black-start is an added reason to engage in massive modernisation on both transmission and distribution as the US has extensively an archaic system that's heavily 60s-70s era cap
Most if not all of US grids (sadly the plural should be used) would absolutely struggle with the getting the restoration they achieved - 6-10 hours for most, full restore by about 12 hours
(on flip side that blackout was also a lesson on caution on complex interactions for frequency stability, the main apparent trigger)
But overall efficiency gains / loss reducations and ability to do continent level power arbitrage for generation has huge potential economic gains.
I'm a planning commissioner in central VA and our local/regional environmental non-profit is lobbying against upgrading existing transmission lines because Dominion would replace existing towers with taller towers. It's infuriating! How are we supposed to get the energy we need to replace our gas furnaces with heat pumps, etc.? If environmental orgs can't countenance the possibility of having to occasionally look at transmission towers in an existing transmission ROW, they are truly useless.
I have for several years - because of my Ren Energy investment / financing work come to see the Green NGOs as my enemy as the combination of Purity Ponyism, irrealism, bait-and-switch (they love to use industrial scale numbers to promo tiny stuff), and blocking everything.
Yes, true, upgrading of existing would be a materially useful step forward.
NIMBYism and ill-informed magical thinking however is deeply ingrained...
Upgrading existing corridors isn’t adequate for the demand or the distribution of that demand. Not even close.
No, it’s not NIMBY to point out that generating power closer to ultimate usage greatly speeds up its availability, and avoids costly and destructive construction. You’re building it either way. A lot of the opposition is not local to the lines. It is a real and growing political problem.
Transmission is a huge bottleneck to getting power used. Doesn’t help to build it out if no one is using it.
The goal is to get power where needed, not to destroy the maximum amount of attractive countryside possible. Doing the latter just costs you support.
This seems as if you want to punt another generation until SMRs or fusion have panned out, rather than making hard choices today.
I think that ship has sailed.
No, more, put the data centers where the power is, not randomly.
Data centers are not the sole question
Electrification broadly of industrial processes, wider demand - it is again a massive error and not well-founded to see through data center lens.
I am more or less fine with that (with the usual quibbles of "how do you force this outcome?"), but we're also talking about industrial facilities that require other inputs, labor, outbound logistics, etc, as well as rapid growth in electrical demand from existing and new housing for the first time in a long time.
This comment falls into the area of Completely Wrong.
Generation close to asset does not in anyway for almost all use cases speed up as generation at scale runs immediately into (a) NIMBY and (b) land availability for siting as such require major acreage.
This analysis is like the fooishness of Lefties who think Buy Local Ag is helping the world and the environment. Wrong and magical thinking.
Louisa has both a good sized technology district for data centers (which is of course also controversial, no free lunch) and extensive existing nuclear infrastructure including land owned by Dominion enough for additional plants and a huge lake for cooling. Existing nuclear plants there generate 20% of the states power.
So noting that is not magical thinking.
It is utterly magical thinking to extend a case to general national
It is utterly magical thinking to extrapolate specific site case to generalised
Road expansion is slow expensive and ugly...
Fiber optic expansion was slow expensvie and ugly...
And it happens and happened.
If the US is to avoid an utter train wreck in energy, grid expansion and upgrading is needed.
Data centers building their own dedicated plants means Fuck All - unless the entire siting is on same site one needs the bloody Transmission & Distribution - and almost never can one co-site the amount of generation needed for AI centers and most even bog-standard centers (never mind people don't adore have massive power plants there either, people having magical thinking - gas turbine or nuclear or whatever)
NIMBY whining and blocking is how the US got to where it is.
That’s not the actual situation.
Louisa has multiple proposed data centers (that they are also currently fighting over, some approved, some not), so yes, potentially it would be local. There are also multiple proposed data centers in surrounding counties.
Louisa literally currently has two existing nuclear power plants at the proposed location. Has since 1978. They generate about 20% of the states energy now. The other big nuclear plant at Surry generates another 20% or so, so about 40% total of current state power generation is nuclear.
Generally speaking, people afraid of nuclear power don’t move to a county whose most notable physical feature is a huge lake originally built to cool the nuclear power plants. In fact, Louisa is the fastest growing county in Virginia, with over 15% growth since 2020. So apparently a decent number of people are good with it.
Grid expansion to take power to data centers one to thirty miles away is a LOT cheaper and less destructive than long distance transmission. That’s not NIMBY.
There are definitely cases where co-location is beneficial, and many large loads will have some form of on-site backup. But I think your comments are dramatically underselling how congested the grid is, how important transmission is for reliability, and how needed transmission is for facilitating interconnection. There is no way to get around the fact that we have to dramatically expand the transmission system and need regional/national planning, like FERC Order 1920 gets at.
We need grid expansion already - but most of the growth we are seeing in Virginia is from data centers. If you can keep that local, the problem becomes a lot smaller.
It doesn't, though. Each grid has a reliability target that determines how much generation they need. That requirement is in part a function of transmission build out, because you need less redundancy if you have transmission. It gives you a more diverse portfolio of resources and weather. If I build a gas plant on site and the customers want extremely infrequent outages, I either need to build a second gas plant or build a power line to other resource.
The load growth in VA is also increasing pressure on capacity prices in the entire region. Part of alleviating that is again building transmission to speed up resource interconnection.
That's what eminent domain is for. Same as with highways.
Just do it
Eh, easier said than done.
As a case example of attempts at government strong arming just look at the current Australian transmission line project VNI West, whose goal is to to connect (coastal) capital cities with the vast interior regions that are sparsely inhabited but well situated for solar and/or wind.
There is already imminent domain of sorts ("compulsory land access for transmission lines are already in force under the Electricity Industry Act"). But what do you actually do on the ground when a farmer blocks access despite that law? One group of farmers has said:
“It’s going to be a war, essentially, and people are prepared for it,” he said.
“People are prepared to go to jail for this. It’s going to be a bit of a massacre, I think, when it happens, but it’s going to happen.”
So first there's just the terrible optics of putting dozens or hundreds, possibly thousands if things snowball, of farmers in jail.
But more prosaically, all that pushback adds cost. Every invocation of imminent domain costs money because staffers need to do tons of paperwork to dot-i's and cross-t's. Politicians spend limited time debating new laws for carrots & sticks. One law being debated would add new penalties for refusing access to land ($12,000), failing to provide identification ($4,000), and removing official notices ($1,200). Another would provide them "payments of $8000 per kilometre of typical easement area per year for 25 years, indexed to inflation. This payment is in addition to the existing compensation arrangements for hosting transmission."
Net result is not only is the project now 2 years behind schedule and several billion dollars over budget.
Not to mention all of this becomes fodder for any opposition. In any political system, the opposition is going to see this sentiment and adopt it as their partisan rhetoric to court votes: "We're against any and all transmission lines and these fines are illiberal and authoritarian and go against our ideals as a nation".
As we saw with Trump recently, even politicians with authoritarian tendencies to deploy brown shirt troops, are sensitive to public sentiment and back down.
"Just do it" doesn't even really work for Trump with immigration enforcement, so what are the chances a less authoritarian politician attempts in on a less salient issue?
https://www.theage.com.au/national/victoria/it-s-going-to-be-war-farmers-who-refuse-transmission-lines-could-be-fined-thousands-20250823-p5mp7c.html
You make is sound like it's this impossible thing. But we have done this before, in our country with the highway system. We bulldozed whole neighborhoods to get the highways built.
If people interfere you arrest them.
As for the politics, the key of course is doing this in a bipartisan bill. That means you will have to give goodies to the other side.
I feel like the actual history of the highway system isn't quite what you're suggesting.
The project declared "Mission Complete" in 1992. It began in 1916, so if a 76 year roll out isn't what you envision, it might not be the best model.
And it wasn't actually completed in 1992 anyway. Both I-95 and I-70 weren't completed due to local opposition. Nobody went to jail. They just stopped it from happening.
I-40 was changed due to local opposition. I-66 was cancelled. I-69 was cancelled. I-70, I-80, I-83.
There's an entire Wikipedia page on all the cancellations, not to mention the entire history of "highway revolts" on things that are arguably a different thing, showing local opposition to the Dwight D Eisenhower highway system often won out and literally nobody was put in jail for it.
And then you lose the next election, because eminent domain is quite unpopular.
I'd prefer for it not to literally go through my backyard (I already have a telecom/power pole there already) but if I can see it from my house that's fine and dandy.
My understanding is you don't actually want to be right under them. They need a decent sized right of way.
Distributed generation is good too. But for places with little sun and wind (PJM/east coast), we need to transmit the energy from where it’s generated to where it needs to go (transmission lines)
Yes, I think I would support a federal transmission effort similar to the national highways project
Give it strong imminent domain powers in funded and fund it through taxes
Get it in the most cost effective and fast manner
Oh, and exempt it from/all? most environmental regulations.
Yes!!! - streamline the hell out of it.
Getting transmission lines and then disribution upgraded as physical infra already is going to take more time and complexity than snobby eggheads used to moving words around (of which myself before I started doing physical infra financing) think.
You should write about RE finance
Perhaps but.... In the early days of blogging I blogged while at my first PE fund, then I started getting journalist calls.... put me off public visibility. Certainly in current US environment I am very allergic
Haha. The problem of being too popular
Or the problem of being visibly blunt when Fund Management didn't want visbility...
hardly need that toothache in the Orange Cretin Era
Exempt it also from the everything burger regulations that crippled Biden initiatives.
Wouldn’t pass. Eminent domain is politically extremely unpopular.
Loved the wonkiness of this and glad Matt is digging into this. Utility regulation doesn't get much attention aside from occasional superficial "the rates are too dam high" takes.
My opinion on the competitive generation vs centrally planned generation debate is that the electricity sector more dynamic and less predictable than it's been in decades. When times are uncertain and rates of innovation and risk are at their highest, market competition generally does much much better than central planning.
IMO, looking at a paper analyzing electricity restructuring in 2008 misses the biggest stress test of restructured markets we've had so far. When fracked gas dramatically lowered the cost of gas generation vs coal, restructured markets proved themselves much better at reacting to the shift and at saving ratepayers money quickly. Uneconomic coal plants were retired much faster in restructured markets because investors knew their plants were sunk costs that couldn't and wouldn't be able to compete. They ate the losses and moved on. In monopoly markets, regulators didn't want to admit to the huge losses that would show up on ratepayer bills as stranded costs. So they kept the uneconomic plants running for much longer at ratepayers' ultimate expense.
The example above shows the real benefit of competitive generation. The main distinction between the two models is who holds onto risk. In the competitive generation model, investors hold risk and if things don't go as expected (eg a plant becomes uneconomic), they take the hit rather than ratepayers. In the monopoly model, ratepayers hold all the risk and have to guarantee payments to utilities even if a plant turns out to not be economic down the road.
The thing is, we're in a period of rapid load growth from data centers and electrification. On top of that, innovation on the generation side is going like gangbusters. Ten years out, we just don't know what load will be or what the most economic generation mix will be. This dynamic environment is where competitive markets outshine central planning by a huge margin.
IMO, anyone that thinks monopoly regulation of power generation is going to serve ratepayers better over the next 10 years is badly mistaken.
This is an interesting comment. Do you have a more detailed citation supporting that narrative? I'm struggling to find something that paints it as cut and dry as you are, especially when the plants retiring in ISONE/PJM in that period were on average, older (as far as I can find), than plants in vertically integrated portions of the country. It does seem like a larger percentage of coal plants have retired in destructed areas, but in gross quantity vertically integrated utilities have retired more.
If a coal plant is depreciated, then it's not in rate base anymore and can be run in a manner that saves ratepayers money, but if you environmentally retrofit it, then you're adding expenses back into ratebase. Anyway, just curious if you have something walking through this.
On your last point, I do think someone can make an argument that in a well-regulated vertical structure would allow for clear cost allocation to large loads, whereas in deregulated structure the prices are going to hit everyone in the energy and capacity markets who isn't hedged with bilateral agreements.
Good comment. Thanks for engaging.
In response, first I'd assert it doesn't matter if a coal plant is brand new or very old in determining retirement economics (let's ignore repair /upkeep costs). It's short term variable costs going forward that really matter. Plant capex (whether depreciated or not) is a sunk cost. This is often called the sunk cost fallacy. If a coal plant's opex is higher than a competing gas plant's going forward, the economic thing to do is likely to shut it down (ignoring capacity or other system benefits). This is even more true if the coal plant's opex is higher than capex+opex for building new competing generation, which was often the case.
On the cost allocation for large loads argument, I agree it's tricky to get the cost allocation right with competitive generation. OTOH, if costs can get assigned in a vertically integrated model, I don't see why they can't get assigned in the competitive model using out of market surcharges of some sort. Really it's the same challenge in both cases - figuring out the net cost shift a new large load is likely to cause. Also, the non-generation part of the cost-shift (tx, dx, resilience) has to be figured out as well in both cases, and that could be just as big or a bigger line item.
"if costs can get assigned in a vertically integrated model, I don't see why they can't get assigned in the competitive model using out of market surcharges of some sort. Really it's the same challenge in both cases - figuring out the net cost shift a new large load is likely to cause"
Precisely
I'm enjoying this discussion, but I don't think I agree here with your assertion. I don't think we can ignore the repair/upkeep costs because those are significant! The O&M costs aren't going to increase linearly with age, but the coal plant will have more maintenance needs and more forced outages as it gets older. Due to longer maintenance needs, the plant's accreditation gets worse, and it won't earn as much in the capacity or energy markets. For much older plants, the parts are less common and more expensive. So if you're a 40-year old plant in PJM in 2010, maybe you see that you have expensive retrofitting to do ($200m+), and as you said you're not getting dispatched in the energy market with the amount of new gas on the system and won't make enough in capacity payments to stay online. Or you won't even clear the auction at your $/MW. But if you're a few years away from the retrofit in a vertically integrated utility, you stay online through the gas boom. However, I mostly agree with your narrative partially explaining what is happening, to be clear.
On the other point, in the deregulated model, the issue with cost allocation is the RTO likely is not (and may not be able to) going to assign charges like that. IIRC PJM has a co-located load proposal right now that doesn't look like what you are describing. If Virginia is adding load at a rapid rate, that puts upward pressure on capacity prices and LMPs for everyone in the market. But vertically integrated utilities are mostly bringing all their own capacity to the auction and self supplying, so they're always going to be more hedged. Then within the utility that is contracting with a data center, the regulator can assign new capacity costs in the tariff to the large load.
Look, I'm a defender of the well-regulated vertical utility model, having previously worked at a commission, so I'll be up front that I'm biased :) but the literature has never concluded that deregulation lowered costs for retail customers
Sorry, I didn't mean upkeep should get ignored. I was clumsily trying to simplify and shouldn't have even mentioned them, since they're already included as part of opex. But again, the key to the decision is whether the go-forward costs (incl upkeep) make the plant competitive. Sunk capex doesn't factor in.
In terms of cost assignment for new load, I agree it'll be a political and legal mess to get this right. I also agree that new large loads suddenly showing up will shift-costs to incumbent loads (and ratepayers). The crux of the challenge will be pricing that and assigning the cost. Maybe you're right that jurisdictional/legal challenges will be too tough with the ISO model versus state regulated monopolies, but I'd guess FERC can make the needed rule-changes just as easily (or maybe more easily) than state legislatures.
This is getting out of my depth, so I don't really have a strong opinion on how the cost-allocation stuff will work out except to say it'll be a tough challenge with either model and I doubt either will get it even close to right. OTOH, my original point about who holds onto risk still holds and I just don't think it's likely to work out for ratepayers if they get stuck holding all the risk right now.
One huge factor is that a lot of the DC buildout is not actually on the balance sheets of the tech majors. The ownership/finance models are often pretty byzantine and there's likely lots of hidden counter-party risk in many of the contracts getting signed around this stuff.
"I also agree that new large loads suddenly showing up will shift-costs to incumbent loads (and ratepayers)."
I don't see why that needs to be the case. Why can't you have a policy (or mandate it) that new large loads need to entirely pay their own way? There is no reason why existing rate payers have to absorb part of the cost for new generation.
This depends on the participation model. If one participant in a deregulated market is adding a high amount of load with no corresponding generation, or it takes longer for generation to interconnect than the load (generally the case), capacity and energy costs go up for everyone participating. Look at the PJM forward capacity market. Maybe your provider didn't add any load, but if they're exposed to the capacity market, then you're going along for the ride.
In the wholesale energy market, deregulated areas or not, there isn't really a clear way to isolate cost increases to a large load and make them pay that share. At a minimum you would be doing two runs of the market solve, with and without the large load, but no one is doing that. It's an interesting question
The trick is figuring out exactly how much the cost shift would be and figuring out how to structure the charge within existing rules and laws.
Also, the relationship between the size of the load and the cost-shift isn't straightforward. If the new load can "flex" and reduce consumption during peaks (either by idling or firing up onsite generation during peaks), the new load could actually reduce costs for everyone by increasing utilization rates of existing infrastructure (eg move more kwhs through same fixed cost grid infrastructure). OTOH, if generation supply is already tight or even a little tight, there probably would be a cost-shift.
"but the literature has never concluded that deregulation lowered costs for retail customers"
I have seen a fair number of "mixed results" type analyses but never a thoroughgoing hypothetical analysis comparing projected rate trends before and after deregulation. Depends on the market structure and dynamics of each unit being deregulated.
Here is an interesting paper that uses a diff in diff in the vein (I think) you are describing: https://ceepr.mit.edu/workingpaper/deregulation-market-power-and-prices-evidence-from-the-electricity-sector
I'm not saying the discussion is settled by any means. But the academic literature doesn't support what I've seen elsewhere in the comments, which is presenting it as a fact that deregulation has lowered prices.
Thanks - will have a look
Is anybody really proposing this though? Almost half country is already served by deregulated markets and if PJM ever figures itself out that will add another 20%. I agree that competitive generation markets are essential to accommodating future growth, especially in solar and battery buildouts, which have and will continue dominate new supply, but also for emerging sectors like advanced geothermal and non-chemical storage systems. But that doesn't get us transmission, which needs some independent deregulation/reformation legislation. There are a few successful merchant operations out there, but also a lot of painful failures. Regulatory capture by incumbent utilities is the biggest issue.
I completely agree with all of this.
In terms of proposals to eliminate/change the competitive generation model, I'd say there's a steady drumbeat of background noise on that but nothing has picked up steam. One common thing is distribution utilities in restructured markets trying to justify getting back to owning/rate basing some generation for some reason (eg a clean project that market won't build, etc). There's also a lot of talk of distribution utilities owning battery storage in restructured markets (maybe some already do, not sure).
Of course, incumbent generators throw a fit about all of this, so the politics make it unlikely to go anywhere, but it's in the background. There's also a steady stream of think pieces and papers about vertically integrated being better for this reason or that.
You’re a bit off on this one. Deregulating grids has consistently lowered prices. It also makes it easier to build because you can finance speculative power generation based on hedged forward merchant curves. A lot of power gets built in Texas not just because they let you build, but because you can secure financing based on a forward hedge of the market price. If you need a power purchase agreement for every new build, it increases the time to build significantly. In Texas, you essentially have the power version of wildcatters building speculative generation capacity without having to sign a power purchase agreement first.
The winter power spike issues Texas experienced weren’t because their grid doesn’t work. They happened because Texas intentionally chose not to have a capacity payment structure.
Actually keeping customer power bills down with all this new demand is going to be incredibly difficult and could require a complete market restructure. I’ve been out of the industry for too long to have a strong current view, but I’d talk to some people about this. For regulated utilities, power is priced on a return on capital investment. For states with deregulated utilities, which is a lot of them, it’s a reverse auction system. Since the marginal cost of new build is above the cost of existing infrastructure that has been fully depreciated, any additional power consumed on a sustained basis will push up the market clearing price.
See if you can find some investment bankers to talk to about this. After you’ve bought and sold a bunch of power assets across different markets, you develop a good feel for what buyers are looking for and what the market can bear. I worked on a deal about 10 years ago where a large wind farm was built in Texas instead of California, even though California was offering significant subsidies, simply because the cost of construction and the construction risk in Texas were so much lower.
Bankers have their issues, but they have a very neutral “what makes money” view. They look at the market the exact same way the decision makers at large utilities and development companies do, because that’s what they’re paid to do.
Our rates in New Mexico are much lower than they were in Texas. Part of that may be the large chunk that Ercot adds on to every bill.
"You’re a bit off on this one. Deregulating grids has consistently lowered prices." For whom, and are we talking retail or wholesale prices? Retail prices increase faster on average in deregulated states, and are also higher on average, even when we account for things like climate. At best I think you can summarize the academic literature as saying there is no conclusive evidence it lowered prices for the residential end use class, but iirc there is evidence supporting that more knowledgeable industrial customers have benefited
This is a relatively recent paper that did find wholesale costs decreased but markups increased, so end use customers paid more. https://ceepr.mit.edu/workingpaper/deregulation-market-power-and-prices-evidence-from-the-electricity-sector/?utm_source=chatgpt.com
Speaking as a natural gas market analyst, the dirty little secret of why the ERCOT approach works is that the places where people live (Texas Triangle) are close enough to the producing basins (west Texas, east Texas, south Texas) that the oil and gas producers can reasonably backstop the needed gas pipeline capacity investments to move their gas to the liquid markets near where people are.
The Southeast utilities fund gas pipeline capacity investments because they have a rate base. Pennsylvania and Virginia are similar to Texas in that the producers can afford to fund it, same with the Rockies.
Everywhere else is kind of screwed--there's plenty of gas in the ground, but the gas pipeline development model (committing to pay $X/MMBtu for 15+ years, so the midstream company can raise project finance) and the deregulated power industry model really don't work together at all. Gas-fired generation has grown so far by free-riding on gas pipeline capacity funded by either producers or gas utilities (who do have a rate base), but this is not going to work in an environment when gas utilities' demand isn't growing but gas-fired generators' is. It's why the DOE plans to keep coal plants around aren't as insane as they seem--the coal plants have a stockpile on site.
Nothing will undermine the role of gas as a decarbonization fuel faster than a reliability crisis sparked by having enough gas plants but not having enough pipeline capacity to get the gas both to them and to utilities.
Is it completely impractical to move gas in some way other than pipelines? (genuinely asking, since you seem to be an expert on this subject) what about LNG trucks and tanks?
A standard 36" pipeline carries as much gas per day as 2000 tankerloads of LNG. You can move gas without pipelines, but it's dramatically more expensive and considerably more dangerous.
What if you have 2000 individual tankers going to a bunch of smaller, more decentralized factories? Just thinking out loud here, but you don't necessarily need a ton of energy to run, say, a paper mill, or something making very specialized high-end equipment.
As I understand it, part of what makes gas generators more efficient is the extremely large generators that are now built. If you scale them down, I think you lose efficiency.
The usual answer is a small-diameter pipeline.
Pipelines are very unobtrusive (you can bury a 6-inch pipeline in a suburban yard, run it under railroad tracks, and etc), so unless there's concerted political opposition, they're not usually particularly controversial.
short answer is that it's not crazy, especially since the real reliability challenge is for the peak day, not everyday usage. But to Sam's point, LNG is really, really expensive. The liquefaction process in particular (you need to be running it every day for the capital costs to make sense) and to a lesser extent keeping it cool all the days you don't need it. Notably, New England does have some distributed LNG storage, but it's pretty small relative to peak-day needs. Not crazy to think this could scale up given the trajectory we're looking at.
Then shit blows up.
(https://www.youtube.com/watch?v=8yTPbHCJyzk) I think god every day I get home that I didn't get exploded.
Democrats have routinely opposed “everything” for decades. The Sierra Club even opposes Fusion Reactors, which produce no radioactive material. When you have a party that wants everyone on bicycles and believes energy should be free, you are right. Where do you go?
NYMBYism is not strictly a one tribes problem. I remember when Sen Kennedy opposed a wind farm off of Martha’s Vineyard. Now, Trump opposes wind generated enegery and wants even more coal plants. CA politicians wanted to lower fossil fuel inputs to its grid, so it closed down nuclear plants and oil-fed plants, only to now be dependent on out-of-state utilities.
This has disrupted energy supply in the state and, at times, caused brownouts. I am in favor of making date centers produce their own energy through small modular reactors and or natural gas-fed generators. Of course, the issue is that we cannot manufacture the numbers required.
Just recently, Utah is going to run a test on an SMR, but like everything else, it will take time, and I have no doubt some environmental group will sue.
None of this may matter. While Germany is deliberately starving itself of energy by shutting down their nuclear reactors, with their insistence on wind and solar, it may be effectively shutting itself out of the AI boom. The same here.
The anti-AI numbers among the public in America are growing. The demand for electricity is only growing and is a problem we are unable to meet. China generates twice the electricity, they may win the AI race because of it.
The Sierra Club basically just wants a world with some roof top solar and living standards that hover right around where they were before the industrial revolution.
If Americans ate less meat, we would free up a lot of land that could be re-wilded, and that would achieve what the Sierra Club wants without taking anyone back to "before the industrial revolution."
If the choice is between a juicy steak and giving the Sierra Club what they want, I know what I would choose.
It isn't necessarily a choice though I doubt the Sierra Club would be down with the amount of power required to produce cow-less steaks.
Yes, “I want a nice piece of meat, and wildlife habitats can go f themselves” is the popular position in America, I’m well aware of this.
There is room for more of both. The rise in wealth of the west has been accompanied by substantially more forests, cleaner water and air. Environmentalists are often a threat to this green flourishing, not a protector. Extreme environmentalism is a destructive, human-hating, self loathing religion.
Before the industrial revolution people ate much less meat because it was more expensive. You're just picking a pre-industrial state that you personally enjoy.
My point is, just reducing your meat consumption is nothing like *going back before the industrial revolution* (no electricity, no modern medicine, no food other than what grows locally, 25% infant and young child mortality rate, etc.)
It seems like what they want is a Hallmark Movie small town that exists by itself in nature. All the industrialization and technology that support such a place are assumed away, yet the fruits of it magically appear as needed.
I don't think that deal is on the table, though. If Americans cut meat consumption by 50%, that would become the new baseline.
Fusion Reactors
The dangers posed by the probable releases of tritium used by fusion plants, the problems with decommissioning these plants, and their high costs lead the Sierra Club to believe that the development of fusion reactors to generate electricity should not be pursued at this time. We are not opposed to safe and proper research as long as it is not at the expense of more benign "soft energy path" technology.
Oh who cares about fusion reactors. They've been on the verge of commercial viability for forty years. Any decade now, any decade.
That was true of electric cars, and look where we are now!
Or AI - remember the HAL 9000?
Why the negativity? The physics says it will work it's just a very difficult engineering problem.
Yes, all we have to do is what the sun does and aren't we smarter than the sun?
Huh? The physics is understood.
Tritium is not a concern of someone arguing in good faith. It's the argument of someone who dreams of Ben's scenario.
I pulled that off of the Sierra Club's website. Take it up with them
Right - they aren't serious people.
I'm not anti-power, I'm pro-safe-power.
An exaggeration but yes. In order to save the planet we need to use only clean energy. Which we cannot do at the moment.
The comparison to China is a little misleading because per capita electricity generation is what matters to standard of living. It’s interesting to compare this across countries: https://en.wikipedia.org/wiki/List_of_countries_by_electricity_consumption. In some ways it might even be a better measure of standard of living than GDP per capita (like if you go off of GDP per capita, Cuba is close only slightly poorer than China while being dozens of times richer than North Korea, while going by electricity consumption per capita, Cuba is close to North Korea while only being a fraction as rich as China—that seems a lot more realistic). And because nearly all our modern goodies are based on electricity, the fact that many countries are consuming almost no electricity is shocking and suggests that the people living there are suffering the harms of modernity without any corresponding benefits and may be worse off than their preindustrial ancestors. There’s a lesson about the risk of AI apartheid in there.
Matt's chart truly is stunning but it's worthwhile to point out that in the past 15 years, China's rate of electricity growth is only somewhat greater than India's (whereas in the previous 25 years, China's growth rate was twice that of India).
Needless to say, India's gross and per capita electricity generation is still way below China's, but that gap may not persist indefinitely.
https://ourworldindata.org/grapher/electricity-generation?tab=line&country=USA~CHN~IND
This is interesting. How is it that European countries use like 1/3 of the electricity per capita that Canada does?
Air conditioning
Climate control. Quebec and BC hydro and a nuclear build-out that was pretty large on a per capita basis ensure that even with resistance heating, electricity was competitive in much of the country. Now that cold-capable heat pumps are commercially viable and increasingly cheap (I installed a basic model built by a domestic manufacturer last year, for which the cost of the unit was US$4700), it's really going to dent natural gas as a heating source even in Ontario.
If I understand correctly, the final rate for residential customers in Quebec, including distribution charges, works out to around US$0.07 per kWh, which is a third of the cheapest rates in the NE right now, which are already found in places like DE, PA, and OH, not NY, MA, or NJ.
When you say you installed a heat pump, do you mean you personally? I can't find any or the more efficient models that will sell to me directly as a consumer, and instead require I pay an installer to do the work.
I used my usual HVAC guy for the physical install and then did the technical side of the configuration myself since he'd never installed ducted heat pumps before, only the very basic minisplit models.
This is a pretty basic model that doesn't really use or want a communicating thermostat, the control unit in the condenser does most of the thinking for it in setting condenser and air handler fan speeds to optimize performance and keep up with heating needs.
Canada is much, much richer than Europe (33% richer), so that's already half of the difference without even looking at any other factors like weather.
I'm not quite sure why people habitually misunderstand how (relatively) poor Europeans actually are.
Also a lot of industrial use
Yesterday: The party needs fewer big ideas, not more
Today: Democrats need to think bigger on utilities
Today's take is better :)
Good ideas are good. More good ideas are more good. They don't have to be expensive, and in fact might be money saving. Might include institutional, administrative, legal reforms. Having your brand identity be that of generating and executing good ideas is good.
Perhaps more of a mailbag question, how does one make sense of this:
1. TVA was wildly, unimaginably successful.
2. Let's never ever make that mistake again!
At its peak during WWII the Oak Ridge nuclear facility was consuming 14% of America's electricity - most of it supplied by the TVA.
Also fascinating Oak Ridge employed 80,000 people and almost none of them knew what it was for.
My first born for a (Manhattan) Project 2029 for commercial nuclear fusion. Make energy scarcity obsolete, defang the petro-states.
Adding my own question as an extension to this...
Matt outlined the three basic flavors of production/delivery, and compared the second two a bit. But what about publicly owned utilities? What are the tradeoffs between investor and publicly owned?
The piece doesn't explain the headline "Democrats need to think bigger on utilities." It outlines a serious problem that government policies need to address, be it Republican or Democrat government. That is, unless Republicans have already figured out a good solution.
Republican aren’t also trying to drive a lot of increases in load growth (EVs, heat pumps), or at least they weren’t until data center boom started, they’re kinda just OK with the 2008 mentality.
If anything, some of them are trying to go all Canute with the tides by forcing people to buy gas cars and gas stoves even when they want electric/induction.
On the utility ROI question, I have a radical and hugely unpopular take. Under current monopoly regulation model, regulators set a guaranteed ROI that utilities earn on all capital investments. The flaw with this approach is that the ROI is a one-size-fits-all blanket rate that isn't tied to the riskiness (to the utility) of specific projects.
This results in misaligned incentives. Finance 101 says ROI should be tied to the riskiness of future cash flows. Meanwhile, utilities earn the same ROI for replacing a 70 year old transformer with a new one that uses the same tech as they do for overseeing a risky reconductoring project using state of the art tech they've never used before. The same thing happens with things like implementing VPPs and demand response. This setup gets the incentives all wrong and makes utilities shun new tech in favor of more tried and true, and often less efficient/effective, solutions.
One way to fix this is to restructure utility ROI to make it project based and tied more closely to risk of a specific project. This gives utilities some skin in the game to try innovative and riskier tech rather than relying on outdated tech. As an extreme example, utilities could be forced to finance mundane capex expenditures like transformers using ratepayer backed muni bonds instead of getting any ROI. After all, this sort of capex is really more like opex from a risk standpoint. Why should utilities earn any ROI for what's essentially a risk free project management task?
Frankly, the generating capacity should be private and the grid should just be a series of SOEs owned entirely by consortiums of state governments.
It is reasonable to not want ratepayers to bear the costs of additional utility infrastructure — higher household electricity costs are one of the most regressive financing mechanisms on Earth.
That does not seem "reasonable" at all and certainly not if it means residential ratepayers. Yes there is dilemma of wating users to pay marginal costs in a highly capital intensive activity where marginal cost is not going to cover total cost, but there is nothing special about electricity in this. And we do want ratepayers as a group to pay for the costs of additional infrastructure -- electricity, transportation, water and sewerage, whatever.
We do in fact regularly ask new customers to bear the infrastructure cost for water, sewage, and transportation -- this is written into the zoning and development rules for many places. And to the degree that we don't it's a major argument used against new development.
Rural and exurban areas typically don’t have public water and sewer. Well and septic are private.
If I remember correctly, it costs about 60k for enough solar and battery storage capacity to independently power an average sized home (at least when I priced it out.)
Man, did I get a great deal then. Less than half that (in Los Angeles!)
Are you fully grid-independent? Because using the grid for time-shifting is a huge expense shift from the solar-and-battery approach (expenses shift from the user to the grid overall).
Pretty much, but not completely. When we have extended rainy periods (like last week), I need to go to the grid for a third to a half of that day's consumption. Other than that, I rely on the grid for at most 10% of my demand because I lock my batteries at a floor of about 40% reserve capacity (you know, in case a pesky earthquake decides to come along unannounced).
So while I do impose *some* cost on the grid, I'm also providing a ton of free electricity for them when I export my excess.
Sure but that means they aren't imposing those costs on others either.
Really more thinking of it as an analogy to more decentralized power generation in general, which removes the lag and expense of major transmission costs.
No, it’s not. People should pay for what they use, and that’s not a controversial statement, it’s literally the basis of the entire economy.
We would NOT say the same thing about agriculture, smartphones, or ANY other consumer product. “It’s reasonable for people to not want to bear the costs of Apple building an iPhone plant” sounds ABSOLUTELY FUCKING BRAIN DEAD, because it IS.
The plain fact is, the biggest source of utility infrastructure costs is the “last mile” problem. And guess what exacerbates that? Sprawl and low density! The best way to minimize per-person infrastructure costs is to build dense housing. Period. This is a no-brainer.
Re Sprawl: Distribution infra is not the binding constraint. It is almost at this time irrelevant.
Transmission is, and the US is mechanically geographically an enormous country
so plopping this with dense housing is ... Not Even Wrong.
Nor is it a relevant solution to the structural need on transmission and reinforced back-bone distribution, not in actionable timelines.
The housing hobby horse s/b saved for the housing problem.
Yeah get back to me when you can write a coherent sentence.
I took him to be saying that long distance transmission, not last mile distribution, is the bottleneck in our grid today.
I don’t know which of you is factually correct, but his contrary claim seems perfectly coherent to me so I don’t know why you are yelling at him instead of refuting him (for my benefit since I am too lazy to look into the issue myself!).
He’s writing like a kook.
Even if he’s superficially on the right track, I’m not going to reward kookery. SB here is an inherently intellectually snobby space — there’s a reason why we’re not inundated by cranks like ACX or FdB.
Kook, I am writing as someone who actually does energy investment who pointed out your riding the suburb sprawl we must have housing density Hobby Horse of urbane urban Leftie is not relevant to the issue. And for clarity, I love urban density and am 100% in favor of it. However, that is not the real issue on energy.
Now if you want to declare Snobbery, well voila here is a fine example of the Failure Mode of the Democrats and notably the Progressives over the past 10 years.
Pretentious snobbery and twattery doesn't serve you except to continue the idiocy of BlueSkyism.
Both are different problems causing cost burdens. They are each of different solutions.
You don't necessarily want to build all of your residential areas right next to your power plants; he's not talking about inefficiently distributed rurals requiring wasteful levels of infrastructure. Falous has an odd way of writing but it's fully intelligible with careful reading (and it's good stuff too!).
Even conceding his point, though, as soon as we fix transmission — which is a SINGLE national permitting bill away — we’re right the fuck back to fixing the last mile and building more actual capacity.
Transmission suffers from one big man-made obstacle to an otherwise difficult but totally solvable problem. Last-mile is only solvable if we fix density — in fact, if we fix transmission, last-mile all of a sudden becomes a HUGE problem, because transmission is bottlenecking sprawl in lower-tier cities that are currently facing the same densification pressure as higher tier ones.
IMO, you're oversimplifying the transmission challenge.
Permitting is a big problem and a national fix would help for sure, but imo an equal challenge is opposition from skilled lobbyists working for incumbant generators..
Power plant owners generally don't like competition and more tx means more competition. These folks are very adept at using political power and even astroturfing to block tx projects to protect profits. Permitting reform may make their job tougher, but they'll likely seek out other ways to block projects that put profits at risk.
Here are some examples:
https://www.nhpr.org/nh-news/2024-12-02/lawsuit-filed-against-owners-of-seabrook-nuclear-plant-over-alleged-project-sabotage
https://www.pressherald.com/2018/09/13/dark-money-and-blurred-alliances-drum-up-resistance-to-cmp-project/
This is simply wrong
Permitting reform is only start point and it's exactly the kind of naivete that hamstrung the Biden Administration (whom I was initially quite favorably inclined to).
Transmission is not merely permitting but equally financing and new tech
And tranky you have no bloody idea what you're talking about re distribution systems: it is not "only solvable" to fix density - which is a decades long issue to resolve (density in any case driving up not reducing power line costing)
The fixed costs of power transmission infrastructure are mostly geographic in nature. More people in a piece of lands means that you can divide those fixed costs more easily.
Yeah, right now.
Of course if you want to be whiny pretentious twat feel free, can't stop you.
Transmission is the bottle neck - not urban sprawl - for energy
And urban sprawl is a seperate problem that is not solved in near-term in real world.
In lieu of starting a dumbass flamewar, I’ll leave you with a dumb old joke you reminded me of.
I knew this chick in college who would, whenever she couldn’t quite hear what someone had said but kind of intuited from tone that it was intended as an insult, would respond in this really loud voice, “tWHAT did you say?” and keep repeating the “tWHAT” to make it even more obvious that she was calling the person a twat. Pretty sure she was carping from an old SNL joke, but she executed on it pretty well.
This isn't consistent with observation.
Sprawling rural areas have LOWER - not higher - electricity costs - compare KY and MA. Yes, it's less miles of infrastructure per kWh, but it's vastly cheaper to maintain infrastructure where there's enough space that you don't need to bury powerlines, and close roads to service them.
You’re comparing costs at the wrong level.
It’s not “MA = cities vs KY = rural”; MA’s rural areas are undoubtedly more costly even than KY’s, and that’s mostly due to differences in state regulations and price levels.
But what I was talking about is that it’s cheaper per unit to wire up a 300-unit 5-over-1 apartment building with a single interconnect than a SFH subdivision with several miles of cabling to build out and maintain. A city that packs 500k people into 5-over-1’s on the same footprint as a 100k SFH suburb may still have higher total costs and “look” more expensive, but the per-unit cost is lower.
Maybe it is cheaper, but most people don't want to live that way...?
Its cheaper to live on rice and beans, but as people grow in wealth, they want more. And we're really wealthy...
I think we shouldn’t mistake a cost crisis for wealth.
Kevin Erdmann puts it best when, to paraphrase him, he basically says it’s not a sign of wealth that his adult children live with him and thus increase the household income ratio well into the stratosphere, because the plain fact is they’re living with him to avoid paying absurd rents or overpaying for a house.
Sure, those overpriced houses are SOMEONE’S wealth, but they’re not a healthy form of it. If we had a functioning housing market wherein several million Millennials and Zoomers were 25-50% paid down on mortgages for various condos and houses — like my city of 500k in 5-over-1’s — that’d be a MUCH richer and more prosperous society than the city with 100k people, many of them bunched up in their parents’ stratospherically inflated homes because they can’t afford to buy one themselves.
Except the housing cost issue has very little to do with sprawl and much more to do with housing regulation limiting *all* building. In fact, sprawl is the biggest reason the cost issue isn't worse as there are areas that can actually build in the country.
To be clear, I'm very supportive of allowing more 5-over-1s. But also recognize that while many people love living in those, *most* people don't. And if NIMBYism was truly sent to defeat, there would be far more townhouses, rowhouses, and SFH built than 5-over-1s.
Which is good! I'm fine with people paying more to get what they want. I don't want people to pay more because of bad regulation.
Correct, both distribution and transmission assets are at scale cheaper to execute on in rural for multiple reasons (rights of way, but as simple as the actual space to execute the work on)
In any case for any of the coste effective power generation soucing - utility/industrial scale PV, utility scale wind, utility, NatGas peakers, Nuclear one generally needs to place not smack dab in your residential or urban areas, ergo
TRANSMISSION - and solving transmission congestion which is now one of the critical binding constraints of getting connection even for wheeling power for dedicated own-gen
I think I did not make myself clear. I was just pointing out that the prpbem of marginal cost picing not covering investment cost is pretty general, not a prolem for just electricity use.
Fair, but your phrasing made it seem like you were arguing for something VERY different.
To be charitable, most normies, who we all know are very dumb, DO think it’s reasonable to only pay marginal costs. They think capital expansions are all magically paid for out of the wild monopoly margins they assume utilities are making, and they think it’s an illegitimate failure of market capitalism that digging into those profits is seen as a bad thing on the stock markets that actually PAY for capital expansions.
Which I kinda sympathize with! I wish market capitalism didn’t routinely fail us like this, didn’t sacrifice us on the altar of shareholder value!
But I also think those people are dumb, and that expecting stuff you benefit from to get magically paid for is dumb.
“Normies” understand marginal cost? :)
Intuitively, yes.
To the extent it’s “reasonable” from a political reality standpoint can’t it be addressed by some simple regulation in electricity pricing structure? E.g. a household’s first X MWh are at a base price and above a certain usage level the rate increases?
Yes, I did not mention that the kind of two part schedules we have now is almost the reverse of pricing the marginal use at the marginal cost of genertion on a real time basis.
Getting power for data centers is a trivial issue. Big tech is swimming in capital. All it needs to build captive solar and wind farms is permitting reform. Ideally, it would be able to sell excess load to the grid at a Pareto optimal price, but the big boys have enough capital to eat a bit of waste.
Not trival as congestoin in grid unless co-sited is a huge issue - this is a physical infra problem.
Capitive self-gen - which is what I finance in part - unless it is co-sited (which is not always possible, and almost always nowadays not investment optimal on overall sizing) needs to be able to wheel power to consumption point.
this needs at minimum back-bone distribution reinforcement and typically transmission upgrade.
There is significant new grid tech (even wire advancements) to enable this even within existing footprint, but it requires immediate investment action as physical infra needs time,
Not that permitting reform is not also massivley desirable for the generation assets, but reform on Grid, that's the ignored point - the overall grid regulatory set-up is set for a slow moving incremental situation that has prevailed since the 1970s or so. It needs to change and rapidly and at scale.
Humor me here. Why not build your data centers where the sun is? You frack where the oil is, why not manipulate data where the electricity is cheapest?
I don't finance data centers(RE assets going with but not the centers) but generally understanding
(1) Siting for Latency, notably re AI but not only
(2) Cooling costs and water availability (although there are new approaches to cooling to mitigate) - data racks produce internal heat that is incredible when running flat out
But this is not my area, only my 2nd hand understanding from being involved in the RE side of such things (domestic, and international, obviously international nicer biz at the moment).
I think buying out a farmer’s water rights would be trivial
Of course, farmers are well known to be ready to sell water rights
Why would we build a data center on the Sun?? It would melt immediately!! I don't believe this comment section sometimes.
It is necessary to add that Data Centers are not the sole driver and in certain areas not even the major driver on elec demand, generalised electrification in industrial processes is significant, it's a popular error to see this uniquely via data center lens, they are partially scapegoats.
“… build your data centers where the sun is”
Build them where the electricity is. Oregon, for instance, is not known for glorious sunshine, but it’s got cheap and abundant hydroelectricity.
https://www.datacentermap.com/usa/oregon/
And don’t build them in the northeast unless you are willing to overpay to avoid latency
I don't think most voters in the Northeast are aware of how much more than pay than residents in other parts of the country. We're in many cases paying 2x what they are paying in TX.
You're aware if you move from somewhere else to here, very, very aware.
I'll take the tradeoff because I like it better here than in the midwest, but please geive me some energy abundance.
PUCs are one of the biggest sources of corruption in state governments. This tends to color people's views of the industry.
I dream of a future in which every home, vehicle, and factory is powered by a small matter/antimatter reactor.
And phones that never need to be charged.
Dismissing the work of Rocky Mountain Institute and Amory Lovins as "downstream of the degrowth strain of environmentalism" reveals a profound misunderstanding of what RMI and Lovins' "soft energy" is and has become over the decades. Although Lovins' original PhD thesis work of 1976 was motivated by a desire to eliminate the need for nuclear power, it is actually a proposition for increasing global standard of living and quality of life via a very obvious engineering principle: efficiency first. Lovin's organization pursues this goal through coordinating research and advising corporations and states on efficiency measures that deliver significant operating cost reductions while preserving or advancing living standards.
That's not degrowth - that's smart growth. It has been used in the corporate sphere - Walmart's distribution network upgrade is a famous early success - as well as by several U.S. states and emerging economies - India and China have been two long-time clients of RMI. Lately a notable project has been to accelerate the development of high-efficiency air conditioning to support climate warming adaptation efforts. The results have seeded productization of air conditioning systems that are up to 5 times as efficient as current technology.
With the rise of AI and its vast energy demands, the whole economic infrastructure, energy grid, and energy use profile has to rapidly become more efficient to support it. RMI has been wildly successful in using ROI strategies to do this. Yes, they remain skeptic of a heavily nuclear power grid. But they're not stupid, and they know that the solution to our energy demands requires more than just power generation. The success of their approach has been well-documented and will be absolutely essential.
The Lovins of 1976 is not the Lovins and RMI of 2026. We dismiss their holistic engineering approach at our peril.