The phrase “rural electrification” may not carry much gravitas, but the concept has proven pivotal for growth and development. Prior to the federal and state rural electrification initiatives in the 1930s, financing constraints meant that few Americans outside of cities had regular access to household electricity. After decades of far-reaching public initiatives, cooperative build-outs, and private equity financing, the days of devoting 25 percent of farm income to electricity expenses are long gone. While rural America has not conquered all of its electricity challenges, much of the developing world has much to learn from continued electrification successes. Grid stability and broad-based access are both key for productivity and growth across the globe.
On the surface, America appears to have a steady, affordable supply of electricity. World Bank data suggests that 100 percent of Americans have regular electricity access, a number that has not budged for the past forty years. But this universal access is far from the global norm. The World Bank finds that 10 of the most energy-starved countries on Earth all have less than 20 percent electricity access. To determine the source of this malaise, the case of bottom-of-the-list Burundi is instructive. Energy generation is overwhelmingly hydroelectric, with half-century old equipment and a lack of industry investment. Electricity generation and transmission is dictated by the public sector, and characterized by very little competition.
Contrast this situation to the United States, which has a vibrant energy sector comprised of competing companies using an array of energy sources. According to the Energy Information Administration, no one energy source comprises a majority of electricity generation in the U.S. Natural gas, coal, and nuclear energy each generate over one-fifth of American electricity. Renewable energy in aggregate accounts for around 17 percent of electricity production in the U.S., with hydroelectric and wind power making up the largest subcategories.
Despite this diverse generation and seeming stability, the United States has its own challenges to confront. In many areas, an overreliance on a handful of large power operators creates instability. In Nebraska, for instance, Fort Calhoun Nuclear Generating Station’s shutdown and recovery caused electricity prices to escalate rapidly over the 2011-2015 period. The Platte Institute estimates that, “Recommissioning ultimately cost ratepayers an estimated $177 million, which is approximately 18 percent of OPPD’s yearly operating expenses.”
The decision by the federal Administration to purchase coal and nuclear energy capacity for two years via the Defense Production Act may further undermine grid stability, contrary to statements by the Department of Energy. This decision comes months after a grid resiliency report from the Department of Energy noted that “variability and corresponding impacts on net load” are the largest barriers to adaption” for renewable sources of energy. Clearly, then, much of government policy assumes that coal-fired plants and nuclear facilities generate more grid stability than renewable alternatives.
Research, however, increasingly casts doubt on this idea, and illustrates the impact that solar and wind farms can have on supply-demand imbalances in everyday grid operation. Joachim Seel, Andrew Mills, Ryan Wiser of the Electricity Markets and Policy Group found in a May 2018 study that increased variable renewable energy (VRE) penetration results in lower average energy prices, and leads to an increased frequency in low-priced hours. Unsurprisingly, price variability becomes more commonplace owing primarily to weather and seasonal variation. This variability will increase demand for power sources that can frequently start and stop on short notice, especially in states such as Oklahoma with large, unpredictable shifts in weather. Oklahoma has also benefited from a “variable peak pricing” model implemented by Oklahoma Gas & Electric, in which system conditions dictate peak period prices. In rural states with high solar and wind power potential, uniform policies are not always needed to increase VRE and bolster grid stability. The Southwest Power Portal (SPP), which covers much of Nebraska, the Dakotas, Oklahoma, and Kansas, utilizes significant wind penetration successfully without an organized forward capacity market or central direction from the government. In this region, low electricity prices and stable supply/demand portfolios show a viable path forward for a grid untethered by large conventional operators.
Whether in sub-Saharan Africa or the Nebraskan plains, energy advisory can add substantial value to operations. Uncertain policy landscapes, coupled with the clear need for an array of energy sources, underscores the need for experienced technical and financial consulting. Ensight Energy offers comprehensive technical and financial advisory services for the operations of energy projects, with an experienced team of engineers and consultants. For expert advice during every stage of your energy project’s lifecycle, feel free to contact us via email at email@example.com or by phone at 720.648.6554.