This is part six of a series on climate change and the electric power industry.
Last week we delved into a cross-industry comparison to explore how updates to antiquated infrastructure can be funded. In the small town of Carlton, Oregon, water and sewer bills increase each year to fund updates to the water utility lines. The city’s new water and sewage systems should provide first-rate service for future Carlton residents with significantly less wasted water.
An updated electric power grid would also provide many benefits to consumers, especially as the climate changes. Electricity consumers will likely face higher prices, just like the residents of Carlton; however, consumers are already paying the price for lack of grid updates in the form of power outages, wildfire risk, and more.
What’s more, the current electricity billing structure will lead to a disparity in which wealthier consumers pay a lower electric bill because they invest in solar panels and other energy efficiency options. For electric bills to be increased fairly across all socio-economic consumers, the billing structure must be updated to resemble that of the city of Carlton, which includes base rate fees and usage fees.
At Prescient, we’re confident that the pros of an updated system, including a more reliable and resilient grid with greater renewable energy resources, will outweigh the con of a higher price of electricity. Let’s take a closer look at why grid updates are necessary, and the billing structure needed to support these changes.
An Updated Power Grid is Overdue
Today, it is estimated that 70% or more of grid infrastructure is over 25 years old, with some parts aging up to 60 years. Repairs to the grid tend to be reactive rather than proactive. Updating antiquated equipment is long overdue.
Water flowing across the street during a summer drought is an obvious sign that the water system needs repair. In contrast, the electric power grid does not have obvious signs of needing repair until a crisis occurs. Without vital updates, the grid will not be able to endure a sharp increase in climate crises.
Additionally, for the grid to add new renewable energy sources, even more new infrastructure must be created, and old infrastructure updated, so that renewable sources can transmit the energy they produce. Creating a greener grid is a key step in addressing human-caused climate change, and should not be dismissed because it will lead to an initial increase in cost to ratepayers.
Climate Crises: Consumers Pay the Price
Consumers are already paying the price for lack of updates to the grid, and not in the form of higher electric bills:
Antiquated overhead lines can easily spark wildfires, especially during drought conditions. The Camp Fire in 2018, which was sparked by a faulted power line, cost billions of dollars in losses and led to 85 deaths. It is likely that a similarly deadly wildfire could happen again if serious steps are not taken to mitigate the risk.
Overhead lines are susceptible to trees or tree limbs falling on them during wind or ice storms. Fallen trees and tree limbs can spark wildfires or lead to days of outages, like the Portland metro area experienced after an ice storm in February of 2021.
There are more examples of the power grid failing to cope with climate crises almost every month. Without updates to grid infrastructure, it is likely that climate-related outages will increase in severity and frequency as we head into the future.
Moreover, consumers pay for repairs to the grid when it is damaged by a severe storm. Many rate payers are already paying higher electric bills to fund reactive repair projects, with no proactive upgrade projects on the horizon.
Lower-income Consumers Will Pay More
Regardless of whether there is a significant change in billing structure, electric bills will increase over the next several decades. If electric utilities’ current billing practice of charging a set cost of a few cents per kilowatt hour is maintained, then increased costs will not be spread evenly across consumers of all socio-economic statuses.
Wealthy consumers will invest in solar panels, storage batteries, and appliances with higher efficiencies to minimize their electric bills. Consumers with limited resources will be asked to pay more to make up for the loss of revenue from wealthier consumers.
Electricity Rates Must Be Evenly Shared
To abate this schism, electric utilities will have to adopt a system of billing like that used in the city of Carlton, including a standard, monthly base rate and monthly usage fee. This is similar to the idea of demand-based billing, in which consumers are billed monthly to cover infrastructure costs (a base rate), as well as for their electricity consumption.
Consumption would still only cost a few cents per kilowatt hour. These updates to electric utilities’ billing structures are vital and must be implemented soon.
In addition to updates to the billing structure, electric utilities need to establish savings accounts like homeowners’ escrow accounts. These savings accounts will provide necessary funding to proactively prepare the grid for future climate crises, as well as maintain it for current usage.
Change is in Electric Utilities’ Future
Just as the communication industry has continued to update, from 1G to the current 5G, with older infrastructure being replaced, the electric utility industry must modernize. The grid must update to the next generation of electric power in all aspects: generation, transmission, distribution, and rate structure. With updated infrastructure, the grid’s reliance on renewable energy sources can increase, thereby significantly reducing the electric utility industry’s contribution to global climate change.
In the case of the city of Carlton, a representative city council decided that the city could not afford to waste any more water transporting it through old, broken-down pipes. As a result, water consumers pay a higher price to fund water and sewer updates.
Will electric utilities be willing to update their rate structure to support proactive upgrades to the grid? Only time will tell. However, unless the power industry changes the way it pays for projects, consumers will bear the significant costs of repairs and updates in the foreseeable future.
In our next post, we’ll look even closer at the benefits of establishing escrow accounts for electric utilities.
For more information about updating the grid for renewable energy sources, check out Prescient’s next generation blog collection. To find out if your grid infrastructure is at risk due to climate-related factors, contact us. We focus on wildfire risk assessments, blackout risk assessments, and more.