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The Changing Energy System – A Blueprint for Economic Recovery

It is ironic that the economic infrastructure contributing most significantly to global carbon emissions, is also the most vulnerable to its climate-changing impacts. Insidiously, the people who suffer the most from increasingly frequent and severe weather events are those that contribute the least to their cause. If climate change is an antagonist in this global drama, which has brought many a community to their knees following a record 2017, resilient infrastructure is the hero and the lack of political will and imagination the antihero. Nowhere are these battlelines as stark as in powering an economy with a resilient, decentralized energy matrix.

Carbon emissions from electricity generation are one of the major contributors to global climate change. As 2017 showed the world, the debate of causality has ended, and we must now respond to the effects. Yet, as the impacts of Hurricanes Irma and Maria attest, the networks that deliver energy from large-scale, centralized powerplants to millions of distant consumers through vulnerable powerlines, are easy prey for the severe winds, tides, fires and rumblings of anthropogenic climate change. Few are invulnerable to these effects and risk favors the prepared.

In major cities and urban centers, the loss of electricity assets can lead to days or weeks of candlelit discomfort. However, in rural areas the lack interconnection and network redundancy, often translates into months for power supplies to return to normal. Puerto Rico, has the dubious distinction of playing host to the longest running blackout in U.S. history, following the devastation wrought by Hurricanes Irma and Maria, which plunged the entire island – home to 3.2 million U.S. citizens – into darkness for more than 6 months. The U.S. island territory is also host to the second most severe blackout in the world in terms of customer hours without electricity at 3.4 billion. It is telling that the damage wrought in the Philippines by super Typhoon Haiyan ranks the highest in terms of lost customer hours at 6.1 billion. That the energy infrastructure of two water-bound territories (one a developing independent country, the other a territory of arguably the most powerful nation in the world) are both hobbled by record-breaking cyclonic storms, argues for alternative approaches to powering economies and a wholesale redesign of the energy matrix.

Bad things happen in the dark and many ill-equipped Caribbean islands, with Puerto Rico serving as ground zero, were not spared from nature’s wrath in 2017. The severe hurricanes that devastated Puerto Rico brought the island’s already enfeebled energy system (and economy) to a halt. This standstill has lasted more than 6 months, with electricity coming and going in fits and starts and the next hurricane season a mere 3 months away. The occasional falling tree is sufficient to undue band-aid fixes to the electricity grid, frequently plunging the island back into darkness. This raises some important long-range investment challenges. If Caribbean islands are the canaries in the climate change coal mine, then calls to build back better should not replace vulnerable, sclerotic and polluting energy systems with like kind. Rather, with Puerto Rico affording a rare opportunity for the world to pilot the resilient energy systems of the future, build back better is not only an investment and reconstruction mandate, it is also a challenge of the imagination and political will. In short, an entirely new energy blueprint is not only in order, it is within reach and Puerto Rico can become the first place in the world to embrace an energy future at scale.

A future-proof, climate-ready energy matrix that can not only withstand man-made, natural and emerging shocks, such as cyber-attacks, but can deliver reliable, cost-effect energy is already a reality. Traditional energy systems over the past hundred years have ossified into a consistent, state-backed pattern no matter how dysfunctional they are. Increasingly large centralized powerplants push electricity to a growing number of people over expansive radial networks. The epithet of the industry is “bigger is better,” which makes for heavily centralized and typically state-owned energy assets. In Puerto Rico’s case, the bankrupt public utility, PREPA, contributes 13% to the island’s eye-watering municipal debt burden of $73 billion. Puerto Rico is not alone with a vulnerable energy matrix as its Achilles heel. Indeed, much like innovators are on a quest to kill the 160-year old internal combustion engine, the world is more vulnerable for the lack of investment in energy diversification across the entire spectrum – from generation, metering, distribution and, critically, last-mile electrification.

Historically, prices fell as greater powerplant capacity delivered lower unit energy costs. In the same way today’s tech titans inadvertently opened the Pandora’s box of global cyber threats, the carbon-hungry robber barons of the industrial age opened the gates of climate change through the dependency on a single-cylinder coal fired energy system. These “externalities” are not sparing any country on the planet and the business case for investment in energy resilience operates on mathematically certain terms. Networks leveraged diversified maximum demand. Energy hungry consumers paid as much as they could afford until the economic cost of production exceeded the value of the outputs of production. Energy economics 101.

Powerplants were generally noisy, dirty and dangerous relics best kept hundreds of miles from consumers (indeed, Puerto Rico’s main powerplant, Palo Seco, had an explosion in 2016 causing an island wide blackout). Transmission systems delivered energy to the masses who huddled, at the end of distribution networks where the noxious detritus of fossil-fuelled powerplants were miraculously transformed into energy bills that ignored the nexus between carbon emissions and kilowatt hours. In the end, the true cost of electricity provision was hidden in competition killing subsidies of moribund industries and state management of inefficient, monopolistic utilities. This model made sense when there were no alternatives and people generally turned a blind eye to the immediate health consequences and long-term, earth-killing risks. You can have electricity without economic growth, but you cannot have economic growth without electricity.

Technology change in developed economies

The topology of the energy system has changed in the past decade. In developed economies distributed renewable energy resources are putting a lie to the theory that bigger is better. Now, power generation is sympathetic to urban development. Today we can co-locate generation assets with consumer loads creating shock-proof microgrids, rather than large interconnected networks that beg for cascading failures. The need for exposed distribution networks covering great distances is diminishing as more and more consumers, small and large, are taking control of their energy needs. In advanced economies like the U.S. and Australia, for example, existing energy system assets are under threat from new technologies and changing consumer behavior. Secondary markets in solar photovoltaic cells and energy storage are threatening to strand conventional large-scale assets, consigning them as relics of a black-lunged past.

In Western Australia system demand has plateaued and energy consumption is in free-fall as one in four households installs roof-top solar panels. In South Australia the number is one in three. In the U.S., community cooperatives are leveraging the benefits of local community-scaled plants to deliver low-cost and low-carbon energy close to home. The incumbents are not only under threat from technology and changes in consumer behaviour, their very scale and centralization now poses existential risks.

In emerging economies like India and the countries of South East Asia, distributed renewables installed as part of modern and dynamic microgrids show the path to a low-cost, low-carbon energy future. These decentralized structures fight against the typical single point of failure that large-scale energy grids have become. Indeed, in 2003, a great blackout descended upon much of the Eastern seaboard of the U.S. and parts of Canada, plunging economic engines like New York city into darkness along with more than 55 million people. An energy system that cannot withstand system overloads or the basic requirements of redundancy and stop-gap measures, can hardly absorb the onslaught of deliberate cyber-attacks and a changing world. A resilient energy system is one that is loosely connected through a common metering platform, but heavily decentralized across power sources, generation and distribution modes.

A blueprint for change

Distributed energy resources (DERs) are the next step in the evolution of the energy system. For advanced economies like the U.S. and Australia the step may be painful as installed assets reach the end of their productive lifecycles before the end of their economic viability. However, DERs provide developing economies (or economies whose energy infrastructure has literally been blown off the map) with a chance to leapfrog an obsolete paradigm. In the case of Puerto Rico, instead of rebuilding risk-prone energy networks, a model of distributed energy systems can provide a modern, low-cost and resilient alternative to government-sponsored reconstruction of the existing energy system.

Distributed microgrid technologies, where energy systems are localised, dynamic, low-cost and zero-carbon are a solution to the physical and economic limitations of existing energy systems. Where current systems are owned by governments that lack the capacity to manage the cost of rebuilding, let alone ongoing operational costs, DERs provide a blueprint for development that can free governments from the burden of reconstruction and open the door to allowing private capital to make seed investments in DERs that bloom into opportunities for regional economic growth. Indeed, in Puerto Rico’s case with pre-hurricane energy costs on average 4 to 6 times higher than the U.S. mainland, the path to economic competitiveness must not only cut through a lot of red tape, it must cut out PREPA. The governor of Puerto Rico, Ricardo Roselló, is beginning to heed this reality by calling for the privatization of the island’s utility. Good luck finding an investor to take over a bankrupt and broken energy system on an island with a shrinking population and industrial base. Nothing short of a complete energy overhaul can put Puerto Rico back on course and serve as a template for a climate-smart energy future.

Private sector contribution to reform

Rebuilding risk-prone energy networks is not only complex, it is expensive. When energy supplies are a state responsibility, the cost of restoring or maintaining supplies is weighed against the myriad other costs of managing an economy and civil society. The private sector has the capacity to reform the energy system without the trade-offs that sovereign and local governments are forced to make. When economic reform is coupled with physical reform, a holistic approach can produce outcomes that provide sustainable profit opportunities for the private sector while freeing the public sector to focus on areas of macroeconomic or social need. Seed investments in distributed renewable microgrids can provide profitable opportunities for the private sector that bloom into community-building, local-economy building and economic competitiveness.

Stable, low-cost and reliable energy supplies contribute to economic development that drives even greater demand for energy. Renewable microgrids can be built incrementally as demand dictates. The smaller scale secondary investments can be met by the communities themselves. This allows for right-sizing moribund state-owned or centralized assets and shifts the post-disaster recovery burden from being a state-owned obligation to one shared at the community level. Reliable energy supplies induce demand and present even greater options for economic growth. When power systems are renewable, incremental and intrinsically funded, communities not only benefit from reliable energy supplies, they benefit from the value of the energy, all the while demonstrating that the growth of the economy and energy consumption can be decoupled from carbon emissions and state-debt.

Technology is not the challenge, imagination is

Changing the face of energy systems is not a technology challenge. The technological challenges of building and maintaining distributed microgrids was solved a decade ago and is undergoing continual improvement. The challenge of change is a cognitive one, accepting that the physical and economic frameworks of the energy system can be fundamentally different. Just as many countries in Africa have leapfrogged traditional brick and mortar banking or fixed-line telephony, an alternative energy future is more likely to take root in developing countries or in post-disaster areas, where the aged systems are not entrenched or have been levelled. Herein lies the silver lining of being a developing or a recovering community in an era of profound technological and energy advancements. In order to make an impact, these investments need not approximate billions, because distributed systems can be fit for purpose, low-cost and built to meet incremental demand.

These assets do not need to be large-scale to be low-cost. Indeed, energy baseload generation can be measured in kilowatts and kilowatt hours not just megawatts of installed capacity. Markets do not need to focus on keeping large-scale capacity connected or maintaining stranded energy assets under the guise of financial viability. Dynamic and distributed markets can focus on delivering low-cost resilient power to consumers. Meanwhile, governments do not need to own energy assets; private seed funding can be supplemented by community investment as reliable energy supplies induce economic growth at the edges of traditional systems. A modern energy matrix is not homogenous, it can be the aggregation of dynamic, distributed energy systems that are resilient in the face of the impacts of increasingly frequent and severe weather systems and other threats.

So what of Puerto Rico?

Remote and regional communities deserve reliable power supplies. To build economic opportunity, to strengthen communities and to reverse the tide of Puerto Rico’s mass exodus, the island and U.S. governments need to prioritize energy modernization and economic competitiveness. These two goals are not in opposition with one another, but rather two signposts on the road to recovery. In order to make this change, Puerto Rico needs to make the cognitive shift that the call to build back better is not about replacing an already broken energy system with the same thing in a new package, but rather about a great leap forward into an energy resilient future. After all, with a $94 billion reconstruction tab and disaster fatigue and partisanship setting the tone in Washington, D.C., public and private investors, but most importantly the people of Puerto Rico, will want to see something lasting emerge for their trouble.

Construction of distributed, renewable microgrids by the private sector frees up scarce funds for other government priorities. Embracing smart renewable technologies will allow communities to participate in ongoing investments to meet the incremental growth in power demand that economic development creates. Escaping the paradigm of centralised energy supplies, builds a physically resilient power system that meets community needs, while withstanding future shocks. Switching the focus from system security to resilience adds to the reliability of power supplies and the inherent strength of communities when the sun is shining and when nature turns. Nature is capricious, a modern energy system, much like a modern, competitive economy should be much more reliable. Rebuilding the existing energy system with the same blueprint and hoping for a materially different outcome is a fool’s errand. From the devastation of Maria and Irma, Puerto Rico has an opportunity to build a new energy future and a template for the world. One that is resilient, keeps pace with recovery efforts and crowds in capital and innovation to power a lasting economic recovery.

Read on International Policy Digest

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