At the turn of the 20th century, hardly anyone had electricity in their homes. By 1920, it was about 35%. By the time the Great Depression hit in 1929, roughly 70% of US homes were electrified, and urban areas were nearly 85%.
The systems were surprisingly reliable given the rudimentary technology of the day. Blackouts were not infrequent, but they were generally short and localized, often just affecting a few streets or houses.
And typically the biggest reason for a short, localized blackout was simply because electrical demand was increasing more rapidly than the grid could create new supply. More and more homes were being electrified, and, after World War II, consumer appliances like refrigerators and air conditioners began consuming more power. We’ll come back to that.
In response, the industry began looking for efficiencies to be able to scale more quickly. They built larger, beefier power plants and connected their independent grids to be able to share reserves and load balance.
In short, they planned for speed and scale. Not resilience. And the end result was an incredibly complex network that was highly vulnerable to systemic failure.
That failure first came at 5:16pm on November 9, 1965: a minor maintenance issue near Niagara Falls triggered a chain reaction across the entire grid. 30 million people went without power– most until the next morning, some for a few days.
With the electrical grid’s vulnerabilities laid bare, Congress held inquiries and hearings. New rules and regulations were passed. And, before long, the US electrical industry became a confusing alphabet soup of state, local, and federal authorities– ISOs and RTOs, FERC, PJM, MISO, CAISO, SPP, and so many more.
Layers and layers of bureaucratic agencies didn’t fix anything. But technology was quite fortunately on America’s side, and over the past few decades, advances (like LED bulbs) made consumer appliances more energy efficient. Power plants also became more productive.
In fact, today the US consumes less electricity per capita than it did in 1995. And the grid produces much more power.
But this balance is starting to change rapidly.
We all know the story of data centers and their insatiable appetites for energy. Electricity is such a critical input, in fact, that data centers are typically described by their power consumption.
For example, Softbank recently announced 5GW of new data centers in France. The famous StarGate project in the US is targeting 10GW. Facebook is building a 5GW data center in Louisiana.
And various plans over the next few years go in to several hundred gigawatts.
This trend is similar to the 1950s– utility companies struggled to keep up with surging demand from US consumers who were plugging in air conditioners and refrigerators for the first time.
But supply and demand in the electricity market is a funny thing. Demand can surge very quickly… just like we’ve seen over the past year or so. But electrical supply grows more slowly.
New power plants take years to build. Thanks to the aforementioned alphabet soup, the regulatory burden alone is a minefield.
And most electrical producers aren’t willing to go through the effort, risk, and capital expenditure unless they’re sure the new power plant will be profitable. And profitability depends on the price of electricity.
That’s where politicians and the regulators have stepped in to screw it all up.
Naturally, with demand soaring and supply constrained, electricity prices are rising. You’d think that politicians would respond by making it easier for utilities to build new power plants, i.e. reduce the regulatory and permitting process to increase electricity supply.
But no. Instead, they’re capping prices.
Last year, a whole lot of state officials and federal regulators got together to set a ceiling for certain wholesale electricity prices to roughly $333 per megawatt-day.
Clearly, they’re responding to voters’ demands to rein in inflation and reduce the cost of living.
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