Electricity: We need more smart people

Let me start by stating the obvious. If we live in an era of electrification, our electricity policies can’t be stupid.??

A recent headline in the Wall Street Journal (WSJ) read, “Get ready to pay more for less-reliable electricity.” My favorite line from the article was “Americans used to spend little energy worrying about whether the lights would come on at the flip of a switch or how much electricity would cost. For a growing number of people, those days are over.”??

There are important truths about electricity: 1) the U.S. is running out; 2) much of our current electricity delivery system is awful – our 4th largest city (Houston) went two weeks without power after a hurricane; 3) prices for electricity are the driving force for inflation; 4) lack of electricity will curtail growth for important innovations like electric vehicles (EV) and artificial intelligence (AI); 5) high energy costs will stop the manufacturing renaissance before it starts; and 6) China has a plan to provide low-cost electricity to their industry so that battery costs are a fraction of the U.S./Europe.?

How can this happen?? Sometimes countries lack electricity because of a lack of wealth ... the U.S. has plenty of money. Sometimes countries lack electricity because of a lack of natural resources .... the U.S. has abundant natural resources.????

Rather, we struggle because of confusing climate change policies, uncoordinated regulation, and the fact that energy doesn’t follow the “rules of tech.” In software, you can leap over the installed base and build a completely new ecosystem. With electricity, you must constantly improve the installed base over decades. In software, the fifth copy costs the same as the one millionth. In energy, the fifth copy costs 100x the 100th ... scale really matters.?

We are in a terrible spot: The countries' smartest people ... in government and tech ... are making some of the worst decisions. With an interconnected system, like electricity, bad decisions by the biggest buyers hurt everyone.??

We should push back on the following ideas:??

• “Cost doesn’t matter” ... Of course it does. The energy transition has three pillars: economics, security, and carbon reduction. Europe has electricity costs that are 3x the U.S., hurting its ability to lead in AI, or virtually any industry that is a part of the energy transition. And, cost really matters to the citizens (and voters) of the U.S.??
• “Innovation will come to the rescue” ... In energy, solutions are always “two years away.” I recently read an article where a hyper-scaler said, “Our growth is limited by electricity which we will solve with nuclear power.” Really?? Is this a “one-off” or sustainable? Will we shift nuclear power from consumers or build new? Have you ever studied the supply chain for a “nuclear renaissance” ... it doesn’t exist. Restarting or building new technologies will help but could take 20+ years. We radically underestimate the time and cost of innovation in energy.???
• “Investors love this space” ... Sorry, there is very little risk capital for clean tech innovation and not enough patience. To hit 2050 goals requires $7-$9 trillion per year. It doesn’t exist today.?
• “But, the infrastructure bill” ... It takes 12 years to permit a power line. Our grid bottlenecks are profound. We need to install 50,000+ miles of transmission by 2035 to accommodate renewables; last year we installed 750 miles. Meanwhile, charging capacity is limiting growth in EVs. Slow and disconnected regulators often kill good intentions. Infrastructure is critical for the energy transition, but we are years away from supply meeting demand.??
• “Government mandates will help” ... They really do not. The SEC mandates (Scope 1/2, etc.) bring attention, but not change. The atmosphere is impacting everyone ... these mandates encourage isolated moves, shifting risk from one company or state to another. Only the accounting firms are cheering “mandates” on.?
• “If we proclaim it, we can do it” ... In the energy transition, proclamations and pledges have made the situation worse. California leads in proclamations, as Germany did before it. But the result is high cost and low reliability. Retail electricity costs in California are 45￠/kWh, up 2x in three years. Electricity costs in Florida are one-third that of California. The country will never adopt a California energy policy.??

Another recent WSJ headline read “America's Climate Plan is Faltering” ... and it is true. The world is not on a path to reach its 2050 goals. But bad electricity policy will not make effective climate policy. In fact, it is just the opposite. High energy prices retard climate change. In previous days, Europe was viewed as a progressive energy leader; now they are isolated, sacrificing economic security for a green promise.?

Let me lay out a pragmatic path. I know “climate idealists” hate pragmatism, but here goes:?

• Lean into a natural gas and renewable mix, at least in the short term. Natural gas has driven 70% of the US carbon reduction. We have a lot of it. When the government stops natural gas production or exports ... they actually slow our ability to reduce carbon. Sometimes I think we are the only country on Earth who is ashamed of its natural resources.??
• Improve the performance of renewables. Put firming power in the rate base and boost the commercialization of batteries. Renewables can and should grow, but we must reflect true costs and improve reliability. The effective combination of gas and renewables and batteries will put the U.S. on the right path.?
• Get off the grid. The odds of us fixing the grid in a reasonable time frame are close to zero. It is important that consumers and companies make plans to take care of their own future.? A multitude of ideas ... microgrids, rooftop solar, storage, etc. are needed in a world that is out of grid capacity.?
• Elevate the importance of carbon removal technologies like sequestration or DAC. The energy transition remains essential ... but “carbon-free” really doesn’t exist. We need to become proficient in carbon removal at a low cost.???
• Continue to invest in zero carbon technologies, ones that can economically enter service by 2040. Innovation can eventually win the day. Someday, nuclear should be our dominant source of power generation ... someday. But we are killing the promise with unrealistic expectations from PowerPoint charts. Steady commercialization will work, but it takes time.?
• Understand and compete with China. They are moving quickly on new technology and at very low costs. The U.S. may stop them with tariffs or other barriers, but we should understand that China could dominate in EV, batteries, or nuclear. Do we want that??

We get lost in the national debate of domestic fossil fuel production or climate change policies. The real focus should be on electricity ... low cost, reliable and clean. And we need more attention to increasing the supply of energy for a growing innovation economy. Energy isn’t software. But a lack of energy can stop the amazing advancement of tech innovation.??

We need our smartest people to make smarter decisions.??

For more leadership perspectives, check out https://www.pajleadership.com/.

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