Does a Big Economy Need Big Power Plants?  

The Freakonomics blog has a guest post from Amory Lovins on the advantages of micro and distributed generation over the old model of large, centralised power plants - Does a Big Economy Need Big Power Plants?.

If I told you, “Many people need computing services, so we’d better build more mainframe computer centers where you can come run your computing task,” you’d probably reply, “We did that in the 1960’s, but now we use networked PC’s.” Or if I said, “Many people make phone calls, so we’d better build more big telephone exchanges full of relays and copper wires,” you’d exclaim, “Where have you been? We use distributed packet-switching.”

Yet if I said, “Many people need to run lights and motors, Wii’s, and air conditioners, so we’d better build more giant power plants,” you’d probably say, “Of course! That’s the only way to power America.”

Thermal power stations burn fuel or fission atoms to boil water to turn turbines that spin generators, making 92 percent of U.S. electricity. Over a century, local combined-heat-and-power plants serving neighborhoods evolved into huge, remote, electricity-only generators serving whole regions. Electrons were dispatched hundreds of miles from central stations to dispersed users through a grid that the National Academy of Engineering ranked as its profession’s greatest achievement of the 20th century.

This evolution made sense at first, because power stations were costlier and less reliable than the grid, so by backing each other up through the grid and melding customers’ diverse loads, they could save capacity and achieve reliability. But these assumptions have reversed: central thermal power plants now cost less than the grid, and are so reliable that about 98 percent to 99 percent of all power failures originate in the grid. Thus the original architecture is raising, not lowering, costs and failure rates: cheap and reliable power must now be made at or near customers.

Power plants also got irrationally big, upwards of a million kilowatts. Buildings use about 70 percent of U.S. electricity, but three-fourths of residential and commercial customers use no more than 1.5 and 12 average kilowatts respectively. Resources better matched to the kilowatt scale of most customers’ needs, or to the tens-of-thousands-of-kilowatts scale of typical distribution substations, or to an intermediate “microgrid” scale, actually offer 207 hidden economic advantages over the giant plants. These “distributed benefits” often boost economic value by about tenfold. The biggest come from financial economics: for example, small, fast, modular units are less risky to build than big, slow, lumpy ones, and renewable energy sources avoid the risks of volatile fuel prices. Moreover, a diversified portfolio of many small, distributed units can be more reliable than a few big units.

Bigger power plants’ hoped-for economies of scale were overwhelmed by diseconomies of scale. Central thermal power plants stopped getting more efficient in the 1960’s, bigger in the 1970’s, cheaper in the 1980’s, and bought in the 1990’s. Smaller units offered greater economies from mass production than big ones could gain through unit size. In the 1990’s, the cost differences between giant nuclear plants — gigantism’s last gasp — and railcar-deliverable, combined-cycle, gas-fired plants derived from mass-produced aircraft engines, created political stresses that drove the restructuring of the utility industry.

Meanwhile, generators thousands or tens of thousands of times smaller — microturbines, solar cells, fuel cells, wind turbines — started to become serious competitors, often enabled by IT and telecoms. The restructured industry exposed previously sheltered power-plant builders to brutal market discipline. Competition from a swarm of smaller electrical sources and savings created financial risks far beyond the capital markets’ appetite. Moreover, the 2008 Defense Science Board report “More Fight, Less Fuel” advised U.S. military bases to make their own power onsite, preferably from renewables, because the grid is vulnerable to long and vast disruptions.