The Electrification of America

“If it ain’t broke, don’t fix it.” This has been the motto for the United States power grid since World War II, and it is hard to argue with the results. Our country’s power grid is considered the world’s largest machine, with nearly 12,000 power generation facilities and more than 5.5 million miles of distribution lines across the country. 

The best part of the grid: In 2022 alone, it was reliable 99.94% of the time. Despite heavy storms, heat waves, and aging infrastructure, the average American spent only 5.5 hours without electricity in 2022 according to the U.S. Energy Information Administration. 

So, what’s the problem? 

Today’s power grid is outdated

Thomas Edison unveiled the country’s first power plant back in 1882 at the Pearl Street Station in lower Manhattan. Since then, the basic structure of the power grid has largely remained the same. 

It consists of three main components: 

• Generating electricity using fossil fuels or renewable energy sources.
• Transmitting high voltages across long-distance power lines.
• Distributing lower voltages to homes and businesses.

However, there are three key issues with today’s infrastructure:

• Energy Storage. Future energy generation will come from renewable sources, but they are not as reliable as fossil fuels right now. Batteries and energy storage will be key to effectively transition away from fossil fuels. 
• Outdated Infrastructure. Once the energy storage problem is solved, these facilities still need connectivity to the grid, and there are currently more than 2,000 gigawatts of renewable energy waiting in an interconnection queue (that is, a waiting list to be connected to the actual grid). On top of that, 70% of transmission lines are more than 25 years old and are approaching the end of their lifecycle according to the Department of Energy.  
• Customer-Centric Grid. Customers are looking for more control and flexibility when it comes to their electricity, from choosing their energy provider to selling excess electricity to other customers. Currently, there are only 13 states in the US that have fully or partially deregulated electricity markets, and the remaining customers are forced to contract with the local provider.
  

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Envisioning tomorrow’s grid

Advancements in technology are increasing our daily productivity, but they are also leading to more questions than answers when it comes to the power grid. Generative AI uses 10 times as much computing power as a simple Google search. How many new data centers will be needed 10 years from now? 

Electric vehicle sales surpassed one million annually for the first time in 2023, and now account for 8-10% of new cars sold according to Deloitte Research. Who or what is going to become the new “gas station”? Will we drive to the local Tesla station, or charge our battery while shopping at Costco, or will our roads become wireless chargers for our cars? 

Heat pumps are expected to replace gas furnaces in all new U.S. households by 2050. How much will electric bills increase? Two-thirds of the S&P 500 companies have set emission reduction targets of some kind, but will there be enough renewable generation supply to match these timelines? 

One thing is certain: The grid will need to transition to a newer, more powerful, and tech-enabled smart grid.

A smart grid is simply a modern infrastructure that can automate and manage the complexity of electricity in the 21st century. The power grid is ultimately one massive supply and demand math problem, and a smart grid will bring connectivity, transparency, and power to all users of the grid. 

To make this smart grid a reality, billions of dollars are being invested into the utility sector, from the Inflation Reduction Act to climate tech venture capital firms. A smart grid provides a solution for the three key issues discussed above because it will: 

• Integrate renewable energy sources into the power grid from thousands of locations, whether it is a solar farm in Nevada or a parking garage in New York.   
• Analyze trends across the country, optimizing the supply and demand balance when major weather events occur. 
• Empower customers with real-time information about their energy consumption and supply. 

Regulated utility stocks have historically been seen as a defensive sector, giving investors stable dividends and consistent returns, even during economic downturns. However, the smart grid buildout may provide countless opportunities for both creative companies and customers. 

• Customers might have an app on their phone to track their energy usage, just like a personal finance app. 
• Customers can potentially give back some of their fully charged systems to the grid during peak demand hours, lowering their monthly electricity bill. 
• Companies might build futuristic toll roads that charge cars while driving.  

As we envision the power grid in 2030 and beyond, numerous investment opportunities start to present themselves. Renewable energy developers are making deals directly with the largest tech companies in the world; nuclear energy is gaining traction again, and it is one of the few areas with bipartisan support heading into the presidential election; and finally, artificial intelligence is just beginning to tap the potential of modernizing the power grid. 

It is hard to imagine exactly how our lives will change, but the one thing that we can count on is the world’s largest machine becoming even larger, cheaper, and most importantly, more reliable than it is today. 

For additional market insights or to speak with a professional advisor regarding investing in alternative options, visit whittiertrust.com.