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The US is badly underinvesting in electricity infrastructure

More of this needed.

The US electricity system is central to the economic life of the country. And and its importance is only going to increase in coming years as: a) more energy uses, like transportation, shift to electricity, and b) more and more people get directly involved in generating and sharing electricity, via distributed energy technologies like rooftop solar panels and home energy storage.

Or to put it more bluntly, as I've argued several times: Electricity is the future.

A wise country that takes the long view would be investing heavily in electrical infrastructure, laying the foundation for economic health over the next century.

But we don't live in that kind of country. Instead we live in the United States, where infrastructure of all kinds is systematically underfunded. That point was brought home yet again by the American Society of Civil Engineers (ASCE) in its report Failure to Act, out this month.

It's an update of a series of reports ASCE released in 2011 and 2012. Rather than a direct report on the state of US infrastructure — which you can find in ASCE's Infrastructure Report Card, released every four years — it's an attempt to answer a specific question: What does underinvestment cost America, in GDP and jobs?

Anemic infrastructure funding directly harms the economy

The overall answers are pretty grim:

  • "From 2016 to 2025, each household will lose $3,400 each year in disposable income due to infrastructure deficiencies."
  • "If this investment gap is not addressed throughout the nation’s infrastructure sectors by 2025, the economy is expected to lose almost $4 trillion in GDP, resulting in a loss of 2.5 million jobs in 2025."

Four trillion dollars is a lot of money!

What about electricity specifically? Here are infrastructure buckets; the numbers refer to the amount lost or forgone:

infrastructure shortfall (ASCE)

(This is easier to read in the full report, which also contains lots of info on the methodology involved.)

A few interesting tidbits here.

Electricity infrastructure faces the biggest funding gap outside of transportation

Transportation is the 800-pound gorilla of infrastructure, perpetually underfunded and crumbling, perpetually in need of massive spending boosts.

Outside the transportation shortfall, though, the electricity system funding gap will have, in the 2016-to-2025 period, the biggest impact on business sales and the biggest impact on GDP, reflecting its economic importance.

Electricity also has the largest total funding needs and the largest funding shortfall.

Significantly, the funding shortfall in electricity risks the least number of jobs. Relative to roads, sewer systems, and airports, power plants and power lines require few workers to build and few to maintain.

(A question to ponder: How does the capital-heavy, labor-light character of electricity infrastructure affect its political valence? Does the relative paucity of jobs make it harder to secure funding?)

Another interesting aspect is that the projections change dramatically in the 2026-to-2040 range. Again, setting transportation aside, electricity still has the biggest absolute funding needs and the biggest funding gap, but its impact on annual GDP and business sales goes from highest to lowest.

This reflects two things. One, our neglect of water infrastructure is going to absolutely kill us in the long term. (Water generally is going to become more important and more scarce throughout the century, as climate change starts to bite.)

And second, the projected shortfall in power generation capacity is expected to ease with all the new investment, especially as total electricity demand plateaus, thus reducing the economic bite of the funding gap.

The clean energy transition will require tons of new electricity infrastructure funding

On this last point, however, there's a big, big caveat. The modeling ASCE uses in this report hasn't changed since 2012; it just plugged in updated numbers. That 2012 modeling took into account "observable trends toward more 'green technologies,'" but "fundamental shifts in generation technologies were not assumed." In short, it modeled a fairly pessimistic, incremental drift toward clean energy (following the Energy Information Administration's notoriously pessimistic and incorrect projections for clean energy).

As you might have heard, though, a lot has happened in the electricity world since 2012. Wind and solar have both gotten much cheaper and grown much faster than anyone projected. Coal has collapsed faster and more completely than anyone anticipated.

And in 2015, the Obama administration passed the Clean Power Plan, which would accelerate the "fundamental shifts in generation" that are already underway. (Because the CPP is tied up in court and probably won't be implemented until 2017, ASCE just ignored it.)

What effect will the ongoing energy transition, fortified by the CPP, have on ASCE's near-term numbers?

It's hard to say for sure.

The funding gap ASCE found in the 2016-to-2025 period is "22 percent due to generation, 24 percent for transmission and 54 percent for distribution infrastructure."

The shift to renewable energy is going to occasion the need for much more investment in all three of those areas — generation, to replace coal and natural gas; long-distance energy transmission, so areas with heavy wind and solar can be connected to load centers on the coasts; and distribution grids, which will need to be upgraded (made more "smart") to handle more distributed energy technologies and multidirectional power flows.

So the absolute need for investment in the electricity system is likely going to be much higher than what's reflected in this report.

At the same time, there's some chance that the push (increasingly stringent policy) and pull (increasingly favorable clean energy costs, coal plant retirements) over the next few years will combine to accelerate that much-needed investment.

That would shrink the funding gap and be great news for the US economy. We shall see.

Go deeper:

  • For a more detailed look at the recent history and near future of electricity system investment, see this Brattle report.
  • EIA gathers some nice charts and links showing that electricity transmission investments are steadily rising.
  • The International Energy Agency, in a recent assessment of US energy policy, highlighted the need for a radical ramp-up in infrastructure investment.

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