Here is an interesting fact for you, in 1902 a US Survey of Industry found there were 3.620 “central” power stations in the burgeoning electricity industry, at the same time there were over 50,000 small regional stations serving what were essentially isolated micro-grids.
Within 20 years, the development of effective long-distance transmission lines would essentially reverse this situation and the local power station went the way of the dodo, driven out by industry figures like Samuel Insull (Thomas Edison’s secretary) who realized that the even with the cost of transmission, economies of scale made it much more cost efficient to centralize generation, and push power along copper wires than it was to generate it locally.
However, as the price of solar has plunged, the cost of installation has dropped to the point where almost 2.7 million Australian homes – or over 21% of Australian houses – have become local generators. On 11 October 2021, solar powered the entire South Australian grid, with distributed solar providing the vast majority of that power. So are we heading back to the early 1900s?
The economics of energy, bear a strong similarity to the economics of information processing. The more expensive producing information is (or was) vs distributing the more efficient it was to centralize it (all those Cray supercomputers occupying campus buildings). It was cheaper to supply the consumers of that information with a dumb terminal that could draw down information over a network. However, as the cost of producing information fell in line with Moore’s Law (which famously predicts that information processing power roughly doubles every two years, effectively halving prices) so ordinary people started to produce their own information and consume locally as well.
This is where we seem to be moving to now, with local generation to meet local load requirements, but just like all those Mac users wanting to share home videos with their friends, rooftop solar households are becoming “prosumers” pushing energy back up along the network. This is even more revolutionary for the energy network than it was for information, at least at the edge of the information network has been designed for two-way flow.
Just like the information network evolved with the internet by rebuilding backbone capacity and then more robust edge of network exchanges, energy transmission and distribution is going to have to do the same. This is the short to medium term challenge facing Australian governments.
The interesting question will be over the longer term, where the weight of energy production will sit within a decentralized network. In the age of the i-phone, how much information actually resides in your device vs is delivered on demand from your network, it is difficult to tell because it all exists as part of a mobile cloud computing network.
My guess (prediction) is that energy industry will eventually evolve in a similar way, and for similar reasons. Rooftop solar is great for your own needs, but as energy prices fall, you are unlikely to add more capacity to your own house – even if you do go out and buy that Tesla. In fact, if the cost of energy delivered to your home were to fall low enough, would you even bother to put the panels on the roof. Probably, because just like having your contacts stored on your phone, its good to have some local capacity in case the network goes down (and the zombie apocalypse occurs).
Ultimately, the energy network will become its own cloud, with households consuming / producing in a dynamic fashion, and the balance of distributed vs centralized energy shifting through the network depending on capacity and costs. That is the pot of gold I hope to find at the end of the energy transition rainbow.