Abstract

From employment to education, many areas of our daily lives have gone virtual, including the virtual workplace and virtual classes. By comparison, the way we generate, deliver, and consume electricity is an anachronism. And the electric industry’s outdated business model and regulatory framework are failing. For the last century-and-a-half, we have relied on ever larger power plants to generate the electricity we consume, often hundreds of miles away from the point of production. But the outsized carbon footprint of these power plants and the need to transmit their output over long distances threaten the electric grid’s reliability, affordability, and long-term sustainability. There is hope, however.

We here make the case for “virtual energy” as a diverse suite of widely dispersed resources that can combine and interconnect to provide, in the aggregate, the same services as a far-away conventional power plant. In computing, “virtual” refers to something simulated by software to appear real when, in fact, it does not exist. A virtual computer exists only in the cloud—and commonly consists of multiple computers that interconnect to maximize performance. In the same vein, solar panels, battery storage, electric vehicles, and other virtual energy resources (VERs) can coordinate to become virtual power plants that mimic, and ultimately replace, conventional power plants. Along the way, VERs offer a cost-effective strategy for making our electricity system more sustainable, more reliable, and more democratic.

To realize virtual energy’s full potential, however, requires a radical rethinking of how the electric grid is managed, and by whom. While large-scale power plants connect to high-voltage transmission networks run by independent operators, most VERs tap into the low-voltage distribution grid. For much of the country, that grid is owned and operated by electric utilities who view virtual energy as a threat to their business model of delivering electricity they generate in-house. For VERs to renew America’s ailing electricity sector, they must first gain easier access to the grid. To achieve this goal, we propose a novel approach to grid governance: the creation of Independent Distribution System Operators (IDSOs) to level the playing field and promote competition among traditional and virtual sources of energy. Incumbent utilities may be reluctant to embrace such radical change but, we argue, can be persuaded to enter into a grand bargain modeled after the great compromise over workers’ compensation that reshaped relations between employers and employees at the dawn of the 20th century.

Document Type

Article

Publication Date

2024

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