Why can’t utilities get the money they need to make grids more resilient?

The electric grid in New Orleans was devastated by Hurricane Ida.
The electric grid in New Orleans was devastated by Hurricane Ida.
Image: REUTERS/Marco Bello
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More than 1 million homes and businesses in Louisiana and Mississippi could be without electricity for weeks after Hurricane Ida devastated the power grid in New Orleans and the surrounding area on Aug. 29. Winds reaching up to 150 miles per hour knocked out a still-unknown number of transmission poles, all eight of the major transmission lines that connect New Orleans to power stations elsewhere, and a brand-new natural gas-fueled power plant the city opened last year specifically to fill gaps left by the regional grid.

Ida’s aftermath is just the latest proof that electric grids in the US aren’t ready to handle climate change, following winter blackouts in Texas in February and wildfire-related outages in California in July. But although experts are in relatively wide agreement about the menu of solutions that might help—including burying power lines, elevating substations above flood level, aggressively trimming trees, and installing distributed solar backup systems—utility companies are still struggling to come up with adaptation plans and justify the costs successfully to investors, customers, and regulators.

Grid upgrades are an expensive gamble

Investing in electric grid resilience improvements is like buying insurance: It’s a gamble that the ultimate payoff will justify the upfront cost in the event of a disaster. There’s no technical reason why utilities couldn’t harden their infrastructure to survive the rarest catastrophic storms. But ultimately their customers have to bear that cost through rate hikes, and could raise hell with the regulators who approve those hikes whether the big storm eventually arrives or not. And those costs are substantial: Burying power lines can cost up to $1 million per mile (and makes it harder for engineers to find and fix routine maintenance issues).

Utility spending on grid upgrades has been increasing, to $23.5 billion for new transmission systems (as opposed to maintenance on existing systems) in 2019, up from $9.1 million in 2000, much of which went toward resilience upgrades, according to federal data. But it’s nowhere near enough. A March report from the consulting firm ICF, which worked with San Diego Gas & Electric and other utilities on climate strategies, estimated the total cost for US utilities to prepare for climate change could amount to $500 billion. Storms like Hurricane Ida aren’t even the most expensive piece, according to ICF: 60% of that investment is needed to install protections from heat stress, which makes the transmission systems work less efficiently on days when consumer demand is highest. As an example of how that translates for customers, a $5 billion storm-hardening initiative currently underway by Florida Power & Light is expected to raise rates for most homeowners between 10-20% over the next several years.

Climate change has made it more difficult for utilities to predict their exposure to future damages, and thus they’re ill-equipped to pitch customers and investors on the value of this kind of capital spending. In Texas’s loosely-regulated, competitive market, the gamble was especially risky, since even mild rate hikes could drive customers away; in electricity markets with only one provider, like Louisiana, the challenge is more about lobbying for political support for rate hikes.

Either way, the available evidence suggests climate investments in the grid are well worth it. A post-mortem analysis by the Federal Reserve Bank of Dallas calculated that the state’s utilities could, altogether, spend up to $430 million per year on winterization upgrades before the costs would exceed the value of the power Texas lost during the blackouts—tens of millions more than what the Fed estimates those upgrades would actually cost.

Hurricane Ida shows a paradox at the heart of climate-proofing the grid

The fact that New Orleans lost connection to regional transmission lines also underscores a tension at the center of grid resilience strategies: Should the grid get bigger, or smaller?

Phasing out fossil fuels in the electricity system will require more wide-reaching distribution networks so electricity from a range of intermittent renewable sources can flow into cities on demand. That strategy is key to the infrastructure bill currently inching through Congress and contains $73 billion for building out and modernizing the grid. And it’s especially important given that the electrification of cars and houses will cause total demand to increase dramatically in the coming years. The Texas grid being isolated from its neighbors increased its vulnerability to blackouts when local power stations went offline.

At the same time, centralized grid networks connected to a small number of big power stations are inherently more vulnerable to extreme weather than decentralized systems connected to solar or wind at the neighborhood or household level. Home solar installers often see a sales bump following major storms and blackouts, which can fuel what industry experts call a “death spiral” for utilities: Customers go solar, decreasing utility revenue, which forces prices higher, which forces more households to solar. But utilities are also emerging as leading investors in microgrids, small systems that can operate autonomously. Utility-owned renewables combined with batteries and microgrids could be an easier sell to customers, investors, and regulators than more expensive tweaks to legacy systems.

Ultimately utilities will need to do all of the above—and hope that scientists’ increasing certainty about the link between climate change and extreme weather convinces their customers to pitch in.