The Inflation Reduction act super-charged the energy transition. But the grid isn’t ready.
This year’s Inflation Reduction Act (IRA) represented the US’ largest-ever budget commitment to addressing climate change, with a historic $391 billion pledged to a broad range of clean energy and electrification initiatives.
The bulk of these investments target three sectors that contribute around two-thirds of US GHG emissions:
· Electric power (25% of emissions): $30bn for solar panels, wind turbines, batteries, geothermal plants, and advanced nuclear reactors
· Transportation (27% of emissions): $10bn in investment tax credits for EV and renewable infrastructure manufacture
· Buildings (13%): Tax credits for incentivizing electrifying homes and businesses with heat pumps, solar, and storage, with an up to $8,000 rebate for heat pumps for low-income households
Together, these commitments have the potential to fundamentally transform the energy landscape in the US. To put it in perspective, consider the impact of the $1.7bn of federal investment into solar research and development in just a 7-year period from 1974–81: cell efficiencies tripled, while costs fell by a factor of five.
Given the scale and breadth of the IRA incentives, experts forecast that clean energy could represent as much as 81% of all American electricity by 2030, more than double today’s share. This raft of investment is welcome news to all those involved in delivering and accelerating the global energy transition.
But as with any transformation, there are going to be points of friction to overcome. While the act promises a huge and rapid influx of new energy assets, on both the supply and demand sides, the infrastructure that these energy investments are going to be loaded onto is ill-prepared to incorporate them without facing disruptions. In short, the IRA could risk breaking the grid.
DER and the Grid
By encouraging investment and advancements in clean energy hardware, the IRA will result in a flood of new renewable energy assets and Distributed Energy Resources (DER) coming live on grids across the US.
DER refers to grid-connected products and services like small-scale solar, battery storage, EVs, smart appliances, and more, all of which share the common trait of being assets outside of the direct control or visibility of energy utilities. On top of that, many of these DER can engage in bi-directional flows of both energy and money.
The gradual rise of DER and the need to incorporate these assets into our existing grid systems is one of the major challenges facing the grid today — and it’s set to be supercharged by the IRA.
DER are challenging because the grid was originally designed to suit an older energy model, one designed around the centralized planning and operation of large, dispatchable, fossil fuel power stations. They would deliver a one-way flow of power to customers and receive a one-way flow of money back — a straightforward arrangement that served countries globally for decades.
Today, the situation is very different. Increased access to DER for households, businesses, and industries has had the effect of decentralizing generation and demand while increasing the unpredictability of energy supply and demand for central utilities.
At a local level, the growth of DER has been excellent for clean energy uptake and has effectively allowed homes, buildings, factories, and communities to behave as miniature power plants in their own right.
But at a system level, this model has painful consequences. Integrating DER with the grid is a time-consuming process involving TSOs, DSOs, and aggregators (who pool DER into unified portfolios) for which no single agreed-upon approach exists.
This onboarding can result in administrative burdens, high costs, and inefficiencies, trends which could explode within the decade following the IRA as businesses and consumers are incentivized to switch to EVs and electrify their buildings. If we fail to coordinate DER properly, we face issues with grid safety and reliability.
This is already acknowledged as a problem by grid experts, and as yet has no clear solution. The US FERC’s Order 2222 put thought into market access for DERs — but the digital infrastructure needed to smartly coordinate these assets simply isn’t present on grids yet.
Added to this is the wider challenge of renewables which all grids will have to confront: most renewables are intermittent (they generate power when the wind is blowing or the sun is shining) and grids currently don’t have well-integrated storage solutions. This in turn makes grid flexibility — balancing generation and load — a much greater challenge.
The potential solutions to intermittency, including much more battery storage on the grid and greater DER battery capacity in homes and buildings, both pose coordination hurdles of their own.
The IRA is set to turbocharge DER adoption, while at the same time creating massive growth in electricity demand through electrification of critical end-uses in transportation and heating. But it leaves integration open as a problem to be solved. While great measures are included for storage, and some for transmission, not much is put aside by the act as to how clean energy will ‘plug in’ to current systems without overburdening them. By proportion of the money pledged by the IRA, it leans heavily towards building out generation and electrification on the hardware end, with the coordination piece of the puzzle remaining an afterthought.
While its hardware races ahead, the grid will need similar advances in software to facilitate the communication and coordination of new energy assets. This is one of the central issues we work towards solving at Energy Web. Our Data Exchange solution — currently supporting Project EDGE and Project Symphony in Australia, which has one of the world’s most advanced grids — allows stakeholders within a given market to build shared platforms to streamline communications and data processing, making the necessary interactions between TSOs, DSOs, and aggregators easy and removing the need for a central broker.
A software solution fit for the modern grid would ease the costs and challenges of DER incorporation. Collectively, DER can represent an enormous, low-cost clean energy resource that can create value for customers and utilities alike.
But with nearly $400bn to be spent, the uptake of a solution will have to happen quickly. Not only do we need to establish consensus across markets on how DER can be integrated into and be recognized by the different stakeholders within each market, but we also need to develop shared digital infrastructure to address the issue of different actors being able to validate and exchange data, rather than it being siloed.
In a mission-critical environment like the grid, more diverse and distributed resources help improve reliability and resiliency. We should apply the same principles to the software.
You can read more about our work on shared digital infrastructure for energy grids here.
About Energy Web
Energy Web is a global non-profit accelerating the clean energy transition by developing open-source technology solutions for energy systems. Our enterprise-grade solutions improve coordination across complex energy markets, unlocking the full potential of clean, distributed energy resources for businesses, grid operators, and customers.
Our solutions for enterprise asset management, data exchange, and Green Proofs, our tool for registering and tracking low-carbon products, are underpinned by the Energy Web Chain, the world’s first public blockchain tailored to the energy sector. The Energy Web ecosystem comprises leading utilities, renewable energy developers, grid operators, corporate energy buyers, automotive, IoT, telecommunications leaders, and more.