A new report by the Biden administration says that the inability to properly account for climate costs represents the biggest market failure the world has seen. For those who have tried to place a true monetary value on microgrids, the assertion is likely to ring true.
Issued Monday, “The Economic Report of the President” analyzes how the US can sustain economic growth in the face of contemporary challenges, including climate change.
The 500-page report doesn’t talk about microgrids per se, but it does focus on resilience and climate costs, and in doing so captures arguments that buttress the value of microgrids.
In some cases, it’s easy to calculate the value of a microgrid. A manufacturer knows how much production a power outage forfeits. But for communities, governments, hospitals, the military and an array of other institutions the full ramifications of grid failure are less clear.
The calculation becomes more complicated when factoring in spending that microgrids can help society avoid — such as for construction of transmission and distribution infrastructure — as well as emissions that microgrids might avert.
Here are five takeaways from the report that policymakers and microgrid leaders might use as food for thought in valuing microgrids.
1. Climate costs are huge as are the fixes
Climate change is expected to “alter the productivity and value
of different forms of capital in complex ways,” such as infrastructure failing because it was designed for a different climate.
“For instance, major hydropower dams in the Southwest may soon cease being able to produce electricity because of the decades-long drought,” the report says.
As a result, “multiple infrastructural systems gradually built over many decades — including electricity grids, dams and irrigation systems, coastal and riverine defenses, roads and railways, and ports — will need to be quickly redesigned, retrofitted or rebuilt to maintain their functionality in the changing climate. And this investment in climate resilience will need to be made while also addressing the estimated $2.6 trillion in deferred infrastructure investments.”
Then there are the deeper ways climate affects the economy. The Congressional Budget Office, for example, estimates that climate change will reduce the US’ average annual GDP growth rate by 0.03% from 2020 to 2050.
We’re also paying for climate mitigation in ways we do not see — through insurance premiums, tax revenue, federal risk assumption, municipal bonds and increasing healthcare costs, according to the report.
All of these costs support the argument that regulators should examine the value of microgrids as an alternative to building energy infrastructure where they prove to be less expensive and more sustainable.
2. Public good versus private actors
Fixing climate problems — such as reducing emissions — produces a public good. Yet private actors are called upon to do most of the work.
The actions of private actors are determined “by legal, informational, and financial constraints, along with the sometimes-distorted or perverse incentives that these actors face,” the report says.
This is an issue the microgrid community has raised as well. Privately built microgrids help shore up the grid and provide resilience during power outages — in essence, doing the job of the local utility — but they are not always compensated for doing so.
It’s an example of how the market isn’t functioning when it comes to climate costs. Or as the report says, “The costs of emissions accrue to people all around the world and will last far into the future. Because the market prices of fossil fuels do not incorporate these large social costs, climate change can be understood as a global externality — what Nicholas Stern has termed ‘the greatest market failure the world has ever seen.’”
3. Weather risk — it’s worse than we think
In many parts of the US, the heat wave season is nearly three times longer than it was in the 1960s. The summer of 2022 alone broke monthly temperature records in 400 US locations.
Further, we can’t count on historical records to predict future weather.
“With the human-induced climate change of today, however, it is
no longer possible to assume that the future will be like the past and to use unadjusted past experience as a guide for the future. Decisions made using only historical weather records will become increasingly inaccurate and costly as weather patterns change,” said the report, citing research from the Electric Power
The report also says that climate-induced weather variability will result in repeated experiences of “historically unprecedented weather conditions.”
Further, while we have data on how climate change will impact us globally, we lack local data — which is crucial for development of local energy.
“Modeling tools used to understand the global climate system, termed general circulation models, are most accurate over large spatial scales and long time frames. Different, more fine-tuned tools are needed to make information on specific risks in particular places over short to medium time frames widely available to stakeholders making adaptation decisions,” the report says. The Biden administration hopes to remedy this through the development of a tool that will map climate resilience and adaptation.
4. Climate change will exacerbate inequality
The report cites a range of ways that poorer communities face greater hardship from climate change, including an inability to evacuate during hurricanes, escape air pollution from wildfires, and adjust air conditioning during extreme heat.
While microgrids cannot solve all of these problems, they can help by keeping power flowing for essential needs during disasters. Community microgrids often include emergency shelters where people can find an electrified space if their home has no power.
As a form of local energy, microgrids also offer a way to keep energy revenue and jobs within a community.
5. Crypto versus the electric grid
Cryptomining isn’t a climate issue — at least not directly. But it’s worth mentioning here because it puts extra strain on an already burdened electric grid.
Cryptomining accounted for more than 2% of US power consumption as of early 2022, and bitcoin mining used about as much power as home computers or residential lighting in the US. Seven of the largest cryptomining operations require a combined capacity of 1,045.3 MW — about what all the homes in Houston need, according to the report.
Where cryptomining operations locate, they tend to drive up electricity prices, lower energy surpluses, degrade electrical equipment faster, and jeopardize grid reliability.
“In places like Texas, which expects to add 27 GW of additional cryptomining demand in the next four years — equal to roughly 30% of the generation capacity of the entire Texas grid — cryptomining could increase the likelihood of power crises, where demand overwhelms the grid’s ability to provide sufficient generation,” the report says.
In these locations, microgrids are likely to be especially valuable because they allow a cryptomining operation to have its own generation source — and, in fact, a growing number have installed microgrids in recent years.
These are just a few takeaways from the Biden administration’s detailed report. Take a look at the full report here.
Interested in microgrids? Join us in Anaheim, California May 16-17 for Microgrid 2023: Lights On!