Power After Carbon is Peter Fox-Penner’s second book addressing the challenges of modernizing the electric power grid. His first book on this topic was Smart Power (Island Press, 2010) and it sparked many important discussions regarding the grid, climate change, and utility policy.

Fox-Penner is one of the world’s preeminent analysts regarding electric power regulation. In Power After Carbon, he takes on a complex and rapidly changing and challenging policy topic and makes a valiant try at giving it a comprehensive analysis. He examines many important issues that require attention if society elects to accelerate carbon emission reductions through greater electrification of transportation and other end uses for energy. This book provides a useful introduction for diligent novices and a somewhat useful reference work for practitioners of electric power policy.

One of Fox-Penner’s major conclusions is that the bulk power electric grid — what he calls the “Big Grid” — will be an essential part of post-carbon power systems. This contrasts with many sustainable-electricity proponents who anticipate decentralized renewable power replacing the grid. His reasons for seeing no rapid “euthanasia” for the Big Grid are convincing. He does, though, note that it is not quite “case closed” for a continuation of the grid, mentioning that, in considering downsides from new grid architectures, reliability may decline for bigger grids.

Decentralized options, whether renewable generation or demand-response technology, can in many circumstances create new cyber vulnerabilities. For decentralization to function well, highly connected control systems are necessary. Control systems are especially vulnerable to sophisticated cyberattacks. Moreover, malevolent cyber actors include highly capable adversaries consisting of hostile nation states and corporate criminals working independently or as mercenaries for nation states.

When costs are competitive, the big grid/​small grid conundrum ultimately is a tradeoff between dangers from cascading failure for the Big Grid or from massive targeted hacking of small grids.

Another critically important element of centralized versus decentralized design decisions is sunk cost. In areas without a grid, primarily Africa, simple electric uses (e.g., lighting, phone recharge, fans, and limited refrigeration) may be served most economically with decentralized “bottom up” resources such as low-head hydropower, photovoltaics, or wind. As demands grow, however, storage and small grid buildouts may become necessary or economical. If, however, demands grow near Big Grid assets, being able to take advantage of hardware and software that has already been paid for on the existing grid can shift many advantages toward using the grid network’s transmission lines and generators as well as storage.

Grid threats / Fox-Penner spends considerable time explaining some of the major threats to the Big Grid (e.g., wind, fire, water, and cyber). He explains how changes in the global climate can adversely affect the grid (for example, outages and large-loss events), and some of the promising workarounds (for example self-healing grids). Much of the increase in financial losses from environmental catastrophes have come because of continued investment in inappropriate, dangerous, and vulnerable areas. Think of the real estate burned in remote California wildfires or the lush vacation homes and tourist infrastructure destroyed by hurricane winds and storm surges along the Atlantic and Gulf coasts.

I was disappointed to see no discussion of these “extenuating circumstances” in Power After Carbon. Consider the case of Breezy Point in New York City, which became a poster child for communities destroyed by Super Storm Sandy in 2012. In the 1950s and ’60s, that area was a favored destination for persons from my Brooklyn neighborhood, especially the fortunate families that had bungalows there. All the bungalows had no ground-level living space; those homes were about 10 feet above the sand on wooden stilts and decks. Most living spaces were less than 1,000 square feet. The reason for this was clear: there were storms that caused “the ocean to meet the bay,” inundating this sandy, low-lying westernmost tip of Long Island. I personally recall at least two times during hurricane season when this happened. It was fascinating to see — if you did not live there.

Apparently, as hurricanes quieted down along the Northeast coast in the 1970s and ’80s, persons started building year-round homes to replace bungalows at Breezy. Sandy destroyed most of those newer homes. Fortunately for many of the owners who did not have flood insurance, some fires occurred during the heavy rains, triggering fire insurance coverage. All that “destroyed value” of actual year-round housing should never have been built there. Now, it has been rebuilt.

Fox-Penner provides a useful overview of the opportunities, challenges, and tradeoffs that face those working to reduce carbon emissions from the electricity sector, both today and as it grows through electrification measures. I strongly recommend this book to anyone new to this field who wants an objective and knowledgeable overview.

Inadequate attention / Before doing “deep dives” into some of Fox-Penner’s discussions, I want to compliment some of the structural techniques that he uses in the book. For example, he provides several tools for analysts and other researchers to use:

  • Appendix A lists the 41 policy recommendations he offers in the book. (My primary policy recommendation is to never have more than six recommendations.) The large number of recommendations would be totally lost without this innovative device of a policy summary at the end of the main body of the book. I think that he wisely judged that this list would have made no sense before the policy discussions.
  • Three other organizing devices beyond the Table of Contents also help the analytic reader: annotated footnotes (43 pages), a reference bibliography (58 pages), and a traditional index.
  • An expanded discussion of electric energy spot markets with increased wind and solar generation and an appendix (C) provide extended notes on a graph he created of electric demand forecasts from deep decarbonization studies.

All these elements of the book are user-friendly to a practitioner.

With that said, I do have an overarching criticism: some topics did not receive adequate attention. Admittedly, several of these topics are complex. I want to bring some additional information to their discussion.

There are five issues that are of particular importance for the future of power:

  • technology innovation
  • roles of energy service companies (ESCOs)
  • roles of markets, traditional rates, and performance-based rates
  • carbon pricing
  • cybersecurity

Unfortunately, these do not receive adequate attention in the book. I offer a few thoughts on these topics below.

Technology innovation / Technology innovation is a pillar for much of what the author addresses in Power After Carbon. Without new, enhanced renewable options, there would be little point to this book. I think Fox-Penner did not bring several important observations to his treatment of this subject.

First, there is too much reliance given to the Bill Gates Mission Innovation (MI) program, announced with much fanfare at the Paris Agreement on Climate Change in 2016. Gates certainly deserves credit for his effort to accelerate the pace of energy technology innovation. Unfortunately, he (and perhaps Fox-Penner) makes the same mistake many tech company investors have made, relying too much on government research and development, largely through the national laboratories (NLs), to advance commercialization of energy technologies. In my experience working with the NLs, there are many bright minds at work, but they seem more intent on identifying ideas and funding for decade-long research programs than on quickly advancing a technology and leaving the NL to get their technology to market. As a senior adviser on energy markets in the Obama administration, it appeared to me that Gates and his team had a well-meaning but naïve understanding of the challenges of federal R&D. Ultimately, Gates prevailed with the power of the potential billions of dollars he brought to the table. In return for the promise of future billions of “patient capital,” he demanded a doubling of national R&D expenditures (by about $20 billion) on advancing new energy technologies to a commercial-ready stage. As a member of the RAND Corporation’s pioneering team that examined how to advance energy technology decades earlier, I realized how limited the odds of success were for this approach. It was more Mission Impossible than Mission Innovation.

A path superior to bloating federal R&D spending would be for investors with serial success records to identify energy market needs and craft generous prizes for those who could meet the needs. For example, consider offering a $100 million “e‑prize” for a 10-megawatt generating device that could easily be scaled up to replace nuclear and coal facilities and thus accelerate their retirements. This device could be any “black box” technology with zero net carbon emissions and other cost and pollution criteria. The investors would only incur expense if someone achieved the goal, a marked contrast from paying for decades of lab R&D that may or may not achieve any commercial success. While I have no doubt that the NLs can rapidly double their spending, the uncertainty around accelerated commercialization is high. Interestingly, recent federal energy secretaries have advanced some prize-based innovation programs.

Fox-Penner examines battery storage technology for solving important grid-scale problems. I think he should have devoted more time to non-battery storage options. (Disclosure: I have financial interest in non-battery technology). I recently (summer 2019) saw a thermal mass storage technology demonstrate commercial scale value (1 MW peak reduction) with support from the Energy Department’s Building-Grid Integration initiative. This technology has no capital cost (so the technology may be unpopular with some utilities seeking rate-base growth) and takes less than a month to install the necessary software in a building with Niagara “open source” technology. The “secret sauce” includes using the building’s thermal mass (walls, ceilings, file cabinets, etc.) as the storage medium, meaning there is no cost and no degradation of performance after repeated cycles. In a million-plus square foot global headquarters for a global financial institution, this novel technology cost less than $50,000 to install and saved the host building more than $300,000 in the first partial summer. The building was a LEED-Certified Gold building before the project.

This kind of game-changing technology is already available for commercial scale implementation. It is not clear, however, that the commercial office building innovation ecosystem is ready to take advantage of the technology. The incumbent ESCO, for example, appeared to go to significant trouble to scuttle the project. Another, more prominent ESCO significantly and inaccurately dismissed the potential performance of the technology, and many risk-averse building operators would not take a risk on a novel technology.

ESCOs / Fox-Penner envisions ESCOs as “competitive providers of electricity and related services.” He considers them a potential response to a “widely held view that today’s utilities won’t be capable of providing customers with the cutting edge, mass-customized products” necessary for highly functioning electricity markets.

In theory, ESCOs make profits by improving energy efficiency. Fox-Penner appears to accept that theory, which — if true — would align ESCO and client incentives. Real-world experience raises serious concerns with the key role he envisions for them in energy and grid technology innovation. For example, the Federal Energy Regulatory Commission’s enforcement office has disciplined some ESCOs for manipulating electricity markets by fraudulently adjusting base-case usage to overstate savings they provide. In one case, a utility executive noticed the lights on midday at Baltimore’s Camden Yards baseball stadium. Such unnecessary use would have allowed the ESCO to provide “savings” by turning the lights off after the base-case period was over.

Sometimes, ESCOs oppose new technologies because they could endanger preexisting arrangements with buildings. One ESCO in New York City is currently promoting ice storage systems to address the city’s new Public Law 97, which requires major reductions in carbon emissions from buildings. While this approach may reduce carbon emissions, it will only do so at great cost to the building owners who make this choice.

A half-decade ago, when I investigated why the Federal Energy Management Program had such disappointing results, I learned from a former senior official at the Defense Department and General Services Administration that ESCOs working for federal buildings were extremely conservative because of the performance incentives they faced. Instead of encouraging them to try innovative ways to achieve greater savings, ESCOs became a barrier to energy technology innovation.

Markets / I oversaw the establishment of FERC’s Office of Market Oversight and Investigations (OMOI) in the wake of the Enron scandal and subsequent less-than-ideal federal and state regulatory responses. OMOI’s goal was to restore public, congressional, and market participants’ confidence in these markets. Despite my dedication to restoring these markets to effective operations, I must confess that the near-constant need to intervene in these “organized markets” outcomes (e.g., the use of capacity markets to provide “missing money” to promote new investment for generation) raises the question of whether the outcomes are market outcomes or regulatory outcomes. I was disappointed that Fox-Penner did not address this issue.

No matter how much we want to believe markets are the best way to proceed, we do need to take real-world evidence into account. This book does not do so convincingly. Fox-Penner does speak to this issue when he examines performance-based rates, a mix of incentives for achieving market-like outcomes, but the question remains, in my mind, more open than he indicates.

Price for carbon / As yet, there is no consensus on the social cost of carbon. This hurts Power After Carbon by making it difficult (if not impossible) to assess the comparative performances of market versus regulated outcomes for electric network systems (Big Grid or otherwise). The book would have benefited from considering “next best” solutions that could work until the global community finds a consensus on a carbon price.

Cybersecurity / I cannot finish this review without raising the specter of the cyber threats to all electric grids. There are persistent, aggressive, and sophisticated cyberattacks attempting to harm the grids in all advanced economies.

Traditional grid operators have so far managed to prevent any major cyberattack from achieving major success (except for Ukraine in 2017). Unfortunately, it is near-impossible to determine whether “landmines” or “Trojan horses” have already been placed within our or our allies’ systems by adversaries preparing the battlefield for future conflict or threats.

There are reasons to believe that the United States and other developed nations can assemble sophisticated and effective cyber defenses and launch devastating counterattacks. Nevertheless, deterrence through “Mutually Assured Chaos” does not appear to have the same respect that “Mutually Assured Destruction” had in the original Cold War versus today’s Code War.

Conclusion / Fox-Penner has written a magnum opus for electricity regulators and other analysts working in this area. The book does not provide a roadmap of what we should do, but rather offers a sort of menu of options. This can help many regulators and market participants do their jobs more effectively and it will spark many potentially useful discussions. I hope these remarks add to those discussions.