Will the Chinese Sink the Grid?

Chinese longer duration batteries undercut the rationale for our present electricity grid. At the same time, foreign hackers and domestic-but-berserk AI programs could also accelerate the grid’s demise. Sounds extreme? Well, here’s the story.The long-distance, high-voltage transmission network developed:To bring low-cost power from distant resources (such as Niagara Falls or mine-mouth coal-fired stations) to the consumers.To promote load diversity. By tying together customers who used electricity at different times (such as rural and city dwellers), transmission links facilitated large-scale power stations that ran at low costs.To back up a region’s power supplies with help from elsewhere in case of local emergencies.To create competitive markets for power. Enlarging the market via transmission access opened it up to more suppliers, which would lower prices.Two assumptions underlay the above analysis: that large, central power generating stations could produce power more cheaply than small, local units, and that electricity storage on a grid scale was expensive or impractical. In other words, this led grid designers to build big to meet peak needs and produce cheap power, and the customer benefits, even after adding on the cost of transmission. Those assumptions were valid for over 100 years. Not anymore. Why?Post-2010, renewable energy costs declined sharply and became competitive with those of conventional energy. However, the energy establishment resisted renewables because their power production was intermittent. They could not guarantee steady operation or produce power on demand, and they often produced excess energy when nobody wanted it. Renewable energy producers needed a way to store energy so they could utilize it when it was needed, thereby filling in the gaps when the renewables did not operate. They needed big storage batteries that would discharge over many hours. Since 2020, grid battery prices have fallen almost 60% in real terms, with Chinese manufacturers leading the way. A Chinese company just announced plans for a 16-hour battery. An electricity producer can now assemble a package of renewables plus batteries that is near the customer and can compete with grid power on a price basis. Imagine micro-grids, local networks, or big industrial customers taking power from these renewable/storage packages. The renewable/storage combination weakens the need for our legacy integrated power grid itself which still consists of generation, transmission, and distribution assets. Fuel cost accounts for the bulk of the price differential that leads to transactions between regions. Renewables have no fuel costs—solar panels, for example, produce electricity photovoltaically and don’t burn any expensive fuels. So their wide deployment should lower regional price differentials and the inter-regional traffic over transmission lines. Storage capacity also reduces the need for load diversity. The generator does not have to seek an outside load when their plant trips or is forced to operate in a diminished state. They can store power produced during low demand periods and use it later. As for reliability, there is something counter- intuitive about advocating for a system that can turn a local problem (transformer outage in Ontario or untrimmed tree limb in Ohio) into lights out for a quarter of the country, as we have seen. Finally, widening the market area may increase the number of competitors, but raising their number by breaking up ownership of existing stations might do the same. More transmission (despite what is often asserted) is not the answer to every grid question.The high voltage grid has barely grown in the face of rising demand, and its reliability numbers have trended downward. The industry’s reliability watchdog (NERC) projects more stresses ahead. And for the clincher, Carnegie Mellon researchers (Henry Krejsa and Phoebe Benich) assert that the Chinese government could hack and disable the US grid, as could domestic rogue AI agents. They propose that, from a national security perspective, we decentralize the electricity system and rely more on batteries to limit the scope and effectiveness of any future hack attack. Given existing cost estimates, doing so might not significantly affect power prices. So, who needs the grid?Now for the catch. Chinese manufacturers control the worldwide renewable and battery storage trade. They could withhold spare parts, and covertly embed devices in their equipment to affect our electricity supply. As a result of this worry, we won’t buy Chinese batteries. We will buy Korean batteries made in the USA that cost more than Chinese products (maybe 50% more), though. The USA could, conceivably, develop policies that drive greater use of US-made batteries, thereby increasing volume and reducing costs. It could make deals with other countries to create larger, non-Chinese battery production and markets, too. All of that, right now, though, seems as unlikely as Palm Beach approving an AI hyperscaler facility next to Mar-a-Lago. Worldwide battery sales could double within five years, with the bulk of the growth from sales outside the USA and Europe. Presumably Chinese manufacturers will dominate this market because they offer the best combination of product and price. Those sales will reduce reliance on high voltage transmission to move power to the customer. In the USA, the grid has to compete with renewable/storage projects that, despite the US cost disadvantage, can offer competitive prices and speedier response to customer needs. The grid has become a sclerotic, fragmented organization with multiple owners and regulators. It requires years to decide on and then reach goals as elementary as building power lines or connecting new customers. The grid was not built to compete with lower cost or more reliable alternatives.If you project the trend lines for electricity demand and the capacity of the transmission network, you might conclude that a train wreck awaits. (The amount of new proposed transmission is a pittance compared to what is supposedly needed.) But don’t draw that conclusion. Those demanding power won’t wait for the grid to finally respond. They now have an alternative to it, the renewable/storage option, that, thanks to massive R&D, may look even better and maybe cheaper in the future. Admittedly, if somebody discovered how to achieve high voltage transmission on something akin to a fiber optic cable or developed a large, low- cost, quickly- built fusion reactor, the picture would change. It could happen. But we are not technological visionaries and, at the moment, betting on declining storage costs for electricity seems more rational than assuming the near-term commercial viability of nuclear fusion or the development of radically different technologies for transmission lines.So, our story ends with a semi-happy ending (“modified rapture” in the immortal words of W.S. Gilbert). In most of the world, Chinese manufacturers will sell advanced, low-cost electrical equipment that will allow the buyers to lean less on the local grids. Some of these power grids can’t handle more demand, anyway, thereby creating more operators that can act independently of the grid — that is, decentralizing the electricity business. In the protected markets, our team will sell similar electrical equipment at a higher price, similarly weakening the grid’s grasp of the market and opening the way for smaller, distributed power networks. In the end, though, we can’t blame the Chinese, alone. They just do it better.By Leonard Hyman and William Tilles for Oilprice.comMore Top Reads From Oilprice.comFirst Deep-Gulf Tanker Attack in Nearly a Month Hits Vessel off QatarOil Jumps 5% as Iran Steps Up Attacks on Hormuz TankersU.S. and Russia Discuss Reviving Russian Gas Sales to Europe