Electricity in the United States is going through massive changes: the generation mix is shifting rapidly, regulatory and industry models are evolving, and policy is playing an ever important role. All of these changes can be hard to conceptualize, particularly when trying to make sense of how multiple factors interact with each other.
I’m a visual learner so when trying to think about a lot of these changes, I visualize them. Making an image about something as abstract as regulatory change is difficult, which is why I often turn to maps when thinking about electricity. When I first started doing energy analysis, maps were key to learning how our system works.
No one map can display everything about our grid, but geography is key to understanding the diversity of resource mixes, regulatory regimes, and policies across the country. Below are some of my favorite maps that illustrate the extreme complexity of the U.S. electric grid and hint at the many challenges of transitioning the grid to new fuels.
Operating utility-scale generating units as of September 2015
First off is a relatively new map from EIA that shows all operating large power plants in the country. I like this because it really demonstrates the regional geographies of electricity generation that shape the other factors covered in the rest of this article. In total, there are 16,472 electric generating units larger than 1 MW, which have a combined capacity of 1,066,317 MW (as of November 2015).
Several things jump out in this map. Coal capacity is scattered across the rust belt and in the Southern U.S., but virtually absent from the West Coast and the Northeast. While hydro is present in most parts of the country, it dominates the Northwest. Wind capacity is installed primarily across the Great Plains but virtually absent from the South. Finally, despite the increasing popularity of solar, utility-scale solar power plants remain concentrated primarily in California, although there is a notable cluster in North Carolina.
There are actually three main electric grids in the U.S.
While the first map shows the power plants in the country, this map illustrates how these systems function. Three key factors jump out. First, there are eight regional entities that work with the North American Electricity Reliability Corporation to maintain electric reliability across the country. Electric reliability is probably the first and foremost service that our electric grid is intended to promote and these entities are responsible for achieving that.
Second, the map indicates how these reliability entities cross international borders, primarily into Canada. This hints at the significant electricity trade between the U.S. and Canada.
Finally, and most interestingly, this maps illustrates how there are actually three primary electric grids in the United States (called interconnections). The divide between the Eastern and Western interconnections make sense because of the geographic distances involved.
The ERCOT interconnection, however, is different. Covering most of Texas, it is one of the more interesting quirks of the U.S. electric system. In order to avoid federal regulation of its electricity system, Texas has built its own electric grid and not connected it to the rest of the country.
The large transmission build outs that may be required for high penetrations of variable renewable energy would have to overcome these divides and NERC would play a key role in any such transmission buildout.
Wholesale Markets Dominate Electricity Dispatch
While NERC is responsible for reliability standards, it actually does not operate the grid on a day-to-day basis. Traditionally, vertically-integrated utilities had this role. Today, however, things are different. Nearly 70% of U.S. electricity is generated and consumed in regions operated by wholesale electricity markets called ISOs/RTOs.
This is one of the most important regulatory developments in electricity in the last twenty years and probably gets less attention than it should. Beginning at the federal level with FERC Order 888, electric restructuring is fundamentally changing how electricity is generated, transmitted, and sold across the country. While there are large variations between ISOs, these ISOs are generally increasing competition and removing regulatory barriers to participating in electricity markets.
Three important things to note from this map.
First, ERCOT operates the electric grid in Texas – unlike other ISOs, FERC does not oversee ERCOT because of its separate electric grid. Second, there is no ISO/RTO in the south because of the dominance of the southern utilities. Third, CAISO is the only ISO in the west because vast geographic distances separate service areas, although CAISO is beginning to expand into a western ISO.
ISOs Lead to Market Pricing for Electricity Supply and Demand
ISOs/RTOs operate the transmission grid and oversee the dispatch of electricity based on marginal cost bids. This map demonstrates how locational pricing worked in MISO during a late summer morning in 2011. Notably, these are real-time prices, which only a small portion of electricity sales occur under.
One thing that jumps out immediately are the price differences between southeast Iowa and southeast Minnesota/southwest Wisconsin. In southeast Iowa, high wind generation is likely responsible for driving prices negative; transmission constraints keep that electricity from heading north where prices are above $100/MWh. Limitations in transmission infrastructure mean that prices within an individual ISO can have significant variations.
While the specific pricing rules vary by ISO, these regional differences in prices are playing a key role in transitioning electric generation to market based principles. Higher prices in one region provide clear economic incentives to build new power plants or connect transmission lines to lower priced areas. Over time, renewable energy could push prices lower in many of these markets, challenging the existing market structure.
Retail Restructuring Not as Widespread as Wholesale Power Markets
Although most utilities and state embrace wholesale electricity markets, retail competition remains uncommon across most of the United States. For a while, there was a significant movement towards making retail electricity supply competitive.
However, the fallout from the California Electricity Crisis in 2000-2001 dealt retail restructuring a significant blow. As a result, many states that were restructuring their retail markets reverted back to a utility-based system (indicated by the suspended category in the map).
Even the states that have retail competition do not always have complete competition; consumers often keep their default providers (for a good overview, check out section II.C. in this). A new trend may be emerging where primarily local governments are offering alternatives to local utility service, but it is still in its infancy.
Average Residential U.S. Electricity Price by Utility Service Area
Although ISOs run wholesale electricity markets, most ratepayers do not pay wholesale electricity prices – rather they pay rates to cover all parts of electric service, including distribution and transmission costs.
The prices residential consumers pay are usually determined by their choice of retail provider in retail restructured states, their municipal power provider, or by rates set by state utility commissions. This map clearly demonstrates that variability in electricity supplies and regulations leads to very different electricity rates.
Three things of particular note.
First, the Northwest and the area around Tennessee have some of the lowest rates in the country due to low-cost hydro power from the Federal power authorities.
Second, California and New England have especially high electricity rates. California’s high prices are at least partially a result of high cost contracts signed during its electricity crisis, while New England’s high rates are influenced by high wholesale winter electricity prices.
Finally, the high rates in the Rocky Mountains likely reflect higher transmission costs compared to the rest of the country because of the large geographic distances between population centers.
U.S. Shale Production Drives Increased Natural Gas Generation
This map is not directly related to electricity but hints at one of the larger shifts occurring in U.S. electricity – the shift from coal to natural gas as our primary energy source. Since the shale revolution began in the late 2000’s, U.S. natural gas production increased by almost 50%.
The Marcellus and Utica shales in Ohio, Pennsylvania, and West Virginia have been responsible for the lion’s share of increased natural gas resources. Particular features of these two shales make it exceptionally cheap to extract natural gas here.
For electricity, the location of new natural gas production is critically important – it is right in the middle of most of the United States coal fleet. Accordingly, cheap natural gas in these areas has lowered wholesale electricity prices and contributed to large decreases in coal generation. Shale has also boosted natural gas production along the Gulf Coast and helped displace coal there.
Critically, however, New England and California do not have significant shale resources and are at the end of pipeline transmission systems. This is a critical factor in high winter time natural gas prices for New England and for consistent price premiums for natural gas in California.
Natural Gas Storage Underlies Price Volatility
One of the most important characteristics of natural gas in the United States is exceptional price volatility. Natural gas is essential for wintertime space heating in the residential, commercial and industrial sectors. To ensure that there is sufficient natural gas to supply heat for a whole winter season, natural gas is stored during the preceding spring, summer, and fall (the injection season).
Winter weather can vary considerably with major impacts on natural gas prices. When it is very cold, large amounts of natural gas are consumed and prices must rise during the following injection season to ensure there is sufficient natural gas for the next winter. During a very warm winter, as is currently occurring, not as much natural gas is consumed so prices drop to encourage consumption during the injection season.
Natural gas is a primary marginal fuel in the U.S. This means that the price volatility that winter causes for natural gas spills over into the wholesale power markets. With natural gas becoming more important in the power mix, year-to-year electricity prices are becoming more closely tied to swings in natural gas prices.
This map illustrates the storage locations in the U.S. While they are generally well integrated with the natural gas pipeline system, the lack of storage in New England (a result of poor geological conditions) contributes to the extreme price swings that occur in its wholesale market in winter.
Cheap Marcellus Natural Gas is Killing Coal
This map shows one of the most important developments in electricity during the last four years: the rapid decline of coal electricity. As a result of environmental regulations and low natural gas prices, many coal-fired power plants were forced to retire. It is just not economic to install required pollution control equipment when natural gas prices are keeping wholesale electricity prices low.
In total, more than 25 GW of coal have retired in the last several years or will retire soon. This will reduce the coal fleet by almost 10% of its 2011 levels. The largest concentration of retirements is right on top of the Marcellus shale.
However, despite its struggles and discussion to the contrary, the future of coal-fired generation is not clear in the short term. Coal still supplies more than 30% of U.S. electricity generation. Moreover, most remaining coal-fired power plants have sufficient pollution controls and are more economically efficient than the plants that retired. Natural gas prices, which are low right now, may well increase in the next several years, and cause coal generation to rise again.
That said, longer term, carbon regulations will likely drive continued retirements of coal power plants and decreases in coal generation.
Nuclear Power Plants Primarily in the Eastern U.S.
Nuclear energy is a dominant source of electricity in the United States, providing around 20% of total electricity generation. This map shows the locations of all 100 operating reactors in the country.
In general, nuclear reactors are very large, have no greenhouse gas emissions, have low marginal costs, have high capacity factors, and depress prices in wholesale electricity markets. However, the high cost of building new reactors and the near guarantee of cost overruns has virtually halted construction of new nuclear reactors in the United States. The only places where nuclear reactors are being built is in the south, where there are no ISOs and utilities can usually recover cost overruns from captive ratepayers.
A few things stand out in this map.
First, there are very few nuclear plants west of the Mississippi. This is largely a result of population dynamics and timing. Most of the U.S. population lived in the eastern half of the country when the nuclear reactor building boom began in the 1960’s and 1970’s. By the time the population began shifting more westward, nuclear economics were very unattractive due to cost escalation and overruns.
Second, most nuclear power plants have 2 or more reactors at one location. This point is critical as having more than reactor at one site reduces operating costs. It is notable that all of the recent economic retirements of nuclear reactors have occurred at single reactor sites where the economics are more challenging. Nuclear plants with 2 or more reactors are more economically sound.
Renewable Portfolio Standards Dominate U.S. Renewable Energy Policy
State policies mandating the use of renewable sources for electricity drove the large gains in wind generation during the last ten years. Further, these policies provide a supporting base for continued growth in both solar and wind during the next 15 years.
This map illustrates the widespread nature of these policies. Twenty nine states have mandatory goals while six have voluntary goals (since this map was created, Vermont made its RPS mandatory).
These policies have been exceptionally effective at encouraging the establishment of renewable energy markets. More importantly, they have brought significant environmental and economic benefits.
Net Metering is Widespread but Faces Uncertain Future
While state RPS policies primarily support large scale renewables, state net metering laws support development of distributed solar electricity. By basically allowing the meter to spin backwards, net metering makes it very cost effective to go solar. What is most surprising about net metering policy is that it exists in almost every state in the country.
However, net metering is likely to be one of the most important state energy policy battles of 2016. Nevada’s especially contentious decision to roll back its net metering policies (including for existing customers) led to major pushback and became a national political issue.
Beyond Nevada, there are many potential changes to net metering laws being proposed around the country. Net metering is a major benefit to customers, but can severely hurt utility revenue. As solar continues to grow, widespread reform of net metering may be inevitable (if only to better align customer, solar developer, and utility incentives).
Solar PV Resource Potential
As a mid-latitude country, the U.S. has favorable solar resources, especially when compared to higher latitude Europe.
However, there are still major variations across the country that directly affect how much electricity a solar panel will produce. Notably, the Southwest has excellent solar resources, which is a huge factor behind the boom in solar power there (in California, the high residential rates noted earlier also makes solar more attractive at higher prices than in other parts of the country).
This solar map also hints at a few other solar energy challenges. Despite favorable policy support, solar power is only just beginning to take off in New England. Until the most recent decline in PV prices the solar resource was not strong enough to encourage development of solar. Meanwhile, Florida has tremendous solar potential, but policy remains a major barrier to open competition.
Texas also has excellent potential but low electricity prices kept solar uncompetitive until recently. Cost declines and its excellent solar resource are poised to cause a boom in Texas solar – from less than 250 MW now, ERCOT expects solar to reach more than 13 GW by 2030.
Notably, while there are variations in regional solar resources, every part of the continental U.S. has sufficient solar resources for solar to play significant roles in regional electricity mixes. As solar prices keep declining solar has become a mainstream energy resource in the U.S.
Onshore and Offshore Wind Potential
The U.S. really has excellent wind resources as this map of average wind speeds across the country indicate. Critically, unlike solar resources, the geographic variation in these resources severely limits where they can be developed.
The best resources are located in the Great Plains, which explains the tremendous wind development in Iowa, Texas, and Oklahoma, among other states. To truly unlock the wind in the Great Plains, significant transmission expansion to population centers on the East Coast, West Coast, and South is needed.
However, wind speeds in many parts of the West and across the entire south are relatively low. Over time, technological innovation can make these resources more and more accessible. Nevertheless, these limited wind resources at least partially explain the notable lack of RPS policies in the Southern U.S.
One final note about this map. Offshore wind speeds are very high in most parts of the country; offshore wind could play a major role in providing consistent generation in New England, surrounding the Great Lakes, off Texas, and along the West Coast. However, offshore remains costly and faces significant local opposition.
EIA NEMS Electric Market Modules Map
This map is an outlier because it maps something that does not actually exist: these are the regions that the U.S. Energy Information Administration has created for use in the National Energy Modeling System (NEMS), its model for making long term projections of the U.S. electricity grid. I wanted to include it last because it really highlights the difficulty of trying to analyze electricity markets.
Energy models are necessary abstractions of very complex systems. All of the factors that we have covered in this post (state policies, federal regulation, wholesale power markets, retail electricity rates, renewable energy resources, 16,000+ power plants) influence electricity market outcomes. Models need to either try to catch all of this complexity or simplify.
NEMS is very good at catching a lot of this complexity. The regions used in NEMS, as displayed in the map, generally reflect the physical flows of electricity. Other aspects of NEMS capture key factors covered in this post, such as the regional nature of renewable resources, natural gas supplies, and plant retirements.
Nevertheless, doing so in a rapidly changing, complex system is exceptionally difficult. There are many other models of the U.S. electric system (or smaller parts of it) that do not have anywhere near the same level of complexity as NEMS. This is not to say that energy models are not useful – rather it underscores that there are many, many factors that influence electricity market outcomes and that more holistic views are needed.