What an Aging Power Grid Means for US Supply Chains
Identifying the supply chain threats and opportunities associated with outdated energy infrastructure
US supply chains are reliant on a power grid that is outdated. This same power grid is the backbone of every supply chain vertical and threatens to seriously disrupt operations. These are a few risks and opportunities that should be considered when evaluating future supply chain roadmaps.
Thomas Edison’s invention of the light bulb often overshadows arguably one of his most important accomplishments: the creation of the United States’ power grid. That’s right, Edison designed and built the first electric network and power plant that serviced 59 customers in New York. The modern power grid was derived from the same concept that Edison implemented 140 years ago, only today it serves hundreds of millions of customers.
To be clear, it was not until the 1950s and 60s that the power grid really took shape. Originally, it was intended to have a service life of 50 years. While the grid has been neglected for years, it might be that we’re finally at a point where real action can be taken to upgrade our aging infrastructure as utility companies are pivoting to more renewable forms of energy in the face of accelerated climate change. What does this mean for supply chains?
Understanding the Grid 101
It is important to understand how the current grid was constructed to get a full picture of the problem at hand. The nation's power grid is similar to our cardiovascular system as it is made up of different arteries and veins that distribute power through three separate grids, the Eastern, Western, and Texas interconnections. Nuclear power plants or fossil fuel-based power plants that burn either coal, oil, or natural gas pass along electricity through high-voltage transmission lines to local facilities called substations. From there, substations convert the high-voltage power to lower voltage that is then distributed to businesses and homes. In total, the grid is home to 7,700 power plants, 3,300 utilities and 2.7M miles of power lines (that’s equivalent to travelling to the moon almost 11 times). It is often deemed as one of the most impressive machines in modern history because of its sheer size and intricate complexities.
There is growing demand for cleaner power generation as the globe shifts to more eco-friendly renewables. Coal plants have been trending downwards in part to high pollution output. Instead, utility companies in the US are opting to utilize renewable energy sources like hydro, wind, and solar which will play a large role in the future. To provide perspective, the US grid produced over 4T kWh of electricity in 2020, dominated by natural gas, oil, coal, and nuclear energy sources while renewables made up 21%. Deloitte has predicted that by 2040, zero-emission sources are expected to generate nearly 60% of capacity.
Identifying Threats That Put Supply Chains At Risk
US supply chains account for a large chunk of US electricity consumption. In 2020, the industrial and transportation sectors used over 900B kWh of electricity, making up 26% of total electricity consumed. This is equivalent to powering over 18B Tesla Model 3s (assuming they’re standard range at 50 kWh). Supply chains rely heavily on the grid for a consistent supply of power which ultimately opens the door to serious risk. Critical energy resources fall victim to cyberattacks which cause power outages, supply shortages, and inflates commodity prices. There is undue risk around facilities getting power which can affect both the warehousing and manufacturing sectors. Service to downstream suppliers can become disrupted which ultimately negatively affects customer relationships. To keep it simple, here are a few major threats to the nation’s power grid happening today that can have a direct impact on supply chain operations.
- Cybersecurity. Critical infrastructure is always at risk of being sabotaged to fracture the backbone of every industry in the country. On December 23, 2015, hackers remotely accessed Ukraine’s power grid. 30 substations fell victim to the attack and left 200,000 customers without power. Blackouts present risk for every player in the supply chain space. How can production plants, manufacturing facilities, freight brokerages and other key components of supply chains resume smooth operations if power is disrupted?
- Natural disasters. At this point in time, the weather can not be controlled. Until that time comes, taking care of the planet is the best solution available. This past February, Winter Storm Uri froze about half of the United States leaving millions of people without access to water or electricity in the state of Texas. Ports and interstates hit by the hazardous weather caused transportation, shipping, and logistics delays.
- Isolated outages. Both cyber attacks and natural disasters can cause outages, but isolated outages are oftentimes a result of maintenance neglect. In March of 2019, Venezuela experienced a massive, nationwide power outage caused by a vegetation fire. The fire originated on three high-voltage lines that connect the San Geronimo B substation, which supplies Venezuela’s largest cities with electricity, to one of the world’s largest hydroelectric dams, the Guri Dam. As a result, the nation’s largest steel maker as well as a handful of aluminum and iron plants ceased operations permanently.
Falsely Perceived Risks
In addition to these unpredictable threats, there is a fear that electric vehicle adoption will add major stress to the grid. While the grid will eventually need to add capacity to support electrification, current capacity can support demand for the next 3 decades. According to the Annual Energy Outlook, released by the US Energy Information Administration, demand for electricity will remain under 3% of the nation’s total electrical demand through 2050. The report also states that vehicle sales and utilization would need to increase substantially to increase total demand by more than a fraction of a percent. In short, the rise of EVs will not pose any major threats to our existing grid at this point in time.
Evaluating Opportunities to Lessen the Risks
Utility companies are exploring the possibility of a hybrid grid, which combines the physical grid with a digital layer. If this approach materializes, the digital layer would allow the utility to spot potential issues and mitigate without the need for direct intervention. But how can supply chains specifically prepare for the risks? Great question.
Here are three opportunities that can help mitigate risk to supply chain operations during crisis:
- Microgrids. A microgrid is a self-reliant, localized energy system that can unplug from the grid and operate autonomously. Microgrids connect to the main grid at a point of common coupling that utilizes the same voltage. Microgrids allow facilities to operate independently or serve as a backup if need be. Fort Bragg Army Base in North Carolina partnered with Duke Energy to build a solar microgrid to alleviate costs and optimize energy usage during training exercises and other base operations.
- Smart technology. The primary advantage of smart tech is its ability to communicate with the grid and adjust energy usage for a specified period of time. Constructing a smart facility is ideal but it is costly. Instead, think about retrofitting older infrastructure with smart tech to save on utility costs and usage. For instance, installing smart thermostats in an existing warehouse will allow the device to monitor and control energy use if the power grid is under stress.
- Energy storage. The final solution involves installing an energy reserve that can be used during peak power usage times to reduce reliance on the grid. This can be accomplished by building a solar canopy over a parking lot or installing panels on the roof of a facility. As energy is generated, it is transferred to a storage unit for future distribution. Energy reserves can also serve as a short-term power backup in case of an emergency, but cannot support a facility for long periods of time.
Recognizing the Benefits
One of the most important by-products of any decision under consideration are the added benefits. New value can be added to an entire organization if it takes advantage of the opportunities that digitization and clean energy present.
- Yield consistency. Clean and reliable power production secures more consistent supply compared to fossil fuels, largely contributing to commodity price volatility.
- Improve cost structure. Energy transitions from an overhead cost to a direct material input that can be added to the overall product cost which improves net-income.
- Meet compliance. Stay ahead of potential new compliance requirements by actively investing in cleaner energy and supply chain practices.
- Increase revenue. Consumers and businesses alike are more willing to purchase from a sustainable and socially responsible company which boosts brand image and can lead to an increase in revenue.
At the end of the day, supply chain disruptions are bound to happen whether anticipated or not. COVID, for example, created unpredicted outcomes in every existing supply chain vertical. It’s important to stay aware of a supply chain’s operational dependency on the power grid and prepare for worst-case scenarios. Modernizing supply chains today could be the distinguishing factor that keeps a business afloat if a grid failure happens tomorrow.
Credits: Photo by Rares ION from Unsplash
Thanks to Lukas Schleuniger, Katie Kent and Santosh Sankar for reviewing prior versions.
August 25, 2021