Centralized vs. Decentralized Electricity Generation Photo of Southwestern Power Administration transmission system by the U.S. Department of Energy.

Centralized vs. Decentralized Electricity Generation

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As integration of renewable energy resources into the electricity grid pushes the U.S. toward a more decentralized grid, it is important to understand the risks and benefits of centralized and decentralized electricity markets. The U.S. currently utilizes a centralized electricity market, in which a small group of electricity producers control generation and transmission to a large number of consumers. But as a growing number of renewable energy sources come online to combat the climate crisis, the electricity market is evolving quickly. As this transition occurs, decentralized markets, in which the number of electricity producers and distributors increase to create more localized electricity infrastructure, are increasing in popularity.

The U.S. relies heavily on a centralized electricity market via three independently synchronized grids. There are several benefits to centralized electricity markets. They were designed to serve a large number of customers, allow for efficient and advanced accounting toward generation and transmission needs, as well as meet the needs of densely populated areas that faced geographic challenges in producing local power. For example, Washington D.C. consumes seventy times the amount of power it produces, which requires ninety eight percent of electricity used in D.C. to be generated in surrounding states and moved to consumers through high-voltage interstate transmission lines. D.C. electric customers experienced an average electricity interruption of less than 1.8 hours in 2018, showing the reliability of a large, centralized electricity grid. The shear inertia and resistance to change created by a large system reduces the chance of failure from a disturbance in the system. A centralized electricity grid allows the electricity needs in cities like D.C. to be met and does so on a scale that reduces vulnerabilities by creating risk resistance within the generation and transmission system.

However, there are also drawbacks of centralized electricity grids. These systems were designed to be fail-safe, yet the lack of modularity increases the chances of massive failures when problems do occur. Centralized grids have also proven to be inflexible in meeting rapid demand changes and standing up to the destructive impacts of climate change. In February 2021, abnormally cold temperatures led to blackouts across Texas because of a failure of the centralized system resulting from an inability to meet increased demand. Additionally, natural disasters have also proved that a centralized electricity grid can be quickly dismantled and slow to recover from damage. In the aftermath of last year’s Hurricane Ian, densely populated areas of Florida remained without power for over two weeks.

To move toward more sustainable energy sources, the Environmental Protection Agency recently released policy proposals which phase out fossil fuel technologies that are the backbone of centralized electricity grids. The Biden administration is planning to require centralized coal power plants to drastically change operation or retire by 2032. With policy requirements demanding change, the federal government has placed the centralized electricity grid in an “adapt or die” scenario and current policies are not enabling grid adaptation.

Assessments by the North American Electric Reliability Corporation (NERC) show a growing risk of energy shortages in the next four years across the U.S. Areas in the Midwest are reported to be at exceptionally high risk to experience energy shortfalls because the bulk power system is not resilient enough to increasingly severe weather. NERC research shows that most of the country is at an elevated risk of power failures if energy demands increase above normal levels this summer.

Conversely, decentralized electricity generation and transmission could be the solution to increasing grid reliability and integrating renewable energy resources. The evolution of the electrical grid to reduce carbon emissions and increase resiliency has led to the creation of more decentralized and renewable generation. In 2019 alone, 550 new microgrids (a type of small scale decentralized electrical gird) were installed in the U.S. Decentralized electricity grids are favored because of their inherent flexibility and resiliency due to their modularity, but necessitate careful planning. Introduction of decentralized electricity generation and storage without proper planning could have the opposite affect and reduce the reliability of the electricity grid. To ensure decentralized markets are operating optimally, producers should carefully consider the physical location of decentralized generation sources to make sure generation technology is protected from severe weather and transmission occurs efficiently. Additionally, how centralized power generation, namely large-scale-fossil-fuel plants, are taken offline as the generation capacity of decentralized resources increases is a delicate balancing act. Specifically, if traditional generation sources are ripped offline before decentralized resources are ready to respond to high demand volumes, power interruptions are likely to occur. Without proper integration of communication between new distributed energy technologies and the existing electricity grid, the risk for blackouts increases. Decentralized production and distribution models are still in their infancy and careful planning and regulation will be required to bring them onto the national scene.

The current enthusiasm about decentralization is largely attributable to increasing use of renewable resources for power generation. Even so, the centralized electricity market has a key role to play in the integration of renewable energy resources. Experts at NERC recognize that keeping natural gas electricity generation online will be crucial to meet base electricity demand as intermittently generating renewable resources come online. At a recent Senate hearing, concern was raised over the mandated retirement of centralized coal powerplants leading to decreased electricity grid reliability.

Any changes to the current systems, however, benefit from centering policy and planning around reliability. The Department of Energy (DOE) is working with national labs and the electricity industry to ensure transmission remains reliable and meets the needs of all communities during the transition to more renewable generation sources. DOE has also created a Grid Modernization Initiative and announced a $38 million dollar funding opportunity to advance research related to the electricity grid transition. These programs provide a promising start to ensuring proper caution is taken as the U.S. electricity grid faces a period of rapid transition. While decentralization presents a method of quickly integrating renewable resources into commercial electricity grids, ensuring grid reliability must dominate the policy conversation to prevent blackouts across the U.S.