Paying for Climate Change Adaptations and Grid Resiliency

Published: Mon 19 Aug 2013
A blog entry by Christine Hertzog

Contributed by:

Christine Hertzog
Managing Director
Smart Grid Library

Christine Hertzog's Blog

infrastructure and resiliency upgrades, and funding. 

Climate change adaptation plans to harden our electrical infrastructure will be unavoidable and expensive.  The grid needs to be upgraded anyway, as pointed out in the American Society of Civil Engineers (ASCE) Report Card discussed in last week’s article.  It is a momentous opportunity to re-architect our electrical grid to last another 100 years.  As a society, we cannot tolerate disruptions to our economy nor reductions in safety and quality of life measures from a power grid that lacks resiliency and reliability.   That’s a point emphasized in the recently released report from the White House Council of Economic Advisers and the Energy Department.

But the numbers are huge.  The ASCE report estimates that we’re underinvesting in the distribution grid by $57 billion.  That’s a number based on simply updating existing grid infrastructure.  That doesn’t take into account the hardening of the grid – which includes asset relocation, resiliency strategies such as distributed energy resources (DER), and upgrading infrastructure to withstand extreme weather events caused by climate change.

Utilities can develop short- to long-range plans to upgrade infrastructure, but they don’t have unlimited budgets, and sometimes regulatory policy limits their range of actions.  All of the grid investments discussed in this series will take serious money.  Right now, the only answer is that it comes out of the pockets of ratepayers or taxpayers at the local level.  But adapting the grid for climate change reasons isn’t always caused locally.  It’s a nationally shared responsibility because of our use of fossil fuels.

So how do we fund the multi-billion investments needed to adapt our electrical infrastructure to climate change?  Here is my suggestion:

Create a federal Grid Resiliency State Revolving Fund program to fund projects. The US government now funds drinking water infrastructure projects for publicly- and privately-held water agencies through the Drinking Water State Revolving Fund program, governed by acceptance criteria and guidelines regarding project qualifications.  A similar model could work for grid resiliency projects responding to the negative impacts of climate change.  State involvement helps ensure that funds are targeted to the infrastructure projects that reduce the most grid vulnerabilities caused by climate change.  The program can accommodate investor-owned utilities, publicly-owned utilities, and rural coops.

Of course, there’s the challenge of finding the money to fund such a program.  Here are two ideas:

  1. Structure Resiliency bonds modeled on the successful War bonds program in World War 2. These bonds are essentially private loans to the government with a guaranteed interest rate and payout upon maturity.  Bonds can be made available in small to large denominations making it easy for everyone to participate.  People can purchase them to create capital available for climate adaptation projects that focus on grid resiliency in the US.  By the end of World War 2, over 85 million Americans had invested $185 billion to the war effort.
  2. Eliminate the $4B annual federal tax credits, subsidies and other special treatments given to the fossil fuel industries, and transfer that recovered money into the Grid Resiliency State Revolving Fund.  Why reward the energy sources that got us into this climate change predicament with continued taxpayer support?  We can’t afford these giveaways in face of the urgent investments needed to protect our electric grid.

The Revolving Fund project qualifications should give priority to deploying distributed energy resources (DER) and renewable energy sources in distribution grids to deliver grid resiliency.  Architecting multiple new sources of clean energy into the distribution grid reduces CO2 emissions as it reduces grid reliance on a few centralized energy sources.  DER also facilitates new sources of capital willing to invest and take the full financial risk burden away from utilities.  These tactics can go a long way to mitigating the worst impacts of climate change to our economy and society.

Christine Hertzog