American Enterprise Institute experts led by Lynne Kiesling explore the future of electricity in America.
The global energy landscape is transforming, and nowhere is this more evident than the electricity sector. Technological advancements, shifting economic conditions, and evolving environmental policies are converging to reshape the way power systems operate. …
… The transformation of power systems is driven by several key factors: electrification trends, technological advances, and decarbonization. These changes are about not just reducing carbon emissions but also integrating new technologies, improving resilience, and rethinking how systems are managed and regulated. These forces are exerting pressure on traditional business models, regulatory institutions, and market designs.
Traditional utilities, operating under a cost-of-service regulatory model, are facing new opportunities and challenges from distributed energy resources such as solar, wind, and battery storage. Technological advancements, particularly in digitalization, are enabling new forms of energy management, allowing consumers to play a more active role in electricity markets. As a result, the boundaries between centralized and decentralized power systems are becoming increasingly blurred, challenging the regulatory frameworks that have governed the industry for decades.
Historically, the electricity sector has focused on three primary policy objectives: safety, affordability, and reliability. Evolving priorities in the electricity sector have introduced three additional dimensions: resilience, decarbonization, and justice. Balancing these six objectives will be critical to ensuring the success of future power systems, but doing so will require significant innovation, both technological and institutional. …
… For this vision of the future to become a reality, significant institutional changes are required. Current regulatory frameworks are often outdated and ill-suited to the dynamic nature of technological change in the electricity sector. In many cases, regulation stifles innovation, preventing the adoption of new technologies and business models that could enhance grid flexibility, reduce costs, and improve resilience.
Innovation, in the Schumpeterian sense, is the process of turning human creativity into new inputs, products, services, production techniques, and organizational methods. This process is essential for balancing competing policy objectives and driving economic growth.
