Fundamental Characteristics of the Electricity System
Any vision must accept and build on three fundamental characteristics of the electricity industry that combine to determine its evolution and the constraints under which it operates:
- Its infrastructure is replaced only very slowly;
- Its principal actors are interdependent across borders;
- It manages and delivers a public good.
The electricity industry has a much slower capital stock turnover than most other industries. Coal plants operate for 50 years or more and nuclear plants for 40 years or more. Hydroelectric plants can operate for more than a century. Electricity assets are also slow to turn over because, unlike consumer goods, innovations tend to occur at a slower pace than in many other industries, and truly disruptive innovations – refinements and changes that redefine the entire industry – occur only rarely.
The slow pace of turnover in electricity has a clear implication: while it may seem that we have years to decide on the system we want, 2050 is an electric heartbeat away. Once infrastructure is in place there are significant economic costs to cutting short its very long useful life. In other words, what we decide to build today will form the foundation for the system for our children and their children. It will be with us for decades, so it’s time for us to choose wisely.
Second, energy resources are interdependent to a significant extent, especially in terms of the electricity grid and international energy prices. In 2003, cascading blackouts originating in Ohio led to more than 508 generating units at 265 power plants across Canada and the United States being shut down through the outage. And when Hurricane Sandy hit the East Coast in 2012, Canadian engineers and experts were immediately deployed to help restore power and clean up.
Third, the electricity system is a public good. Although electricity companies naturally look to advance their own interests, the industry is also a steward of the public trust. So its effective functioning leads to significant benefits for society. When the electricity system functions well, it has a meta-role in supporting the stability and growth of other industries and other parts of the economy. Electricity, in developing economies, has driven, or at least been strongly correlated with, human development, and it is equally critical for the sustainability of developed economies. But as well, market failures in electricity often translate into wider crises.
In thinking about the future of electricity, we must be mindful of its benefits and responsibilities to society as a whole, and across generations.
Read more about the fundamental characteristics of the electricity system in the full Vision 2050 report. Download Vision 2050.