The Merit Order: Electric Power in 2034
Eustace Karura had a ritual before every public speaking engagement: a few minutes of deep breathing, eyes closed, to reflect on the stories he would be telling. It served him well, and he always thought of it as a hybrid of his Marine Corps training and his devotion to yoga. Both were a matter of preparation, and mindset.
Source: Author
A hybrid. A hybrid, like the industry he now represented as the CEO of the Global Power Systems Association. Flattered as he was to headline the venerable Aspen Ideas Festival, it was a daunting challenge to reflect on 15 years of extraordinary change in the industry, all the way back to 2019.
He glanced at his watch to set his an interval for reflection, and smiled, recalling the first time he’d even heard of this mountain retreat. “Where Silicon Valley dresses up, and other rich people dress down,” said the jumpsuit-wearing venture capital investor to the officers at the first Veterans Re-Electrification Program investor practicum. “The land of the Ubiquo T and the $40,000 watch…Healthmesh hoodies who haven’t flown commercial in 10 years.”
Source: Airbus
Eustace added a little shrug to his smile. Not about the flying, in his case; he had an electric jet at his disposal for short-hauls, but he’d just visited the Zero Carbon Power Coop in Boulder and so had a Driver take him up. Electric vehicles worked so well out here, particularly as altitude had no effect on the drivetrain. In 2015, an electric vehicle won the Pikes Peak Hill Climb for the first time. In 2018, a fully-autonomous EV won the Hill Climb at a literally inhuman pace, and was promptly disqualified before the race organizers created two new categories that quickly defined all of surface transport. That’s when the Car and Driver distinction came to market — the Car being the risky, frail, human-directed transport, and the Driver being the fully-autonomous whatever-it-might-be: personal car, fleet mover, omnibus. Only the seriously wealthy kept humans into the everyday transportation loop, but they weren’t drivers. Tycoons and decibillionaires had revived the tradition of “footmen” from the era of the horse and carriage, and attractive young staff still kept some fully-autonomous vehicles company.
2019 was when he started in the industry but it was also when the industry he now knew really came into being. The year before, he’d been honorably discharged from the Corps, a young veteran of the brief and blessedly successful international intervention in the Thai-Myanmar border skirmishes of 2018. As a Kenyan immigrant to the US, he’d always been an international citizen; experience in Asia gave him a global soul. The language exposure didn’t hurt either. He spoke Swahili from birth, English since he was four, and thanks to his secondment to a Chinese peacekeeping brigade, enough colloquial Mandarin to be polite or ribald, depending on what the situation suggested. It came in handy when visiting Chinese manufacturers (wherever they might be) or coordinating development efforts with China State Networks, now a $7trn market cap public-private ListCo with $3trn worth of long-term physical assets. Distributed energy was almost all of new capacity in the developed world, but that didn’t mean that grids had gone away, and someone had to build long distance, high-capacity transmission for the renewable megaprojects that still added bulk power to the electricity mix.
He’d never expected that his Swahili would be so valuable, though. For the past decade, east Africa had been the lodestar for all new energy and technology business models. He was never happier than when going back to his birth country, seeing what new ideas and systems young people were concocting to power and connect their world. Back in the mid-2010s, there were more people in Africa using mobile phones than using toothbrushes. The string of coder-compiler hubs from Massawa to Pretoria had inverted that story into a strength.
By 2019 there were three clear electricity market types, defined much more by their growth rates, than by natural resources or capital:
1. A rich, equipped world
2. A middle-income, dynamic world
3. A fast-growing, fast-developing, fast-deploying world.
The market he still knew best was the US, and it had been that first type of market for decades. That didn’t make it immune from change, though. His managers — and his first mentors — had come up through a regulated paradigm that was safe and comfortable for almost everyone involved. The world he entered was a new, strange, opportunistic, and ultimately far more durable paradigm that unsettled a lot of people and businesses, but was built for the 21st century.
Zooming into that first world, most wireline utilities had awoken to three facts even before Eustace’s time:
1. Electricity demand was in eternal retreat from its 2000s peak
2. Wind and solar generation had crushed the old merit order for power generation
3. Century-old rate structures and regulatory compacts were fundamentally broken
These facts were industry truths by 2014. By 2019, they were existential imperatives. Business model reform was well underway in Europe and starting in the US. US reforms were minor, however, and the infrastructure needed to support massive change was sorely lacking.
Storm Year changed that. In the 2010s Americans still loved to debate the anthropogenic nature of climate change, but the spectacular severity of the hurricanes and tornadoes and blizzards of 2018 made climate change impacts real. One storm was particularly destructive, physically and psychologically. Convention stated that hurricanes had a human name at birth; The National Hurricane Center made an exception after the fact for the Mount Vernon Storm. Creaky electrical infrastructure might have seemed abstract to most people, but when the storm knocked out the grid supplying George Washington’s home just before a lightning strike ignited an old, forgotten backup fuel store, the abstract became real. One of the United States’ foundational places was in ashes, and those ashes brought change.
Eyes opened. Purses followed. The Mount Vernon Storm forced power outages from Chattanooga to Scranton, and downtime at a non-islanded government data centers in Maryland actually forced the cancellation of a government debt auction. While most of the Eastern Grid was offline for nine late-summer days, the military bases of the Chesapeake were humming thanks to hardened infrastructure and their reliance on localized gas generation, renewables, and batteries. With their forward operating experience with distributed generation, the Marines were actually better first responders than the utilities. The Corps was also younger, more diverse, and ready to work, a godsend to an industry facing a major shortfall in able-bodied field staff and in desperate need of new skills sets. The Veterans Re-Electrification Program was a perfect fit politically, culturally, and demographically for the trillions of dollars of new investment needed to modernize.
Source: UNH
Other networks reformed and rebuilt after that. Coal was still part of the US electrical system, but Michigan MidContinent was the only major utility to double down on its coal fleet in the 2010s. As a directional bet, it was a poor one. Natural gas stayed abundant and cheap, costs of debt for its existing fleet went up, and an activist hedge fund did the rest. At the same time, V-REP graduates revived the electric cooperative model to repower Detroit and Gary, Indiana as industry returned. By 2029, coops had absorbed most of the transmission and renewable assets of the Great Plains and intermountain West.
Southeastern utilities had been latecomers to renewable energy, but it actually worked to their advantage once their boards accepted that customer preferences for clean power meant a chance to add to their asset base while retaining customers. Meridian Power would extend its franchise behind the meter, as would FloridaFlex.
When Eustace started in the business, the far west networks were already the furthest along with market reforms and renewable deployment. Not coincidentally, they were also the most exposed to climate change. In 2015, Hawaii legislated a 30-year path to 100% renewable energy, but California would reach that target much sooner. The inland service territories of the Central Valley, Imperial Valley, and the Sierras were 100% renewable by 2027, helped along by massive deployment of energy storage systems of all types — electrical, thermal, and even some steampunk-y kinetic systems.
The continuing decline of the US coal fleet created intriguing opportunities for repurposing legacy assets. In 2024 Skyline Technology Consortium bought all of the Southern Valleys Authority’s coal fleet, and converted plants to data centers powered not just with on-site renewables, but also with SVA’s own surplus hydropower. Superfund-scale pollution was a surprisingly small issue, given that the projects were almost entirely automated. Software made the decisions; large robots did the heavy lifting; nanobots and microbes steadily munched through soil and coal ash pond reclamations. It was easy to send the occasional human worker into the site in a containment suit. The heavy metals extracted from the millions of tons of SVA coal ash provided a steady cash flow in their own right.
Ample wholesale supply and wholesale prices close to zero revived a few old chestnuts from the early days of electrification. 2026 was the centenary of utility mascot Reddy Kilowatt, and local power marketers were all too happy to revive his retro charms to encourage off-peak use of zero-carbon generation that could overwhelm a network’s storage systems. Data on demand became a service, as did entirely automated industrial 3D printing fabs that could stop and start production on five minutes’ notice.
The photovoltaic genie was already well out of its bottle when Eustace joined V-REP, but electric power storage still had a ways to go. An unexpected dual dividend put storage over the top and into the heart of the merit order. In 2020, a pension fund-led shareholder revolt finally broke up Korea’s chaebols, and forced the mergers of their battery businesses. By all rights, consolidation should have increased prices, not decreased them…but the complete collapse of the People’s Democratic Republic of Korea in 2021 created the world’s largest and lowest-cost industrial labor force, many of them now working the battery fabs north of the DMZ Nature Preserve.
Low costs and ample Reunification Credit lines proved to be the killer app for batteries, and American entrepreneurs were ready to leverage the full stack of energy storage capabilities that Korean firms could provide. The now-massive US-Korean firm Storage As worked with thin-grid homeowners, industrial consumers, first responders, and power utilities “as whatever you need: load shift, merchant marketing, dynamic smoothing, long-term backup.” The battery inverter click was such a common sound that it became the bed track of the Baltimore-based Old Wave Electropop hit “Klik” by Les Nouveaux.
The US was its own path, Eustace thought. He opened his eyes briefly to check the time and chuckled lightly.
That VC was bang on though about the watches. All the more so after the first Internet of Things billionaire retired from Skyline Technology Consortium in 2022 and acquired Aymard Patiens from the descendants of its founders. Now, the men and women of Palo Alto and Shenzhen and Cyberjaya could show off their love of centuries-old horology without forgoing of-the-minute medtech. It was all about the band, in the end. AP kept its intricate and fascinating silicon metal hairsprings and noble metal rotors and pulsing tourbillons…while adding printed electronics to the band. The timepiece was resistant to electromagnetic interference and accurate to a few seconds a week. The band was an infinitely upgradeable hardware-software-sensor interface powered not with batteries, but with thermo- and kinetic energy circuits. Every 18 months or so, an algorithm suggested he bring it back to AP, where overnight the band was dissolved back into liquid metal and re-assembled with the latest printed electronic sensors and code.
He enjoyed the act of winding his watch. It was a small, almost intimate physical connection with time. He was very fond of his Royal Elm, and felt future-proofed while wearing it.
A few minutes to showtime. What to say about the other rich and equipped markets?
Europe’s electricity markets hit high renewable penetration rates first, and with those high rates, the first high levels of discontent with the utility business- and regulatory compact. By 2015, Germany’s largest power utility already split its assets into (profitable) distributed generation and grid and (problematic) generation and transmission. After that, every other major market followed with some reformation, as falling renewable costs on one side, and lower legacy revenues on the other, squeezed the integrated mine-to-meter model hard. But, not every response was the same.
Source: E.ON
Germany fully unbundled its utilities and effectively nationalized the grid, though to attract capital for upgrades it created “senior participation rights” allowing sovereign wealth funds and major pensions to be last-loss investors in the network.
France, enamored as it was with nuclear, used its state-sponsored generation and network companies to acquire several small modular reactor designs from the US and Korea. Since 2023, it had been steadily re-powering its system with a resilient portfolio of smaller plants, essential now that the Seine, Loire, and Rhone rivers were routinely too hot to provide cooling intake water for the legacy fleet. The UK, after a disastrous foray into foreign-sponsored new nuclear capacity, eventually struck a societal bargain between its environmental and energy interests: much more onshore renewables, as well as new gas power fuelled by near-shore fracking. In 2030, Spain and Italy commissioned their slivers of the revived Desertec subsea transmission concept connecting southern Europe to North Africa…but with a twist. As conceived, Desertec was to power chilly Europe with North African sun and wind energy; as it turned out, oversupplied southern Europe helped meet the peak demand of industrializing Morocco and Algeria. Fully paid-off Spanish and Italian merchant renewables projects sold their electrons north to south, not the other way around.
In wealthy Asia Pacific, Australia’s utilities had clawed back from near death thanks to customers who were more interested in having solar and home storage, than they were in what company would provide it. Japan’s became public-private partnerships, continuing a process, which, in retrospect, had begun after the Great Tohoku Earthquake of 2011.
By 2020 China was a standout — though not yet rich enough to be “rich”, it was fully electrified and relentlessly technological. China’s transition to low-carbon energy happened even faster than its most bullish 2000s-era planners had hoped. Even after waves of deregulation, the state-owned generators retained their franchise for solar and wind megabases in the western provinces, and China State Networks was all too happy to serve them with bulk transmission. Within the distribution grid, however, China’s contract manufacturers were ferocious in turning their automated factories towards hardware parks and the smart systems to manage them. The financing required came almost entirely through what had once been called “crowdfunding”. China’s retail investors, wary of the stock market after the bone-jarring booms and busts of 2015, 2018, and 2023, directed their ample savings towards projects with stable cash-on-cash returns and tangible benefits to their communities. China’s repurposing of a trillion dollars worth of old coal capacity dwarfed Skyline Technology Consortium’s TVA efforts by an order of magnitude, but then again, so too did China’s tech companies dwarf their American counterparts.
Source: Getty Images via howstuffworks
Some regions of the Middle Kingdom cleaned up differently than others. The empty western provinces were all-renewable by the mid-2020s, but the dense eastern conurbations where power demand was still high went a different route. United Pearl Delta Power, for instance, kept its thermal fleet (though with $100bn worth of nano-scrubber upgrades) in exchange for electrifying road and marine transport down to the last e-bike and port tug. Total carbon emissions from the southern network didn’t fall much, but the local environment was incomparably improved from the airpocalypse days of 2010s.
So much had changed since Eustace started in 2019, but still he felt like the US, Europe, and developed East Asia power systems were only interpolating technology and business models into legacy structures. India, the remoter parts of Southeast Asia, landlocked South America and East Africa networked themselves, not through innovations at the margin of the traditional utility business model, but with new models scarcely referencing tradition at all.
So much had changed since Eustace started in 2019, but still he felt like the US, Europe, and developed East Asia power systems were only interpolating technology and business models into legacy structures. India, the remoter parts of Southeast Asia, landlocked South America and East Africa networked themselves, not through innovations at the margin of the traditional utility business model, but with new models scarcely referencing tradition at all.
For India, providing reliable and non-polluting energy to the world’s largest population without reliable grid access was a huge business and social opportunity. The government embarked on an ambitious, top-down renewables deployment scheme in the 2010s, but at the same time a vibrant bottom-up industry emerged at the poles of India’s economy: tech firms, and farms.
Entrepreneurs started providing solar systems for well pumping two decades ago, but even they were surprised at the speed with which solar, wind, and on-site micro pumped storage systems would expand to meet agricultural, commercial, and residential demand in the countryside. At the same time, the tech campuses of Hyderabad and Bangaluru created their own independent fleets and linked arbitrage networks, in the process breaking the backs of the Subcontinent’s perpetually indebted distribution companies.
Successes and failures created new opportunities for recombination. 2024 saw the first merger of a large farm power coop and a city tech power network. Three years later, BharaTel would buy the electricity development pipeline of the second-largest state-owned power generator. The combination of development expertise, first-class mobile technology, mobile money, and the world’s best personal identity system was a winner across South Asia.
Some of the new companies that sprung up to power southeast Asian demand resembled the Swiss-Swedish and Anglo-Dutch corporations of the mid-20th century. As Asia’s new manufacturing continued its southward migration, the Malaysian-Thai manufacturer and installer AseaNetwork provided scaled “electricity grid in a box” offerings from the Chinese border the South Pacific. Cambodia and Laos became manufacturing hubs in their own rights. Emerging from decades of economic isolation in the mid-2010s, Myanmar attracted enough diaspora capital to embark on a renewables-first generation build-out, with a backbone of hydro and gas generation funded by Asian development banks.
In Latin America, an empire of high-capacity factor combined heat- (and combined cooling-) and power stations powered with biomass and biogas sprang up. CálidoPod and HeladoPod units became the energy building blocks of urbanization, either dropped into existing networks or built as the radiant hub of new towns and cities. The wireline utilities were partners in some markets, competitors in some, and adversaries in others. While only some utilities welcomed CHP and CCP, every community was grateful for the quick deployment, operational flexibility, and air quality benefits of Pod(er) systems.
But, it was Africa’s power networks which had come the furthest, and which made Eustace the most proud.
If legacy assets and business models complicated the transition to distributed, low-carbon generation in the rich world, the absence of both made in Africa made its transition much faster. By 2018, there were already three million consumers amply served with distributed power, without any reference to a central transmission and distribution grid. Payments transacted entirely with mobile money were frictionless, and pay-as-you-go generation expansion was quick and relatively low-risk.
Mobile money intricately linked power generation and storage to code. Energy hardware and computer code were not so much connected, as inseparable. Every energy company was code-first; every software company was a power company. Flexible, scalable assets empowered everything from always-on local cold chains, to live code auctions with overseas bidders. By 2027, the integrated mobile money and mobile phone networks would acquire international engineering and agtech firms to create Huduma — an all-encompassing “Service” company meeting whatever needs a growing company might have. On his last trip, Eustace had drifted over a Huduma farm on a Heavy Lifter night run, smiling as he looked down at the fields of greenhouses pulsing with grow lights, and the bioreactors pumping gas into the fuel cell stacks of a Direct Current Data Center.
Twenty years ago in the rich world, power networks got smart by adding sensors and connectivity. East Africa’s communications and payment networks reversed that paradigm — code, and connection and transaction, came first…and the power networks followed.
Eustace opened his eyes again. Back to ground at The Meadows campus, where the dry air was turgid with cottonwood fluff.
He had so much to talk about that finding a narrative that captured even the busy present, much less the future, was always a challenge. There was no data about the future, but there were ways to capture a notion of the future by looking closely at today’s edges. His duty, with an audience like this, was to capture those edges as best he could. Economics and preference drove regulation, not the other way around. Low cost and high return on investment drove the rich world’s merit order, while flexibility and speed of deployment drove it elsewhere. Technology, not legacy, had priority dispatch in building the new…though sometimes, technology meant a revival of something so old it was new again.
Source: Author
A deep breath. Another one. His assistant nodded gently at him from the other side of the Andy Goldsworthy sculpture, beckoning him to the green room. Time for the Holoscene rig, and the stage.
