IEEE Power & Energy Magazine - July/August 2015 - 19

Future energy
planning must
take into account
unprecedented
numbers of options.
This article looks at
✔ how the creative destruction engendered by
great innovation has historically impacted electricity rates and pricing models
✔ how new options for the grid are influencing
electricity prices today
✔ why innovations in energy transportation will
affect future pricing models.
Also discussed are macroeconomic power sector futures,
evolution in planning processes, wholesale power market structures, shifts in the fossil fuel markets, and the
effects of environmental regulations on energy pricing.

Creative Destruction Engendered
by Great Innovation
Creative destruction is a term in economics describing
the "process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new
one," according to J.A. Schumpeter.
For example, humans have a basic need and desire to
control lighting beyond the illumination from the sun.
So we marvel at the innovation that Pearl Street Station
IMAGE LICENSED BY GRAPHIC STOCK, LIGHTBULB-IMAGE LICENSED BY INGRAM PUBLISHING
represented in 1882-a power facility fired by coal to
supply electricity to incandescent lamps for lighting,
shown in Figure 1. Incandescent lamps were superior to the kerosene lamps then in common use because the
power generation and the transmission and distribution required for electric lighting are more cost effective
and cleaner than the former alternative: producing oil to be refined as kerosene, which then had to be transported via rail or pipeline for distributing, packaging, and burning in lamps.
Today's lighting technologies are superior to the incandescent lamps; they have a greater life span, consume
much less than incandescent bulbs for a similar light output, and provide short-term marginal cost benefits in
that, for example, less peak demand of electricity supply is required to power a city. While purchase costs for
modern lighting technologies may be more than incandescent lamps, manufacturing learning rates still reduce
the overall cost, and greater lighting efficiency also has broad benefits, reducing requirements for supply,
transport, and distribution as as a fraction of total peak megawatt (mW) and annual lighting energy requirements. This means fewer assets financed via utility rate cases, reduced emissions of burning fossil fuels for
lighting, and concurrent benefits of reduced operational costs.
In fact, however, transformation to more efficient lighting was fairly slow in the years after the Pearl
Street Station went into operation. Over the last century or so, we have witnessed many gradual changes in
the various power sectors:
✔ the monopolization of utility franchises (John D. Rockefeller of Standard Oil pioneered unregulated
july/august 2015

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Table of Contents for the Digital Edition of IEEE Power & Energy Magazine - July/August 2015
