Powering Into the Future: The question isn't can we afford to upgrade the electric grid, but can we can afford not to.

• Author: Andersen, Glen

The century-old energy supply model, where utilities produce electricity in large, faraway power plants and deliver it over long distances, is being transformed. New industry players, new technologies and an increasing number of customers who want to produce their own electricity are driving the change.

The explosion of new technologies--from smart water heaters and thermostats to electric vehicles, rooftop solar panels, and energy storage--promise a cleaner, more efficient, and more reliable energy future. But they will require a modernized power grid, and a new regulatory approach, in order to function.

State legislators are finding that energy infrastructure--designed for a centralized grid with one-way energy flow--needs to be upgraded to accommodate two-way energy flows and the growth of an increasingly modular energy system. Massive infrastructure investments will be needed to create a 21st century grid, and finding the money won't be easy. But that's just part of the challenge.

State policies that currently govern the grid and the ways utilities do business with customers are being outpaced by technological advancements. Lawmakers will need to shoulder the task of updating policies and regulations that are ineffective or problematic in this rapidly changing energy market.

"The question is--what will the cost be to have a centralized 19th century electric grid in a decentralized 21 century artificial intelligence world?" says Washington Representative Jeff Morris (D).

The Cost of Inaction

The cost of modernizing the grid will be high, but the economic consequences of not doing so may be higher. According to a report by the American Society for Civil Engineers, if we continue to invest in our electricity distribution infrastructure at our current level, we will face funding gaps of up to $94 billion by 2025. And, the economic costs of failing to meet infrastructure needs are even higher, according to the report. Given the growing reliance on electricity in nearly every facet of the economy, and the rise of data-driven commerce and industry, failing to upgrade will reduce the country's GDP by an estimated $819 billion by 2025, according to the ASCE.

As more people generate their own energy and utilities downsize their generation sources, a fundamental shift is occurring. Large, distant generation sources are being replaced by smaller, local sources located near energy consumers. Achieving a two-way energy system--in which customers are also producers, managers and market participants--requires building a more flexible, sophisticated grid and enacting supportive regulations that equitably compensate market players.

The challenge for lawmakers is crafting policies that promote investment in energy infrastructure while allowing innovative industries and new energy management approaches to flourish and compete where once only regulated monopolies could operate.

"A one-size-fits-all solution is politically and practically...