FT writes, Americans are spending big to go off the grid as growing power demand, harsh weather and ageing infrastructure pose a threat to power reliability and prices

Our Take, With Doug Sheridan

FT writes, Americans are spending big to go off the grid as growing power demand, harsh weather and ageing infrastructure pose a threat to power reliability and prices.

Cummins Inc. reported Q2 sales for back-up power systems were up 16%, totaling $987mn. Generac, another generator manufacturer, raised its outlook as growing power outages leave consumers scrambling for alternative sources of power.

Cummins cited microgrids—a more advanced system of decentralized power that typically consists of solar panels, batteries and gas or diesel generators—as a driver of growth. The US buildout of microgrids nearly doubled for commercial and industrial users last year.

The trend heralds a period of greater fragmentation in the US power sector and underscores the mounting frustration over the grid as more frequent blackouts force consumers to find and generate their own power.

“Microgrids are solving increasing reliability concerns about lack of 24/7 round-the-clock power availability and have evolved from infrequently used back-up generators to everyday use by consumers and businesses under a reliability-as-a-service business model,” says Brandon Dalling of King & Spalding.

Private equity is piling in. In 2019, Schneider Electric launched AlphaStruxure, a microgrid JV with The Carlyle Group. Blackstone and Macquarie have set up JVs with microgrid developers, and Warburg Pincus LLC put $300mn behind Scale Microgrids. KKR is hunting for its own partnership.

Microgrids have sparked concerns from environmentalists, who dislike gas generators, as well as critics who worry the rise of microgrids could lead to a vicious “death spiral.” In this scenario, the largest and richest energy consumers exit the grid, leaving less sophisticated players that are less likely to push—and less able to pay—for modernization.

Ari Peskoe, an electricity law expert at Harvard, notes there’s a risk “you create a two-tier system where those that can afford more reliability can pay for it, and those that can’t afford it are left with increasingly frail utility systems.”

Our Take 1: Let's review how this magic unfolded...

Step 1, spend hundreds of billions of taxpayer funds to break the public grid with expensive and unreliable renewables and watch costs rise and reliability fall.

Step 2, wealthy businesses and households spend additional tens of billions to build their own private power systems to escape the public grid.

Step 3, power prices on the public grid rise further as fewer—many captive (ie, poorer)—customers are forced to cover rising costs of the broken public grid.

Step 4, repeat Steps 1 thru 3 until politicians wake up.

Step 5, politicians create new welfare programs to “right the wrong” of the emergence of electricity “haves” and “have-nots”… which, of course, all started when they unleashed Step 1.

Our Take 2: A cycle of policy incompetence on full display... in America.