3 Ways Rates Can Be Critical To Grid Modernization

Few people would argue that America’s infrastructure doesn’t need some serious repairs. Infrastructure maintenance is one of those subjects that is incredibly boring yet incredibly important. No one thinks twice about the importance of their local infrastructure until it fails and causes enormous problems for everybody.

Upgrading and modernizing the electrical grid throughout the US is long overdue. However, numerous obstacles are standing in the way; we are making progress but slowly. The rates utility companies can charge for electricity are critical to grid modernization. Finding the right rates is integral to the process.

Below are three ways that rates affect grid modernization plans.

Making Upgrades Economically Viable

Upgrading essential infrastructure is often a costly and complex process. As well as funding the construction and deployment of new equipment, utility companies also need to ensure they can continue to provide essential services to customers while upgrades take place. It is this consideration that makes modernizing the grid so expensive in many areas.

To make these vital cornerstone projects viable, utility companies need a financial incentive. Modernizing the grid can alter the dynamics of generating, distributing, and storing electricity. This, in turn, changes the calculations used to decide on an appropriate rate to charge.

Maintaining Customer Numbers

In some parts of the US, consumers only have one electricity provider available to them. But many citizens have numerous providers to choose from. In areas where utility businesses need to compete with one another, there is often a reluctance to raise rates. Whenever a business increases its prices, it will inevitably lose customers.

This reluctance creates inertia that can be difficult to overcome. If utility businesses don’t feel like they can raise their rates, infrastructure upgrades end up becoming a distant aspiration and might never happen at all.

Funding Upgrades And Expansions

If consumers want the benefits of a modern electrical grid, they will have to pay for it, whether through utility rates or taxes. The money utility businesses make from billing consumers is their primary source of income. States are often willing to contribute financially to infrastructure upgrades, but only if there are clear and tangible benefits to doing so.

Modernizing the electrical grid might seem like a no-brainer to most of us. But if state governments and utility companies aren’t convinced they will see a return on their investment within a reasonable timeframe, these complicated and expensive projects become much less attractive.

These are just three of the ways that rates are tied to the modernization of the electrical grid. Without sufficiently high rates, there is no incentive for utility businesses to invest in modernizing their infrastructure. On the other hand, if rates are too high, customers will desert them for their competitors. Even in parts of the US where individual utility companies have a monopoly, they can’t raise prices arbitrarily.

Finding the sweet spot where rates are high enough to fund modernization projects but still affordable enough to be attractive to consumers is going to be essential to modernizing the entire grid.