Electrical power industry

Industry Snapshot

• GENERAL INDUSTRY: Energy
• CAREER CLUSTER: Science, Technology, Engineering, and Math
• SUBCATEGORY INDUSTRIES: Electric Power Transmission, Control, and Distribution; Electric Utilities
• RELATED INDUSTRIES: Alternative Power Industry; Batteries and Fuel Cells Industry; Biofuels Industry; Coal Mining Industry; Electrical and Gas Appliances Industry; Nuclear Power Industry; Petroleum and Natural Gas Industry; Scientific and Technical Services
• ANNUAL DOMESTIC REVENUES: US$460 billion (electric utilities; First Research, 2024)
• NAICS NUMBER: 2211

Summary

The electrical power industry uses generators fueled by coal, oil, or nuclear fuel or powered by falling water or wind to produce electrical power, which it then distributes to users. In the United States and Canada, the majority of electrical utilities are connected to a continent-wide grid that allows companies to sell excess power or to purchase power when local demand is high. Utilities distribute electrical power to individual households and companies, billing customers for each kilowatt hour used. Although electric utilities encourage conservation, they must also plan for expanded demand caused by increased use of electric vehicles.

History of the Industry

The electrical power industry originated in the electromagnetic discoveries of nineteenth-century physics. In 1800, the Italian count Alessandro Volta developed the voltaic pile or battery, the first device to reliably produce a steady electric current. Volta’s discovery was almost immediately seized on by physicists and chemists. In 1800, the English chemist William Nicholson used the voltaic pile to separate water into hydrogen and oxygen. In 1807, British chemist Sir Humphry Davy isolated sodium and potassium by electrolysis. The use of electrical power to isolate elements from their compounds was one of the earliest and continuing industrial uses of electricity.

The connection between electricity and magnetism was established in 1821 by Danish physicist and chemist Hans Christian Oersted, who showed that a magnetic field surrounds a current-carrying wire. In 1831, English chemist and physicist Michael Faraday demonstrated electromagnetic induction—the production of voltage when the magnetic flux through a loop of wire changes. This discovery made it possible to generate electrical energy whenever mechanical energy could be used to turn the coil of a generator.

The first rudimentary telegraph was developed by the American physicist Joseph Henry in 1831. It was rendered commercially viable by American artist and inventor Samuel Morse, and telegraphy found immediate application in the coordination of railroad applications. It was natural, therefore, that the first intercity telegraph lines would follow the railroad tracks between cities and that the existing system of telegraph poles would also carry telephone lines and electrical power. The first major effort at providing electric lighting to an urban area was the Pearl Street station built by Thomas Alva Edison in 1882. After the demonstration of a working electric lighting system, the demand for electricity boomed.

By the 1880s, the small community of electricity producers was split between those who favored direct current (DC) distribution and those who favored alternating current (AC). Because electrical energy must generally be produced as it is needed, there was strong incentive for standardization so that excess power could be traded between generating systems. The most vocal advocate of direct current was Edison, who was distrustful of the complicated mathematics needed to design alternating current circuits. Alternating current was advocated by George Westinghouse, who in 1886 had set up an alternating current lighting plant in Great Barrington, Massachusetts. Unlike direct current, alternating current could be transformed to a high voltage for transmission over long distances and then “stepped down” to a lower, safer voltage for local use. Direct current electricity lost a great deal of energy in transmission. Had Edison’s direct current scheme been adopted, generating plants would have had to be stationed a few city blocks apart, and tremendous amounts of copper would have been needed for the transmission lines. A satisfactory alternating current motor was developed by Serbian engineer Nikola Tesla in 1887, setting the stage for the eventual use of alternating current nationwide.

With the widespread acceptance of alternating current transmission, electrical generators were constructed in places such as Niagara Falls, New York, where the energy of falling water could be used to turn the generators. The energy produced was then transmitted at very high voltage to industry and population centers. Soon, generators were placed at dam sites, and electrical power generation joined water management as the rationale for dam construction. As utility companies grew, they found the need to burn coal, petroleum, and natural gas to produce steam to turn the turbines that powered additional generators. Nuclear power plant construction began in the 1950s. Environmental concerns have encouraged electricity generation by windmills and sparked research in using tidal energies to produce electricity.

The Industry Today

The overall process of generating electrical energy and distributing it to consumers can be divided into three stages. The first stage is the generation of electrical energy from other forms of stored or motion energy. These energy sources include falling water, wind, solar radiation, the tides, the combustion of fossil fuels (coal, oil, or natural gas), and nuclear reactors. Most large-scale forms of generation involve applications of electromagnetic induction, in which turbines rotate generators within magnetic fields; however, solar photovoltaic systems generate electricity directly from sunlight without rotating machinery.

The second stage is the transmission of electrical power at very high voltage over long distances to substations, where transformers reduce the voltage to safer levels. The third stage is the retail distribution of electrical energy to homes and businesses. In the United States, electrical power is typically distributed to households using 120/240-volt single-phase service, while three-phase power is commonly supplied to commercial and industrial customers. Individual households and businesses are served by electricity retailers, who meter the amount of electrical energy consumed and bill accordingly.

The electrical power industry consists of more than 3,000 electric utility companies that produce and distribute electrical energy across the country, together with nonutility companies that sell electrical power in wholesale markets. The corporate structure of the electrical power industry is complex. Many of the companies are owned by state or local governments, while others are investor-owned companies operating under regulatory oversight. Some operate as cooperatives, in which case the customers are the owners. Several federal electric utilities are operated by government agencies, including the Tennessee Valley Authority and the US Army Corps of Engineers. Government agencies such as the Tennessee Valley Authority have historically played an important role in making electrical power available to less-populated areas.

Nonutility producers of electricity include independent power producers, combined heat and power plants, and renewable energy developers. Earlier policy frameworks defined qualifying facilities under federal law, including combined heat and power plants that produce steam for industrial use and, as a by-product, electrical energy that can be sold to utilities, as well as small power producers using renewable resources. Today, nonutility generation is dominated by large-scale wind and solar facilities, merchant generators, and long-term power purchase agreements, with energy storage systems increasingly supporting grid reliability.

The consumers of electrical power are commonly divided into four sectors: residential, commercial, industrial, and transportation. The residential sector consists of individuals and families who use electricity for lighting, appliances, electronics, and heating and cooling their homes. The commercial sector includes retail stores, restaurants, hotels and motels, places of worship, schools, and hospitals. The industrial sector consists of companies that use electricity in manufacturing, construction, and chemical processing. A small percentage of the electrical energy produced in the United States is used for electrolytic processes such as aluminum production, chlorine manufacture, and metal finishing. The transportation sector historically included electric trains and trolleys and has expanded in recent years to include electric vehicles.

The electricity distribution system in the United States and Canada consists of three large-scale power grids: the Eastern Interconnection, the Western Interconnection, and the Texas Interconnection. There are limited interconnections between the Eastern and Western systems, and the Texas system is connected to the other systems primarily through a small number of high-voltage direct-current lines. These large-scale grids allow utility companies to sell excess capacity to other producers and to purchase electricity as necessary. As a result, the electricity purchased by an individual household or business often represents a mix of generation sources from across a region.

According to the US Energy Information Administration, in the early 2020s natural gas accounted for the largest share of electricity generation in the United States, followed by nuclear power, coal, and renewable sources such as wind, hydropower, and solar energy. Although fossil fuels continued to supply a majority of electricity during this period, renewable energy sources have grown rapidly, contributing to ongoing changes in the generation mix. The proportions of electricity generated by different sources vary significantly among countries.

Industry Outlook: Overview

The outlook for the electrical power industry shows it to be on the rise. The demand for energy in the United States is unlikely to decrease in the foreseeable future, and demand in the emerging nations of Asia is certain to increase. The electrical power industry is in growth mode, although there is some uncertainty as to the distribution of energy sources. A further uncertainty is attached to the deregulation or reregulation of the industry, which depends on legislative action. With more competition for the purchase of fossil fuels, an increased dependence on nuclear power seems inevitable. Nuclear power plants are scheduled for construction, but the problem of long-term storage of high-level nuclear waste persists, as does the problem of carbon emissions from conventional power plants. Another question is the extent to which electric-powered or hybrid vehicles will supplant gasoline- and diesel-powered vehicles. The possible emergence of new technologies may also affect the electrical power industry. Solar energy can supplant electricity from fossil fuels for home heating and cooling to some extent, but conversion of solar energy to electricity remains inefficient.

The electrical power industry is particularly sensitive to the electoral process. For example, in the 2020 presidential election, Republican candidate Donald Trump promised continued expansion of domestic oil and gas drilling while Democrat Joe Biden promised a transition away from fossil fuels. Varying estimates have been made of the time that will be needed for more environmentally friendly technologies, such as wind farms and solar plants, to become a significant part of production capacity. Although nuclear power advocates point to the lower environmental impact of properly run nuclear plants, fear of possible nuclear accidents remains, along with still unresolved issues concerning the disposal of high-level radioactive waste.

The electrical power industry requires a technologically educated workforce. This is particularly true in the nuclear industry, where educational standards for reactor operators were significantly increased in the wake of the 1979 accident at the Three Mile Island Nuclear Generating Station. Although security issues may be of greatest importance in the nuclear side of the industry, any significant loss of electrical power-generating capacity could be damaging to the economy; therefore, all power generation facilities require security personnel. A number of types of power plants not yet in commercial operation may become practicable as the demand for electrical power grows. These include breeder reactors, which actually produce additional radioactive fuel as they generate electricity, and liquid metal reactors, in which a liquid metal such as sodium is used as the heat exchange medium instead of water. Uses of wind energy and solar energy are expanding. Solar energy for direct home heating may reduce the need for electrical power in many parts of the United States.

Tidal energy has also been used successfully to generate electrical power in France, China, Northern Ireland, South Korea, and Nova Scotia, Canada. The coast of Maine has also been considered. However, no tidal power plant had been built in the United States as of 2023. Environmental concerns such as habitat loss due to damming and changes to migration patterns have hindered such proposals.

Employment Advantages

The electrical power industry overall is in a controlled growth mode. Although the 2011 nuclear accident in Fukushima, Japan, temporarily halted expansion in the nuclear power industry, many planned plants are likely to be built, if somewhat later than initially scheduled. As the demand for electrical energy grows, new power plants of all types will be constructed, and new technologies implemented. Significant new employment opportunities are likely to occur as the baby-boomer generation begins to retire. Highly skilled workers will find their skills transferable to new technologies as, for instance, solar or wind power stations come on line.

Scientific and technical staff in the electrical power industry therefore are likely to have many jobs open to them, even outside the traditional area of energy production. Students who prepare for engineering or science degrees or receive advanced technical training at a community college or in the military should be able to select from a number of attractive positions. Workers in all aspects of the electrical power industry can expect to participate in continuing education throughout their lifetimes.

Annual Earnings

Electrical power companies have generally functioned as regulated monopolies, which means that their profitability is unlikely to increase or decrease dramatically. However, as the industry became somewhat deregulated, the profit potential has become more uncertain. It is likely that power industry revenues will grow over time and that the fraction of electrical energy produced by nuclear power will increase, following the example of European countries. The cost of fossil fuels will almost certainly increase as industrialization and the standard of living rises in China, India, and other emerging nations. A marked increase in demand is possible as fully electric and hybrid electric vehicles capture more of the automotive market. The cost of hazardous reactor waste disposal or reprocessing is another economic variable. As spent nuclear fuel accumulates on site, there will be a push both for disposal at geologically safe sites and for reprocessing spent nuclear fuel. Transportation costs and security costs associated with transport of high-level waste by rail or truck must be considered.

In addition to their domestic operations, American companies have become involved in exporting electrical power technology, including nuclear technology, to other countries, particularly those in Asia and the Middle East. Technical workers may have interesting travel opportunities as plants are constructed in other countries or as equipment is designed for export.

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