How the Grid Works

An electrical grid is not unlike the telephone network or the Internet. Interconnecting networks of generating stations produce electrical power transmitted over high voltage transmission lines to a retail utility which provides the last mile of power lines to deliver power to you.


Depending on the country, ownership of The grid and its various value chain segments may be state-owned or completely privatized.  For the purposes of this article, we’ll focus on the US & Canada. For these two countries, the grid is nearly entirely privately owned. Private companies may be vertically integrated and may control different segments or even all of the value chain: from generation to the retail entity that charges you the monthly bill different even from state to state.  

The “Old” Value Chain

Consider the different segments of the traditional value chain for the grid. There are four major segments that work together to deliver the electricity to you: the generator plant, transmission & distribution company, and finally the utilities, the retail entities that service your home and collect fees how much you use each month. Until recently, the various value chain segments may have been owned by a single vertically integrated entity.  Today that is changing.  It is worth understanding the historical aspects of the traditional value chain.  It shows how current and new investors and regulators think differently. 

Generation plants

Like the Internet, generation plants provide electricity the moment you need it.  It is always on.  Whether you use it or not, power plants are built to provide capacity for a given service area. Duke Energy and Pacific Gas & Electric are some of the largest power generators (by megawatt) in the United States. 

The time of day and seasonality affect the amount of power produced.  Baseload power plants provide the majority of power required for a region. These generation plants typically provide the minimum necessary power using the cheapest possible means, for example, coal, to support the minimum level of power necessary to service an area.  Baseload power plants are supported by smaller power plants known as load-filling and peaker plants.  These plants are put into operation for short periods (a few days or weeks) when demand is forecasted to be higher than normal. Here is a list of emergency peaker plants in California. 

Transmission & distribution segments

These two value chain segments are often discussed together. However, the ownership entities may not be the same.  The high voltage transmission lines may be owned by a power company like Duke Energy, but the electrical substations where power is distributed may be owned by a municipality or an industrial. 

Power generated at a hydroelectric dam or a coal plant travel via high voltage lines and deliver power to substations in your neighborhood.  Substations serve several functions.  Converter substations may change the frequency or step down higher voltages to lower voltages.  Switching substations route or re-route power at various voltages levels for different locations.  Collection substations may aggregate power from different nearby sources to combine and step up the voltage level for transmission.

High voltage lines, depending on a given area, deliver power at 115 kV.  These run along towers over land.  Distribution voltages from a substation are significantly lower, between 2.4 kV and 33 kV.  These may run over towers or underground depending on the location.  Feeder lines, the power cables that run from the substation along the streets overhead (or underground in New York City), deliver power to your home or office. Please note, the voltages, referenced above depend on the size of the area served and the practices of the local utility.

Control over transmission and distribution lines are highly automated and controlled using remote control circuits have all been applied to Supervisory Control and Data Acquisition (SCADA).

Retail and customer service

The final segment of the traditional value chain for the grid is retail billing and customer service, also known as the utility.  The utility is the value chain segment that directly interacts with the customer fielding requests, tracking actual usage via meters installed in your home, and the first to collect fees. 

The “New” Value Chain 

With the advent of renewables, the value chain for the grid adds new sources of power generation but also a new value chain segment: storage.

Renewables, like solar and wind, are intermittent by nature.  Cloud cover significantly reduces or suddenly increases the amount of power produced by a solar farm. The same applies to wind turbines. 

For the grid to be stable, it requires a steady flow of power.  Currently, load-following and peaker plants are turned on to provide additional capacity. It may take a day to start-up, and must run continuously until the forecasted period is over – whether or not the power is actually used.  

Storage systems provide flexibility to the grid. Excess power produced stored local battery storage and released locally, reduce the need for peaker plants using fossil fuels.  In the case of solar, storing power produced during peak sunlight can be released during the evening via heat transfer systems like molten salt, flow batteries used by many forward operating bases in the military, or even the humble bank of batteries in your electric vehicle. Storage allows the grid to be more resilient and efficient.


The value chain for the electrical grid continues to evolve.  It evolves by necessity, as new technologies change how power is produced, transmitted, distributed and managed.  Coal powered the Industrial Revolution but at the price of clean air and water. The nuclear age delivered the means to explore distant planets and deliver baseload power to major cities without air pollution.  But it brought the risk of radioactive contamination.  The advent of renewables has created a new value chain segment, storage,  When scaled properly, storage not only solves the challenge of intermittency but delivers a more resilient and efficient power grid.