What’s Good For Generac Is Bad For America

Over the past few months, while doing speaking engagements, I have been asking the people in the audience to raise their hands if they have a home generator. Usually, a handful, or perhaps a dozen hands, go up. Then I ask, “now raise your hand if you are planning to buy a generator or have already ordered one.” Invariably, most of the remaining people in the audience raise their hands.

One of the people aiming to get a new generator for their home is my friend, K., who lives near Houston. (K. asked me not to use her full name.) She and her husband are spending $11,600 on a new 24-kilowatt Generac generator. (She sent me the receipt.) They put half of the money down last December, but don’t expect to get the machine delivered and hooked up to their home until the end of this year. They recently got an email update telling them that more than 2,500 people are in line ahead of them. 

The reason why Kelly and so many other people in Texas and across the country are buying generators is obvious: the reliability of the electric grid is declining. According to data from the Department of Energy, between 2000 and 2020, the number of what the agency calls “major electric disturbances and unusual occurrences” (read: blackouts) on the U.S. electric grid jumped about 13-fold. 

Consumers and businesses have responded to the decline in electric reliability by rushing to install backup generators. That’s good news for companies like Generac Power Systems, which manufactures about three-quarters of the home backup generators sold in this country. Next week, Generac will report its full 2021 earnings and they are almost certain to be a record. Soaring sales of standby generators have led to soaring revenues and a soaring stock price. Since early 2020, Generac’s stock price has roughly tripled. Kohler Power Systems, which like Generac, also makes standby generators, is also booming. Last March, the company announced a huge expansion of its factory in Mosel, Wisconsin, which makes large standby generators (250 to 4,000 kilowatts). A month later, it announced a “significant capital expansion of home standby generator assembly at its manufacturing site in Hattiesburg, Mississippi.” In a press release, the company said it was seeing “demand for residential products skyrocket.”

But, what’s good for Generac (and Kohler) is bad for America. That’s not a slam on those companies. They are well-run outfits that produce quality products that consumers want. 

That said, soaring sales of standby generators are concrete proof of the declining reliability of our electric grid and therefore a decline in our national wealth and our national security. Our collective wealth is being reduced because consumers and businesses are spending billions of dollars on standby generators. That capital would be better spent on more durable assets like education, home improvements, or maybe a new car or washing machine. Blackouts create costly and deadly drags on the economy. Bad policies and lack of regulatory oversight led to the blackouts that slammed Texas last year which caused an estimated $200 billion in losses and left some 700 people dead. In California — a state that is hemorrhaging residents to other states – blackouts have been a common occurrence for years. 

Indeed, sales and installations of standby generators are especially strong in California. Last year, M.Cubed, an economic and public policy consulting group, released a study which found that “Over the last year, the generator population jumped by 22 percent in the South Coast Air Quality Management District, and by 34 percent in the Bay Area Air Quality Management District over the last three years. In 2021, the two districts were collectively home to 23,507 backup generators with a capacity of 12.2 gigawatts (GW), about 15 percent of California’s entire electricity grid. Of these, 20,907 are diesel-fueled.” 

The same study found that the overwhelming majority of the large standby generators that have been added in the South Coast district rely on diesel fuel, which when burned, emits far more air pollutants than similar machines that use natural gas or Liquefied Petroleum Gas (LPG).  

The question that must be addressed is this: why is the grid becoming less reliable? While some recent news stories are pinning the blame on climate change, the reality is that bad policy and grid mismanagement are fragilizing our most important energy network. Over the past two decades, our grid has been fragilized by three things: the headlong rush to add weather-dependent renewables like wind and solar, the closure of coal and nuclear plants which provide baseload power and help keep the grid stable, and mismanagement of the country’s bulk power system by regional transmission organizations like ERCOT in Texas and CAISO in California, which do not provide the incentives needed to assure reliability and resilience. 

Of course, climate activists and renewable promoters are loath to admit that wind and solar are undermining our grid. But last August, the North American Electric Reliability Corporation, a non-profit trade group, issued a report which identified “changing resource mix” as the most urgent challenge facing the reliability of the US grid. The report says America’s electric generation capacity “is increasingly characterized as one that is sensitive to extreme, widespread, and long duration temperatures as well as wind and solar droughts.” Generac agrees. In a recent investor presentation, the company said the key reasons for declining reliability are an “aging and under-invested electrical grid” and “increasing use of renewables leading to variability of supply and grid instability.” 

The deterioration of our electric grid is perilous because the grid is the Mother Network, the system upon which all of our critical networks depend: GPS, health care, communications, traffic lights, water, and wastewater treatment. Essayist Emmet Penney had it right when he declared in a May 2021 essay in The American Conservative that “there is no such thing as a wealthy society with a weak electrical grid.” 

The weakening of our grid matters now because climate activists are pushing policies that will make it even weaker. Many of America’s biggest and most influential activist groups, including the Sierra Club, are pushing to shutter all of the coal- and gas-fired generators in the country. Furthermore, groups like the Natural Resources Defense Council have successfully pushed for the closure of nuclear plants, including the Indian Point Energy Center, which was prematurely shuttered last year. The NRDC also spearheaded the push to close California’s Diablo Canyon nuclear plant, which is slated to begin shutdown in 2024. In addition, many of these same pressure groups are demanding that we rely more heavily (or solely) on renewables and “electrify everything,” including industry and transportation. That’s a remarkable ask given that the grid is struggling to keep up with demand under existing loads. 

Furthermore, attempting to electrify everything would be a disaster for low-income Americans. Poor folks tend to live in homes that aren’t as efficient or sturdy as those occupied by the wealthy. They are more likely to suffer, or even die, during blackouts or extreme weather. They can’t afford generators or backup battery systems, which as my friend K. has found, cost about $12,000, or more. Generac’s customers have a median household income of about $130,000, which is more than twice the U.S. median. 

The decline of our electric grid should be causing alarm bells to ring in Washington, D.C., and every state capitol in the country. In response, regulators and policymakers should be preserving our existing nuclear plants. And before any more coal-fired plants are shuttered, policymakers should be certain that the closures will not reduce the reliability and resilience of the grid. 

If America wants to remain an industrial powerhouse and a country where low- and middle-income families can prosper, it must have a robust grid that delivers affordable, reliable, and resilient electricity 24/7/365. We cannot rely on Generac, Kohler, or other generator manufacturers for that. The electric grid is our biggest, most complex, and most important piece of infrastructure. We ignore it at our extreme peril.