Reimagining electric utilities(vox.com)
vox.com
Reimagining electric utilities
http://www.vox.com/2015/9/11/9306247/utilities-21st-century
13 comments
I think the author may be missing out on some of the areas of the country where this is happening.
For instance, many places aleady have 'de-regulated' markets for energy. See FERC 888 & 889 [1]. And, states like Pennsylvania already allow consumers to choose between different distribution utilities.
Further, the Federal Gov't and DoE are pushing for things like microgrids and smart cities and smart buildings where local energy can be produced and stored and bought from and sold back to the grid [2] [3].
Traditional distribution utilities in many places are facing the 'renewable-storage death spiral'. That is, many customers can store and even generate energy cheaper than it costs to buy it from the utility. This causes the utility to raise rates, which then causes more customers to switch to local generation. Note that the residential market is just a small piece of the pie. You have to look at commercial and industrial, which normally get different rate structures, to see where things are happening.
Distribution utilities won't go away, but their model must change. Residential, Commercial, and Industrial will probably always need connection to the grid for safety reasons. Plus, distribution utilities are usually really good, and sometimes even efficient at laying copper and responding to outages.
[1]: https://en.wikipedia.org/wiki/ISO_RTO [2]: https://www.whitehouse.gov/the-press-office/2015/09/14/fact-... [3]: http://energy.gov/oe/services/technology-development/smart-g...
For instance, many places aleady have 'de-regulated' markets for energy. See FERC 888 & 889 [1]. And, states like Pennsylvania already allow consumers to choose between different distribution utilities.
Further, the Federal Gov't and DoE are pushing for things like microgrids and smart cities and smart buildings where local energy can be produced and stored and bought from and sold back to the grid [2] [3].
Traditional distribution utilities in many places are facing the 'renewable-storage death spiral'. That is, many customers can store and even generate energy cheaper than it costs to buy it from the utility. This causes the utility to raise rates, which then causes more customers to switch to local generation. Note that the residential market is just a small piece of the pie. You have to look at commercial and industrial, which normally get different rate structures, to see where things are happening.
Distribution utilities won't go away, but their model must change. Residential, Commercial, and Industrial will probably always need connection to the grid for safety reasons. Plus, distribution utilities are usually really good, and sometimes even efficient at laying copper and responding to outages.
[1]: https://en.wikipedia.org/wiki/ISO_RTO [2]: https://www.whitehouse.gov/the-press-office/2015/09/14/fact-... [3]: http://energy.gov/oe/services/technology-development/smart-g...
While the author makes some good points, I can't help but feel he greatly exaggerates the current state of the power utility industry in North America to make his point. Fully vertically integrated utility systems have been on the way out for at least 40 years and very few, if any, jurisdictions don't already have some form of (a) real-time energy market and (b) open-access transmission tariff that ensures that if there is a local transmission monopoly, any generator can get non-prejudicial access to its power lines.
The author seems to be picking on a few edge cases, like small utilities fighting rooftop solar because they don't have the technical capacity to integrate it easily, and trying to expand that into an argument that the entire North American power utility landscape needs drastic reform into different functional entities - when that is already how the industry works. All of the things he suggests as if they are radical ideas - markets for balancing and other reliability services, generators bidding into a real-time market, the grid operator as an independent entity - already exist and have existed for at least 30 years. He literally describes the exact function of the California Independent System Operator (CA ISO) as if he came up with the idea.
"The utility's role in option No. 3 is to manage, but not participate in, those markets.
It would set up a kind of clearinghouse, where those who have power or services to offer register and those who need power or services come to shop. For instance, at times of high sun when solar power is flooding the grid, the value of solar electricity will fall, but the value of energy storage (to hold some of that surplus for later) will rise. So solar providers will be able to connect with storage providers, which will offer competitive bids.
The value of electrons (and other services like demand shifting, voltage regulation, or capacity reserves) will vary throughout the day, and from location to location, depending on grid conditions. So a key role for the utility will be to make that real-time price information easily available, so that market participants can make sensible choices."
This is literally what every independent system operator in North America already does. CA ISO. New England ISO. PJM. ERCOT. And so on.
The roles of real-time system operation, long-term system planning, transmission ownership and operation, generation ownership and operation, and load-serving entities are already separate and already governed by market interactions through most of America, as well as Ontario and Alberta.
Utilities have lagged significantly in delivering the kind of market flexibility that already exists in the transmission and generation industry to the distribution arena, and allowing distribution-customer-owned energy resources to participate in the same real-time markets, but that's largely because of technical limitations and the fact, acknowledged by the author, that distribution is a natural monopoly.
The author also has some severe misconceptions about the nature of long-term power-system planning. He writes:
"The overriding idea is to, over time, replace central planning with markets. Rather than a utility deciding years in advance how much demand there will be, how much supply is needed, and how much it all costs, those decisions will be made on an ongoing, real-time basis by the dynamics of competitive markets."
A nuclear plant that takes 10 years to build or a transmission line that needs 5 years of negotiation with landowners to secure the right-of-way, cannot and will not be built on the basis of a real-time market. This is why very few merchant transmission lines exist anywhere in the world. Long-term power purchase agreements are still needed to distribute the massive risk inherent in building something that costs tens of billions of dollars, has a payback period of 20+ years and takes a decade to build. This has nothing to do with markets vs central planning; something does not cease to be market-based simply because it is no longer real-time. Owners of major utility system assets need some means by which to insulate themselves from the risks of minute-by-minute price fluctuations when they are building infrastructure to last 50 to 100 years. Markets provide this through long-term fixed-price contracts.
I honestly feel like this article came from a time machine where the author just stepped out from 1960 because nearly everything he wants, already exists.
The author seems to be picking on a few edge cases, like small utilities fighting rooftop solar because they don't have the technical capacity to integrate it easily, and trying to expand that into an argument that the entire North American power utility landscape needs drastic reform into different functional entities - when that is already how the industry works. All of the things he suggests as if they are radical ideas - markets for balancing and other reliability services, generators bidding into a real-time market, the grid operator as an independent entity - already exist and have existed for at least 30 years. He literally describes the exact function of the California Independent System Operator (CA ISO) as if he came up with the idea.
"The utility's role in option No. 3 is to manage, but not participate in, those markets.
It would set up a kind of clearinghouse, where those who have power or services to offer register and those who need power or services come to shop. For instance, at times of high sun when solar power is flooding the grid, the value of solar electricity will fall, but the value of energy storage (to hold some of that surplus for later) will rise. So solar providers will be able to connect with storage providers, which will offer competitive bids.
The value of electrons (and other services like demand shifting, voltage regulation, or capacity reserves) will vary throughout the day, and from location to location, depending on grid conditions. So a key role for the utility will be to make that real-time price information easily available, so that market participants can make sensible choices."
This is literally what every independent system operator in North America already does. CA ISO. New England ISO. PJM. ERCOT. And so on.
The roles of real-time system operation, long-term system planning, transmission ownership and operation, generation ownership and operation, and load-serving entities are already separate and already governed by market interactions through most of America, as well as Ontario and Alberta.
Utilities have lagged significantly in delivering the kind of market flexibility that already exists in the transmission and generation industry to the distribution arena, and allowing distribution-customer-owned energy resources to participate in the same real-time markets, but that's largely because of technical limitations and the fact, acknowledged by the author, that distribution is a natural monopoly.
The author also has some severe misconceptions about the nature of long-term power-system planning. He writes:
"The overriding idea is to, over time, replace central planning with markets. Rather than a utility deciding years in advance how much demand there will be, how much supply is needed, and how much it all costs, those decisions will be made on an ongoing, real-time basis by the dynamics of competitive markets."
A nuclear plant that takes 10 years to build or a transmission line that needs 5 years of negotiation with landowners to secure the right-of-way, cannot and will not be built on the basis of a real-time market. This is why very few merchant transmission lines exist anywhere in the world. Long-term power purchase agreements are still needed to distribute the massive risk inherent in building something that costs tens of billions of dollars, has a payback period of 20+ years and takes a decade to build. This has nothing to do with markets vs central planning; something does not cease to be market-based simply because it is no longer real-time. Owners of major utility system assets need some means by which to insulate themselves from the risks of minute-by-minute price fluctuations when they are building infrastructure to last 50 to 100 years. Markets provide this through long-term fixed-price contracts.
I honestly feel like this article came from a time machine where the author just stepped out from 1960 because nearly everything he wants, already exists.
Maybe at the 100MW scale it already operates like this, but not at smaller scale. Recently I had a discussion with a county level public utility district where we were exploring building a 1-10 MW Solar system on a closed landfill. The capability existed for us to wheel the power to a load that was interested in the energy, but the smallest chunk of capacity we could buy was 1MW and the cost to wheel the power would require a >90% capacity factor to make it economical.
So the system may well exist, but I think there is benefit from some scaling down of the market rules.
So the system may well exist, but I think there is benefit from some scaling down of the market rules.
It's certainly a lot more difficult at the <10MW, distribution-connected scale. It sounds like the utility you were dealing with doesn't have any experience with variable generation resources and probably doesn't want to learn.
What a lot of jurisdictions are doing to ease complications for small projects is creating a standard-offer feed-in-tariff for projects under a certain size that allows you to get a boilerplate interconnection agreement and a fixed price that is economical even at low capacity factors. But to be clear, if you want small public utilities to be forced to take your power on reasonable terms, you're actually advocating for more market rules, not less. With less rules, they'll just use their natural monopoly to squeeze you.
What a lot of jurisdictions are doing to ease complications for small projects is creating a standard-offer feed-in-tariff for projects under a certain size that allows you to get a boilerplate interconnection agreement and a fixed price that is economical even at low capacity factors. But to be clear, if you want small public utilities to be forced to take your power on reasonable terms, you're actually advocating for more market rules, not less. With less rules, they'll just use their natural monopoly to squeeze you.
As I read your example, it sounds like the problem is solar's low capacity factor, not scale. But maybe I'm not understanding the example.
Under the current regulatory schemes and market rules the low capacity factor of solar is absolutely a problem. I guess I'm saying that more flexibility for smaller systems to play in the markets will be important to increase renewable energy production. The advent of cost effective storage will obviously make the whole discussion easier.
Thank you. I had many of the same thoughts that many of the things he wants have already happend, especially with the decline of complete vertical integration. What now happens is that large utilities spin off generation assets that do well as merchant generators and keep other generation regulated to get the secured rate of return.
Also, utilities like energy efficiency, as long as they get paid to be efficient or make their customers more efficient.
Also, utilities like energy efficiency, as long as they get paid to be efficient or make their customers more efficient.
Ubiquitous solar, wind, and batteries together with much more energy efficient buildings and devices will make traditional electric utilities mostly irrelevant. In the future, long or even medium length electric distribution will mainly be for back-up purposes. Nano/micro-grids will be more like commercial/consumer products purchased by neighborhood developers or individual homeowners, that integrate over common platforms, rather than utilities.
http://tinyvillages.org
http://tinyvillages.org
I could see some of this with solar, but not as much with wind. Wind does much better as large turbines--such a 1.5-2 megawatt turbines--not small scale stuff. One reason for this is that wind resources are much better at say 80 meters than close to the ground.
Plus, for wind to work well you also need a wide geographic area to even out some of the intermittency. That requires a big high voltage grid.
Plus, for wind to work well you also need a wide geographic area to even out some of the intermittency. That requires a big high voltage grid.
Rooftop mounted VAWTs do a good job of supplementing solar. The best VAWT designs perform at relatively low wind speeds. They do not need to compete with large systems mounted high in the air. You do not need a big high voltage grid when you have batteries for each home or group of homes.
Maybe, but not until the distant future.
We do not have the battery technology to make micro-grids feasible for the USA at large (much less the world). In fact, we don't even have enough known lead and/or lithium to build batteries to do this with today's technology.
Here's a good read on the challenges: http://physics.ucsd.edu/do-the-math/2011/08/nation-sized-bat...
We do not have the battery technology to make micro-grids feasible for the USA at large (much less the world). In fact, we don't even have enough known lead and/or lithium to build batteries to do this with today's technology.
Here's a good read on the challenges: http://physics.ucsd.edu/do-the-math/2011/08/nation-sized-bat...
That article is outdated. Its basing figures on an older technology in lead-acid versus Lithium and battery manufacturing has started exploding since then.
He also assumes the same level of inefficiency. With the technologies and policies in my plan, the U.S. can easily be 8 times more efficient.
He also assumes the same level of inefficiency. With the technologies and policies in my plan, the U.S. can easily be 8 times more efficient.
Voters dislike high electricity prices but they absolutely hate power outages and load shedding. Thats why the regulation in this area will always be cautious.
The market value of rooftop solar generation is close to 0 for the distribution grid as they still need to maintain existing assets for reliable generation, so any subsidy paid to those who can afford solar panels takes from either the pockets of those who dont have solar panels, or from taxpayers/shareholders.
The only way to shift to the distributed decarbonized model the author wants while maintaining reliability is to increase electricity prices. That should be the first sentence of any policy debate about this issue.