Smart Power

Smart Power: Climate Change, the Smart Grid, and the Future of Electric Utilities

by Peter Fox-Penner

Main Points:

• Drivers of Change: In 2010, climate change policy was big and the new thing was the smart grid. The Obama stimulus package (ARRA) was handing out money for smart grid technology. The State Renewable Portfolio Standards (RPS) mandated utility scale wind and new lines. The recession had hit us and renewables were getting cheaper.
• Current State: Today, most of the drivers promoting acceleration have taken off- distributed generation has grown significantly, while utilities are adding more on all of the rooftops. The smart grid ran into a backlash from state regulators - they viewed it as a technology sandbox for Silicon Valley companies to make money on. They did not want to increase rates during a recession. Demand response has a install base at around 50 Gigawatts and has been growing at about 20%/ yr with solar and wind taking the lead in terms of growth. Finally there is a desire for grid resilience- cyber security and physical security of the grid is essential. The global renewable power growth has been doubling (in terms of percent) every 10 years from 1% in 1990, 2% in 2000, and 4% in 2010. China in its 11th Five-Year-Plan has set a goal of 20% renewable energy by 2020. 
• Grids: At every moment the total power supply must be equivalent to the demand (industrial, commercial, home customers) and this is determined by the power grid operator. As renewable energy is introduced in greater amounts this has a particular challenge. Wind and Solar intermittency can result in a 3KW drop in less than 1 minute. 
• How do we balance the grid? (1) Energy Storage - some installations have 36 MW of storage, but it is still expensive (2) Natural Diversity of Wind and Solar- If you spread your wind/solar plants across a large area like in China or Atlantic Wind Connection (Cape Cod to Cape Hatteras) . But this leads to another challenge- MIT calls the "null anti-coincidence" of wind flows in the United States which is the amount of wind blowing around the point you are, when the wind isn't blowing where you are. (3) Use controllable power plant to offset intermittency in wind and solar - new generation of gas fired power plants (GE's Flex Efficiency * 50 combined cycle plants which has 70% efficiency and 30 minute ramping time). (4) Balancing the grid using the smart grid and demand response. System operators can send messages to customers via price signals and dynamic pricing- not only expanding and contracting supply, but by expanding and contracting demand. Today only 1% of Americans are on dynamic pricing. Smart Microgrid is a small power grid with distributed power, storage, and demand response. For a smart grid we need renewable and low-carbon generators, safe/low-carbon fuels, fast-response generators, economical energy storage, grid oversight hardware, electric vehicles, and dynamic pricing. 
• What about utilities? Electricity demand in the US has decreased since the 1950's (when the air conditioner was introduced). US summer peak demand is down by the EIA, and they predict less than 1% growth. Several utilities have negative sales forecast over the next 10-20 years. However, what has saved the industry, is retail prices because of the state regulators, cheap shale gas, and the market. American utilities have been helped by low shale gas prices and low interest rates. European utilities have had distributed generation grow quickly, sales growth has tapered, and costs have risen (because transmission for renewables had to be integrated into the system)- and the utilities are in unprecedented financial distress. OECD European prices have increased by 35%, and so bond ratings of the aggregate utility sector have also been impacted. 
• PV prices have dropped 70% since 2000, but wind generation has been driven by federal policies like subsidized power generation. Technology has kicked in again- onshore and offshore technological innovation will result in a drop in wind rates. 
• Why is grid resilience becoming more important? Severe weather events have increased tenfold since 2010, meaning greater number of utility outages. Also an increase in multi-year drought. The operators and planners of electric power systems need to think about if a storm is serious like Hurricane Sandy (harden system or recover them). What is a better return on public investment? Should we harden the transmission backbone or should we stockpile generators and create islands of power or should we raise substations off the ground away from the floodplain? 
• Response to Distributed generation: to understand this you need to understand "decoupling", which is a formulaic readjustment of electric rates to recoup the profits that you have lost in case your sales have gone down by energy efficiency or increased renewable generation. Improves financial health of the utility by raising rates. 17 states have decoupling policies: [electric and gas] California, Arizona, Oregon, Minnesota, Wisconsin, Michigan, New York, Connecticut, Rhode Island, Massachusetts, [gas only] Washington, Nevada, Illinois, Indiana, Virginia, West Virginia, New Jersey, and [electric only] Idaho, Ohio, and Vermont. The Most Contentious topic in the Utility Sector: The direction of rate changes is to increase the portion of the fixed amount (customer charge) that people pay each month and reduce the variable rate (how much you use)- this impairs the idea of rooftop solar because you will not get enough money back for energy you return to the grid. The utilities are trying to stop economic erosion, by preventing you from using rooftop solar.
• Two Business Models: (1) Smart Integrator- the utility provides grid management services and operates a regulated smart grid offering independent power and other services at market prices (2) Energy Services Utility- changes the utility from a pipes-and-wires business to a customer-service-centric model. 
• What is lagging? Need a carbon pricing policy and a resolution on the war on rate structures.
• What is an energy efficient home system? Peter Fox-Penner's house is in Little Compton, Rhode Island.  R-38 insulation, solar panels, energy management system, radiant flooring, and pre-wired for electric vehicles. 

Watch Peter Fox-Penner's lecture as part of Columbia University's Center on Global Energy!

Read an article by the Wall Street Journal on how the utilities are moving to solar-power business!

Listen to Peter's talk at the Texas Renewables 2012 Conference on the "Smart, Low Carbon Grid".