miércoles, enero 03, 2007

EWPC: People Coordinating and Cooperating with Electrons Part 8

To complete the response to James, please read the following post: EWPC: People Coordinating and Cooperating with Electrons Part 6.

Having reserves available is insufficient. Active and reactive reserves need to be dispatched and deployed in the correct places to keep the system synchronized. Lack of enough reactive reserves leads to voltage collapse, which fuels the dominoe effect.

Because the US grid was not designed for Model 2, a comprehensive design based on ultraquality is a must. Investments required under Model 3 are much smaller than with Model 2, as "connected networks" are very expensive.

A flawed market design and architecture that increases boom-bust behavior is probably the culprit on excess capacity in some regions of the USA.

Please take any follow up discussions to Part II.

Residential Demand Response

Reference: The Potential for Residential Demand Response on Transmission and Distribution Assets

The true potential of demand response is for the system as a whole, not by considering one part at a time. Most of the value is in the relationships, which depend a lot on market architecture and design.

As can be seen in the article An Alternative Business Case for Demand Response, “[T]here are two sides on the DR coin. On one side, system crashes are mitigated by a least cost mix of supply and demand risk management tools that may be applied in time and space. On the other, DR is the key to the segmentation of customers supply security (a kind of insurance). Because of its fine grain nature, DR can help mitigate delays (intended or not) of lumpy investments in generation, transmission, and distribution.”

To engage customers to make inform decisions, please take a look at the comments under The Future Utility Customer Service Model. Please take a look also under the article EWPC: People Coordinating and Cooperating with Electrons Part 6 for a suggestion of a comprehensive national energy strategy, where I say that:

Two generic electricity systems models have been implemented: Model 1: old vertical integration controlled market and Model 2: faulty deregulation, based on open transmission access and “native” loads

As an emergent system is Model 3: electricity without price controls [EWPC]. Since Model 1 and Model 2 have barriers on the development of the resources of the demand side that are being addressed on a piecemeal basis [an alternative solution is needed]. Model 3 is based on an integral development of the resources of the demand side.”
The deferring energy use value proposition is an integral part of Model 3. The barriers on the development of the demand side are integral to Models 1 and 2. Under Model 3, retail competition, under prudential regulation, instead of traditional regulation, is what let’s “the greater the value, the greater the anticipated response” operate. Customer classes disappear as customer segment themselves on the best value proposition in the market, as retail competition will also ‘ensure that programs… are implemented in a manner that achieves net benefits for consumers.”

The development of the residential DR mass market will depend on the development of business model innovations that include other resources on the demand side as well.

© 2007. José Antonio Vanderhorst-Silverio, Ph.D.

EWPC: People Coordinating and Cooperating with Electrons Part 7

Reference: Playing with Fire – Part II

In response to a comment (see below) by Jim Beyer,

Mr. Beyer,

As far as I understand, under Model 2, prices reflect the marginal plants costs, not the base load units costs; under Model 1, the usual mechanism is to transfer energy costs increases to the customer or the tax payer with a time delay. The timing is for a comprehensive national energy strategy.

As for your suggestions of the development of CHP, Model 1 and 2 are biased againt the development of the resources of the demand side.

Jim Beyer's comment:

I really don't think electricity prices are strongly tied to NG prices. I think there is something rather Californian about that way of thinking, because in the rest of the country, about 70% percent of electricity is generated from coal and much of the remainder from nuclear.

I won't dispute the problems with using coal w.r.t. GHG emissions, but in the short term, a shortage of NG shouldn't raise electricity prices too much -- at least not in California.

EWPC: People Coordinating and Cooperating with Electrons Part 6

Reference: Playing with Fire – Part II

Andy had said: “This is the first of a four part series of articles on the natural gas and electricity price and supply risks facing the U.S. economy.”

The topic is: natural gas and electricity price and supply risks.

Electric power market architecture and design is right at the center of the topic. Two generic electricity systems models have been implemented: Model 1: old vertical integration controlled market and Model 2: faulty deregulation, based on open transmission access and “native” loads.

As an emergent system is Model 3: electricity without price controls. Since Model 1 and Model 2 have barriers on the development of the resources of the demand side that are being addressed on a piecemeal basis. Model 3 is based on an integral development of the resources of the demand side.

As gas prices rise, in Model 1 gas price volatility are transferred to the electricity price volatility; in Model 2 gas prices volatility are amplified into higher volatility to the electricity prices; and in Model 3 gas price volatility is mitigated into less volatile electricity prices.

Physical supply side risk management of Model 1 was not fully transfer to Model 2, making it unstable under shocks conditions. Model 3 has both supply side and demand side physical risk management. Demand price elasticity development barriers under Model 1 and 2 are fully eliminated under Model 3.

Model 2 incredible volatility is a flaw that goes against electricity as a commodity. The flaw is the lack of ultraquality. McKinsey has an article on electricity as a special commodity.

The key suggestion to develop a generative dialogue is thus right on the topic. The decade old debate around Model 1 and Model 2 is no longer necessary.

By developing two or three plausible scenarios, one of which is the “continuity” scenario, my opinion is that Model 3 will result as a predetermine element – fits on any of the scenarios. Model 1 will only be on the “continuity scenario”. On the “playing with fire” scenario Model 2 won’t cut it, while Model 3 is the best to face the severity of the crisis. Piecemeal changes to Model 2 towards Model 3 will make it very inefficient.

The adoption of a comprehensive national energy strategy should be based on a generative dialogue, including strategic conversations around the scenarios and system dynamic runs that include all the mental models of the interested parties. Major changes to the existing U.S. energy infrastructure, with the wrong market architecture and design is nothing more than playing with fire. Andy’s contribution is a welcome input to such strategy.

For some more details read the following recent posts:

EWPC: People Coordinating and Cooperating with Electrons Part 4

EWPC: People Coordinating and Cooperating with Electrons Part 3

EWPC: People Coordinating and Cooperating with Electrons Part 2

EWPC: People Coordinating and Cooperating with Electrons

© 2007. José Antonio Vanderhorst-Silverio, Ph.D.