domingo, mayo 23, 2010

Power Industry State of the Art that Emerged from The Network Grid (TNG) Conference

Architecting evidence on the urgent need to simplify the power industry is based on the serious flaws of an ineffective and highly complex system-of-systems interoperability approach that keeps in place anticompetitive “Walled Gardens.” Unless there are smart markets with efficient and effective pricing, together with real customer choice, customers will not be able to be empowered with innovative technologies to be smart. Retailers will participate in retail and wholesale markets, developing business models to help balance the resources of the supply side and the demand side as much as it is viable, feasible, and desirable. Competitors do not need to wait for a homogeneous infrastructure to be in place. As the demand side risk management tool, demand response is here to stay. The killer application on the residential retail market will emerge as a one stop integrated service.


Power Industry State of the Art that Emerged from The Network Grid (TNG) Conference


By José Antonio Vanderhorst-Silverio, Ph.D.

Creator of the EWPC-AF


Systemic Consultant: Electricity



First posted in the GMH Blog, on May 23rd 2010.


Copyright © 2010 José Antonio Vanderhorst-Silverio. All rights reserved. No part of this article may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying and recording, without written permission from José Antonio Vanderhorst-Silverio. This article is an unedited, an uncorrected, draft material of The EWPC Textbook. Please write to javs@ieee.org to contact the author for any kind of engagement.


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Highlights from the Networked Grid Conference in Palm Springs, May 18-19 2010 is a very timely post written by Niall McShane in his Smart Grid Seeker Blog. This is a comment in response.

Hi Niall

Thank you very much for a valuable witness report on what evolved on the state of the art at The Networked Grid (TNG) conference. You have done a real Smart Grid Seeking job, mainly from the telecom networks perspective.

As a remote witness, I was also virtually there before and now after the presentations (also with your timely help), with contributions about the emergent Electricity Without Price Controls (EWPC) Architecture Framework (EWPC-AF). I understand that TNG conference had a great positive impact on the EWPC-AF as I now discuss the contributions from our perspectives. That I was there can be seen from the comments I posted on the discussions (which are an integral part of this article) under the following four articles:

Discussions (taken from a web page of Greentech Media, every line ends with the articles’ date and the number comment on Saturday May 22):

#1. The Networked Grid: Does the Residential Smart Grid Have a Killer App? 05 19 10 11

#2. Smart Grid Trends: Deja Vu All Over Again? 05 17 10 11

#3. The Networked Grid: 5 Trends to Watch 05 18 10 3

#4. How EVs Will Save the Smart Grid 05 11 10 3

The articles of the discussions #1 and #3, which start with TNG and which you mentioned in the post Highlights from the Networked Grid Conference in Palm Springs, May 18-19 2010 were written after the conference, the other two were posted before the conference. As a result of the discussions before the conference, I wrote the EWPC post Does ElectriNet(SM) Provides an "Walled Garden"? Then I integrated discussions #2, #3 and #4 into the EWPC post Adding Smart Markets to Smart Customers and the Smart Grid at The Networked Grid.

To get a more complete picture of the state of the art in the Networked Grid, I strongly recommend reading all four articles and their comments, the two related EWPC post and this EWPC article. Here I will concentrate on placing under perspective the key aspects of the EWPC-AF and responding some of your sharp observations in the initial summary of TNG, quoting also other EWPC posts (right now there more than 200 posts, more than 800 comments discussed and more than 600,000 views in the EWPC Blog).

As a common thread on all four discussions, the emphasis is centered the EWPC article State Governments Need to Unleash the Benefits of the Next Big Thing, whose summary says: “As the utility business model has outlived by many years its useful economic life, state legislatures need to produce as soon as possible emergent regulations that enable the Next Big Thing - business model innovations - under a market-based approach.”

By the way, your comment about IOUs rate of return, on the presentation of Stephen Johnston, CEO of Smartsynch, is covered in a comment I posted under Jesse Berst’s Smart Grid News commentary Smart Grid Technology: Cellular Emerges As Viable Communications Choice, where I used the above EWPC article to say that “…it is essential for state governments also to be aware of the following quote of your article: "On the financial side, the cost of using a public network is treated as an operations expense. The cost of building your own custom network is treated as a capital expense. Investor-owned utilities have the potential to earn a regulated rate of return on capital expenses, hence their preference for that route."

As seen in the next paragraph, from a system architecting point of view, the idea of the “… numerous comments about the need for a system-of-systems approach to implementing the Smart Grid and making sure that all the integration points that will enable the maximum integration of intelligence across the enterprise are being realized” is completely flawed. It is not sufficient to introduce interoperability, before you have the necessarily effective operability.

Under a systems architecture approach, the subsystems of the whole system should be the result of systems architecting, as can be seen in the EWPC article A Single System & the Enterprise War, where it says: “…In response to the suggestion to change to system-of-systems, the synthesis of the response was that to optimize the architecture, subsystems will result from the enterprise architecting job.” In fact, that is how the EWPC-AF itself emerges. Please take also a look at the EWPC-AF article, which is already quoted on discussion #2.

The summary of the EWPC-AF articles states that: “A new approach to power energy policy design, based on system’s architecting heuristics, has led to an emerging simplified synthesis of the power industry regulatory policy. Instead of undergoing business as usual regulatory proceedings, the approach to the Electricity Without Price Controls Architecture Framework is poised to replace the Investor Owned Utilities Architecture Framework and its incremental extensions that have evolved by analytic patchwork as a extremely complex system.”

About your “…concern that the emergence of distributed generation technologies that are affordable at the upper echelon of the homeowners marketplace could lead to more affluent homeowners and communities separating from the grid and leaving the utilities to service only the less affluent, creating a differentiation between the haves and the have-nots in energy,” please take a look at the EWPC post The ‘Genius’ of the Macrogrid ‘And’ Truly Fair Microgrids, which is also addressed in discussion #2.

I agree with you that “Terry Vardell of Duke Energy Company … statement to the effect that demand response [DR} was a temporary solution… is very far fetched.” As can be seen in my 2005 EnergyPulse.net article An Alternative Business Case for Demand Response, “DR is poised to be the demand side risk management tool to complement the traditional "LOLP" supply side risk management tool. There 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.”

Finally, you repeat the questionable assumption that “The killer apps will emerge only when the infrastructure is in place and innovators can begin to see the possibilities to create those applications.” Please take a look at the complete discussion #1, from which I take out of context that “… as the killer application on the residential retail market is foreseeable, and will emerge as a one stop integrated service, to be provided by competitive Second Generation Retailers (2GRs). An early version of the description of 2GRs can be found in the Internet link.







viernes, mayo 21, 2010

Simplifiquemos la Industria Eléctrica para Atraer Inversiones Desarrollistas

Como ha venido sucediendo desde hace mucho tiempo, los sectores productivos insisten en que el principal problema a la inversión es la electricidad. El desarrollo del país necesita de una solución definitiva a este eterno y complejo problema. Aunque parece un contrasentido, debo insistir que antes de seguir tratando de aumentar la eficiencia, lo primero que hay que hacer es reducir grandemente su complejidad para poder aprovechar inmensas oportunidades de desarrollo para el país, como en los mercados extranjeros.

Lo primero que debemos hacer es desaprender el paradigma que nos han hecho creer, por ejemplo, de que la industria eléctrica se puede separar eficazmente todavía en los componentes de generación, transmisión y distribución (está última incluye la comercialización al detalle). La ineficacia actual es el producto de un mundo altamente incierto en que los cambios sucesivos en el entorno han incrementado excesivamente su complejidad.

Jack Trout, el autor de "The Power of Simplicity," tituló el Capítulo 1 de ese libro "Simplicity: Why people fear it so much.," concluye dicho capítulo con el mensaje: "Complexity is not to be admired. It is to be avoided." En la página 8 (de ese capítulo) de la versión que tengo Jack dice: "This solution to the problem was simple, though implementing it was a complex process." Nosotros hemos hecho todo lo contrario, hemos simplificado el proceso de implantación y el resultado ha sido una solución excesivamente compleja.

Para simplificar la industria, la misma se puede separar de forma minimalista en dos grandes componentes que reducen grandemente su complejidad. La propuesta es empezar a reestructurar la industria eléctrica, separando la industria eléctrica en dos componentes altamente cohesivos y ligeramente acoplados:

(1) Componente primario (habilitado en el pasado, el presente y el futuro): transporte físico integrado de electricidad (la transmisión y la distribución en la redes en un área geográfica). Este componente toma el control total del sistema en el momento presente, para garantizar un sistema que opere con calidad comercial (prácticamente sin apagones).
(2) Componente secundario (habilitado en el pasado y el futuro): comercialización competitiva de electricidad en los mercados al por mayor y al detalle. Esto incluye la comercialización de la generación centralizada y la distribuida y el poder de los clientes a participar en dichos mercados.

domingo, mayo 09, 2010

State Governments Need to Unleash the Benefits of the Next Big Thing

As the utility business model has outlived by many years its useful economic life, state legislatures need to produce as soon as possible emergent regulations that enable the Next Big Thing - business model innovations - under a market-based approach.

State Governments Need to Unleash the Benefits of the Next Big Thing

By José Antonio Vanderhorst-Silverio, Ph.D.

Creator of the EWPC-AF
Systemic Consultant: Electricity

First posted in the GMH Blog, on May 9th 2010.

Copyright © 2010 José Antonio Vanderhorst-Silverio. All rights reserved. No part of this article may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying and recording, without written permission from José Antonio Vanderhorst-Silverio. This article is an unedited, an uncorrected, draft material of The EWPC Textbook. Please write to javs@ieee.org to contact the author for any kind of engagement.


Most Viewed on the EWPC Blog on May 9th, 2010
· The EWPC Textbook (23,482)
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· Demand Integration is NOT the Province of Politics. (9,674)
· The BIG California LIE. (9,602)
· Nanosolar Breakthrough and the Old Paradigm (9,401)

Most Commented on the EWPC Blog on May 9th, 2010
· Can the Power Industry Eliminate its Price Controls to the End Customer? (66)
· The Next Energy Secretary (57)
· Response to Professor Banks (46)
· EWPC’s Tipping Point (44)
· IMEUC False Facts (41)
· Campaign for Fair Electricity Rates (34)

First I will write about the Next Big Thing. Under the online IEEE Spectrum energywise blog post Smart Grid Feedback (1), written by Bill Sweet, on May 5, 2010, which Mr. Sweet wrote to follow up an earlier post that he says caused “such wide and intense interest attends smart grid prospects,” I added the following comment:

… One of my arguments is that "by inaction, each State Government should be responsible to their constituencies for a very costly mistake that is being made by letting the smart grid process continue without giving State Regulators the proper mandate."

Another argument is that "... utilities’ business model are based on the century old regulatory trick of winning rate cases to the regulator, whether for the traditional energy rates or recently for adding smart meter costs to the rate base."

In response to those arguments, an expert wrote that "those consequences are, in fact, more often born by the public as taxpayers or the public as ratepayers. In the case of smart grid and other regulatory decisions the burden will fall on the utility to remedy any problems, pay the cost of that remedy and plead with the regulators to recover the costs in rates." I see a lack of the needed leadership in that statement.

The larger EWPC-AF question is: Will Utilities develop the Next Big Thing? I disagree that that is a problem of the utilities, since the Next Big Thing is about business model innovations in the power industry. To read about and/or participate in the discussion, please go to the link.

Next, and last, I will write about the need for market based approaches that enable the Next Big Thing. Many people have found to agree with the simplistic, but popular, Blooming Engineer’s view in response to the article More smart grid insight, written by Michael Giberson in the Knowledge Problem Blog. His comment says:

Smart grid technology in this study is bumping into the paradox that will afflict most market-based approaches. Market based thinking works really well when you are dealing with companies that can cost-justify analysts that can read through piles of data and choose the best energy usage plan for their organization.

When we get home from a 10 hour workday and need to get food on the table we aren’t particularly interested in wondering what effect this will have on our utility bills due to energy usage during peak hours. We also don’t want to spend what’s left of our evening reviewing energy usage statistics when we need to be helping our son with his homework, volunteering for community organizations and spending time on exercise, yard work or any of the hundreds of other things we are expected to do with our lives.

All these market-based means for reducing costs tend to assume that I have an infinite supply of time to review the data and that even if I have, that there is something that I can do with the information when I have it. I just want to pay a fair price for services rendered. I don’t want to be washing my clothes at Midnight because the meter says it will be cheaper then.

As you may see under Mr. Giberson’s article, like him, I first interpreted the Blooming Engineer's argument as if she was in favor of a heterogeneous smart grid and for customer choice, but then, after people kept agreeing with her, I came to realize that what they like is that she is just against market based approaches to favor the status quo. For that reason, I step back now to repeat part of what I had said before her post.

As Mr. Hunt will see in the post The ‘Genius’ of the Macrogrid ‘And’ Truly Fair Microgrids, it is not longer true that the business model can endure “because of its reliability and low average costs.” He will also see that microgrids are here to stay.

The conclusion of that post reiterates that: “[s]tate Legislatures need to give a new mandate to state regulators to enable truly politically correct (or better yet truly fair) microgrids. By trying to go the easy way out, microgrid proponents’ ongoing strategy won’t work; it will reveal state governments’ lack of vision that sets the poor to bid against the microgrids.”

To get the juice of that post, you need to read what Charles Peterson said that is no longer true. Regulation is not longer acceptable because it costs Americans 50 cents on top of every dollar paid to utilities. To address such huge value destruction, especially under non-market based approaches, I end the mentioned post with:

It is precisely because of that example of low reliability standard that microgrids are needed to serve those loads requiring high power quality, high reliability, high security, high availability, or any combination thereof. The central point of the article is to stress that “State Legislatures need to give a new mandate to state regulators…”

It is no doubt the Blooming Engineer argument can easily deceive readers unaware of the above facts from the reality being faced by consumers in the power industry. In addition, market-based approaches are operating everywhere except in many jurisdictions in the power industry.

The fact is that market based approaches are here to stay. The solution to such value destruction is to enable microgrids’ development, while designing truly fair competition letting customer choice, as explained in the article The ‘Genius’ of the Macrogrid ‘And’ Truly Fair Microgrids, that I had mentioned before the Blooming Engineer post.

lunes, mayo 03, 2010

Will Utilities develop the Next Big Thing?

First update, These are the original EWPC Blog comments

Comments

Last night, I tried to add the following comment under Mr. Hunts POWER PLAY post to update him about this EWPC post, but were unable to do so. Today I am still having trouble. After removing the links, this is how it started:

Using the entire above comment (as you will see, placed at the end), I wrote the EWPC post "Will Utilities develop the Next Big Thing?" that says [see the main post].
Jose Antonio Vanderhorst-Silverio

Without yet considering this whole article, this is what Mr. Hunt wrote:

Jose

Thank you for your thoughtful comments. I do not disagree that the States should bear some responsibility for the outcomes of their ratemaking and legislative decisions, but alas, those consequences are, in fact, more often born by the public as taxpayers or the public as ratepayers. In the case of smart grid and other regulatory decisions the burden will fall on the utility to remedy any problems, pay the cost of that remedy and plead with the regulators to recover the costs in rates.
Jose Antonio Vanderhorst-Silverio

In the meantime, making a parallel of utilities and railroads, for the benefit of state governments, customers and taxpayers, I will respond Mr. Hunt with a quote from Megatrends on the "Law of the Situation: the railroads did not understand."

Suppose that somewhere along the way a railroad company, sensing the changes in its business environment, had engaged in the process of reconceptualing what business it was in. Suppose they had said, "Let´s get out of the railroad business and into the transportation business." They could have created systems that moved goods by rail, truck, airplane, or in combination, as appopriate. "Moves goods" is the customer-oriented point. Instead, they continued transfixed by the lore of railroading that have served the country so well - until the world change.

Of this phenomenon Walter B. Wriston, chairman of Citycorp, in 1981 said: "The philosophy of the divine right of kings died hundreds of years ago, but not, it seems, the divine right of inherited markets. Some people still believe there´s a divine dispensation that their markets are theirs - and no one else´s - now and forevermore. It is an old dream that dies hard, yet no businessman in a free society can control a market when the customers decide to go somewhere else. All the king´s horses and all the king´s man are helpless in the face of a better product. Our commercial history is filled with examples of companies that failed to change in a changing world, and became tombstones in the corporate graveyard."
Jose Antonio Vanderhorst-Silverio
---------------------

As a follow up to the post Isn't the Next Big Thing About Business Model Innovations?, I first add as an introduction a comment I posted under it saying that:

There are 6 interesting comments since April 22nd under Mr. Carson's article. In addition, some of those comments have been fed back as reinforcing comments among the 8 comments under the Knowledge Problem commentary "More smart grid insight," written by Michael Giberson.

The main story is that I responded an article that suggests how utilities may have an opportunity to develop the Next Big Thing themselves:

Hello Mr. Hunt,

As a result of my comments to what you wrote about the threats to the traditional utility business model, I read with a lot of interest your follow up article POWER PLAYS: How the Utility Empire can Strike Back!

From what I have gathered so far on the discussion, you are certainly a very intelligent and important person. As I follow the generative dialogue principle that “we are not our opinions,” I wonder whether the opinion displayed in the POWER PLAYS’ article may be partially flawed, by being made under the assumption that utilities should be responsible for the damage in the making. My opinion, on the contrary, is that the full responsibility should rest on state governments, as explained in the article Is the Smart Grid that is Being Pushed a Costly Mistake?, whose summary states:

The main argument is that, by inaction, each State Government should be responsible to their constituencies for a very costly mistake that is being made by letting the smart grid process continue without giving State Regulators the proper mandate.

In addition, utilities' business model are based on the century old regulatory trick of winning rate cases to the regulator, whether for the traditional energy rates or recently for adding smart meter costs to the rate base. Based on the urgent need for business model innovations, please correct me if I am wrong as it seems to me that the opinion in “POWER PLAYS…” can be generalized in that it is still possible to tell old utilities competitive tricks?

Best regards,

José Antonio Vanderhorst-Silverio, Ph.D. - LinkedIn