Warren B. Causey | Apr 07, 2008
The next 10 to 15 years will see major changes - perhaps even classified as upheavals by future historians - in the distribution of electricity to businesses and households throughout the United States. The exact nature of these changes and their long-term effect upon the economic well-being and security of the country are difficult to predict. But a consensus already exists among those working within the industry, politicians and regulators, economists, environmentalists and, increasingly, among the general public, that fundamental changes are inevitable.
The U.S. faces a serious supply/demand disconnect by 2018. Unless something dramatic happens, there will not be nearly enough electricity to go around. Already some parts of the country are feeling the pinch. Regulatory and legislative uncertainty (especially around global warming and environmental issues) makes it very difficult for utilities to know what to do. Building new generation of any type except “green energy” is very difficult and green energy cannot close the growing gap between supply and demand being projected by NERC (the North American Electric Reliability Corp.).
Fuel prices continue to escalate and reliability continues to decline. Increasing restrictions are being placed on fuel selection, especially coal. Fifty percent of all coal fired generating plants proposed since 2000 already have been canceled, according to Wood McKenzie, Annapolis, MD, (Gas and Power Service Insight, North America, February, 2008).
A whole generation of utility workers is nearing retirement and finding adequate replacements in the smaller, younger generations is proving increasingly difficult.
The entire U.S. transmission/distribution system is aging and becoming less stable. Because of virulent environmental and NIMBY (not in my back yard) resistance it is very difficult to site new transmission that will be needed to deal with supply/demand issues.
The existing paradigm of nationwide grid interconnection – brought about primarily by the deregulation movement of the late 1990s – emphasizes the generation of electricity at large plants in various parts of the country and then distribution effectively nationwide. There are two reasons why this paradigm is failing. First, the transmission/distribution system was not designed as a nationwide grid; it is aged and is marginally stable. Second, political/regulatory/social movements are making the construction of large generating plants increasingly difficult, expensive, and eventually infeasible.
The previous, historic paradigm made each utility primarily responsible for generation, transmission and distribution in its own service territory; this had the benefit of localizing disturbances and fragmenting responsibility and expense. With loose interconnections to other states and regions, a disturbance in one area, or a lack of resources in a different one, had considerably less effect on other parts of the country, or even other parts of service territories.
For better or worse, we now have a nationwide interconnected grid, albeit one that was not originally designed for the purpose, and which it serves inadequately. It could be improved, but the expense would be massive and probably cost prohibitive. Knowledgeable industry insiders calculate that it would cost more than the current market value of all U.S. utilities combined to provide the upgrades necessary for the modernization of the nationwide grid and replacing its large generating facilities over the next 30 years. Obviously, the paradigm is going to have to change.
The reasons these changes are going to continue to accelerate and that various tipping points have been reached are fairly easy to see. They include:
While the problems are clear-cut, the solutions are not yet set in place. At best, smart grids and smarter consumers are only portions of the answers. They will help reduce demand, but probably not enough to make up the projected generation shortfall. And the development of these two concepts still is evolving. While most utility executives see the problems, they continue to be fairly uncertain about the solutions and have considerable distance to go to have them in place, as seen in the Sierra Energy Group survey conducted reporting January and February.
According to that survey, more than 90% of utility executives now feel the Intelligent Utility Enterprise and Smart Grid (IUE/SG) are an inevitable part of their future. This finding was true of all utility types supplying electricity. While utility executives understand the problem and the IUE/SG approach to solving part of it, they are somewhat behind in planning on exactly how to get the pieces in place. That “planning lag” for the vision is shown in the following graphs:
Part of the planning lag can be attributed to forces outside the utilities themselves. While politicians and regulators have been emphasizing conservation and demand response, guidelines for how this will work have been lacking. While a number of states have established mandatory green power percentages -- most of which cannot reasonably be met with existing technology, according to most experts -- Congress failed to do so in an Energy Policy Act (EPACT) adopted in December. And, while the EPACT of 2005 “urged” regulators to “urge” utilities to install smart meters, it was not required and regulators have moved at different speeds in different areas on this “urging.”
Getting from where utilities were (and in many respects still are) in the last century, to where they need to go by 2018 isn’t a problem to be solved overnight. Utilities traditionally have evolved slowly. Executives know there is a need for the technological evolution to accelerate rapidly, but, as mentioned earlier, there still are a lot of questions about what you do first. Do you install AMI as rapidly as possible? Do you emphasize automating the grid and adding artificial intelligence? Do you continue to build out mobile systems to push data (and more detailed instructions) to field crews who soon will be younger and less-experienced? Do you rush into home automation? Do you build windmills, solar farms? There just isn’t enough money to go around, at least not at electricity rates that won’t bankrupt the nation and most citizens.
A “Smart Grid” implies that it will become increasingly self-operating and self-healing. The technology for a lot of that already has been developed, though not widely deployed. Utilities have been working on basic distribution automation (DA) -- being able to operate the grid remotely -- for a number of years.
Several steps are involved in getting from the current state to the IUE/SG. These include pushing information all the way from the individual meter to the executive suite -- or wherever vital business decisions can be made. We asked utility executives how they’re doing in this area, with the following results:
Once the information is available, utility executives will need business intelligence systems to help analyze and support those decisions. In this year’s survey, we took a benchmark of how well they believe they are doing. Those results are show in this chart:
The final area the IUE/SG concept is expected to envelop is at the residential level. Residential home automation will enable utilities to control usage directly -- through adjusting thermostats or compressor cycling, or other techniques. Again, the technology for this is well advanced, but there are very few installations nationwide. A number of experiments were conducted with home automation in the early- to mid-1990s. Some homes were automated and even some subdivisions were built under the mantra of “Demand-side Management.”
“Demand Response,” the current term used by politicians is considered more “politically correct,” though the net result will be the same. Home automation will enable regulators, through utilities, to “ration” usage at need. They don’t use the term, but if Global Warming concerns continue to seriously impact the ability of utilities to access adequate generation, that is going to be the effect.
In the distant future, as technology continues to advance, electric generation in the U.S. likely will include a mix of energy sources, many of them distributed and green. However, in the next 10 years -- the window of most concern to NERC on the generation/reliability side -- there is no way green energy will be ready in sufficient quantities to forestall a significant shortfall within that period. Right now, green energy supplies less than 3% of U.S. demand, nuclear about 20% and coal 50%. The rest comes from hydroelectric dams. Nuclear is the only viable option that is possible, but sufficient nuclear energy likely will not be built in time because of on-going environmentalist and other opposition.
The NERC Reliability report of Oct. 15 points strongly toward a significant shortfall of electricity about 10 years out that could lead to rolling blackouts and brownouts in parts of the country that have not experienced them before, plus mandatory "demand response" at the residential level, which -- to call a spade a spade -- is rationing.
So what are utilities to do? They are going to have to get much smarter (IUE/SG) and they are going to have to prepare for rationing (AMI/Demand Response). As seen in this study, they still have quite a way to go in these areas, but this at least is something that can be -- in large part -- in place within 10 to 15 years. The technology for IUE/SG already exists, it is relatively inexpensive (in comparison with green energy and building nuclear plants) and it is something the utilities can do with relatively little regulatory oversight. In fact, regulators are encouraging it.
The future seems to be getting clearer, just scarier. IUE/SG is a major bridge to getting there. And, even if the apocalyptic scenarios fail to develop -- Global Warming is debunked, or new generation sources develop much more rapidly than expected -- being an intelligent utility with a smart grid probably is a very good idea anyway. Utilities are working on it, and at an accelerated rate, as shown in this study.
Meanwhile, many vendors, especially on the T&D side, still are delivering individual pieces of the puzzle -- they’ve worked within those utility silos for long, they sometimes have difficulty seeing the big picture. But utilities see it and they’re going to be increasingly looking to vendors to fill gaps in the technology to make the IUE/SG effective in dealing with the impending problems.