Uncertain Generation is Here to Stay

The discussion with Edward Bair in the EWPC article Two More Lessons from Denmark’s Wind Story ended with the statement “The third lesson is, thanks God, that uncertain generation (wind, solar, etc.) is here to stay!”

The third lesson is the result that “. . . EWPC re-regulation is key to have a controlled market that enforces system security with a proper mix of supply side and demand side that comes from an open retail and wholesale market. By developing the resources of the demand side a lot of energy storage (a lot of physics!) will be at the disposal of power system planning, operation and control.”

Elaborating on system security and the development of the resources of the demand side is the job of Second Generation Retailers (2GRs). While, Denmark has concentrated on supply side hydro resources for energy storage, under EWPC the aim is for 2GRs to develop business model innovations to exploit all the opportunities of customer energy storage, whether they are industrial, commercial, institutional, agricultural or residential.

The details of my answer to Ed’s questions about the uncertainty of wind power, which can be simplified to his statement “The key question in my mind is the probability that a power provider can honor a contract to deliver 50 megawatts of power at 1 pm on July 23, for example,’ went as follows:

Ed, I asked if you fully understood the meaning of system security, to test whether you knew that it is a function of the whole power system and no a function of one of its parts – the generator. In a market environment in which system security responds to uncertainty, and your power provider has a contract to deliver 50 megawatts (with unreliable base load generators that have forced outage rates of say 5% to 15%) and trips at 1 pm on July 23, for example, other generators, including wind generators, will sell electricity resulting in an economic transaction under EWPC to be paid by the base load generator. It is the very old power pool idea that is important to provide system security at very high system reliability, while providing back up to all the unreliable base load generators. That is how contracts will be honored under EWPC.

Sam Insull's idea of the two part rate is obsolete is the basis for your comment on peak demand. It was design to encourage people use more electricity. Insull and his descendents IOUs would no do business without the demand charge. The widely held belief on the myth that electric generation is a monopoly ended in 1978 and was later revived with The BIG California LIE (please hit the link). As EWPC emerged, the myth has ended.

Fred C. Schweppe et al, in their book "Spot Pricing of Electricity," state very clearly that "demand charge do not send good price signals," and "demand charges are not a good way to recover capital costs." In fact, they say "Since the price signal sent by a demand charge bears little relationship to hourly spot prices . . . customers are not motivated to adjust their usage patterns to match the utility's capabilities." This motivation is the key in demand side system security.

Another problem that I infer from your statements is that generation is owned by financial capital. Since EWPC results in a stable market environment, generation and retail should be owned by production capital.

I hope that you can see the importance of the two lessons (to be) learned that I wrote. The second lesson is that system security is not just about transmission, but transmission integrated with distribution, which I term transportation. The first lesson is that Americans should expand the transportation system at least costs, instead of the crazy rush now in place to invest heavily without much coordination.

By the way, Denmark has now a 20 per cent penetration of wind generation and is planning to go to 50 percent. They are using the Nordic electricity market rules to store wind generation with hydro generation. Just like America, I believe the Nordic market needs a lot of leadership as you can see in the EWPC article Handling Sweden’s Electric Reform Threats [please hit] the link.