Smart Grid Requires Spot Pricing of Ultraquality Electricity

A wide audience should read the EnergyPulse article Smart Grids: How Smart?, by Mark Sardella, PE, Executive Director, Local Energy.

First posted on the GMH Blog on April 14th, 2009

Hello Mark,

Yesterday I made a tweet with the hashtag #EWPC, which as you can see served to tell my followers on Twitter that your article deserves to be read by a wide audience.

I see 3 key parts to your article, which I qualify as follows:

a) Making the public aware of the results of the lobby to keep the power industry under the obsolete investor owned utilities framework. Smart work!
b) Suggesting the need to open the power industry to innovation. As you wrote, “modernizing our electric power infrastructure using policies that create entrepreneurial opportunities for small businesses is where the smart money will go.” Smart work!
c) Giving the example of feed-in-tariffs. Not so smart.

In regard to a), Len, Todd, and Lance, seem to agree with the value of making the public aware. Relatively to decoupling, as has been commented by Jim and Ed, I try to explain in the post Forget Decoupling Under Price Controls, that “… regulated decoupling has an insidious secondary effect: extending the obsolete utilities and regulators price controls business model.”

In response to part b), EWPC means electricity without price control (EWPC) and it is a framework, which tells about the whole power industry that is emerging is what you are writing about. The EWPC Blog has more than 160 post and articles describing the framework from many different perspectives. The EWPC aim of this post is next.

Trying to add value to your article, I will concentrate this post on replacing, the not so smart, part c). EWPC is an extension of the works done, back in the 80s, by the late M.I.T. professor Fred C. Schweppe and his colleagues. They wrote the following about avoided costs (which are related to feed-in-tariffs) in their book Spot Pricing of Electricity:

"In the United States, the PURPA legislation stated that buy-back rates should be based on avoided costs without clearly defining what avoided costs are. Hourly spot prices provided such a definition."

So, based on that quote and Fred comment, I have only one observation of your entire excellent article: the real secret I suggest is to consider hourly spot prices instead of Denmark’s feed-in-tariffs. Since Schweppe and his team also advised to consider the criteria of the engineering requirements for controlling, operating and planning an electric power system, the shift to spot prices need to be based on the architecting imperative of system’s ultraqualiity.

System’s ultraquality is one of the essential elements of EWPC, as I just discover now that spot pricing should be another one. One of the flaws of deregulation was a lack of the system’s ultraquality imperative, which meant a policy economy first, performance second, which is reversed under the EWPC policy, performance first, economy second.

System’s ultraquality is what makes possible that “Those appropriations are stirring the hopes of renewable energy advocates, who foresee expanded opportunities for solar and wind technologies as well as a big, new role for plug-in electric and hybrid-electric vehicles.”