The Smart Grid in Malta

On the Mediterranean island of Malta, with a population of about 400,000 people on a land mass of just over 300 square kilometers, power, water and the economy are intricately linked. The country depends on electrically powered desalination plants for over half of its water supply. In fact, about 75 percent of the cost of water from these plants on Malta is directly related to energy production. Meanwhile, rising sea levels threaten Malta’s underground freshwater source.

Additionally, in line with the Lisbon strategy and the other European countries, the government of Malta has set an objective of transforming the island into a competitive knowledge economy to encourage investment by foreign companies. Meeting all of these goals in a relatively short period of time presents a complex, interconnected series of challenges that require immediate attention to ensure the country has a sustainable and prosperous future.

In light of this need, the Maltese National Utilities for Electricity and Water – Enemalta Corp. (EMC) and Water Services Corp. (WSC) – reached a partnership agreement with IBM to undertake a complete transformation of its distribution networks to improve operational efficiency and customer service levels. IBM will replace all 250,000 electricity meters with new devices, and connect these and the existing water meters to advanced information technology applications. This will enable remote reading, management and monitoring throughout the entire distribution network.

This solution will be integrated with new back-office applications for finance, billing and cash processes, as well as an advanced analytics tool to transform sensor data into valuable information supporting business decisions and improving customer service levels. It will also include a portal to enable closer interaction with – and more engagement by – the end consumers.

Why are the utility companies in Malta making such a significant investment to reshape their operations? To explore this question, it helps to start with a broader look at smart grid projects to see how they create benefits – not just for the companies making the investment, but for the local community as well.

Smart Grid Benefits

A case is often made that basic operational benefits of a smart grid implementation can be achieved largely through an Advanced Metering Infrastructure (AMI) implementation, which yields real-time readings for use in billing cycles, reduced operational cost in the low voltage network and more control over theft and fraud. In this view, the utility’s operational model is further transformed to improve customer relationship management through the introduction of flexible tariffs, remote customer connection/disconnection, power curtailment options and early outage identification through low voltage grid monitoring.

But AMI extended to a broader smart grid implementation has the potential to achieve even greater strategic benefits. One can see this by simply considering the variety of questions about the impact of the carbon footprint of human activity on the climate and other environmental factors. What is a realistic tradeoff between energy consumption, energy efficiency and economic and political dependencies on the local, national and international levels? Which energy sources will be most effective with such tradeoffs? To what extent can smaller, renewable resources replace today’s large, fossil-based power sources? Where this is possible, how can hundreds or thousands of dispersed, independently operated generators be effectively monitored?

Ultimately, distribution networks need to be smart enough to distinguish among today’s large-scale utility generators; customers producing solar energy for their own needs who are virtually disconnected from the grid; those using a wind power generator and injecting the surplus back into the grid; and end-use customers requiring marginal or full supply. An even more dispersed model for distributed generation will emerge once electric vehicles circulate in towns, placing complex new demands on the grid while offering the benefit of new storage capabilities to the network.

Interdependence

Together, water and power distributors, transmission operators, generators, market regulators and final customers will interact in a much more complex, interconnected and interdependent world. This is especially true in a densely populated, modern island ecosystem, where the interplay of electricity, water, gas, communications and other services is magnified.

These points of intersection take numerous shapes. For example, on a national scale, water and sewer services can consume a large portion of the available energy supply. Water service, which is essential to customer quality of life, also presents distribution issues that are similar in many ways to those embedded in the electric grid. At a more local scale, co-generation and micro-CHP generation plants make the interdependency of electricity and gas more visible. Furthermore, utilities’ experience at providing centrally managed services that afford comfort and convenience makes the provision of additional services – communication, security, and more – imaginable. But how to make these interconnections effective contributors to quality of life raises real economic questions. Is it sensible to make an overarching investment in multiple services? How can this drive increased operational efficiency and bring new benefits to customers? Can a clear return on investment be demonstrated to investors and bill payers?

Malta is an example of an island that operates a vertically integrated and isolated electricity system. Malta has no connections with the European electricity grid and no gas pipelines to supply its generators. In the current configuration of the energy infrastructure, all of its demand must be fulfilled by the two existing power plants, which generate power using entirely imported fossil fuel. Because of these limitations on supply, and dependencies on non-native resources, electricity distribution must be extremely efficient, limiting any loss of energy as much as possible. Both technical and commercial losses must be kept fully under control, and theft must be effectively eliminated from the system to avoid unfair social accounting and to ensure proper service levels to all customers.

Estimates of current economic losses in Malta are in the millions of Euros for just the non-technical losses. At these levels, and with limited generation capacity, quality of service and ability to satisfy demand at all times is threatened. Straining the system even further is the reality that Malta, without significant natural water sources, must rely on a seawater purification process to supply water to its citizens. This desalinization process absorbs roughly one-third of the annual power consumption on the island.

But the production process is not the only source of interdependency of electricity and water as the distribution principles of each have strong ties. In most locations in the world, electricity and water distribution have opposing characteristics that allow them to enjoy some symbiotic benefits. Electricity cannot be effectively stored, so generation needs to match and synchronize in time with demand. Water service generally has the opposite characteristic: in fact, it can be stored so easily that it is frequently stored as pre-generation capacity in hydro generation.

But on an island like Malta, this relationship is turned on its head. There is no natural water to store, and once produced, purified water should be consumed rather quickly. If it is produced in excess, then reservoir evaporation and pipeline losses can affect the desalinization effort and the final efficiency of the process. So in Malta, unlike much of the rest of the world, water providers tend to view customer demand in a similar way as electricity providers, and the demand profiles are unable to support each other as they can elsewhere.

These are qualitative observations. But if electricity and water networks can be monitored, and real-time data supplied, providers can begin to assess important questions regarding operational and financial optimization of the system, which will, among other benefits, improve reliability and service quality and keep costs low.

Societal Implications

An additional issue the government of Malta faces is its effort to ensure that the population has a sufficient and diverse educational and technical experience base. When a company is attracted to invest in Malta, it benefits from finding local natives with appropriate skills to employ; costs increase if too many foreign nationals must be brought in to operate the company. Therefore, pervasive education on information and communication technology-related topics is a priority for the government, aimed at young students, as well as adult citizens.

Therein lies a further – but no less important – benefit of bringing a smart grid to Malta. Energy efficiency campaigns supported by smart meters will not only help its citizens control consumption behavior and make more efficient and effective electricity and water operations a reality, but they will prove to be a project that helps raise the island’s technology culture in a new dimension. Meter installers will deal with palmtop and other advanced IT applications, learning to connect the devices not only to the physical electrical infrastructure, but also to the embedded information infrastructure. From smart home components to value-added services, commercial and industrial players will look to new opportunities that leverage the smart grid infrastructure in Malta as well, adding highly skilled jobs and new businesses to the Maltese economy.

Benefits will expand down to the elementary education levels as well. For example, it will be possible for schools to visit utility demonstration centers where the domestic meter can be presented as an educational tool. This potential includes making energy efficiency a door to educational programs on responsible citizenship, science, mathematics, environmental sustainability and many other key learning areas. Families will find new incentive to become familiar with the Internet as they connect to the utility’s website to control their energy bill and investigate enhanced tariffs for more cost-effective use of basic services.

Conclusion

Malta is famed for its Megalithic Temples – the oldest free-standing buildings in Europe, older than the Pyramids of Egypt [1]. But with its smart grid project, it stands to be the home of one of the newest and most advanced infrastructure projects as well. The result of the Maltese smart grid effort will be an end-to-end electricity and water transmission and distribution system. It will not only enable more efficient consumption of energy and water, but will completely transform the relationship of Maltese consumers with the utilities, while enhancing their education and employment prospects. These benefits go well beyond the traditional calculation of benefits of, for example, a simple AMI-focused project, and demonstrate that a smart grid project in an island environment can go well beyond simply improving utility operations. It can transform the entire community in ways that will improve the quality of life in Malta for generations to come.

Reference:

  1. 1 The Bradshaw Foundation, 2009

Intelligent Communications Platform Provides Foundation for Clean Technology Solutions to Smart Grid

Since the wake-up call of the 2003 blackout in the northeastern United States and Canada, there’s been a steady push to improve the North American power grid. Legislation in both the United States and Canada has encouraged investments in technologies intended to make the grid intelligent and to solve critical energy issues. The Energy Policy Act (EPAct) of 2005 mandated that each state evaluate the business case for advanced metering infrastructure (AMI). In Ontario, the Energy Conservation Responsibility Act of 2006 mandated deployment of smart meters to all consumers by 2010. And the recent U.S. Energy Independence and Security Act of 2007 expands support from the U.S. government for investments in smart grid technologies while further emphasizing the need for the power industry to play a leadership role in addressing carbon dioxide emissions affecting climate change.

Recent state-level legislation and consumer sentiment suggest an increasing appetite for investments in distributed clean-technology energy solutions. Distributed generation technologies such as solar, wind and bio-diesel are becoming more readily available and have the potential to significantly improve grid operations and reliability.

THE NEXT STEP

Although the full vision for the smart grid is still somewhat undefined, most agree that an intelligent communications platform is a necessary foundation for developing and realizing this vision. Of the 10 elements that define the smart grid as contained within the Energy Act of 2007, more than half directly relate to or involve advanced capabilities for advanced communications.

A core business driver for intelligent communications is full deployment of smart metering, also referred to as advanced metering infrastructure. AMI involves automated measurement of time-of-use energy consumption – at either hourly or 15-minute intervals – and provides for new time-of-use rates that encourage consumers to use energy during off-peak hours when generation costs are low rather than peak periods when generation costs are high and the grid is under stress. With time-of-use rates, consumers may continue to use power during high peak periods but will pay a higher price to do so. AMI may also include remote service switch functionality that can reduce costs associated with site visits otherwise required to manage move-out/move-ins or to support prepayment programs.

Other smart grid capabilities that may be easily realized through the deployment of intelligent communications and AMI include improved outage management detection and restoration monitoring, revenue assurance and virtual metering of distribution assets.

CRITICAL ATTRIBUTES OF AMI SOLUTIONS

Modern communications network solutions leverage standards-based technology such as IEEE 802.15.4 to provide robust two-way wireless mesh network communications to intelligent devices. The intelligent communications platform should provide for remote firmware upgrades to connected intelligent devices and be capable of leveraging Internet protocol-based communications across multiple wide-area network (WAN) options (Figure 1).

Critical for maximizing the value of a communications infrastructure investment is support for broad interoperability and interconnectivity. Interoperability for AMI applications means supporting a range of options for metering devices. A communications platform system should be meter manufacturer-independent, empowering choice for utilities. This provides for current and future competitiveness for the meter itself, which is one of the more expensive elements of the smart metering solution.

Interconnectivity for communications platforms refers to the ability to support a broad range of functions, both end-point devices and systems at the head end. To support demand-side management and energy-efficiency initiatives, an intelligent communications platform should support programmable communicating thermostats (PCTs), in-home displays (IHDs) and load control switches.

The system may also support standards-based home-area networks (HANs) such as ZigBee and Zensys. Ultimately an intelligent communications platform should support a model whereby third-party manufacturers can develop solutions that operate on the network, providing competitive options for utilities.

For enterprise system interconnectivity, an AMI demand-side management or other smart grid head-end application should be developed using service-oriented architecture (SOA) principles and Web technologies. These applications should also support modern Web services-based solutions, providing published simple object access protocol (SOAP)-based APIs. This approach provides for easier integration with existing enterprise systems and simplifies the process of adding functionality (either through enhancements provided by the vendor or add-ons delivered by third parties or developed by the utility).

Finally, the value of an intelligent communications platform deployment is driven by the ability of other enterprise applications and processes to utilize the vast amount of new data received through the AMI , demand side management and smart grid applications. Core areas of extended value include integration with customer information systems and call center processes, and integration with outage management and work management systems. In addition, the intelligent communications platform makes utilities much better able to market new offerings to targeted customers based on their energy consumption profiles while also empowering consumers with new tools and access to information. The result: greater control over energy consumption costs and improved satisfaction.

INTEGRATION OF DISTRIBUTED GENERATION RESOURCES

Deployment and integration of distributed generation, including renewable resources, is an important supply-side element of the smart grid vision. This may include the installation of arrays of solar photovoltaic panels on home and office roofs, solar carports, small wind (3-5kvA) turbines, small biogas turbines and fuel cells.

By integrating these resources into a common communications platform, utilities have the opportunity to develop solutions that achieve much greater results than those provided simply by the sum of independent systems. For example, intelligent plug-in hybrid electric vehicles (PHEvs) connected to a smart solar carport may choose when to purchase power for charging the car or even to sell power back to the grid in a vehicle-to-grid (v2G) model based on dynamic price signals received through the communications platform. By maintaining intelligence at the edge of the grid, consumers and distributed resource owners can be empowered to manage to their own benefits and the grid as a whole.

SUMMARY

Now is the time to embark on realizing the smart grid vision. Global warming and system reliability issues are driving a sense of urgency. An intelligent communications platform provides a foundation capable of supporting multiple devices in multiple environments – commercial, industrial and residential – working seamlessly together in a single unified network.

All of the technical assets of a smart grid can be managed holistically rather than as isolated or poorly connected parts. The power of a network grows geometrically according to the amount of resources and assets actively connected to it. This is the future of the smart grid, and it’s available today.

The Virtual Generator

Electric utility companies today constantly struggle to find a balance between generating sufficient power to satisfy their customers’ dynamic load requirements and minimizing their capital and operating costs. They spend a great deal of time and effort attempting to optimize every element of their generation, transmission and distribution systems to achieve both their physical and economic goals.

In many cases, “real” generators waste valuable resources – waste that if not managed efficiently can go directly to the bottom line. Energy companies therefore find the concept of a “virtual generator,” or a virtual source of energy that can be turned on when needed, very attractive. Although generally only representing a small percentage of utilities’ overall generation capacity, virtual generators are quick to deploy, affordable, cost-effective and represent a form of “green energy” that can help utilities meet carbon emission standards.

Virtual generators use forms of dynamic voltage and capacitance (Volt/ VAr) adjustments that are controlled through sensing, analytics and automation. The overall process involves first flattening or tightening the voltage profiles by adding additional voltage regulators to the distribution system. Then, by moving the voltage profile up or down within the operational voltage bounds, utilities can achieve significant benefits (Figure 1). It’s important to understand, however, that because voltage adjustments will influence VArs, utilities must also adjust both the placement and control of capacitors (Figure 2).

Various business drivers will influence the use of Volt/VAr. A utility could, for example, use Volt/VAr to:

  • Respond to an external system-wide request for emergency load reduction;
  • Assist in reducing a utility’s internal load – both regional and throughout the entire system;
  • Target specific feeder load reduction through the distribution system;
  • Respond as a peak load relief (a virtual peaker);
  • Optimize Volt/VAr for better reliability and more resiliency;
  • Maximize the efficiency of the system and subsequently reduce energy generation or purchasing needs;
  • Achieve economic benefits, such as generating revenue by selling power on the spot market; and
  • Supply VArs to supplement off-network deficiencies.

Each of the above potential benefits falls into one of four domains: peaking relief, energy conservation, VAr management or reliability enhancement. The peaking relief and energy conservation domains deal with load reduction; VAr management, logically enough, involves management of VArs; and reliability enhancement actually increases load. In this latter domain, the utility will use increased voltage to enable greater voltage tolerances in self-healing grid scenarios or to improve the performance of non-constant power devices to remove them from the system as soon as possible and therefore improve diversity.

Volt/VAr optimization can be applied to all of these scenarios. It is intended to either optimize a utility’s distribution network’s power factor toward unity, or to purposefully make the power factor leading in anticipation of a change in load characteristics.

Each of these potential benefits comes from solving a different business problem. Because of this, at times they can even be at odds with each other. Utilities must therefore create fairly complex business rules supported by automation to resolve any conflicts that arise.

Although the concept of load reduction using Volt/VAr techniques is not new, the ability to automate the capabilities in real time and drive the solutions with various business requirements is a relatively recent phenomenon. Energy produced with a virtual generator is neither free nor unlimited. However, it is real in the sense that it allows the system to use energy more efficiently.

A number of things are driving utilities’ current interest in virtual generators, including the fact that sensors, analytics, simulation, geospatial information, business process logic and other forms of information technology are increasingly affordable and robust. In addition, lower-cost intelligent electrical devices (IEDs) make virtual generators possible and bring them within reach of most electric utility companies.

The ability to innovate an entirely new solution to support the above business scenarios is now within the realm of possibility for the electric utility company. As an added benefit, much of the base IT infrastructure required for virtual generators is the same as that required for other forms of “smart grid” solutions, such as advanced meter infrastructure (AMI), demand side management (DSM), distributed generation (DG) and enhanced fault management. Utilities that implement a well-designed virtual generator solution will ultimately be able to align it with these other power management solutions, thus optimizing all customer offerings that will help reduce load.

HOW THE SOLUTION WORKS

All utilities are required, for regulatory or reliability reasons, to stay within certain high- and low-voltage parameters for all of their customers. In the United States the American Society for Testing and Materials (ATSM) guidelines specify that the nominal voltage for a residential single-phase service should be 120 volts with a plus or minus 6-volt variance (that is, 114 to 126 volts). Other countries around the world have similar guidelines. Whatever the actual values are, all utilities are required to operate within these high- and low-voltage “envelopes.” In some cases, additional requirements may be imposed as to the amount of variance – the number of volts changed or the percent change in the voltage – that can take place over a period of minutes or hours.

Commercial customers may have different high/low values, but the principle remains the same. In fact, it is the mixture of residential, commercial and industrial customers on the same feeder that makes the virtual generation solution almost a requirement if a utility wants to optimize its voltage regulation.

Although it would be ideal for a utility to deliver 120-volt power consistently to all customers, the physical properties of the distribution system as well as dynamic customer loading factors make this difficult. Most utilities are already trying to accomplish this through planning, network and equipment adjustments, and in many cases use of automated voltage control devices. Despite these efforts, however, in most networks utilities are required to run the feeder circuit at higher-than-nominal levels at the head of the circuit in order to provide sufficient voltage for downstream users, especially those at the tails or end points of the circuit.

In a few cases, electric utilities have added manual or automatic voltage regulators to step up voltage at one or more points in a feeder circuit because of nonuniform loading and/or varied circuit impedance characteristics throughout the circuit profile. This stepped-up slope, or curve, allows the utility company to comply with the voltage level requirements for all customers on the circuit. In addition, utilities can satisfy the VAr requirements for operational efficiency of inductive loads using switched capacitor banks, but they must coordinate those capacitor banks with voltage adjustments as well as power demand. Refining voltage profiles through virtual generation usually implies a tight corresponding control of capacitance as well.

The theory behind a robust Volt/ VAr regulated feeder circuit is based on the same principles but applied in an innovative manner. Rather than just using voltage regulators to keep the voltage profile within the regulatory envelope, utilities try to “flatten” the voltage curve or slope. In reality, the overall effect is a stepped/slope profile due to economic limitations on the number of voltage regulators applied per circuit. This flattening has the effect of allowing an overall reduction, or decrease, in nominal voltage. In turn the operator may choose to move the voltage curve up or down within the regulatory voltage envelope. Utilities can derive extra benefit from this solution because all customers within a given section of a feeder circuit could be provided with the same voltage level, which should result in less “problem” customers who may not be in the ideal place on the circuit. It could also minimize the possible power wastage of overdriving the voltage at the head of the feeder in order to satisfy customers at the tails.

THE ROLE OF AUTOMATION IN DELIVERING THE VIRTUAL GENERATOR

Although theoretically simple in concept, executing and maintaining a virtual generator solution is a complex task that requires real-time coordination of many assets and business rules. Electrical distribution networks are dynamic systems with constantly changing demands, parameters and influencers. Without automation, utilities would find it impossible to deliver and support virtual generators, because it’s infeasible to expect a human – or even a number of humans – to operate such systems affordably and reliably. Therefore, utilities must leverage automation to put humans in monitoring rather than controlling roles.

There are many “inputs” to an automated solution that supports a virtual generator. These include both dynamic and static information sources. For example, real-time sensor data monitoring the condition of the networks must be merged with geospatial information, weather data, spot energy pricing and historical data in a moment-by-moment, repeating cycle to optimize the business benefits of the virtual generator. Complicating this, in many cases the team managing the virtual generator will not “own” all of the inputs required to feed the automated system. Frequently, they must share this data with other applications and organizational stakeholders. It’s therefore critical that utilities put into place an open, collaborative and integrated technology infrastructure that supports multiple applications from different parts of the business.

One of the most critical aspects of automating a virtual generator is having the right analytical capabilities to decide where and how the virtual generator solution should be applied to support the organizations’ overall business objectives. For example, utilities should use load predictors and state estimators to determine future states of the network based on load projections given the various Volt/VAr scenarios they’re considering. Additionally, they should use advanced analytic analyses to determine the resiliency of the network or the probability of internal or external events influencing the virtual generator’s application requirements. Still other types of analyses can provide utilities with a current view of the state of the virtual generator and how much energy it’s returning to the system.

While it is important that all these techniques be used in developing a comprehensive load-management strategy, they must be unified into an actionable, business-driven solution. The business solution must incorporate the values achieved by the virtual generator solutions, their availability, and the ability to coordinate all of them at all times. A voltage management solution that is already being used to support customer load requirements throughout the peak day will be of little use to the utility for load management. It becomes imperative that the utility understand the effect of all the voltage management solutions when they are needed to support the energy demands on the system.

Wind Energy: Balancing the Demand

In recent years, exponential demand for new U.S. wind energy-generating facilities has nearly doubled America’s installed wind generation. By the end of 2007, our nation’s total wind capacity stood at more than 16,000 megawatts (MW) – enough to power more than 4.5 million average American homes each year. And in 2007 alone, America’s new wind capacity grew 45 percent over the previous year – a record 5,244 MW of new projects and more new generating capacity than any other single electricity resource contributed in the same year. At the same time, wind-related employment nearly doubled in the United States during 2007, totaling 20,000 jobs. At more than $9 billion in cumulative investment, wind also pumped new life into regional economies hard hit by the recent economic downturn. [1]

The rapid development of wind installations in the United States comes in response to record-breaking demand driven by a confluence of factors: overwhelming consumer demand for clean, renewable energy; skyrocketing oil prices; power costs that compete with natural gas-fired power plants; and state legislatures that are competing to lure new jobs and wind power developments to their states. Despite these favorable conditions, the wind energy industry has been unable to meet America’s true demand for new wind energy-generating facilities. The barriers include the following: availability of key materials, the ability to manufacture large key components and the accessibility of skilled factory workers.

With the proper policies and related investments in infrastructure and workforce development, the United States stands to become a powerhouse exporter of wind power equipment, a wind technology innovator and a wind-related job creation engine. Escalating demand for wind energy is spurred by wind’s competitive cost against rising fossil fuel prices and mounting concerns over the environment, climate change and energy security.

Meanwhile, market trends and projections point to strong, continued demand for wind well into the future. Over the past decade, a similar surge in wind energy demand has taken place in the European Union (E.U.) countries. Wind power capacity there currently totals more than 50,000 MW, with projections that wind could provide at least 15 percent of the E.U.’s electricity by 2020 – amounting to an installed wind capacity of 180,000 MW and an estimated workforce of more than 200,000 people in wind power manufacturing, installation and maintenance jobs.

How is it, then, that European countries were able to secure the necessary parts and people while the United States fell short in its efforts on these fronts? After all, America has a bigger land mass and a larger, more high-quality wind resource than the E.U. countries. Indeed, the United States is already home to the world’s largest wind farms, including the 735-MW Horse Hollow Wind Energy Center in Texas, which generates power for about 230,000 average homes each year. What’s more, this country also has an extensive manufacturing base, a skilled labor pool and a pressing need to address energy and climate challenges.

So what’s missing? In short, robust national policy support – a prerequisite for strong, long-term investment in the sector. Such support would enable the industry to secure long lead-time materials and sufficient ramp-up to train and employ workers to continue wind power’s surging growth. Thus, the United States must rise to the occasion and assemble several key, interrelated puzzle pieces – policy, parts and people – if it’s to tap the full potential of wind energy.

POLICY: LONG-TERM SUPPORT AND INVESTMENT

In the United States, the federal government has played a key role in funding research and development, commercialization and large-scale deployment of most of the energy sources we rely on today. The oil and natural gas industry has enjoyed permanent subsidies and tax credits that date back to 1916 when Congress created the first tax breaks for oil and gas production. The coal industry began receiving similar support in 1932 with the passage of the first depletion allowances that enabled mining companies to deduct the value of coal removed from a mine from their taxable revenue.

Still in effect today, these incentives were designed to spur exploration and extraction of oil, gas and coal, and have since evolved to include such diverse mechanisms as royalty relief for resources developed on public lands; accelerated depreciation for investments in projects like pipelines, drilling rigs and refineries; and ongoing support for technology R&D and commercialization, such as the Department of Energy’s now defunct FutureGen program for coal research, its Deep Trek program for natural gas development and the VortexFlow SX tool for low-producing oil and gas wells.

For example, the 2005 energy bill passed by Congress provided more than $2 billion in tax relief for the oil and gas industry to encourage investment in exploration and distribution infrastructure. [2] The same bill also provided an expansion of existing support for coal, which in 2003 had a 10-year value of more than $3 billion. Similarly, the nuclear industry receives extensive support for R&D – the 2008 federal budget calls for more than $500 million in support for nuclear research – as well as federal indemnity that helps lower its insurance premiums. [3]

Over the past 15 years, the wind power industry has also enjoyed federal support, with a small amount of funding for R&D (the federal FY 2006 budget allotted $38 million for wind research) and the bulk of federal support taking the form of the Production Tax Credit (PTC) for wind power generation. The PTC has helped make wind energy more cost-competitive with other federally subsidized energy sources; just as importantly, its relatively routine renewal by Congress has created conditions under which market participants have grown accustomed to its effect on wind power finance.

However, in contrast to its consistent policies for coal, natural gas and nuclear power, Congress has never granted longterm approval to the wind power PTC. For more than a decade, in fact, Congress has failed to extend the PTC for longer than two years. And in three different years, the credit was allowed to expire with substantial negative consequences for the industry. Each year that the PTC has expired, major suppliers have had to, in the words of one senior wind power executive, “shut down their factories, lay off their people and go home.”

In 2000, 2002 and 2004, the expiration of the PTC sent wind development plummeting, with an almost complete collapse of the industry in 2000. If the PTC is allowed to expire at the end of 2008, American Wind Energy Associates (AWEA) estimates that as many as 75,000 domestic jobs could be lost as the industry slows production of turbines and power consumers reduce demand for new wind power projects.

The last three years have seen tenuous progress, with Congress extending the PTC for one and then two years; however, the wind industry is understandably concerned about these short-term extensions. Of significant importance is the corresponding effect a long-term or permanent extension of the PTC would have on the U.S. manufacturing sector and related investment activity. For starters, it would put the industry on an even footing with its competitors in the fossil fuels and nuclear industries. More importantly, it would send a clear signal to the U.S. manufacturing community that wind power is a solid, long-term investment.

PARTS: UNLEASHING THE NEXT MANUFACTURING BOOM

To fully grasp the trickle-down effects of an uncertain PTC on the wind power and related manufacturing industries, one must understand the industrial scale of a typical wind power development. Today’s wind turbines represent the largest rotating machinery in the world: a modern-day, 1.5-megawatt machine towers more than 300 feet above the ground with blades that out-span the wings of a 747 jetliner, and a typical utility-scale wind farm will include anywhere from 30 to 200 of these machines, planted in rows or staggered lines across the landscape.

The sheer size and scope of a utility-scale wind farm demands a sophisticated and established network of heavy equipment and parts manufacturers can fulfill orders in a timely fashion. Representing a familiar process for anyone who’s worked in a steel mill, forgery, gear-works or similar industrial facility, the manufacture of each turbine requires massive, rolled steel tubes for the tower; a variety of bearings and related components for lubricity in the drive shaft and hub; cast steel for housings and superstructure; steel forgings for shafts and gears; gearboxes for torque transmission; molded fiberglass, carbon fiber or hybrid blades; and electronic components for controls, monitoring and other functions.

U.S. manufacturers have extensive experience making all of these components for other end-use applications, and many have even succeeded in becoming suppliers to the wind industry. For example, Ameron International – a Pasadena, Calif.-based maker of industrial steel pipes, poles and related coatings – converted an aging heavy-steel fabrication plant in Fontana, Calif., to make wind towers. At 80 meters tall, 4.8 meters in diameter and weighing in at 200 tons, a wind tower requires large production facilities that have high up-front capital costs. By converting an existing facility, Ameron was able to capture a key and rapidly growing segment of the U.S. wind market in high-wind Western states while maintaining its position in other markets for its steel products.

Other manufacturers have also seen the opportunity that wind development presents and have taken similar steps. For example, Beaird Co. Ltd, a Shreveport, La.-based metal fabrication and machined parts manufacturer, supplies towers to the Midwest, Texas and Florida wind markets, as does DMI Industries from facilities in Fargo, N.D., and Tulsa, Okla.

But the successful conversion of existing manufacturing facilities to make parts for the wind industry belies an underlying challenge: investment in new manufacturing capacity to serve the wind industry is hindered by the lack of a clear policy framework. Even at wind’s current growth rates and with the resulting pent-up domestic demand for parts, the U.S. manufacturing sector is understandably reticent to invest in new production capacity.

The cause for this reticence is depicted graphically in Figure 1. With the stop-and-go nature of the PTC regarding U.S. wind development, and the consistent demand for their products in other end-use sectors, American manufacturers have strong disincentives to invest in new capital projects targeting the wind industry. It can take two to six years to build a new factory and 15 or more years to recapture the investment. The one- to two-year investment cycle of the U.S. wind industry is therefore only attractive to players who are comfortable with the risk and can manage wind as a marginal customer rather than an anchor tenant. This means that over the long haul, the United States could be legislating itself out of the “renewables” space, which arguably has a potential of several trillion dollars of global infrastructure.

The result in the marketplace: the United States ends up importing many of the large manufactured parts that go into a modern wind turbine – translating to a missed opportunity for domestic manufacturers that could be claiming a larger chunk of the underdeveloped U.S. wind market. As the largest consumer of electricity on earth, the United States also represents the biggest untapped market for wind power. At the end of 2007, with multiple successive years of 30 to 40 percent growth, wind power claimed just 1 percent of the U.S. electricity market. The raw potential for wind power in the United States is three times our total domestic consumption, according to the U.S. Energy Information Administration; if supply chain issues weren’t a problem, wind power could feasibly grow to supply as much as 20 to 30 percent of our $330 billion annual domestic electricity market. At 20 percent of domestic energy supply, the United States would need 300,000 MW of installed wind power capacity – an amount that would take 20 to 30 years of sustained manufacturing and development to achieve. But that would require growth well above our current pace of 4,000 to 5,000 MW annually – growth that simply isn’t possible given current supply constraints.

Of course, that’s just the U.S. market. Global wind development is set to more than triple by 2015, with cumulative installed capacity expected to rise from approximately 91 gigawatts (GW) by the end of 2007 to more than 290 GW by the end of 2015, according to forecasts by Emerging Energy Research (EER). Annual MW added for global wind power is expected to increase more than 50 percent, from approximately 17.5 GW in 2007 to more than 30 GW in 2015, according to EER’s forecasts. [4]

By offering the wind power industry the same long-term tax benefits enjoyed by other energy sources, Congress could trigger a wave of capital investment in new manufacturing capacity and turn the United States from a net importer of wind power equipment to a net exporter. But extending the PTC is not the final step: as much as any other component, a robust wind manufacturing sector needs skilled and dedicated people.

PEOPLE: RECLAIMING OUR MANUFACTURING ROOTS

In 2003, the National Association of Manufacturers released a study outlining many of the challenges facing our domestic manufacturing base. “Keeping America Competitive – how a Talent Shortage Threatens U.S. Manufacturing” highlights the loss of skilled manufacturing workers to foreign competitors, the problem of an aging workforce and a shift to a more urban, high tech economy and culture.

In particular, the study notes a number of “image” problems for the manufacturing industry. To wit: Among a geographically, ethnically and socio-economically diverse set of respondents – ranging from students, parents and teachers to policy analysts, public officials, union leaders, and manufacturing employees and executives – the sector’s image was found to be heavily loaded with negative connotations (and universally tied to the old “assembly line” stereotype) and perceived to be in a state of decline.

When asked to describe the images associated with a career in manufacturing, student respondents offered phrases such as “serving a life sentence,” being “on a chain gang” or a “slave to the line,” and even being a “robot.” Even more telling, most adult respondents said that people “just have no idea” of manufacturing’s contribution to the American economy.

The effect of this “sector fatigue” can be seen across the Rust Belt in the aging factories, retiring workforce and depressed communities being heavily impacted by America’s turn away from manufacturing. Wind power may be uniquely positioned to help reverse this trend. A growing number of America’s young people are concerned about environmental issues, such as pollution and global warming, and want to play a role in solving these problems. With the lure of good-paying jobs in an industry committed to environmental quality and poised for tremendous growth, wind power may provide an answer to manufacturers looking to lure and retain top talent.

We’ve already seen that you don’t need a large wind power resource in your state to enjoy the economic benefits of wind’s surging growth: whether it’s rolled steel from Louisiana and Oklahoma, gear boxes and cables from Wisconsin and New Hampshire, electronic components from Massachusetts and Vermont, or substations and blades from Ohio and Florida, the wind industry’s needs for manufactured parts – and the skilled labor that makes them – is massive, distributed and growing by the day.

UNLEASHING THE POWER OF EVOLUTION

The wind power industry offers a unique opportunity for revitalizing America’s manufacturing sector, creating vibrant job growth in currently depressed regions and tapping new export markets for American- made parts. For utilities and energy consumers, wind power provides a hedge against volatile energy costs and harvests one of our most abundant natural resources for energy security.

The time for wind power is now. As mankind has evolved, so too have our primary sources of energy: from the burning of wood and animal dung to whale oil and coal; to petroleum, natural gas and nuclear fuels; and (now) to wind turbines. The shift to wind power represents a natural evolution and progression that will provide both the United States and the world with critical economic, environmental and technological solutions. As energy technologies continue to evolve and mature, wind power will soon be joined by solar power, ocean current power and even hydrogen as cost-competitive solutions to our pressing energy challenges.

ENDNOTES

  1. “American Wind Energy Association 2007 Market Report” (January 2008). www.awea.org/Market_Report_Jan08.pdf
  2. Energy Policy Act of 2005, Section 1323-1329. www.citizen.org/documents/energyconferencebill0705.pdf
  3. Aileen Roder, “An Overview of Senate Energy Bill Subsidies to the Fossil Fuel Industry” (2003), Taxpayers for Common Sense website. www.taxpayer.net/greenscissors/LearnMore/senatefossilfuelsubsidies.htm
  4. “Report: global Wind Power Base Expected to Triple by 2015” (November 2007), North American Windpower. www.nawindpower.com/naw/e107_plugins/content/content_lt.php?content.1478

Enhancing Energy Efficiency and Security for Sustainable Development

The United States Energy Association (USEA) is a private, nongovernmental organization that functions as the U.S. member committee of the World Energy Council (WEC), the foremost international organization focused on the production and utilization of energy. With members in more than 100 countries, the mission of the WEC, and correspondingly the USEA, has been to promote the sustainable supply and use of energy for the greatest benefit of all people.

The World Energy Council’s flagship is the WEC Congress, which meets every three years. The Congress helps establish how the global energy community looks at the world as well as how we impact that world. When the United States had the privilege of hosting the global energy community 10 years ago in Houston, it promoted the following theme: “Energy and Technology: Sustaining Global Development into the Next Millennium.” The most recent Congress, which took place in Italy in November of last year, centered on “The Energy Future in an Interdependent World.” One can easily see how the WEC’s combined objectives of energy efficiency and energy security – particularly in the context of collaborative action to mitigate climate change – have become critical global issues.

KEY CONCERNS

Efficiency, security and climate are being emphasized in WEC scenarios that project key global energy concerns to the year 2050. The critical factors that will drive energy issues into the future will include the following:

  • Technology;
  • Markets;
  • Sustainability; and
  • Interdependence.

It’s clear that we need to advance research into and development of energy sources; however, it’s even more urgent that we support the demonstration and deployment of advanced clean energy technologies. Currently, policymakers are paying considerable attention to consumer use of energy in buildings and transportation, and they are evaluating alternative technologies to meet these consumer demands. Equally important but often overlooked are the advances our industry has made, and hopefully will continue to make, in energy efficiency through technological improvements in production.

Research from the Electric Power Research Institute indicates that coal-fired electric power plants that achieve a 2 percent gain in efficiency can yield a carbon dioxide (CO2) reduction of 5 percent. Hence, if we can move the rating of the global coal-fired power fleet from about 30 percent efficiency to 40 percent, we can realize a CO2 reduction of 25 percent. And this is without carbon capture and storage.

It’s also critically important for energy technology deployment to address the nontechnical barriers to advancing clean energy technologies. Barriers to energy efficiency and energy services trade need to be discussed by the World Trade Organization, since robust trade is essential to ensuring that energy-efficiency technologies cross borders freely. Trade barriers such as tariffs, taxes, customs and import fees need to be eliminated. As World Energy Council Secretary General Gerald Doucet recently pointed out in the International Herald Tribune, “A recent U.S. and EU proposal calling for the elimination of tariffs on a list of 43 environmentally friendly products shows how support is building for a trade-based approach to climate mitigation.”

Perhaps most importantly, the global community must address the issue of the cost of advanced, clean energy technology. Trade barriers, capacity building, tariff reform and other issues can be overcome. However, if we refuse to recognize that advanced clean energy technology will cost more and make energy prices rise for the end-user, we’re refusing to address the real issues – namely, who will pay the incremental cost of advanced technology, and will it be the economically deprived end-user in a developing country?

This is not to say that the non-financial barriers to sustainable energy development are unimportant. Collectively, we still need increased focus on enforcement of contracts, protection of intellectual property, rule of law, protection of assets from seizure and the range of requirements needed to provide incentives for capital, especially foreign investment.

however, markets can only do so much; markets are imperfect, and market failures occur. Coordinated global cooperation – among governments and between governments and the private sector – is critical, particularly to address efficiency, security and climate concerns.

SUSTAINABLE REALITIES

Sustainability remains an elusive goal for many, because it’s not particularly clear how to go about both growing economies and protecting the planet for future generations. What is clear is that climate change must be addressed in an approach that is practical, economic and achievable. For our industry, achievable policy includes political realities. All industries are affected by domestic politics, but in most countries, the energy industry is dramatically influenced by local political concerns.

The move toward sustainability will also have an impact on the 1.5 billion people without access to commercial energy and the 1.5 billion with inadequate access. hopefully, no one believes that sustainability means denying the benefits of modern society to those who are unserved or under-served today. We must find ways to work toward ending economic and energy poverty for hundreds of millions of people around the globe. This calls for new approaches that continue to allow economic development while addressing both local environmental issues and global issues such as climate change.

AN INTERDEPENDENT WORLD

The concept of energy interdependence helps us recognize that very few nations are today – or ever will be – truly “energy independent.” Much of the rhetoric regarding the energy independence of the United States and other nations is, in fact, vague and not based on reality. Thus, it’s critical to expose this fantasy for what it is: wishful thinking. Interdependence is the ally, not the enemy, of energy security.

As Rex Tillerson, chairman and CEO of Exxon-Mobil, pointed out in his keynote address to the World Energy Congress in Rome in November 2007, the world needs to avoid “the danger of resources nationalism.” he also stressed the need to “ensure that the global energy markets and international partnerships do not fall apart.” In the United States in 2008, domestic consumption will continue to exceed domestic production. We will import more petroleum (about 60 percent of our petroleum is now imported) and increasingly more natural gas.

WORKING TOWARD A SUSTAINABLE FUTURE

Construction of critical energy supply infrastructure presents a huge challenge. As we begin 2008 in the United States, it’s critical that we recognize that all energy supply options – coal, nuclear, natural gas, petroleum and renewable – have severe constraints. This recognition must lead us to declare energy efficiency as Priority No. 1 for energy and economic security, and climate mitigation.

While we have done much in the United States to pursue efficiency, we still need to do more, including:

  • Increasing the utilization of combined heat and power applications;
  • Further improving efficiency standards;
  • Improving land use and transportation planning;
  • Providing incentives for efficiency investments; and
  • Decoupling regulated utility returns from sales.

On an international level, we must continue to:

  • Pursue energy efficiency in both supply and demand (increasing both end-use efficiency and production efficiency);
  • Decarbonize electricity (moving toward emissions-free power by mid-century);
  • Contain growth in transportation emissions and develop carbon-free alternatives; and
  • Support major collaborative efforts on technology development and deployment such as Asia-Pacific Partnership on Clean Development and Climate, International Partnership for the hydrogen Economy, Carbon Sequestration Leadership Forum, and Major Economies Process for Energy Security and Climate Change.

The trilateral issues of energy efficiency, energy security and climate change are reflected in all of our international partnerships. Nevertheless, much more international collaboration will be needed to speed the deployment of energy efficiency technologies.

As we think about energy efficiency, security and climate, it’s critical for us to remember the following:

  • No single source, technology, policy or strategy can meet the challenges we face. All energy options should be left on the table. No “one size fits all” solution exists.
  • No single approach will work everywhere. Different measures will be useful, and each economy or nation will consider the options that work for them. A range of measures is available, and actions must be selected that are appropriate to each circumstance.

The key for the global community will be to encourage each sovereign economy to put in place policies that support longterm investment in clean energy technology. International cooperation among governments, and between governments and the private sector, is essential. The focal points of international cooperation should stress energy efficiency (in both supply and demand), decarbonizing electric power (while recognizing that the world will continue to rely on fossil fuels, particularly coal for power generation) and reducing the growth – and eventually the level – of emissions from transportation.

Finally, but perhaps most importantly, we must continue to push for a coordinated, international effort in advanced technology demonstration and deployment. The international partnerships cited early are useful tools, but we can and must do more.