It''s Time to Break the Gridlock by Chris Trayhorn, Publisher of mThink Blue Book, January 15, 2002 The Power Grid: Platform for Competition The first step toward ensuring a healthy power sector is a simple affirmation: the grid plays a central, indeed indispensable, role in our society. Long accepted as self-evident, this assumption has been challenged in recent years. Some have seen in technological change the possibility that the grid will be made as obsolete as the canals and streetcar railways of previous eras. Like many myths, this one is rooted in fact — the growing importance of smaller-scale generating technologies. Yet the adoption of smaller-scale, more diverse forms of generation will not eliminate the need for a highly reliable grid interconnecting all supplies and customers. The role of the grid will only increase as our reliance on electricity grows — both proportionately and absolutely — over time. The network benefits afforded by the grid — including shared reserves, higher reliability and expanded fuel diversity — have been under recognized because of several factors: • The relatively small size of the transmission sector — which represents approximately 8 percent of the traditional rate base • Preoccupation with stranded cost recovery — for much of the past decade, this threat diverted the industry’s attention from the need for long-term grid expansion • Environmental opposition to transmission line siting — which has led many to look for a way to sidestep the need to expand the grid. Distributed generation (DG) technologies can meet certain customer requirements — e.g., off-grid power, cogeneration, and redundancy or “high-nines” reliability — but it is simplistic to look to DG for system-level reliability solutions. Weighing all relevant attributes (e.g., capital costs, thermal efficiencies, ease of siting, environmental emissions and availability), DG lags far behind the state-of-the-art bulk generators that feed the grid. Obstacles to widespread DG deployment will be especially severe in dense urban centers, given such considerations as real estate, noise, air quality and fuel availability. High-nines DG-based reliability strategies typically rely upon a backup connection to (and assume the existence of) a highly reliable grid. None but the most costly and redundant of these strategies is as reliable as today’s power network. While consumers are unlikely to sever their grid connections any time soon, the spread of DG will require and enable new modes of grid operation. The 20th Century hierarchical, centrally- controlled system will be supplanted by an intelligent, highly interactive 21st Century system based on a rich two-way flow of information. Yet, a strong, robust grid will remain the indispensable backbone of power distribution— providing reliability, mitigating market power, and supporting robust competition. Remote resources (e.g., wind, solar and next- generation nuclear technology) will not gain wide acceptance without access to such a system. The fortunes of various supply resources will rise and fall as technologies and fuel markets evolve. All customers and all types of generation technology will benefit from connection to a strong grid. Affirming the role of the grid is a necessary first step to mobilizing the level of investment needed to re-invigorate this critical public infrastructure. New Grid Technologies: The Key to Breaking the Bottleneck Several factors — rising demand, digital-age reliability needs, and stringent siting limitations — are forcing the need for new solutions to power delivery challenges. Power needs are becoming most difficult to satisfy in developed areas, where demand is growing most rapidly. Our society simply cannot afford to have grid expansions held hostage to objections based on the environmental, aesthetic and speculative health impacts of overhead transmission lines. New technologies will be required to overcome our current physical and material limitations and meet tomorrow’s demands. Fundamental advances in two fields of materials science — superconductivity and semi conductor-based power electronics — are now yielding concrete solutions to the nation’s pressing power delivery problems. Semiconductors, long used in low-voltage consumer electronics, are now serving high-voltage power applications, adding intelligence and control to passively-operated grids and improving their overall stability. Meanwhile, revolutionary breakthroughs during the late 1980s in ceramics-based high-temperature superconductivity (HTS) have resulted in the first quantum advance in the power industry’s most basic building block: wire itself. Capable of carrying well over 100 times more current than copper wires of comparable size, HTS wire is now being commercialized in applications to increase the grid’s thermal capacity. Superconductivity is a basic property of materials that causes them to lose all resistance to the flow of electrons at cryogenic temperatures. It enables superconducting wire to carry vastly larger currents than standard copper or aluminum conductors. The advent of high-temperature superconductivity makes it economic to exploit this phenomenon in power grid applications. The complete elimination of resistive losses in superconducting coils, meanwhile, makes it possible to store power indefinitely, and discharge it instant aneously, assuring consistent line voltage. These unique properties enable a new generation of power system components that are far more compact, powerful, efficient and reliable than their conventional counterparts: SMES One of the most effective strategies to improve the reliability of the grid lies in making fuller use of the inherent, but currently unusable, thermal capacity of existing lines. Prudent operating practice requires that power flows over many lines be held under “stability limits,” which can be well below the full thermal potential of the line. In fact, the average line in the United States operates at no more than 30-35 percent of its thermal potential. These operating limits ensure that grids maintain enough slack capacity to withstand unplanned generator and line outages. Otherwise, the sudden redirection of massive power flows could put grids at risk of wide-area instability and cascading failure. Distributed Superconducting Magnetic Energy Storage, or D-SMES systems, make use of powerful superconducting storage coils to neutralize these disturbances. These systems integrate magnetic coils with soph isticated electronics in a mobile, trailerized package. Devices are installed at key nodes on a transmission grid. When voltage drops affect the area, D-SMES devices rapidly invert this stored DC current and inject it into the three-phase AC grid, effectively dampening out disturbances quickly and close to their source. Distributed system architecture stabilizes the weak parts of a grid, often making it possible to operate the entire network at significantly higher loading levels and at very low incremental cost. The small scale, modularity and mobility of D-SMES devices make for easy siting, installation and relocation as system needs change, negate the risk of strandable investment and facilitate planning in an era of uncertainty. This new tool is being used by leading grid operators including Wisconsin’s American Transmission Company, Entergy Gulf States, and the Tennessee Valley Authority. HTS Cable High-capacity, ceramics-based HTS wire forms the basis for a new type of cable that can carry three to five times more power than conventional underground cable, overcoming the thermal limitations that form the ultimate limit to power transfers through congested conduits and rights-of-way. Ultimately, convent ional power lines and cables are limited by the inherent thermal resistance properties of copper and aluminum conductors. Violating these limits causes lines and cables to overheat, prematurely age, and ultimately fail. Cables employing high-capacity superconducting wire can break this thermal bottleneck. Initial demonstrations are underway in the United States, Europe and Japan. The dramatically higher capacity of the new cable will enable urban distribution utilities to multiply the capacity of conduit systems under crowded city streets. Beginning with dense urban centers, the HTS cable opportunity is expected to expand quickly to suburban transmission lines. In time, HTS cable will be employed for longer-distance transmission in environmentally sensitive areas where underground routing is necessitated. Higher-voltage transmission cables, employing coaxial design, will completely eliminate electromagnetic fields and offer transmission providers a way to enlarge grid capacity with virtually no environmental impact. Today’s grid operators face stringent customer demands and operational constraints that force new approaches to power system design. While the role of new technology is embraced in power generation (supply) and customer load control (demand), the industry has focused less attention on strategies to modernize the delivery network itself — the fulcrum that keeps the forces of supply and demand in balance. New materials are forming the basis for a new generation of grid tech nology to meet this challenge. New Operating Superconductor Technologies: System-Level Benefits A third imperative facing the power delivery sector is the need to adopt innovative approaches to network design and operation that best take advantage of these new technologies. Traditional system design (large, central generating stations that feed high- voltage transmission lines and urban distribution substations) is becoming harder to implement in many areas due to voltage, equipment and space limitations. More flexible, lower-impact approaches to power system design are required. Advanced grid technologies can boost grid performance while actually shrinking the system’s physical footprint. Some examples include: HTS Cable in Urban Distribution Some of the earliest applications of superconducting cable are expected to be in urban systems which are afflicted by overloads and physical failures. Some likely examples: • Virtual Bus — High-current, low-voltage cables will offer a new way to deliver large amounts of power to dense urban loads, displacing the need for step-down transformers that often occupy high-value parcels in urban core districts. • Electricity Ring Road — Underground HTS cables encircling urban cores could link substations that surround urban centers. This strategy will enable urban distribution utilities serving dense “load pockets” to use spare substation capacity, boost overall system reliability, and improve customers’ access to competitive supply options. • Transformer elimination — As HTS networks are built out, entire grids could operate at lower voltages, obviating the need for step-up and step-down trans formers that impose electrical losses, failure modes and environmental risks. HTS Cable in Transmission Over time, HTS cable will find application in longer-distance transmission as well: • Suburban transmission — Placement of overhead lines in compact underground corridors will open valuable parcels for linear parks and new, higher-value forms of real estate development. Increased values generated by underground emplacement could provide the means of funding these conversions. • Promoting economic dispatch — Unclogging transmission grids with high-capacity HTS cables could make wide-area power markets more competitive, cutting reliance on dirty, inefficient “reliability must-run” generation. Generation-related air quality benefits and energy savings will accrue above and beyond — and likely far in excess of — the reduced transmission losses associated with high-efficiency super conducting cables. • Connecting remote resources — Many prospective post-fossil supply resources (e.g., wind, tidal, solar and next-generation nuclear) will be sited at great distances from urban load centers, requiring access to a high-capacity transmission network. • DC “National Grid” — A truly national power grid, integrating and overlaying today’s patchwork of asynchronous, regional AC grids, could move large blocks of power regionally, obviating tens of billions of dollars of generation investment simply to meet regional reserve targets. Ultra-efficient superconducting DC cables could enable adoption of this strategy in environmentally sensitive areas. Distributed SMES The very cheapest transmission capacity is the capacity that already exists but cannot be used, due to stability limitations. Wider use of D-SMES technology could help grid operators to tackle some difficult challenges: • Increase load serving capability — This approach can enable many utilities to increase deliveries over existing lines without adding new thermal capacity. • Speed interconnection of new generators — Uncertainty about the sequencing of new generator additions complicates planning for grid expansions. D-SMES can be used to reconfigure transmission grids on an annual basis and with minimal environmental impact. • Accommodate plant retirement — Conversely, economically- and environmentally-driven retirements of older generators will often create transmission stability problems. In many cases, D-SMES can be used to provide “just-in-time” transmission capacity and facilitate more orderly long-term planning. • Enhanced trading liquidity — Third-party investments in D-SMES can result in increased capacity at key nodes on a grid, allowing the development of more competitive power-trading markets. Environmental, cost and competitive pressures are driving transmission and distribution companies toward new solutions, especially approaches that are modular, flexible and low-impact. New technologies will enable a range of new strategies to meet these challenges. Need for Regulatory Reform Rehabilitation of the power grid hinges on a fourth imperative: the need to reverse basic financial and regulatory disincentives that deter expansion of today’s grid. For too long, under cost-based monopoly-style regulation, regulators have viewed transmission as a “bad” that imposes external costs, the need for which should be minimized. However, transmission is a vital public “good” that needs to be encouraged — but through approaches that limit or eliminate adverse external impacts. Competitive market operation will improve, and consumers will benefit, under conditions of abundant grid capacity instead of chronic grid congestion. In reality, the rational incentive under today’s framework is to maintain grids in a congested state. Consider the following: • In the past, under traditional regulation, vertically-integrated monopoly utilities had reason to invest in their own system to ensure sufficient capacity to deliver power from their own generating resources to their own customers. • Many wires-only utilities earn only a tariff rate on transmission volumes and are indifferent to customer congestion costs. Under locational marginal pricing, some utilities can earn far more by selling scarce transmission capacity across their system than by investing in regulated transmission assets to relieve the constraint. • Long-term T&D rate freezes, implemented in some states during the restructuring process, further depress this incentive — they offer utilities zero equity return on any new grid investments through the term of the agreement. • Vertically-integrated utilities operating in partially deregulated environments can actually face a negative incentive to invest in their grids; it may be more profitable to take advantage of congestion through non-regulated generation and trading activities than to solve congestion through regulated grid investments. If customers are to enjoy the benefits of robust competition and reliability, regulators must reverse these disincentives and assure adequate capital flows into the T&D sector. Creation of truly independent transmission entities under the FERC’s Order 2000 initiative will go partway toward curing this disincentive. Beyond jurisdictional and governance reforms, it is necessary to foster basic economic incentives to invest in the grid. Rather than reward the arbitrage of scarce capacity, regulation should reward the creation of sufficient or even ample capacity — which dampens volatility and diminishes the arbitrage value of transmission rights. Rather than congestion management, regulatory reform must aim at congestion mitigation and relief. As a starting point, U.S. regulators should examine the use of performance-based regulation, such as revenue-sharing mechanisms that reward efforts to mitigate congestion. This approach has worked extremely well in the United Kingdom, which a decade ago experienced and solved congestion problems very similar to those now plaguing many areas of the United States. Beyond performance-based ratemaking, however, the long-term solution to the problem of inadequate transmission is to revisit a basic assumption: due to the size, scale and operational characteristics of grid facilities, transmission is and shall remain a “natural monopoly.” The monopoly approach has failed to induce needed investment for some time and, moreover, is undermined by technological change. Unlike conventional AC lines, many new transmission technologies have linear economics, benign or minimal environmental impacts, and use controllable power flows that can be isolated and assigned clear property rights. Under a truly competitive framework, these technologies could attract investment capital on a purely at-risk basis without recourse to captive ratepayers and the need for regulation. Indeed, competition in physical network elements has been the path favored by Congress and regulatory bodies in the case of other network industries, such as telecommunications, natural gas transmission and airline travel. The success of competitive reforms in these industries has hinged on the success of efforts to encourage competition in the physical network itself — e.g., the pipelines, optical fiber routes and airport landing gates that make facilities-based competition possible. Incursions by the new entrants (the MCIs) force the incumbents (the AT&Ts) to invest in their own networks; this competitive dynamic drives increased capacity, improved reliability and broader customer choice. In the long term, competition in power transmission will provide the model that will best attract needed capital investment. Over the past decade, Congress has succeeded in fostering robust competition in power generation through the creation of a new regulatory framework for “Exempt Wholesale Generators.” In the coming decade, Congress can likewise foster competitive entry and innovation in power transmission through a similar framework for “Exempt Transmission Facilities.” Now is the time to explore frameworks under which qualifying power transmission technologies (e.g., technologies with low environmental impacts and controllable impacts on AC power flows) might be made eligible for some form of light-handed regulatory treatment (e.g., deregulated rates, streamlined siting, relief from open access requirements). Conclusion In today’s digital age, electric power provides our nation’s economic lifeblood. The importance of electricity in our economy is growing steadily — from 15 percent of end-use energy requirements in 1950, electricity has grown to a 40 percent share today and is projected by EPRI to take a 60-70 percent share of end-use energy by 2050. The importance of ensuring reliable, competitively-priced supplies simply cannot be overstated. The stalemate in efforts to restructure the industry is not just politically frustrating — it is economically dangerous. Despite these current difficulties, a much brighter future for power consumers and other industry stakeholders is entirely possible. To reach this goal, however, the industry and its regulators must recognize and act upon the facts and imperatives outlined in this paper: 1. Electric power is, and will remain, a network-based industry under any plausible industry restructuring scenario. 2. Limitations in existing technologies and materials will force the industry to adopt new technologies. Traditional solutions can no longer be forced upon an unwilling public. 3. New operating strategies and designs will likewise become necessary. New technologies offer the opportunity to redesign and adapt power systems in ways that will leverage and multiply the efficiency and reliability benefits of individual components. 4. New regulatory approaches to transmission are necessary. In the near term, performance-based regulation can be used to link utilities’ earnings to key indices, e.g., reliability and congestion mitigation. In the longer term, open facilities-based competition may be the best solution. Throughout virtually every other sector of our nation’s economy, competition is accepted as the most proven and reliable tool to attract investment and innovation. The time has come to consider a truly competitive framework for the power grid itself. Private investors will bring both capital resources and imagination, seeking opportunities to improve power flows with state-of-the-art technology — driving improvements in both network capacity and overall reliability. With such a truly competitive framework in place, the consumer will emerge the winner. Filed under: White Papers Tagged under: Utilities About the Author Chris Trayhorn, Publisher of mThink Blue Book Chris Trayhorn is the Chairman of the Performance Marketing Industry Blue Ribbon Panel and the CEO of mThink.com, a leading online and content marketing agency. He has founded four successful marketing companies in London and San Francisco in the last 15 years, and is currently the founder and publisher of Revenue+Performance magazine, the magazine of the performance marketing industry since 2002.