Warren B. Causey – UtilitesDB

Power and Patience

The U.S. utility industry – particularly the electric-producing branch of it, there also are natural gas and water utilities – has found itself in a new, and very uncomfortable, position. Throughout the first quarter of 2009 it was front and center in the political arena.

Politics has been involved in the U.S. electric generation and distribution industry since its founding in the late 19th Century by Thomas Edison. Utilities have been regulated entities almost since the beginning and especially after the 1930s when the federal government began to take a much greater role in the direction and regulation of private enterprise and national economics.

What is new as we are about to enter the second decade of the 21st Century is that not only is the industry being in large part blamed for a newly discovered pollutant, carbon dioxide, which is naturally ubiquitous in the Earth’s atmosphere, but it also is being tasked with pulling the nation out of its worst economic recession since the Great Depression of the 1930s. Oh, and in your spare time, electric utilities, enable the remaking of the automobile industry, eliminate the fossil fuels which you have used to generate ubiquitous electricity for 100 years, and accomplish all this while remaining fiscally sound and providing service to all Americans. Finally, please don’t make electricity unaffordable for the majority of Americans.

It’s doubtful that very many people have ever accused politicians of being logical, but in 2009 they seem to have decided to simultaneously defy the laws of physics, gravity, time, history and economics. They want the industry to completely remake itself, going from the centralized large-plant generation model created by Edison to widely dispersed smaller-generation; from fossil fuel generation to clean “renewable” generation; from being a mostly manually controlled and maintained system to becoming a self-healing ubiquitously digitized and computer-controlled enterprise; from a marginally profitable (5-7 percent) mostly privately owned system to a massive tax collection system for the federal government.

Is all this possible? The answer likely is yes, but in the timeframe being posited, no.

Despite political co-option of the terms “intelligent utility” and “smart grid” in recent times, the electric utility industry has been working in these directions for many years. Distribution automation (DA) – being able to control the grid remotely – is nothing new. Utilities have been working on DA and SCADA (supervisory control and data acquisition) systems for more than 20 years. They also have been building out communications systems, first analog radio for dispatching service crews to far-flung territories, and in recent times, digital systems to reach all of the millions of pieces of equipment they service. The terms themselves were not invented by politicians, but by utilities themselves.

Prior to 2009, all of these concepts were under way at utilities. WE Energies has a working “pod” of all digital, self-healing, radial-designed feeders that works. The concept is being tried in Oklahoma, Canada and elsewhere. But the pods are small and still experimental. Pacific Gas and Electric, PEPCO and a few others have demonstration projects of “artificial intelligence” on the grid to automatically switch power around outages. TVA and several others have new substation-level servers that allow communications with, data collection from and monitoring of IEDs (Intelligent electrical devices) while simultaneously providing a “view” into the grid from anywhere else in the utility, including the boardroom. But all of these are relatively small-scale installations at this point. To distribute them across the national grid is going to take time and a tremendous amount of money. The transformation to a smart grid is under way and accelerating. However, to this point, the penetration is relatively small. Most
of the grid still is big and dumb.

Advanced metering infrastructure (AMI) actually was invented by utilities, although vendors serving the industry have greatly advanced the art since the mid-1990s. Utilities installed earlier-generation AMI, called automated meter reading (AMR) for about 50 percent of all customers, although the other 50 percent still were being read by meter readers traipsing through people’s yards.

AMI, which allows two-way communications with the meters (AMR is mostly one-way), is advancing rapidly, but still has reached less than 20 percent of American homes, according to research by AMI guru Howard Scott and Sierra Energy Group, the research and analysis division of Energy Central. Large-scale installations by Southern Company, Pacific Gas and Electric, Edison International and San Diego Gas and Electric, are pushing that percentage up rapidly in 2009, and other utilities were in various stages of pilots. The first installation of a true two-way metering system was at Kansas City Power & Light Co. (now Great Plains Energy) in the mid-1990s.

So the intelligent utility and smart grid were under development by utilities before politicians got into the act. However, the build-out was expected to take perhaps 30 years or more before completed down to the smallest municipal and co-operative utilities. Many of the smaller utilities haven’t even started pilots. Xcel Energy, Minneapolis, is building a smartgrid model in one city, Boulder, Col., but by May, 2009, two of the primary architects of the effort, Ray Gogel and Mike Carlson, had left Xcel. Austin Energy has parts of a smart grid installed, but it still reaches only a portion of Austin’s population and “home automation” reaches an even smaller proportion.

There are numerous “paper” models existent for these concepts. One, developed by Sierra Energy Group more than three years ago, is shown in Figure 1.

Major other portions of what is being envisioned by politicians have yet to be invented or developed. There is no reasonably priced, reasonably practical electric car, nor standardized connection systems to re-charge them. There are no large-scale transmission systems to reach remote windmill farms or solar-generating facilities and there is large-scale resistance from environmentalists to building such transmission facilities. Despite some political pronouncements, renewable generation, other than hydroelectric dams, still produces less than 3 percent of America’s electricity and that percentage is climbing very slowly.

Yes, the federal government was throwing some money at the build-out in early 2009, about $4 billion for smart grid and some $30-$45 billion at renewable energy. But these are drops in the bucket to the amount of money – estimated by responsible economists at $3 trillion or more – required just to build and replace the aging transmission systems and automate the grid. This is money utilities don’t have and can’t get without making the cost of electricity prohibitive for a large percentage of the population. Despite one political pronouncement, windmills in the Atlantic Ocean are not going to replace coal-fired generation in any conceivable time frame, certainly not in the four years of the current administration.

Then, you have global warming. As a political movement, global warming serves as a useful stick to the carrot of federal funding for renewable energy. However, the costs for the average American of any type of tax on carbon dioxide are likely to be very heavy.

In the midst of all this, utilities still have to go to public service commissions in all 50 states for permission to raise rates. If they can’t raise rates – something resisted by most PSCs – they can’t generate the cash to pay for this massive build-out. PSC commissioners also are politicians, by the way, with an average tenure of only about four years, which is hardly long enough to learn how the industry works, much less how to radically reconfigure it in a similar time-frame.

Despite a shortage of engineers and other highly skilled workers in the United States, the smart grid and intelligent utilities will be built in the U.S. But it is a generational transformation, not something that can be done overnight. To expect the utility industry to gear up to get all this done in time to “pull us out” of the most serious recession of modern times just isn’t realistic – it’s political. Add to the scale of the problem political wrangling over every concept and every dollar, mix in a lot of government bureaucracy that takes months to decide how to distribute deficit dollars, and throw in carbon mitigation for global warming and it’s a recipe for disaster. Expect the lights to start flickering along about…now. Whether they only flicker or go out for longer periods is out of the hands of utilities – it’s become a political issue.

The Distributed Utility of the (Near) Future

The next 10 to 15 years will see major changes – what future historians might even call upheavals – in the way electricity is distributed to businesses and households throughout the United States. The exact nature of these changes and their long-term effect on the security and economic well-being of this country are difficult to predict. However, a consensus already exists among those working within the industry – as well as with politicians and regulators, economists, environmentalists and (increasingly) the general public – that these fundamental changes are inevitable.

This need for change is in evidence everywhere across the country. The February 26, 2008, temporary blackout in Florida served as just another warning that the existing paradigm is failing. Although at the time of this writing, the exact cause of that blackout had not yet been identified, the incident serves as a reminder that the nationwide interconnected transmission and distribution grid is no longer stable. To wit: disturbances in Florida on that Tuesday were noted and measured as far away as New York.

A FAILING MODEL

The existing paradigm of nationwide grid interconnection brought about primarily by the deregulation movement of the late 1990s emphasizes that electricity be generated at large plants in various parts of the country and then distributed nationwide. There are two reasons this paradigm is failing. First, the transmission and distribution system wasn’t designed to serve as a nationwide grid; it is aged and only marginally stable. Second, political, regulatory and social forces are making the construction of large generating plants increasingly difficult, expensive and eventually unfeasible.

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 neither designed for the purpose nor serves it adequately. Although the existing grid can be improved, the expense would be massive, and probably cost prohibitive. Knowledgeable industry insiders, in fact, calculate that it would cost more than the current market value of all U.S. utilities combined to modernize the nationwide grid and replace its large generating facilities over the next 30 years. Obviously, the paradigm is going to have to change.

While the need for dramatic change is clear, though, what’s less clear is the direction that change should take. And time is running short: North American Electric Reliability Corp. (NERC) projects serious shortages in the nation’s electric supply by 2016. Utilities recognize the need; they just aren’t sure which way to jump first.

With a number of tipping points already reached (and the changes they describe continuing to accelerate), it’s easy to envision the scenario that’s about to unfold. Consider the following:

The United States stands to face a serious supply/demand disconnect within 10 years. Unless something dramatic happens, there simply won’t be nearly enough electricity to go around. Already, some parts of the country are feeling the pinch. And regulatory and legislative uncertainty (especially around global warming and environmental issues) makes it difficult for utilities to know what to do. Building new generation of any type other than “green energy” is extremely difficult, and green energy – which currently meets less than 3 percent of U.S. supply needs – cannot close the growing gap between supply and demand being projected by NERC. Specifically, green energy will not be able to replace the 50 percent of U.S. electricity currently supplied by coal within that 10-year time frame.
Fuel prices continue to escalate, and the reliability of the fuel supply continues to decline. In addition, increasing restrictions are being placed on fuel selection, especially coal.
A generation of utility workers is nearing retirement, and finding adequate replacements among the younger generation is proving increasingly difficult.
It’s extremely difficult to site new transmission – needed to deal with supply-and-demand issues. Even new Federal Energy Regulatory Commission (FERC) authority to authorize corridors is being met with virulent opposition.

SMART GRID NO SILVER BULLET

Distributed generation – including many smaller supply sources to replace fewer large ones – and “smart grids” (designed to enhance delivery efficiency and effectiveness) have been posited as solutions. However, although such solutions offer potential, they’re far from being in place today. At best, smart grids and smarter consumers are only part of the answer. They will help reduce demand (though probably not enough to make up the generation shortfall), and they’re both still evolving as concepts. While most utility executives recognize the problems, they continue to be uncertain about the solutions and have a considerable distance to go before implementing any of them, according to recent Sierra Energy Group surveys.

According to these surveys, more than 90 percent of utility executives now feel that the intelligent utility enterprise and smart grid (IUE/SG) – that is, the distributed utility – represents an inevitable part of their future (Figure 1). This finding was true of all utility types supplying electricity.

Although utility executives understand the problem and the IUE/SG approach to solving part of it, they’re behind in planning on exactly how to implement the various pieces. That “planning lag” for the vision can be seen in Figure 2.

At least some fault for the planning lag can be attributed to forces outside the utilities. While politicians and regulators have been emphasizing conservation and demand response, they’ve failed to produce guidelines for how this will work. And although a number of states have established mandatory green power percentages, Congress failed to do the same in an Energy Policy Act (EPACT) adopted in December 2007. While the EPACT of 2005 “urged” regulators to “urge” utilities to install smart meters, it didn’t make their installation a requirement, and thus regulators have moved at different speeds in different parts of the country on this urging.

Although we’ve entered a new era, utilities remain burdened with the internal problems caused by the “silo mentality” left over from generations of tight regulatory control. Today, real-time data is often still jealously guarded in engineering and operations silos. However, a key component in the development of intelligent utilities will be pushing both real-time and back-office data onto dashboards so that executives can make real-time decisions.

Getting from where utilities were (and in many respects still are) in the last century to where they need to be by 2018 isn’t a problem that can be solved overnight. And, in fact, utilities have historically evolved slowly. Today’s executives know that technological evolution in the utility industry needs to accelerate rapidly, but they’re uncertain where to start. For example, should you install an advanced metering structure (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, simpler instructions) to field crews who soon will be much younger and less experienced? Do you rush into home automation? Do you build windmills and solar farms? Utilities have neither the financial nor human resources to do everything at once.

THE DEMAND FOR AMI

Its name implies that a smart grid will become increasingly self-operating and self-healing – and indeed much of the technology for this type of intelligent network grid has been developed. It has not, however, been widely deployed. Utilities, in fact, have been working on basic distribution automation (DA) – the capability to operate the grid remotely – for a number of years.

As mentioned earlier, most theorists – not to mention politicians and regulators – feel that utilities will have to enable AMI and demand response/home automation if they’re to encourage energy conservation in an impending era of short supplies. While advanced meter reading (AMR) has been around for a long time, its penetration remains relatively small in the utilities industry – especially in the case of advanced AMI meters for enabling demand response: According to figures released by Sierra Energy Group and Newton-Evans Research Co., only 8 to 10 percent of this country’s utilities were using AMI meters by 2008.

That said, the push for AMI on the part of both EPACT 2005 and regulators is having an obvious effect. Numerous utilities (including companies like Entergy and Southern Co.) that previously refused to consider AMR now have AMI projects in progress. However, even though an anticipated building boom in AMI is finally underway, there’s still much to be done to enable the demand response that will be desperately needed by 2016.

THE AUTOMATED HOME

The final area we can expect the IUE/SG concept to envelope comes at the residential level. With residential home automation in place, utilities will be able to control usage directly – by adjusting thermostats or compressor cycling, or via other techniques. Again, the technology for this has existed for some time; however, there are very few installations nationwide. A number of experiments were conducted with home automation in the early- to mid-1990s, with some subdivisions even being built under the mantra of “demand-side management.”

Demand response – the term currently in vogue with politicians – may be considered more politically correct, but the net result is the same. Home automation will enable regulators, through utilities, to ration usage. Although politicians avoid using the word rationing, if global warming concerns continue to seriously impact utilities’ ability to access adequate generation, rationing will be the result – making direct load control at the residential level one of the most problematic issues in the distributed utility paradigm of the future. Are large numbers of Americans going to acquiesce calmly to their electrical supply being rationed? No one knows, but there seem to be few options.

GREEN PRESSURE AND THE TIPPING POINT

While much legitimate scientific debate remains about whether global warming is real and, if so, whether it’s a naturally occurring or man-made phenomenon (arising primarily from carbon dioxide emissions), that debate is diminishing among politicians at every level. The majority of politicians, in fact, have bought into the notion that carbon emissions from many sources – primarily the generation of electricity by burning coal – are the culprit.

Thus, despite continued scientific debate, the political tipping point has been reached, and U.S. politicians are making moves to force this country’s utility industry to adapt to a situation that may or may not be real. Whether or not it makes logical or economic sense, utilities are under increasing pressure to adopt the Intelligent Utility/Smart Grid/Home Automation/Demand Response model – a model that includes many small generation points to make up for fewer large plants. This political tipping point is also shutting down more proposed generation projects each month, adding to the likely shortage. Since 2000, approximately 50 percent of all proposed new coal-fired generation plants have been canceled, according to energy-industry adviser Wood McKenzie (Gas and Power Service Insight, February 2008).

In the distant future, as technology continues to advance, electric generation in the United States will likely include a mix of energy sources, many of them distributed and green. however, there’s no way that in the next 10 years – the window of greatest concern in the NERC projections on the generation and reliability side – green energy will be ready and available in sufficient quantities to forestall a significant electricity shortfall. Nuclear energy represents the only truly viable solution; however, ongoing opposition to this form of power generation makes it unlikely that sufficient nuclear energy will be available within this period. The already-lengthy licensing process (though streamlined somewhat of late by the Nuclear Regulatory Commission) is exacerbated by lawsuits and opposition every step of the way. In addition, most of the necessary engineering and manufacturing processes have been lost in the United States over the last 30 years – the time elapsed since the last U.S. nuclear last plant was built – making it necessary to reacquire that knowledge from abroad.

The NERC Reliability Report of Oct. 15, 2007, points strongly toward a significant shortfall of electricity within approximately 10 years – a situation that could lead to rolling blackouts and brownouts in parts of the country that have never experienced them before. It could also lead to mandatory “demand response” – in other words, rationing – at the residential level. This situation, however, is not inevitable: technology exists to prevent it (including nuclear and cleaner coal now as well as a gradual development of solar, biomass, sequestration and so on over time, with wind for peaking). But thanks to concern over global warming and other issues raised by the environmental community, many politicians and regulators have become convinced otherwise. And thus, they won’t consider a different tack to solving the problem until there’s a public outcry – and that’s not likely to occur for another 10 years, at which point the national economy and utilities may already have suffered tremendous (possibly irreparable) harm.

WHAT CAN BE DONE?

The problem the utilities industry faces today is neither economic nor technological – it’s ideological. The global warming alarmists are shutting down coal before sufficient economically viable replacements (with the possible exception of nuclear) are in place. And the rest of the options are tied up in court. (For example, the United States needs 45 liquefied natural gas plants to be converted to gas – a costly fuel with iffy reliability – but only five have been built; the rest are tied up in court.) As long as it’s possible to tie up nuclear applications for five to 10 years and shut down “clean coal” plants through the political process, the U.S. utility industry is left with few options.

So what are utilities to do? They must get much smarter (IUE/Sg), and they must prepare for rationing (AMI/demand response). As seen in SEG studies, utilities still have a ways to go in these areas, but at least this is a strategy that can (for the most part) be put in place within 10 to 15 years. The technology for IUE/Sg already exists; it’s relatively inexpensive (compared with large-scale green energy development and nuclear plant construction); and utilities can employ it with relatively little regulatory oversight. In fact, regulators are actually encouraging it.

For these reasons, IUE/SG represents a major bridge to a more stable future. Even if today’s apocalyptic scenarios fail to develop – that is, global warming is debunked, or new generation sources develop much more rapidly than expected – intelligent utilities with smart grids will remain a good idea. The paradigm is shifting as we watch – but will that shift be completed in time to prevent major economic and social dislocation? Fasten your seatbelts: the next 10 to 15 years should be very interesting!