The Grid Optimization Blog

Top 10 Reasons Why The Electric Utility Industry is Gearing Up Like Never Before

The IEEE Power and Energy Society (PES) conference in Chicago was a blast from the future and not the past! A decade or so ago these meetings were almost totally dominated by male seniors trooping back and forth between technical presentations, many of which were pretty dull.

The IEEE Power and Energy Society conference in Chicago was a blast from the future and not the past! A decade or so ago these meetings were almost totally dominated by male seniors trooping back and forth between technical presentations, many of which were pretty dull. The show floors had mostly the same-old-same-old. And, sadly enough during those years of industry reconstruction, there were the job seekers exchanging business cards (with serrated edges) identifying them as consultants or leader of a ‘group,’ along with resumes where appropriate.

Things have sure changed over the last few years. Younger engineers, more women, lots of laughter on the show floors. Even the name has changed from Power Engineering Society to Power and Energy Society. The name change reflects the increasing breadth and, of course, challenges that the industry faces. Good engineers love challenges and boy, do we have them.

The level of enthusiasm was so high that you had to read the National Electric Code in your hotel room to go to sleep!

So what has changed over the past decade? Why is there so much optimism and excitement? Here are 10 reasons that come off the top of my balding head, and in no particular order:

The lasting impact of stimulus funding: This set in motion competition for taxpayer funding to build out the advanced metering infrastructure to support the meters and also support operational needs. This was the biggest injection of advanced technology in the industry since the power transformer.  ‘Nuff said.

Consumers finally wake up! The smart meters led to a promotion avalanche trying to convince electric customers that the advanced meters were good for them, when in truth the main benefits were operational, highly technical and not easily understood by the customer. We kept poking them until they took notice and now they’re demanding better service. They’re even actually looking at their electric bill and questioning rate structures.

New entrants to the utility arena, particularly IT and communications: These technologies are not only needed to enable a smart system – they may even grow to form the core of the utility business. And now, for Pete’s sake, Google has announced that it will be selling rooftop solar!

Changing industry business model: Central generation, like the muscle cars of the ‘60s, may fade into nostalgia. Ever think you’d see big companies like NRG and Duke form subsidiaries to provide rooftop solar to customers? Now they are scaring the daylights (sunlight?) out of myriads of solar suppliers and installers who’ve had an unconstrained market with utility customers.

Available funding: A crummy U.S. economy and decreasing US industry expansion has led to a rapid drop off in load growth over the last couple of decades. Even as the economy rebounds, increasing distributed generation, demand management and energy efficiencies will keep load growth less than one percent for the utility future. Utilities make money from ROI – either through new construction or replacement. In the past new construction was driven by the need to serve new load. For a hundred years we ‘grew big so we could get the money to grow even bigger’. That business model is not going to work in the future. But now we have the opportunity to not only renew aging infrastructure that’s past its useful life and is fully depreciated, but we can replace it with something better that incorporates the latest whiz-bang smart technology. Maybe we can buy enough time to keep our shareholders happy while we evolve to a new, sustainable paradigm.

System threats: Mother Nature has always been able to knock us for a loop but maybe never as thoroughly as with Superstorm Sandy.  Studying cybersecurity has become a governmental pastime and a secure source of consultant income. Physical security is becoming recognized as perhaps the biggest threat and the hardest to prevent. As a result of these looming challenges, we’re seeing the beginnings of a trend to harden the system in every way. Maybe the biggest bang (don’t say that!) for the buck is in contingency planning. More portable HV transformers and breakers kept in inventory, perhaps. Maybe pre-trained vendor and manufacturer ‘swat teams’ made available to get the system up and running after a storm or attack (cyber or otherwise).

Demand management is working: The dream of using negawatts in place of megawatts is coming true. Large system operators such as PJM are finding that demand management combined with new algorithms and operational protocols can reduce the need for new generation and help weather system disturbances.

Wind and other intermittent resources are here to stay: Out of necessity we’ve had to figure out how to operate our generation units closer to their limits. And T&D folks have had to pull dynamic thermal rating technology out of the closet and recognize it as legitimate. All this has led to the realization that 20% or more of our generation can come from wind and solar without dire consequences - provided we manage them properly.

Synchrophasors: Having designed perhaps the first sychrophasor circuitry years ago, I have a particular fondness for this technology and where it’s going. As the topology of new transmission and the loading of existing transmission systems change to adapt to distributed generation, synchrophasors can help keep the system stable. Now some researchers in California have found that applying synchrophasor technology to the distribution system may help identify and resolve power quality issues caused by rooftop solar. Who’d a thunk?

Utility brain drain has a good side: About half of the nation’s utility engineers will reach retirement age this year. Are they going to stick around? Our Reader Poll (http://tdworld.com/polls/featured-poll-what-will-it-take-keep-you-your-job) indicates that about a third of them plan to leave and work elsewhere. That puts the burden on utilities to attract new engineers either directly from universities or from other industries. And that’s going to require offering salaries competitive with the traditional high tech industries. The technical sand box will also need to expand along with the freedom to play in it. All this is good news for the engineers and technologists who remain in the industry. They will be prized indeed!

Those are some industry drivers and enablers that I’ve been thinking about – by no means complete.  They’re changing every day. Agree? Disagree? Got some more?

Discuss this Blog Entry 9

on Apr 28, 2014

Once the subsidies dry up it will be crash and burn time.

Look at what Germany's Sigmar Gabriel had to say recently about renewables - they are unsustainable. That shocked his audience of "renewable" advocates. When the thieves pack up they will leave a LOT of trash behind.

on Apr 29, 2014

Gosh Mr Simon, do you really think so?
In Europe, subsidies breakdown (per year) as follows:
RES Euro30bn
Nuclear Euro36bn
Fossil Euro66bn (includes direct & indirect subsidies).
In the USA, that well known band of commies & socialists, the IMF in a report dated 2013 note that the USA provides $502bn in subsidies to fossil fuel - these tend to take the form of tax breaks. Giving more detail:
2002 and 2008 RES $12.2 billion ($6 billion direct & $6.2 billion in tax breaks,) (source: Environmental Law Institute)
Fossil fuels: $70.2 billion ($16.3 billion directly & $53.9 billion in tax breaks)
I applaud the USA in providing quasi-charitable status to its fossil fuel industries they are undoubtedly deserving cases and need sufficient support to maintain them in the style to which they have grown accustomed over the past 100years or so.
I fully agree with your sentiments Mr Simon and recognise that the omission on your part of the USA fossil fuel industry from your observations was accidental (ditto the industry in Europe). have a nice day.

on Apr 30, 2014

Mr. Parr,
As sources for information on the topics of US government subsidies and tax breaks I recommend the IRS and EIA and BLS and reports made to Congress by the Congressional Research Service and the National Research Council. They tend to be more impartial and accurate than those by private advocacy groups such as ELI. World Bank and IMF reports are generally excellent. I would like to examine the IMF report you mention. Would you please provide the citation?

on Apr 28, 2014

"All this has led to the realization that 20% or more of our generation can come from wind and solar without dire consequences - provided we manage them properly."

The actual crisis point is a little over 10%. Now why you would want to run the core of our technical infrastructure at a crisis point is beyond me. Stability, operating margins, reliability - used to be watch words in the boring electrical industry. I don't believe an "exciting" electrical supply will have many adherents. Especially if it raises the cost of power.

As this is "theory" for now all is well. Reality is going to bite hard when it bites.

But yeah. Renewables. Rah. Then bah.

on Apr 29, 2014

Mr Simon: Your assertion about a crisis point occuring at 10% does not fit with reality.

Spain gets 21% of its electrical power from wind, Denmark, 44%, Germany (wind & PV) 27% (2013). Denmark regularly generates 120% of its electrical power requirements from wind. The Danes might have some complaints with respect to power, the reliability of their power supply is not one of them.

Germany also has an extremely reliable power network, at least an order of magnitude more reliable (in terms of customer minutes lost) than the power network of the USA. Perhaps it is because of all that renewable power that you clearly dislike so much Mr Simon.

My suggestion: when you have some facts and well developed arguments - come back & prove me wrong. However, as with your other assertions (on subsidies) I rather think you will be unable/incapable.

on Apr 30, 2014

Paul,

I appreciate the article. It certainly does get the blood pumping -- mostly with enthusiasm. Interestingly, the only friction points I have with it are in the realms of subsidies and "renewable energy," much like the first commenters.

I take it the principle audience of this column is engineers. As such, we should be able to look at scenarios holisitically to identify all the important components and variables, do math and balance equations, and evaluate outcomes based on empirical data. An engineering approach should be particularly helpful when we enter an emotional or politically-charged realm such as subsidies and "renewables."

I have researched the history of energy in the US. If one wants to calculate the subsidies to any form of energy, it is essential to look at both sides of the ledger and to calculate the net flow. This means looking at both the positive cash flow (grants, loan guarantees and other risk and interest-reducing financing, tax breaks, RECs, must-take production, guaranteed minimum rates, guaranteed rate premiums, guaranteed minimum ROI, costs offloaded/socialized to others by legislation, etc.) and the negative cash flow (taxes, fees, rate caps, ROI caps, selectively-applied externality costs for emissions, costs imposed/shifted by legislation from their rightful bearers, etc).

By definition, primary energy must be a source, not a sink. Anything that receives a net subsidy is a sink, not a source. When one looks at the energy consumption profiles of the developed and developing nations, it is clear which energy sources do the heavy lifting to bootstrap economies from the agricultural to the industrial age -- coal, oil, and natural gas. The most cursory analysis that considers both sides of the equation quickly reveals why -- they are true primary energy sources with the farthest thing from a subsidized infants. The taxes and fees collected from them far outweigh the money given or forgiven as subsidies.

As an example, for US oil and gas, the federal government provided subsidies totaling 45 cents per barrel of oil equivalent in 2010 and received back over $9 per BOE in major oil company corporate taxes and fuel excise taxes -- a 2,000% ROI. When politicians with certain agendas like to claim that fossil fuels are subsidized by various governments around the world, they are quite literally reversing the facts. It is rent from fossil fuel sales that funds the governments of petro-states, and simply smart politics that these governments should charge foreigners a higher price than their own citizens. But, by no means is the oil industry of Saudi Arabia or the gas industry of Russia a drag on their economy -- it is their cash cow. The non-energy economy in all developed nations is critically dependent upon the energy economy (including today's energy-intensive agriculture), and the day primary energy doesn't pay its own way by a margin of six-fold or better, the industrial age ends and we revert to the days of oxen and slaves (see http://wici.ca/new/resources/occasional-papers/#no.4).

As Howard T. Odum brilliantly revealed in the 1970s, our entire fiscal economy is just the checkbook accounting layer on top of the underlying physical economy of energy and the things it creates. It is the high EROI of coal and oil that enabled the transition from the agricultural age to the industrial age and the extraction of great wealth from the ground as raw minerals become transformed into manufactured goods. It is likewise the high EROI of natural gas that allows us to transform it into ammonia fertilizer and increase the yield of our wheat 3-fold and corn 6-fold since 1940, while simultaneously reducing the cost of food. The EROI of a modern nation's primary energy sources translates into the ROI of its energy-intensive economy.

With the above in mind, I think the following table of 2010 federal subsidy data speaks volumes. Note that it is not the total of the subsidy amount, but the amount per unit of energy delivered that is the proper metric to compare.

- Oil & Gas: 45 cents per barrel of oil energy equivalent energy (BOE) = 0.027 cent/kWh
- Coal: 36 cents per BOE = 0.021 cent/kWh
- Nuclear: $1.72 per BOE = 0.101 cent/kWh
- Geothermal: $7.63 per BOE = 0.448 cent/kWh
- Biofuels: $10.39 per BOE = 0.610 cent/kWh
- Wind: $31.39 per BOE = 1.843 cent/kWh
- Solar: $52.30 per BOE= 3.017 cent/kWh
(Sources: 1. Direct Federal Financial Interventions and Subsidies in Energy in Fiscal Year 2010. Energy Information Agency, July 2011. http://www.eia.gov/analysis/requests/subsidy/ and 2. Lawrence Livermore National Laboratory. “Estimated U.S Energy Use in 2010: ~98.0 Quads,” 2011. https://flowcharts.llnl.gov/content/energy/energy_archive/energy_flow_20... ).

In 2010, wind was subsidized at a rate 68 times higher than oil/gas and solar was subsidized at a rate 111 times higher.

In 2009 (the most recent information published by the IRS and EIA) the Federal government collected $13.7 billion from oil and gas company corporate taxes and $42.4 billion in consumer-paid oil and gas excise taxes for a total of $56.1 billion (EIA Financial Reporting System Survey - Form EIA-28 Schedule 5112 - Analysis of Income Taxes. Energy Information Agency, 2009. ftp://ftp.eia.doe.gov/pub/energy.overview/frs/s5112.xls). In 2011, the total was more than $58.2 billion (Helman, Christopher. “Which Companies Pay The Most In Taxes?” Forbes, April 16, 2012. http://www.forbes.com/sites/christopherhelman/2012/04/16/which-megacorps...) This represents the 2,000% ROI to the federal government for their oil and gas subsidies I mentioned earlier, and does not include more than $12 billion the federal government collects annually in land leases and permits and fees, nor the billions collected by state and local governments (1. Cart, Julie. “Energy Development on Public Lands Generated $12 Billion in 2012.” Los Angeles Times, December 6, 2012. http://www.latimes.com/news/science/sciencenow/la-sci-sn-20121206-energy... 2. Dlouhy, Jennifer. “Feds Collect $14.2B from Energy Development.” San Antonio Express-News, November 20, 2013. http://www.mysanantonio.com/business/eagle-ford-energy/article/Feds-coll...).

In contrast, the states and federal government are pumping money collected from their citizens in the form of direct taxes and utility company rate increases or surtaxes into solar and wind commercialization. The net flow is overwhelmingly inward, not outward for these industries. I invite someone on this forum to better quantify it by comparing taxes paid to subsidies received.

If one wants to go beyond a cursory examination and look deeper, the scales tip even further. The oil and gas industry market capitalization is $1.5 trillion -- equivalent to 10% of the $15 trillion US GDP. According to current Bureau of Labor Statistics employment data, the oil and gas extraction industry employs 198,000 while wind electricity generation employs 3,200. The federal income from payroll taxes is going to be roughly proportional.

Wind and solar power on the grid are today fiscal and energy parasites, just as they were in the Carter era. They bring down the EROI of the grid and the economy that depends upon it, rather than increasing it. The cost per random kW is not the problem, it is the cost per dispatchable kW and the cost per kWh. It is also the cost of land per kW (i.e., power density). These parameters remain off the bottom of the chart in competitiveness. The transformation of wind and solar into true primary energy sources that are compatible with the 24-7-365 needs of consumers awaits the advent of high power-density, high round-trip efficiency, long-lived, reliable, safe, and affordable electricity storage. Period. This is an R&D challenge, and unfortunately, not a technology that has obeyed Moore's law in the more than two centuries that we have been working on it so far.

The challenges to achieving the order of magnitude breakthrough in electricity storage parameters necessary are very high, but so were those of nuclear power. It is certainly appropriate to subsidize R&D to overcome these challenges, perhaps even similarly large amounts of money considering the degree to which this breakthrough can change our lives (I still want my hoverboard). But it is simply wrong to forcefully commercialize a technology, especially in energy production, before it can at least pay its own way, let alone carry the economy on its back. I may sound like a fan of oil and gas, but I am really a fan of high-EROI energy and the civilization that depends upon it. To continue to attempt to commercialize EROI sinks such as wind and solar power on the grid is intellectually dishonest and harmful to the legacy of reliable, affordable, and safe electric power that we want to leave to the next generation as it was left to us.

If all federal and state subsidies for all forms of energy were cut off, this would be a self-correcting problem. Each form of energy would naturally find its rightful market niche and market share commensurate with its true net contributions to economic and fiscal health. The current power grid path of increasing cost and decreasing efficiency and stability can only persist by force of political will strong enough to distort the market forces of business and consumer free-enterprise to pay for lower-EROI power with higher taxes and utility rates.

Engineers and physicists and accountants need to speak up. It is our duty to dig beyond the "feel good" conventional wisdom to the truth of what really works and what is really of net benefit to the planet and human civilization.

on May 1, 2014

Mr. Kiefer - thanks for such a comprehensive comment. I appreciated you bring up Professor Odum. His ideas were mostly dismissed by the industry back in the 1970's but his approach and insights are particularly significant today.

Dan vlad (not verified)
on May 2, 2014

You should be the blogger, completely astonishing reply

JEminee (not verified)
on May 1, 2014

I appreciate the EROI approach - looking at subsidies per unit energy produced. Unfortunately our politicians (and public) are incapable of really understanding this.

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