I'm afraid I have concluded that the grid is not the problem. Instead, the economics behind how we think about the electric energy market is fundamentally flawed. The electricity industry is desperately in need of some disruptive thinking not only from technologists, but also economists.
I assumed in a previous post about privacy and the smart grid that we could balance generation capacity (supply) with load (demand) simply using a free market approach. Shame on me for trying to apply what I learned in my college economics classes.
I wish it were so simple.
It turns out that the fundamental way many incumbents in the electricity industry think about power is predicated on the idea that we can
Instead of building generation, transmission, and distribution processes to handle a highly dynamic market all the way from generator to consumer, grid operators for a long time have only had to worry about fluctuations caused by equipment failure and relatively predictable fluctuations in consumer behavior (based on the day of the week, for example.) Heating and cooling demands vary, but slowly and somewhat predictably.
Most bulk generation agreements are determined through long term contracts. I read (I wish I could remember where) that only about 10% of bulk electricity is traded on the real-time market. Why? Because traditional generation from coal, gas, or uranium is controllable ("dispatchable"). It costs the same to run a particular generator today as it will cost tomorrow. The output is a known quantity. In that world, long-term contracts make sense. Even generation from hydro power, though subject to seasonal and climate impacts, is dispatchable in the short term.
Enter wind energy. It is non-dispatchable; it cannot be controlled. Generation capacity is not predictable. In Grid Land, small deviations in system voltage or frequency can trigger automatic load-shedding (i.e. black-outs). When random wind gusts enter the picture... unless you have gas or hydro turbines spinning and online, in standby mode, just waiting for the wind to stop... well, let's just say that you should keep some firewood and candles around.
Wind power doesn't fit into the old system of long-term bulk power agreements. It fluctuates too much, and it requires too much reserve capacity in the form of idling natural gas and coal plants to back it up, just in case the wind dies. Idling capacity uses little fuel, but it's really hard on plant and equipment, and capital costs don't go away just because a plant is not producing power. From one perspective, leaving an expensive base-load coal plant idling is a gratuitous waste of money. We'd like to think that the plant shouldn't have been built in the first place - but that wouldn't have worked either, because we need it on standby in case the wind stops.
Obviously we need to find a way to better balance supply and demand.
I see two ways around this pickle.
One is to pass the real-time price of generation all the way through the electricity supply chain to the consumer. That's the way resource allocation problems are generally solved in free-market societies, as evidenced by the ever-fluctuating price of gasoline at your local station.
The second, favored by NERC policy and by the large utilities, would allow grid operators to treat some of the loads in your home as low priority and interruptible. Your furnace, air conditioner, or water heater would be good candidates. In exchange for some fixed discount on your power bill, the utility gets the right to monitor the loads within your home and turn them on or off to balance fluctuations in energy supply.
Right now, we seem to be on the second path. It has its advantages and disadvantages. But I'd like to see more thought put into the first approach, making the energy supply chain look more like the supply chain of other goods and services, where supply and demand reach equilibrium through price fluctuation.
Would some of the economists out there please join the discussion and help me out here?
Links:
"Integrating Wind Generation Into Utility Systems" from North American Windpower
"ELECTRICITY STORAGE: THE ACHILLES' HEEL OF RENEWABLE ENERGY" from Chemical Engineering Progress
I assumed in a previous post about privacy and the smart grid that we could balance generation capacity (supply) with load (demand) simply using a free market approach. Shame on me for trying to apply what I learned in my college economics classes.
I wish it were so simple.
It turns out that the fundamental way many incumbents in the electricity industry think about power is predicated on the idea that we can
a) easily forecast demand (because retail prices don't vary in the short term), andBreak those assumptions, and the grid falls down.
b) increase or decrease generation capacity (to a limit) more or less at will.
Instead of building generation, transmission, and distribution processes to handle a highly dynamic market all the way from generator to consumer, grid operators for a long time have only had to worry about fluctuations caused by equipment failure and relatively predictable fluctuations in consumer behavior (based on the day of the week, for example.) Heating and cooling demands vary, but slowly and somewhat predictably.
Most bulk generation agreements are determined through long term contracts. I read (I wish I could remember where) that only about 10% of bulk electricity is traded on the real-time market. Why? Because traditional generation from coal, gas, or uranium is controllable ("dispatchable"). It costs the same to run a particular generator today as it will cost tomorrow. The output is a known quantity. In that world, long-term contracts make sense. Even generation from hydro power, though subject to seasonal and climate impacts, is dispatchable in the short term.
Enter wind energy. It is non-dispatchable; it cannot be controlled. Generation capacity is not predictable. In Grid Land, small deviations in system voltage or frequency can trigger automatic load-shedding (i.e. black-outs). When random wind gusts enter the picture... unless you have gas or hydro turbines spinning and online, in standby mode, just waiting for the wind to stop... well, let's just say that you should keep some firewood and candles around.
Wind power doesn't fit into the old system of long-term bulk power agreements. It fluctuates too much, and it requires too much reserve capacity in the form of idling natural gas and coal plants to back it up, just in case the wind dies. Idling capacity uses little fuel, but it's really hard on plant and equipment, and capital costs don't go away just because a plant is not producing power. From one perspective, leaving an expensive base-load coal plant idling is a gratuitous waste of money. We'd like to think that the plant shouldn't have been built in the first place - but that wouldn't have worked either, because we need it on standby in case the wind stops.
Obviously we need to find a way to better balance supply and demand.
I see two ways around this pickle.
One is to pass the real-time price of generation all the way through the electricity supply chain to the consumer. That's the way resource allocation problems are generally solved in free-market societies, as evidenced by the ever-fluctuating price of gasoline at your local station.
The second, favored by NERC policy and by the large utilities, would allow grid operators to treat some of the loads in your home as low priority and interruptible. Your furnace, air conditioner, or water heater would be good candidates. In exchange for some fixed discount on your power bill, the utility gets the right to monitor the loads within your home and turn them on or off to balance fluctuations in energy supply.
Right now, we seem to be on the second path. It has its advantages and disadvantages. But I'd like to see more thought put into the first approach, making the energy supply chain look more like the supply chain of other goods and services, where supply and demand reach equilibrium through price fluctuation.
Would some of the economists out there please join the discussion and help me out here?
Links:
"Integrating Wind Generation Into Utility Systems" from North American Windpower
"ELECTRICITY STORAGE: THE ACHILLES' HEEL OF RENEWABLE ENERGY" from Chemical Engineering Progress
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