Demand Integration Under EWPC

By José Antonio Vanderhorst-Silverio, Ph.D.

Systemic Consultant: Electricity

Copyright © 2007 José Antonio Vanderhorst-Silverio. All rights reserved. No part of this article may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying and recording, without written permission from José Antonio Vanderhorst-Silverio. Please write to javs@ieee.org to contact the author for any kind of engagement.

The first and fourth FACTS of Mr. Blalock seem undeniable. The second and third should be the result of a paradigm shift away from the obsolete vertically integrated utilities (VIUs) paradigm, to the EWPC paradigm which increases the capacity factor of generation and transportation facilities, as well as the integration of the resources of the demand side as explained below. The fourth will give the opportunity to develop the corresponding smart grid.

I have seen many forecasts, like those, from prestigious official sources with enormous and unsustainable increases in demand for the long run. To satisfy such increases in demand, the same, other sources, or both project large increases in generation and transmission capacity. Still other are puzzled that quality of life conditions are for the worst, as they see no possibility to develop all those facilities under present and future perceived circumstances. All of this says is that intelligent and important people have theories in use, or mental models, which are based on assumptions that no longer hold and need to be questioned.

In reality, high electricity prices are already being curved by customers when a good proposition is given to them to reduce demand, such as energy efficiency investments supported by other governmental institutions. A view of the whole is in order, as an introductory application of the disciplines of system thinking and mental models.

In the long run, key electric power systems variables follow a systemic reinforcing circle, which closes a feedback loop. The loop is closed by integrating demand to long run power system planning. Before the OPEC embargo, the circle was virtuous, but after the embargo it became only virtuous at times.

The SAME simple causal loop model travels price, demand, generation capacity, sequentially, as follows, first for the virtuous, and then for the vicious circle. With other things being equal: 1) as price decreases, demand increases, generation increases, price decreases … resulting in a virtuous circle; and 2) as price increases, demand decreases, generation decreases, price increases … resulting in a vicious circle.

Under the virtuous circle before OPEC, as price was always decreasing in a stable environment, there was not a need to consider integrating demand at all. However, as an uncertain environment kicks in, where prices are sometimes decreasing, other times increasing, the need to learn how demand is behaving is crucial, especially because of the systemic time delays involved, i.e. to avoid costly boom-bust behavior, in building generating capacity.

Adding to complexity, demand growth has two main sources not necessarily correlated: one external, from economic forces, and the internal mentioned above, as a response to power price signals. Hence, power system planning needs to integrate demand in its decision making process as soon as possible, to help generators, transporters and customers invest under a more stable environment.

This means that business as usual open loop demand forecasts mental models, that project large increases in demand, like the author mentions, are no longer reliable and must be watched carefully. MIT professor and lead author of the book “Spot Pricing of Electricity,” is quoted in the dedication as “Shortly before completion of this book Fred C. Schweppe, our friend, colleague, and senior author died suddenly. Fred created spot pricing and proved, again, that “The forecast is always wrong!”

In order to extend Spot Pricing of Electricity and to mitigate the demand forecast problem, I have discovered the need to integrate demand into power system planning. That approach is the key mission of Second Generation Retailer - 2GR (please hit red link here and below) – an institution - under the EWPC paradigm, which will help increase total social welfare. 2GRs have evolved from my finding about two years ago of The Birth of the Global Electric Retailer, as the utilities enterprise solutions were bound to be replaced by competitive enterprise retailers solutions, as it will now happen with the paradigm shift to EWPC.

To increase social welfare, each 2GR will compete successfully by developing a business model innovation for a market segment, which is The Sixth Disruptive Technology of the industry. As a result, 2GRs will be in the retail market to offer customers a competitive portfolio of service plans, from which they can choose the one that best fits their needs for low costs, added value, or both. 2GRs service plans will integrate several disruptive technologies services, such as, demand response, distributed generation & storage, AMI, energy efficiency, and the smart grid. Many applications will result from the implementation of the business models. The investments commitments to be made by customers are not necessarily part of the service plans of 2GRs.

The obsolete utilities business model is unable to offer such complex integration, which should be offered directly to customers under competition and not a by incremental investments bets of regulators under a monopoly compact with utilities. As a result, customers will be able to choose, when they want, both the 2GR and the integrated service plans available in the market, instead of being imposed through several costly incremental propositions, which extend the VIUs paradigm far away from its possibilities, and that are decided when the utility wins a case to the regulator and not when the customer needs it.

Generators and Second Generator Retailers interchange with the System Engineer their proposed investments and other key information to allow the System Engineer develop the transportation utility expansion plans for the long run, in order to optimize the future grid by minimizing total system costs (not just the transportation costs) in order for 2GRs to enable a potential maximum social welfare in the national economic context, and not just the financial viewpoint of the utility as the VIUs paradigm calls for.

In sum, while generators and the transportation utility must always be prepared to design, operate and maintain their facilities, there is not conclusive evidence that a building boom in generation should be expected from the first FACT and the above analysis. However, even though transportation facilities will be operated less congested with EWPC, from the fourth FACT a most likely building boom may happened for the smart grid implementation and the replacement of old transportation structures.

I would appreciate the author's considerations and those of other readers to this rebuttal-article post.