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It's the time of year when we reflect on what has transpired in our lives and industry, making note of those things we plan on changing in the time ahead, applauding our victories and, perhaps ruing some of the decisions we have made.
2010 was an interesting year in the power business with natural gas prices staying level and low, coal plant cancellations continuing to occur, the nuclear business inching ahead after decades of standing still and smart grid springing from everyone's lips -- even if they are really not taking any meaningful action.
2010 In Brief
Despite the economy's lack luster performance for most of the year, a cold winter and hot summer brought smiles to many utilities faces as demand increased and eased some of the 2009 fears that it was gone forever and would never return. Buoyed by low natural gas prices, availability of coal and a lack of Congressional action on cap and trade, much of the traditional business is breathing a collective sigh of relief that the market may return to normal.
Low natural gas prices, spurred by a lessening demand and a growing supply thanks to shale availability, is having several unintended consequences. First, $4 gas makes all forms of renewables, save hydro, seem even more expensive as the delta between wind and solar versus combined cycle natural gas grows. It also pushes utility planners away from base load coal resources for the future despite a history which shows that gas is the second most volatile commodity (after electricity) and that prices will almost certainly fluctuate over coming years. Memories are obviously short -- it was only a few years ago when gas hit $12 that planners backed away and left many holding turbines in reserve.
Smart grid has seen both a boost in PR and a huge blow in credibility as Federal stimulus dollars spurred an onslaught of plans for advanced metering infrastructure, distribution automation and the host of other planned improvements were joined by smart CFOs who have seen the capital investment opportunity that will undoubtedly improve system operations. At the same time, a number of brave utilities trying to really do something have been left out to dry by the industry failing to publically support their pioneering efforts with technology (a la Xcel). Still others are doing a poor job of presenting the technology to their customers and regulators setting back some jurisdictions by years.
The Republication sweep of the House of Representatives has clearly delayed if not killed any chance of a Cap and Trade Bill for the next several years. This does not mean the industry will not see the EPA continuing its targeting of coal as the big evil with the host of new rules coming not from Congress but from regulation instead.
What Lies ahead in 2011
Predictions are dangerous ground in any industry -- much less one so driven by weather, regulations and the whims of capital markets. With that in mind, here are a few predictions on what lies ahead.
Despite the utility industry's desire for certainty on regulation, there will be none in 2011. No amount of cajoling, pressure or lobbying will bring together the forces to give the business what it surely desires but that which is always just out of reach -- a solid number on carbon.
Demand will return and surprise everyone. Weather adjusted demand will increase more than is currently predicted driven by a returning economy, surge in energy consuming products, electric vehicle sales and even industrial production.
Water availability will become a focal point for 2011 as fracking for shale gas, 316b requirements and once through cooling, grab the public's and regulator's attention. This will impact both the electric utility business and the water business which is very sensitive to energy costs.
Electric vehicles and plug in electrics will show up and cause problems for the distribution system and back office systems of utilities. Unlike the belief of the car makers that the EVs will somehow be evenly distributed across the country, pockets of EVs will cause localized problems as transformers become overloaded. And, despite lots of hand waving that it is "easy" to figure out a solution to cross billing for the cars, those comments are usually made by people with no understanding of the fragility of utility systems.
Natural gas prices will not be as stable as predicted. The issues of water and gas will force slowdowns in obtaining unconventional sources and limits on the gas transmission networks will come into play.
More money will be spent on smart grid and less recovered than utilities have hoped, although they will see greater returns and benefits than predicted by their business cases particularly on the operations side of the business. Relatedly, the consumer adoption of technologies such as demand response will be much slower and softer than anticipated.
Advice for the Year Ahead
The following advice is based on the predictions above:
Prepare for an increase in demand fueled in large part by a return of the consumer.
Include water in your resource planning, forward curves for natural gas and overall operations.
Re-tune smart grid business cases to reflect greater utility benefit and less consumer interaction.
Make sure to track your smart grid investments carefully -- regulatory bodies will want to understand the true costs and benefits.
Give up on the concept of certainty for CO2 prices -- recognize it is already priced in the delta between the next cheapest renewable resource and your current fuel mix.
For information on purchasing reprints of this article, contact sales. Copyright 2013 CyberTech, Inc.
Interesting Mark. I quote your views on coal in my new energy economics textbook ENERGY AND ECONOMIC THEORY. And yes, I agree completely and totally with them.
As for this article, I'll have to read it again and think about it. I like what I see though..
Bob Amorosi 12.23.10
I second the compliments of Fred to your article Mark, a good summarized view of the utility industry. One advice comment stands out for me:
"Re-tune smart grid business cases to reflect greater utility benefit and less consumer interaction."
I hate to admit it but this is good advice for utility companies because they are fighting for money for smart grid projects and must somehow justify it. It stands out because it is also very sad for consumers. Greater consumer interactions were supposed to be a crucial facet of many smart grid ideas. It just goes to show how politicized the current utility regulatory system is and the current funding of smart grid projects are in the US.
The involvement of consumer interactions in smart grid projects will undoubtedly develop painfully slowly in the coming years. It could take decades before we see some technologies used by millions everywhere. This will be frustrating for those consumers who WANT to participate but are not even offered the choice by their local distribution utility company. It will be especially tough to swallow when most of us consumers today are accustomed to getting access to new hi-tech products within weeks of them being introduced on the open retail markets.
Jim Beyer 1.2.11
"Electric vehicles and plug in electrics will show up and cause problems for the distribution system and back office systems of utilities."
Here we have the prospect to consumers moving a hefty portion of their energy payments away from gasoline and to electricity (for their electric vehicles) and the utility people complain about 'problems'. I can think of another phrase for that. Perhaps 'opportunity of the century'? With these higher usage rates, utilities can actually get the residential consumer to pay their weight in interconnection costs. I'd think that would be a GOOD thing.
It makes me want to get off of the grid - just so I don't have to hear any more of this whining and bellyaching from the electric utilities. :) Yes, the world is changing - deal with it - everyone else does.....
Edward Reid, Jr. 1.4.11
I cannot understand how a neighborhood full of Level 1 (110v, 16a) EV charging stations would be a problem. That's the same as a modern hair dryer (1750w).
On the other hand, a neighborhood full of Level 2 (240v, 80a) EV fast charge charging stations could be an issue for distribution transformers during the summer.
How much would that 20 kW solar array cost installed? More or less than the EV?
Jim Beyer 1.5.11
I'm guessing an EV charger should allow 4-8 hours to charge a car. For a Volt, that would be about (very roughly) 1.5 kW-hr. So yes, about the same as a hair dryer. (But it's a hair dryer you are running for 4-8 hours). The battery costs limit a vehicle to no more than 15-20 kw-hr of capacity, which would be fully charged by a level 2 (from your post) station in only an hour. I don't think battery packs at this point could even accept a charge that fast.
20 kW solar would be about $40K. So about the same.
I think you could just put brown-out shut-offs on the chargers (maybe lower charge so the cars will get something) and be done with it.
Ferdinand E. Banks 1.5.11
I thought about saying that I am pretty ignorant where the above comments are concerned, however in point of truth I am completely ignorant, and more or less plan to stay that way. But one thing interests me, which is the increased recognition that electricity is receiving. If the fools were not making the decisions here in Sweden, the two reactors that were closed and scrapped would be replaced by Gen 3 equipment, and Swedish engineers and scientists would be given a chance to show what they can do. Of course that would make a lot of people unhappy, but most of us would gain.
Bob Amorosi 1.5.11
Jim and Edward,
I agree with your EV charger comments, but our utility companies are much more concerned that we first realize. Aside from distribution transformer overloading risks, on average, adding an EV charger in a home is equivalent to adding the equivalent of a central AC load on that house. (Level 2 chargers are much more than a typical AC load but a Level 1 is more like half an AC load). Many distribution utility companies are against this given residential AC's have been their primary focus for residential demand management schemes, and continue to be today. So adding EV chargers all over the place will compound their demand management problems in spite of the extra revenue they're going to get from the much higher customer bills.
There are additional EV problems looming for utilities too, like how will they reconcile who pays to charge your EV at other sites away from home. Gasoline is certainly not doled out for free away from home to anyone, so why would anyone expect electrical charging of EV’s to be available freely away from home. Of course there are easy ways to deal with this using ID and metering technology in the EV’s and charging stations, but it will mean much more involvement of the utility companies. Sooner or later they will have to wake up to this and get more involved in the technology.
Happy New Year guys, it promises to be an exciting future for EV's. Last I heard just about every car manufacturer is planning to roll out new EV models, and soon.
Jim Beyer 1.5.11
Given that the current situation is sending money overseas to people that don't like us and fly planes into our skyscrapers, I'd say that a few bumps and bruises in getting EV charging working is worthwhile.
One thing I've noticed (perhaps other could comment) is how extremely conservative utility people tend to be. Perhaps the systems are so carefully balanced that what seems like small deviations to a lay-person (like me) is a highly disruptive change. That could be the case. All I can say is that they need to change or someone else will do their job. For many decades "Big Iron" was the way that computing was performed (mainframe computers). IBM is still fortunately still alive, but not until they tried to give away their business TWICE, once to EDS in the 60's and again to Microsoft in the 80's.
This makes me think that the most non-resilient aspect of our electric grid is not the infrastructure, but the mindsets of the people that run it.
Bob Amorosi 1.5.11
I agree with your thoughts about the mindsets of the people that run our electric grid, and add one more thing.
My observations have been utility people are terrified of committing themselves to any changes unless they can be sure they will recover all their costs involved, and that includes the cost of keeping the reliability of service very high. This by extension means applying to regulators to approve rate increases to pay for any changes. Getting that approval is usually a daunting task, it is never a sure thing. The lack of commitment in turn makes them appear to not want anything to change, and they often don’t accept changes unless regulators or governments force them into it.
I expect our governments to force them much more often in future, by using large handouts of tax dollars to fund them being preferred over allowing draconian rate increases. And as you allude to, if they don’t make the necessary changes, and don’t make them in a timely manner, more consumers will gradually opt to get off the grid entirely i.e. by making their own power.
Edward Reid, Jr. 1.5.11
If the numbers I used above are correct, a L1 charger is approximately equivalent to a 2RT AC or HP. However, the L2 charger is the equivalent of 20-25RT of capacity. That is a daunting residential load; approximately 40% of a 200 amp service.
I would guess that 80 amp circuit (not main) breakers for residential panels are not that common.
Bob Amorosi 1.6.11
You are correct, 80-amp circuit breakers are very uncommon in homes built to electrical codes, most of a home's circuits are wired to handle only 15 amps safely. Electric stoves, clothes dryers, furnaces, water heaters, or central ACs are the only loads that are often wired to draw more than 15, like 20 or 30. A home’s main breaker is typically 200 amps up here in Ontario on newer homes but only 100 in older homes.
Anyone getting an L2 charger will probably need a special circuit installed in their house with heavy gauge wiring to handle 80 amps. This is why I'm sure the EV manufacturer's are offering L1 chargers or other slower-charging types because they will more conveniently "plug-in" to a standard 120VAC 15-amp or 220VAC 15-amp outlet circuit, and thus avoid the expense of installing a high-current circuit in their house.
Michael Keller 1.6.11
Looks to me like the L2 charger is simply not practical for the vast majority of residences and the L1 charger appears to be the most likely winner. However, wouldn't it make more sense to use a 220 V charger designed for 20 or 30 amps, thereby being more readily compatible with most homes?
The price of electric vehicles is not likely to generate much consumer demand as the hybrids are much more cost effective. In any case, looks to me like the likelihood of electric vehicles screwing up the distribution grid in 2011 is vanishingly small.
Smart meters are primarily a means to charge consumers more money and no amount of utility PR and hand waving can change that. With much more conservative state legislatures having been voted in, cold water is going to be thrown on the "smart meter" band wagon.
Cheap natural gas in the US will remain throughout 2011 because of the huge price differential between natural gas and oil. That means drilling will continue to recover liquid hydrocarbons from "wet" shale, with the natural gas being more or less a byproduct.
Water used for fracturing natural gas shale formations will be re-cycled, and already is in some locations. While adding somewhat to the cost, the extraction of the natural gas/oil from shale formations will continue to accelerate throughout 2011.
Michael Keller 1.6.11
A few more 2011 predictions:
Utility planning for new nuclear and coal power plants will more or less dry up because of the low cost of natural gas fuel and the low capital cost of new combined-cycle power plants, particularly when considering the paucity of coherent strategic thinking in most utilities.
Renewable energy "portfolio" standards will be reversed in an increasing number of states owing to more conservative legislatures and low cost natural gas. Good riddance to truly ill-conceived and dopey state of laws promulgated by corrupt, self-serving politicians and special interest groups.
Malcolm Rawlingson 1.12.11
Very interesting Mark. At last someone that really understands the utility business and what drives it. The single most important driver is that natural gas is going to be both plentiful and cheap for a significant number of years in North American Markets if estimates of shale gas are as promising as they appear to be. And of course natural gas plants are cheap to build, considered "clean" and are a well proven technology.
As anyregular reader here will know nuclear plants are my preferred choice for the long term but utility CEO's must look to the bottom line and gas is going to win out for new plant unless nuclear plant suppliers can get their costs under control.
I totally agree with Mike Keller that gas fired plants will trump everything else if there is some assurance of stable pricing in coming years.
Of course there is fuel supply risk here since current pipelines have only so much capacity - but my money is on natural gas plants - in the North American market - so suggest loading up on shares of gas supply companies. The knock-on effect is that if North American demand for natural gas on world markets decreses due to home grown supply the price of the liquefied product from Algeria and elsewhere will also decline making gas plants viable elsewhere too.