06.19.03F. Mack Shelor, Independent Consultant, South River Consulting

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INTRODUCTION:
There are two initiatives available to the Federal Government that could significantly reduce greenhouse gas emissions in the U.S. Of these two initiatives, the construction of a national Direct Current transmission grid could not only reduce emissions, but it could also eliminate electricity shortfalls and significantly reduce the cost of electricity. The second initiative is related to the development of the Hybrid gas/diesel/fuel cell – electric vehicle. This initiative could reduce dependence on foreign oil, reduce green house gas emissions and ultimately reduce the cost of fuel to consumers. For many years the U.S. has been without a comprehensive energy policy. This lack of direction has generated crisis situations in parts of the U.S. and has driven costs up. The past administration concentrated on environmental policy rather than energy policy without realizing that the two are inextricably connected. The current administration appears to want to concentrate on the supply of fuel side of the equation without being overly sensitive to the environmental impact. While it is true that the lack of domestic oil production leaves us at the mercy of the mid-east when it comes to energy pricing. With the war in Iraq basically over, it may be possible to have some control over oil pricing, but the fact remains that this negative balance of trade has a significant balance of trade and should be reduced. What should a good energy policy include? Can a good energy policy and environmental policy co-exist? How much emphasis should the supply side have in the energy sector as compared to the demand side? What impact can other factors have that effects the supply side of the equation? All of these issues are addressed herein. DISCUSSION:

1. Diversity of electric generation:

   There are over 100 nuclear power plants located in the U.S. There is sufficient coal to provide secure energy at reasonable costs in the U.S. The Hydroelectric potential in Canada and the U.S. is sufficient to provide a large percentage of the energy necessary on the entire continent. Natural gas supplies in the U.S., Canada and Mexico are being shown as insufficient to provide energy in large quantities but it is an ideal fuel for intermediate and peaking needs. Renewable energy supplies such as wind, solar and geothermal are located mostly in the western U.S. Biomass and wind projects can be constructed in many regions of the U.S. Why then, are there power shortages in the U.S. and Mexico? The total installed capacity of all power plants in the U.S., Mexico and Canada is sufficient to meet the annual peak loads for a number of years in the future. Why then, is there a need to construct new facilities to keep from having blackouts in fast growing population centers? The answer to these questions is fairly simple. There are over 300 independent transmission systems between the U.S., Canada and Mexico. They are inter-connected to each other with very limited transmission systems that do not provide the proper assets in the proper places. If all of these systems were inter-connected with a well-structured transmission grid, the entire continent would benefit from low cost clean and efficient electrical generation. The U.S. has four distinct time zones that have load profiles with a great deal of diversity. A continental transmission system could take advantage of the load diversity to serve all of the customers with a higher level of efficiency.

2. How can we protect the environment and use domestic resources to produce electricity? All of the base load power generation in the U.S. should be produced using coal (in clean coal technology applications), nuclear, hydroelectric and geothermal resources. Natural gas should be utilized for a small percentage of the base load generation along with most of the intermediate and peaking generation. Combined Heat and Power (co-generation) using natural gas should be promoted and provided with an incentive program so that overall energy efficiency is improved. This increases overall system efficiency will significantly reduce emissions and fuel use. Political maneuvering has played a significant role in energy policy. Environmentalists have objected to the use of coal and oil as fuels because of their environmental impact. Utilities have resisted bringing older coal and oil units up to modern environmental standards because of the expense involved. Consumer groups have objected to bringing plants to new standards because of the pass through costs that would impact their electricity rates. The result of these opposing views has been a negative environmental impact and the failure to beneficially use the valuable resources that are available. All coal-fired plants should be brought up to the latest environmental standards. If plants cannot economically be modernized, they should be retired from service and replaced by more efficient and environmentally acceptable units
3. Construction of coal-fired plants near the high use load centers is difficult and impractical. Political situations play a major role in the location of power plants and the selection of technology for the plants. Not In My Back Yard is a term often heard when it comes to power plants. People don’t want to live near large industrial facilities. They are afraid of the environmental impact and just don’t want to look at the plants. When it comes to coal fired power plants, railroads support the concept of building them near to the electricity users. This favors using railroads to move the coal. Railroads, on the other hand, object to the construction of “mine-mouth” power plants because they don’t want to see “coal by wire.” At the same time, coal-producing States can permit power generation facilities more readily because of the job and tax base creation. Therefore, coal-bearing states are well positioned and supportive of plant construction. Clearly, the solution to increasing the amount of electricity produced by coal-fired plants is to design them to burn coal cleanly and to construct them in the proximity to the coal production (a “mine mouth plant”). Note that without a direct current transmission grid system this “mine mouth” approach has a fatal flaw because of the inability to efficiently move the electricity from the point of production to the points of use.
4. The solution to many power generation problems should be obvious. A national transmission system is necessary, or more specifically, a Direct Current (DC) national transmission system. One can make the following observations relative to a national transmission system:

• Environmentalists may object to such a national system because it will favor the construction of coal plants.
• Railroads will object because it will create a “coal by wire” system.
• Utilities will object because it will make many of their existing plants obsolete. They may also object because it will give them less market power to control electricity pricing.
• Politicians may object because it will favor some localities over others. In addition, they may object because a national transmission system will take away some of the State’s autonomy when it comes to energy matters.

In contrast:

• Industries should applaud the higher reliability and lower cost of electricity.
• The public should be pleased because they will ultimately have lower power costs without building the power plants in “their backyards”.
• A Direct Current transmission system further reduces the cost of power by dramatically reducing the transmission line losses as compared to the present transmission system, thus requiring less power generation.
• The administration should approve because a national system should lower costs and improve the economic health of the hemisphere. They also should approve of this concept because it would provide a significant boost in the economy through a development of infrastructure. Infrastructure improvements also improve national productivity and further boost the economy.
• Mexico and Canada should approve because they will benefit from various aspects of the program, including the tie-in of their resources with the U.S.
• Environmentalists may still object to the expansion of coal use (even though it can now be used cleanly), they should applaud the overall power supply system improvements provided through the benefits of power supply diversity and better power generation efficiency.
• The total environmental impact associated with power generation will improve significantly.

HOW WOULD A NATIONAL DIRECT CURRENT TRANSMISSION GRID WORK?
Direct Current has been chosen because it is well suited to long distance transmission and it does not require the grid to be completely synchronized or in phase. The total miles of transmission line required to service the entire U.S. and provide reasonable interconnections with both Mexico and Canada would approach 20,000 miles. The grid would look similar to the following:

As is easily observed, this system would provide the ability to move energy and capacity to any place in the U.S. and balance the grid. Such a national system can easily be configured to meet the present FERC preference for a minimum number of Regional Transmission Organizations (RTO’s) across the US. Since there are four time zones in the contiguous U.S., this system would enable the diversity of load across the U.S. to make power generation more efficient by reducing the excess capacity generation that exists in local grid environments to fulfill the local peak (i.e., the “rolling peak” load moves across the time zones and is serviced from the excess generation in the easterly areas that have moved off the peak).

HOW WOULD THIS VERY LARGE VENTURE BE FUNDED?
The U.S. has a history of looking to the private sector for development of major resources. The railroads, the public utilities and the construction (but not ownership) of the interstate highway system are examples of private financing for public purposes. Some toll roads are another example of private financing of public purpose projects. The public utility commissions and FERC could administer these projects in the same ways. The transmission system would have a guaranteed and fixed return on investment that would be controlled in the same way as existing public utilities. Each of the 42 individual segments would be bid to private (utility) companies that would construct, own and operate that segment of the transmission grid. Each section of the grid would be constructed to its ultimate design based on load projections with the goal being to maintain a 65% load factor for each segment. This high load factor would guarantee that the cost for operating and owning that segment would remain reasonable. FERC would be responsible for insuring that the grid grew in a reasonable and cost effective manner. The revenues would be generated through the use of the grid with rates controlled by the various regulatory commissions and FERC. Each segment would be bid with the lowest cost qualified bidder selected. The U.S. would provide the routing of the grid in each area and would secure the land under its rights of eminent domain. This issue can be greatly facilitated by using the existing transmission system rights-of-way and the interstate highway rights-of-way. The projects would be enabled under the “National Energy Security and Defense Act” similar to the National Defense Highway Act that created the interstate highway system.

HOW WOULD THIS SYSTEM REDUCE EMISSIONS AND LOWER COSTS?
A hemispherical system would provide for the development and utilization of natural resources in the most cost effective manner. If you look at Canada, the U.S. and Mexico as a single system it has a peak load of approximately 1000 GW. The base load for this system is approximately 500 GW or approximately one-half of the peak load. Statistically, the base load portion of the load duration curve represents about 70% of the energy required in the system. To have 500 GW of reliable system requires a total of approximately 600 GW of installed capacity. This assumes an availability across the system of slightly higher than 80%. The base load systems are planned to operate, on average, at around 80% availability including planned and unplanned outages. There are currently about 105 operating nuclear units in the U.S. Under this plan, the number of nuclear units would be increased to a capacity of 150 GW. They would be located in more remote locations for safety and security purposes rather than near load centers as is presently the case. These units do not contribute to greenhouse emissions. Hydroelectric and Geothermal generation would be increased to 150 GW of capacity or more. This assumes that Canada would willingly participate in the program. These units also do not contribute to greenhouse gas emissions. They do have a drawback associated with rainfall, but, if the units are distributed across the U.S., Canada and Mexico the diversity will minimize the weather impacts. Efficient Coal fired units equipped with SO2 scrubbers, NOx controls and particulate controls would represent 150 GW of capacity. These units would be required to meet stringent control levels for greenhouse gases before they would be allowed on the grid. Combined cycle natural gas units and Combined Heat and Power units using natural gas would represent the last 150 GW of capacity in the base load sector of the generating mix. This mix of generation would represent the primary users of the national transmission grid. They would be efficient, would represent the lowest overall energy cost to the consumers and would provide a low level of impact environmentally. As stated earlier, DC transmission systems will have less transmission line losses that will translate directly into lower emissions due to less overall power generation requirements, and collectively this will lower emissions. WHAT ABOUT THE REST OF THE LOAD CURVE?
The rest of the load curve would be generated primarily in the area where the energy was being used. Approximately 600 GW of additional generation would be installed or utilized locally. For the most part this generation would be utilized for other than base load purposes. Natural gas will be the primary fuel of choice for the balance of the generation. But, existing older generation units, solar, wind, CHP, and peaking turbines and engines would be part of the mix. At times, some of this generation would enter the grid to fill requirements that might exist in other sectors. WHAT DOES THIS MEAN FOR DE-REGULATION?
This concept allows de-regulation to be fully implemented for all generation and could lead to de-regulation of the retail electricity market. Because of the national grid, the supply of electricity to all markets would always exceed the demand in that market. This would create a natural bidding environment that would decrease wholesale electricity prices to their lowest practical level. It would create similar prices in all markets across the U.S. since all grid systems would have access to the same resources. Price variations in markets would then be caused by local conditions such as distribution costs. Electric distribution would remain regulated to insure that all purchasers and sellers of electricity would have access to all resources. Retail electricity could be de-regulated so that competition among suppliers would be possible. FUNDING THE NATIONAL GRID:
On the surface funding of a project of this magnitude would appear to be a daunting task and perhaps a fatal flaw, but such is not the case. This project could, over the next 30 years cost as much as $200 billion dollars in construction costs alone. The initial grid at some reduced capacity could cost over $100 billion dollars even using the interstate and existing utility corridors to minimize land acquisition and right-of-way issues. With these daunting requirements, how can the funding be acquired? DEBT AND EQUITY:
The projects will be owned and operated in the same way as the current Investor Owned Utilities (IOU). The owner will provide 35% equity with a regulated rate of return of approximately 12% per year. The 65% debt will be provided using Federal Revenue Bonds that are tax exempt and should have an average interest rate of 4% per annum. These bonds will be retired over 40 years with the initial retirements beginning in 20 years. With these ratios the average cost of funds for the project would be approximately 8% per year. If the initial grid cost were $100 Billion dollars, the annual cost for the grid would be $8 billion dollars. OPERATION AND MAINTENANCE:
All mechanical equipment requires O&M. It would be anticipated that the average O&M on a large system, such as this, would cost approximately 5% of the initial capital cost. This would add an additional $5 billion dollar annual cost to the system. TOTAL SYSTEM COST:
The total cost for the initial national grid system on an annual basis is expected to be approximately $13 billion dollars/yr. REVENUES:
The current peak electrical load in the U.S. is about 750,000,000 kw. The load factor is about 55%; therefore, the total kwh consumed annually by all customers is approximately 3,613,500,000,000 kwh. If the $14 billion dollar requirement were spread over all of the use the average cost of the grid to all customers would be $0.003/kwh of electricity. If a “National Grid Operation Surcharge” of $0.003/kwh were applied to all users of electricity the entire system would be permanently funded. As load growth occurred the revenues would increase and additional construction could be funded. This is the same concept that has been utilized to fund the construction and maintenance of the inter-state highway system through the use of road taxes. RESULTS:
Even though the surcharge, on the surface, appears to increase electricity costs, in fact it does not. The national grid would allow for the development of more efficient generation, would increase competition for customers, would reduce environmental externalities, and would improve the operation of the electrical system across the U.S. and the rest of the hemisphere. Because of these factors, it is anticipated that the electrical rates would decline more than the surcharge amounts.

CONCLUSIONS:
The solution to both lowering national emissions levels, making electricity production and use more efficient while lowering national energy prices is the development of a national Direct Current transmission grid. The DC grid can be funded as a privately funded and regulated group of companies with a fixed rate of return on investment. By proper utilization of natural resources and further development of nuclear energy, it will be possible to significantly lower the production of greenhouse gases associated with power generation. This approach will lead to less dependence on foreign oil, and lower national energy prices. Lower energy prices improve U.S. competitiveness in the global marketplace. Private sector funding of the national grid along with construction of appropriate generating resources will create a significant surge in the economy.

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Reader's Comments

Date	Comment
James Hopf 6.19.03	You stated that ~70% of total kW-hrs are from base load, and 30% are mid-peak duty. In your proposed energy mix, the (70%) base load is roughly evenly divided into four quadrants, at 150 GW of capacity apiece, for nuclear, coal, gas, and hydro/geothermal. Capacity and overall kW-hr generation are not exactly the same, as plant type capacity factors may differ, but they would be pretty close, especially given that all of these plants are classified as "base load" Thus, those four sources are each contributing ~25% of base load generation, which is ~70% of total generation. You then assumed that most mid-peak load generation is also covered by gas, with some small contributions by renewables (wind, solar, etc..). This works out to 17.5% for nuclear, 17.5% coal, 17.5% for hydro/geothermal, and 47.5% for gas. With renewables (especially wind), the actual gas fraction may be anywhere between 35% and 45% of total generation. This, at a higher level of overall (or absolute) generation than today. This still sounds like an awfully high percentage of total power generation to be covered by gas, especially given the gas cost concerns being voiced by many experts on this site. This is over double the gas power generation percentage today, and given the increase in overall demand, it represents ~3 times the amount of gas used for power production than is the case today (in say, 2020). For these reasons, I'm not quite in agreement with your mix. The huge demands on gas in the future, along with the resulting higher prices ($4-5/mmbtu) should generally preclude the use of gas for base load duty. I DO tend to agree with you that gas will remain the predominant source for mid-peaking duty. This will be aided by using gas in particularly intelligent and efficient applications (such as distributed generation, co-generation, and fuel cells). Baseload, however, will consist entirely of nuclear, coal, geothermal, and (possibly) hydro. Note that in many cases hydro can, and should, be used for peaking power as opposed to base load power. Hydro may be a good partner for intermittant sources like wind. When the wind is blowing, you shut the valves off and let the (fininte!) supply of water build up behind the dam a little bit. When the wind is dead, you open the valves all the way and generate maximum power at the dam. Thus, the presence of hydro may allow the use of sources like wind for a greater fraction of generation than would otherwise be possible. For this reason, I predict wind should do well in the Pacific Northwest. Also note that a national grid, like you're proposing, would also help intemittant sources like wind, in that the wind will not be blowing at maximum or minimum speed simultaneously at all windfarms around the nation. I also noted the large reduction in the amount of power produced by coal in your example. You also stated that what power is produced by coal would be produced in remote locations, using ultra-clean coal technology like coal gassification. I whole-heartedly agree with this position! Will it happen though.....? I must say that your proposed approach would definitely involve vastly lower air pollution levels, as well as much lower CO2 emissions. The only change I would make is to give nuclear (or geothermal, if possible) the part of the base load that you now give to gas.
Jack Ellis 6.25.03	Your proposal sounds very appealing but it does not address some important practical considerations. Right now it's cheaper to move coal by rail from Wyoming to most of the continental US than it is to move electricity the same distance. If the project is financed with tax-exempt debt and capital and O&M costs are spread over aggregate national electricity consumption, the cost per kwh is indeed very modest. But these assumptions are a bit too simplistic. They ignore the need for a depreciation charge, they assume that federal and state governments will agree to forego tax revenues on $135 billion in potentially taxable debt, they ignore the effect of incremental losses that will amount to 6-8% of total production, they ignore what wil likely be intense public opposition, and they don't produce enough savings to justify the cost. Moreover, the physics of power systems are such that you cannot avoid the need for substantial amounts of generating capacity to be located reasonably close to the point of consumption. Perhaps there is a way to overcome this technical problem but the solution is not readily evident despite years of research. You may wish to review the 65% capacity utilization threshold. I don't have facts to back this up but I suspect there are very few transmission lines now in existence anywhere in the world that carry power across control area boundaries at anything approaching a 65% capacity factor. It is for this reason that most new proposals for long distance transmission projects are not economically viable. Even the notorious Path 15 constraint in California was only congested a small fraction of the time at the height of California's energy crises, and the proposed $300 million upgrade is a colossal waste of money.
Michael McCormick 6.26.03	This idea would warm the cockles of Thomas Edison's heart.
Wallace Brand 12.9.03	There are very few technical details provided in this grand plan. One has to make some assumptions as to the operating voltage and how the energy would work its way to the many load centers and existing load sites it now goes to. The only reasonable assumption is that the proposed national grid is only an overlay of the existing AC system and that at least at the 24 nodes one will have to convert the DC back to AC through expensive inverters.. This has its costs in equipment and losses. None of these have been provided. As load grows, we still have to add incremental AC transmission to get the power from 24 points to the many thousands of load centers. Where are the cost numbers? We must still add substations at the load centers and distribution to the load sites. It has been estimated that current costs of transmission, subtransmission and substations per additional kW of load is approximately $1,500. With this overlay, it would likely increase that cost, perhaps to as much as $2,500/kW without even taking into account the cost of expensive nuclear generating plant and expensive pollution control equipment for coal fired steam turbines.. But it has been estimated that at a high volumes of manufacture, hybrid fuel cells can be located at load sites or at small load centers for less than $1,200 per kW with efficiencies of about 65% compared with 42% even for supercritical coal fired steam turbines. (For loads of 10 MW to 40MW the efficiency would be up to 78%.) This would not only seem to be more cost effective but also eliminate many legitimate disputes over land use because it would completely eliminate the need for new transmission and most distribution and eliminate the need to site large central stations. Eventually we would end up with no transmission and little distribution. Use of fuel cells would also eliminate virtually all toxic pollution and significantly reduce greenhouse gases. Finally, circuit breakers are used on transmission and switching to eliminate a temporary fault will cause a blink that will cause a computer to crash. So will a voltage sag when a big motor starts up on the same distribution feeder you are on. Fuel cells can provide premium power because they are so small you can provide reservers for many generation contingencies for less than the cost of reserves for one central station contingency. In order to be convincing, the author will have to provide more details of his plan than he has up to now. I don't think the idea woould warm the cockles of Thomas Edison's heart because you would still need polyphase AC for most of the transmission system. The cost of changing voltage is far to great to use it for lower voltage lines that would go to load centers. However fuel cells could provide DC service locally. Without the need to invert the DC they provide to AC, they could be 10% to 15% more efficient. Providing DC to the ultimate consumer would please those who believe that 60 cycle electromagnetic waves are harmful (even thought no evidence of that has ever been shown.) The reason we had to go to AC in the first place is that the small generators that Edison used were so inefficient. The Pearl Street Station generators have been estimated to have an efficiency of only 8%. It took Tesla's polyphase AC transmission to gather load over broad areas and regions so that we could use the giant far more efficient and lower unit cost central stations.

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