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‘Energy rationing’ ≠ a smart grid.

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Warren Causey, a well-known energy consultant, blogger and colleague of mine, regularly poses the following thought to the power industry. Although it’s a minority view today, I’d like to examine his idea to see where the discussion takes us.

To paraphrase Causey, “Why are we looking to energy rationing through increased complexity and inconvenience for consumers when what has made our quality of life and productivity of business so great in this country has been a ready supply of reasonably-priced energy?”

Another friend of mine, Brewster McCracken, who runs the Pecan Street Project in Austin today, has asked in presentations, “Hey, have you heard about the secret plan to kill the smart grid?”  The audience suddenly is curious. They’ll say, “No. What’s the plan?” And he’ll tell them: “The plan is two-fold. First, we’re going to try to make Americans to quit using energy when they want it the most. Second, if they insist on using peak time electricity, we’ll bankrupt them.”

McCracken is engaging in hyperbole, of course. But I think he makes a really good point that we’re asking consumers to get smart because we’ve got a grid that’s not. Causey’s point, essentially, is that utilities should be focused on making electric service as economical and easy for the customer as possible rather than trying to “engage” customers to be responsible for the fact that the grid can no longer do what they want and need it to do. Along with Causey and McCracken, I believe that the onus should be on the industry, both utilities and regulators, rather than consumers to keep the lights on in the 21st century.

We do have a problem.  The grid as it exists today will not continue to provide as reliable, economical and responsive service as consumers have grown used to.  The industry operated under a totally different, dreamily ideal set of circumstances for its first 100-plus years. It was a combination of three things: persistent economies of scale, exponentially growing customer demand and a stable business model, the cost-plus, regulated monopoly.

Every time we built a power plant larger or a substation larger or a transmission corridor larger, the per-unit cost, the per-kilowatt-hour cost, or the per-customer cost was less, because of these economies of scale. The falling real price of electricity in turn stimulated even more consumption.  And electric utility investors earned a safe, attractive, monopoly return on their investments.

All this led us to a monolithic, centralized grid consisting of large power plants, large transmission corridors, all distant from the load, and very little concern for maximizing the intelligence and efficiency of how electricity is distributed and used. The world was about the supply side. If we built enough capacity, everything else would work itself out.

Then, in the 1960s things began to change, and drastically.  The costs of uncertainty and risk began to swamp economies of scale, reducing growth in demand, and eroding the cost-plus monopoly model. The Great Northeast Blackout (which led to the formation of the North American Electricity Reliability Council) caused us to focus on reinforcing the supply side with even more generation capacity and transmission corridors but, inadvertently, created an opportunity market in which utilities began to exchange energy with each other and some large customers at opportunity costs rather than monopoly costs. This was followed by OPEC oil embargos which caused huge increases in the retail price of energy, interrupted decades of exponential growth in customer demand and resulted in the advent of non-utility power producers. This, coupled with utilities’ growing difficulties in completing central station power plants, particularly nuclear, on time and on budget led to prudency reviews of power plants and disallowance of cost-plus as the basis for pricing. The industry also began to face serious new collateral challenges including consumers’ resistance to adverse environmental impacts, preference for sustainability and concerns about safety.

In short, the wheels were coming off of the supply-side paradigm. But we already had the worlds largest and best grid. How were we going to be able to move forward? The Smart Grid became primarily about curtailing demand (or, per Causey, rationing energy) not about re-architecting the grid itself. And, secretly, the industry maintained the hope that if we could eventually build enough power plants and transmission lines, everything would be okay. 

Well, it’s become abundantly clear that we’re not going to be able to build as many central power plants and massive transmission corridors as we did when the focus was on constantly expanding supply. See the U.S. Department of Energy’s report, “Keeping the Lights On in the 21st Century

What can we do to make the grid smarter without making it less inconvenient for consumers? I don’t know many consumers that want to become energy experts or thermostat jockeys. Nor are they interested in sacrificing quality of life or productivity of business.

I see necessary changes and will articulate them in future blogs. They include decentralization, an emphasis on risk management rather than economies of scale, and alternative means of producing, distributing and consuming electricity. There are many ways that we can exploit substantial efficiencies and improvements in reliability and quality of service through the use of the latest and best electronics, telecommunications and information technologies.

For now, I’d like to hear from readers on the notion that utilities, regulators and customers should have a strong interest in wringing efficiencies from the grid itself first rather than just hectoring customers to change when and how they use electricity.

Image Credit: J van der Wolf /Shutterstock

Steven Collier's picture

Thank Steven for the Post!

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Steven Collier's picture
Steven Collier on July 18, 2012

This topic generated some interesting comments on Intelligent Utility

http://www.intelligentutility.com/article/12/07/change-grid-not-customer...

John Cooper's picture
John Cooper on July 18, 2012

I applaud Steve's reasoning and conclusions in this well written argument, especially his last sentence, "that utilities, regulators and customers should have a strong interest in wringing efficiencies from the grid itself first rather than just hectoring customers to change when and how they use electricity."

Historically, regulators have approved capital investments into rate base to ensure system reliability, with the understanding that over the long term, those investments would be paid for in rates by a captive ratepaying public that approximated society at large. In other words, investing in the grid owned by utilities was a societal good because it ensured a reliable electric infrastructure. Because the grid was virtually the sole supplier of electricity back in the day, the grid was built with tremendous reserve capacity so that it could serve the dramatic increase in system load on critical peak days (e.g., a few late afternoons in September in much of the US). That strategy worked quite well, as Steve attests, but it has been an expensive approach to keep investing in more supply side resources, rather than more efficiency.

The question of demand side solutions has been raised for some time, but rarely have such options received serious consideration because the entire ecosystem was oriented around supply side solutions - more generators, more wires, more fuel. As for eliminating waste, requiring grid operators to get more out of their systems with more efficient operations is difficult and unlikely to result in large benefits for the shareholders at any rate. In contrast, approving advanced meter investment has merits and promise for a demand side focus, finally, and it is a solution that also works for shareholders, and especially makes sense when the federal government has subsidized significant costs of this route. But the promise of AMI to reduce peak hinges on multiple additional steps to meet its goal of changed user behavior and peak shifting, making it a higher risk prospect to acheive its stated goals than appears at first glance.

In contrast, what if distribution automation had gone first, requiring zero cooperation from consumers? Such grid modernization would attack those operational inefficiencies directly in control of engineers and operators, systematically driving out waste and improving system reliability. And direct solutions with fewer contingencies have a higher probabilty of success. But there's more to it than that. Having wrung every efficiency they could out of grid optimization, utilities could go back to the regulators with their next plan, to move on to collaboration with system users to elimiate wasteful behavior on the demand side. And they would have the advantage of having saved customers money by going first on their supply side, thereby deferring rate increases, and thus making a stronger argument to move on to the next logical step: AMI, MDM, digital billing, TOU rates, DR programs, leading to changed user behavior and peak shifting.

I personally believe we need all of the above - grid optimization, system effciencies, greater reliabilty, improved security, and peak shifting to avoid additional capital expenses - but the questions in considering these options should include Which step is most effective? Which has the highest probability of success? and Which has the highest ROI? - thereby providing the most bang for the buck with the least disruption.

Steven Collier's picture
Steven Collier on July 20, 2012

John,

Thanks for taking the time to read and for your truly excellent response.  You have articulated much better than I my underlying proposition . . . I am absolutely not against demand side management . . . in fact, I strongly favor real-time monitoring and management of the grid from the generators all the way to the end use devices. Well-designed, systematic transformation of the grid from one that is rigid to one that is flexible is paramount . . . and systematic transformation of the way that we operate the grid from ex post facto reactionay to real-time, active grid management is not only possible, it is the only way to meet the needs of the 21st century.  Who knows, taking John Archibald Wheeler's vision to the extreme in conjunction with Bob Metcalfe's vision of the "Enernet" we will someday be delivering electric energy in packets . . . after all, a bit of information is actually a quantum of energy.

Steve C

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