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Episode #77: ‘Spare Margins and Whether New Generation is Keeping the Pace' with Doug Houseman, Principal Consultant at 1898 & Co. [an Energy Central Power Perspectives™ Podcast]

As energy demand grows and existing assets and infrastructure ages, the utility industry is increasingly taking stock of the capacity that the grid is able to handle. After events like 2021’s Winter Storm Uri in Texas nearly brought the state’s power sector down, many leaders are questioning long-held beliefs regarding capacity, the makeup of their generation fleets, and more. The energy industry is, of course, evolving towards a grid that’s more defined by renewable energy sources, distributed energy assets, and smart technology, but if those implementations undermine the ability of utilities to reliably deliver power when it’s most needed then it’s all for naught.

To dig into these difficult but critical questions, Doug Houseman joins the Energy Central Power Perspectives Podcast for his second appearance on the show. In this episode, Doug taps into his wealth of experience and knowledge to educate the utility listeners about how they should be thinking about spare margin, long-term thinking, and grid-scale planning. In this conversation with podcast host Jason Price and producer Matt Chester, Doug espouses his wisdom with the wit, frankness, and expertise the energy industry observers have come to expect. 

Prefer to Read vs. Listening? Scroll Down to Read Transcript.

Thanks to the sponsor of this episode of the Energy Central Power Perspectives Podcast: West Monroe. 

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TRANSCRIPT

Jason Price: 

Hello and welcome to this week's episode of the Energy Central Power Perspectives Podcast, the show that brings leading minds to discuss the latest challenges in trends transforming, modernizing the energy systems and the utility industry of the future. And a quick thank you to West Monroe, our sponsor for today's show. Now, let's talk energy. I'm your host, Jason Price, and director with West Monroe coming to you from New York City.

Jason Price: 

With me as always from Orlando, Florida is Energy Central and community manager Matt Chester. Matt, today is one of our favorite types of episodes where we get to welcome back one of our previous guests. Are you ready for round two?

Matt Chester:
You're absolutely right, Jason, and I'm definitely ready. This is a guest, he always spurs conversation in the Energy Central Community, whether it's on the podcast or through his frequent post to the community. I'm sure today will be no different.

Jason Price:
For a long time, listeners to the podcast, members of Energy Central, or really anyone who's paying attention to the key thought leadership in the energy space will recognize the name Doug Houseman. Doug is a principal consultant at 1898 & Co., a division of Burns & McDonnell. We're always eager to hear from Doug because his wealth of experience and his insistence on frank, fact-based conversation always leads to important discussions on Energy Central and elsewhere.

Jason Price:
When we last had Doug on the podcast, an episode published in May of 2021, the conversation centered around the trend of offering quick fixes to the US grid system. Eager to do away with a short-term view, Doug shared why it was critical to look at the issue from a holistic perspective. You can find this entire dialogue at episode 41 titled The Whole Grid and Nothing But the Grid with Doug Houseman.

Jason Price:
Today, we're shifting our focus from transmission infrastructure to the level of generation on hand to feed into the grid system. Let's bring him back. Doug Houseman, welcome to the Energy Central Power Perspectives Podcast.

Doug Houseman:
Thank you, Jason, and thank you, Matt. It's fun to be back.

Jason Price:
And It's fun to have you with us. Let's dig in. Doug, we're here to discuss the concept of spare margin, and you've shared with us your view that the lack of spare margin at power plants across the country is a bigger problem than the industry is admitting. Can you walk us through exactly how the spare margin works and what the situation is like across the United States?

Doug Houseman:
Well, it's typically called reserve margin. When I was growing up back in the '60s and '70s, we were always looking for about 15% reserve margin on a peak day. The idea is at peak, when you turn on enough generation to be able to support that peak, you've got 15% generation in your back pocket, some of it spinning, some of it on a ready status to start up and go spinning, and some of it in reserve that's not spinning and not ready to come online, but is available.

Doug Houseman:
And that means if you have a power plant go down for any reason, there's another one that could be brought up to fill in that particular space. Now, in the '60s and the '70s, we were talking about schedulable generation, and it could be run at any time it was needed. Today when we talk about capacity and reserve margin, much of what gets counted in that is intermittent or variable generation like wind and solar. You can look at that generation and say to yourself, okay, we've got plenty of capacity.

Doug Houseman:
But if it's 30% solar and it's 3:00 in the morning when you hit your peak, you're not going to drive a whole lot of actual power generation out of that solar. We've mixed generation that is fully schedulable with generation that is not in the way that we look at our markets today, which is dangerous in a very cold winter day or on a very hot summer day.

Jason Price:
Good. I'm glad you're leading to the weatherization issues, because obviously we're talking about reliability and the obvious example that comes to mind for everyone is Winter Storm Uri in Texas in the winter of 2021. Explain to our audience what exactly happened here and could extra margin alone have prevented that situation.

Doug Houseman:
If it was a variable generation, the solar type probably wouldn't have helped at all at night, but it might have helped during the daytime if the solar panels hadn't been iced over. The wind generation was expected to produce a certain amount, but because of the ice coating many of the wind turbines got, they weren't able to produce that.

Doug Houseman:
Texas wind turbines are not set up like Midwestern or North Dakota turbines or things of that sort, where they have deicing capability and an ability to keep the various fluids in the turbine liquid and things of that sort, because that kind of cold weather doesn't happen in Texas.

Doug Houseman:
Now, to be fair, there wasn't any weatherization on many of the gas plants in Texas, and there was too much demand for natural gas between those people who wanted it for heating and those people who wanted it for electricity to be able to provide for all the electricity that they would've liked to have been able to produce. There are three levels of contracts that have to be followed by the gas pipeline operator. The first is the top level, which is what's called the city gate.

Doug Houseman:
That goes to residential customers, commercial customers, and some industrial customers for heating primarily, cooking, things of that sort. Obviously you would give that first priority. The second priority is what's known as a firm contract, been paid to be delivered gas, regardless of what else is going on. Firm contracts tend to be more expensive, and then there's what's called non-firms. On most days, there's plenty of room in the pipeline to deliver that gas.

Doug Houseman:
I'll buy a non-firm contract and roll the dice that there'll be enough for today. And of course, in Texas, during Uri or the polar vortex or whatever you want to call it, the non-firm contracts were not delivered on until the Texas Railroad Commission, which actually controls the pipelines in Texas, changed the priority among non-firm contracts to get gas delivered to those gas fired power plants. Now, at the other end of the pipeline, many of the fields, the wells froze or valves froze or other things froze.


Doug Houseman:
We saw about a 40% drop in natural gas going into the pipelines over that five day period. Reserve margin, no reserve margin. There were a whole bunch of mistakes that were made by various people. Many of them very small, but part of it based on the market design of ERCOT, which was you only get paid if you have the cheapest power. There's no money for reliability. There's no money for overbuilding. There's no money for capacity.

Doug Houseman:
There's no money for anything other than if you are the cheap provider, we will pay you. The Texas market was deliberately designed in that fashion to drive the lowest possible power cost, and it still is driven that way a year later. They have not redesigned the market to allow for more reliability or people to pay more attention to reliability or reserve margin. They have instead passed some regulations and some laws requiring people to do that regardless.

Jason Price:
Okay, let's talk about this reserve margin a bit further. It sounds like this needs to be addressed, monitored, and just basically have some oversight. Because whether it impacts, other sorts of events will simply happen, these unintended consequences will happen, and you can't simply plan for them. Who's in charge of monitoring concepts like reserve margin? Is this something that should fall with the ISO, should fall with FERC?

Jason Price:
Can you talk about like who from your perspective should be the czar, if you will, addressing reserve margin?

Doug Houseman:
NERC, when it was originally created, was the holder of all things reserve margin and reliability in the grid. Remember, NERC goes back to roughly when the New York blackout happened in the 1960s. It was put together to focus on reliability, making sure the transmission system was kept right, paying attention to that newfangled notion of cybersecurity, making sure that there was enough reserve margin and other things of that sort.

Doug Houseman:
Now, as we brought renewables in, people wanted renewables counted in that reserve margin, in the total capacity in the market. It evolved over time that they were counted. I'm not sure that that was a good decision at the time it was made, and I'm pretty much not sure it's a good decision now. Now, if you add batteries or storage of some form to a variable power plant and firm some percentage of the capacity, then I'm perfectly happy to count that capacity into the overall market.

Doug Houseman:
But the question is, is it okay to just firm it for four hours, or do we firm it for eight or 24 or 48 or a typical polar event, which is 128 hours? What do we firm it for in order to count it reserve margin? That's something that nobody in power has been willing to set a stake in the ground and say, "This is where it should be." I don't even hear it in conversations among engineers as to what the right kind of an answer would be for that kind of a question.

Jason Price:
Right. That leads to my next question, which is really about it's not just a technology issue, but the diagnosis that you made, the prescription calls for something beyond just technology. I mean, we're looking at stakeholders needing to really think about this on a more holistic standpoint, and it may require some governmental stepping in or some policy around this. Tell us at this point, where do we go from here? Battery storage is a technology solution, but what is the bigger picture? What pieces need to come aligned to make this work or solve this issue?

Doug Houseman:
Well, the first thing is I want to take the word battery off of storage. There are 400 different ways to put away electricity to store it. Batteries currently make up less than 5% of the storage in North America. I hope it never gets above six or 7% because it's an incredibly expensive way to store energy. There are much lower costs, much better choices, but we need to sit down and think about the whole picture. Do we allow some level of throttling for customers by the utility?

Doug Houseman:
With the AMI smart meters, whatever you want to call them, that we have deployed, most of them have something called a disconnect or latching relay in them. The firmware actually exists in most of those meters to set an upper limit for the amount of power that you're taking through the meter. It can be set with a lower threshold in a situation like Uri. I could go in and say, "Yes, you have a 200 amp panel that you can have at most 50 amps of power during the storm."

Doug Houseman:
If we had done some form of throttling during Uri with the meters that are capable of doing it, we probably could have cut the number of rolling blackouts by three-quarters. I don't have detailed models from Texas, so all I can say is probably. But demand side management of some form needs to be part of the equation. Storage of some form needs to be part of the equation.

Doug Houseman:
We need to get over the whole idea that solar is the cheapest form of electricity and realize that when we talk about solar, we're talking about an intermittent resource, which may or may not be available to us, but will never be available more than about 40% of the time. We got this thing called night. And so far solar cells don't produce very well at night.

Jason Price:
How close are we to basically... And I'm not just talking about Texas, I'm talking about across the country. How close are we to a near collapse of the system because of this reserve margin that we're not necessarily really thinking through probably?

Doug Houseman:
As we close down more and more nuclear power plants, and I'm not saying nuclear is the answer, but it's a base load that's schedulable and it's always there. We're running on a higher and higher % of variable resources, and we really need to be careful about how much of that we count into the reserve margin. We really need to, as MISO is now proposing, break the year into seasonal units and determine how much variable energy is available in each season.

Doug Houseman:
I was looking for a trail head, the difference in the amount of power that could be generated by 3kW of solar cells to run an electric vehicle charger, and I was shocked. In December, that 3kW gave me about three and a quarter kWh, kilowatt hours. In June, it gave me almost 50. And if you just take an average across the year, you're over weighting what it can produce in the winter and under weighting what it can produce in the spring.

Doug Houseman:
And that's something that we very seldom have those kinds of detailed discussions about what do you produce when and how far do you have to shift power from a different resource in order to level out the year? In Michigan, my home state, the last week in February, we need to start storing solar output in order to get through December and January. That's not a four hour battery. That's not an eight hour battery.

Doug Houseman:
That's a long interval, long duration battery that will probably have something in the neighborhood of 1,200 to 1,500 hours of storage in it. Who's going to pay for a battery we use once or twice a year? There's not a lot of income.

Jason Price:
Right. That's a valid point. All these investments and oversizing these investments, the return is needed to justify the investment. But at the same time, we're dealing with climate change. We're dealing with a public that wants a cleaner solution. And yet this problem has always existed in one form or another, but it's become more pronounced given the challenges I described. Where do we go from here? Where do we go from here, Doug?

Doug Houseman:
We actually need a plan, not just subsidies here and subsidies there and markets that are pushing for the cheapest price. We actually need to back up and say, "Okay, where do we build pump storage and how much of it do we need? Where are the best places to put solar to maximize the value of the investment? Where do we need to build transmission? How much ashore and onshore wind do we need to make? What demand side management programs are there going to be?

Doug Houseman:
What do we need to do to the ENERGY STAR program to make appliances responsive to that demand side management? How do we restructure the tariffs to make a place for storage, as well as all of the other things that we're going to have to do?" The real kicker on this is how do we do it in a way that doesn't disadvantage low income people, people who rent homes, and other people who aren't upper two quartile US citizens who have single family housing with enough roof space or enough yard space to be able to produce net zero over the course of the year?

Doug Houseman:
And of course, the final point is, how do we do away with the whole idea of net zero, because it's a myth at any sort of scale with regards to the stability of the grid.

Jason Price:
Doug, where in the energy mix does Hydrogen play a role?

Doug Houseman:
It's a storage medium. Now, because we've got good salt in Michigan, we could build very large salt caverns and store a couple months of it, like we do natural gas in the state. We're the largest storage location here in Michigan for natural gas in the world. It gets pumped out of the fracking wells and out of the deeper gas wells, and it comes to Michigan because we have a very shallow, very stable gas field, which makes it easy to store the gas and easy to pull it back out.

Doug Houseman:
Much of that set of gas fields is salt domes. All we need to do is verify that the whole storage area is a salt dome and we could put hydrogen away there without much of a problem. Now, we need 120 million, 140 million, 150 million, depending on who you read, of hydrogen just to make chemicals and pharmaceuticals and the other that we make with hydrogen today. Almost all of it created from natural gas.

Doug Houseman:
We've got a built in market for that storage product of hydrogen right now that's large enough to support every project people are thinking about all over the world. We're not even talking about it as storage for electricity or fuel for vehicles or any of those things. We're just talking about being able to make fertilizer and being able to have pharmaceuticals and other things that we need.

Doug Houseman:
Hydrogen has a very important role in our society today and will continue to have an important role in our society in the future. How far it goes out from its current uses will frankly depend on how much in the way of renewables we put in and how much of a plan we have for storing those renewables in a higher efficiency storage medium, because hydrogen isn't very efficient.

Jason Price:
Okay. Doug, before we get to the lightning round, I have one more question to ask you. We're living during a once in a generation moment with the IJIA funding, the Biden infrastructure funding. Although we've talked about reserve margin, the challenges the regions face with weatherization and all that, are we living in a moment where there's a solution at hand from a funding standpoint or where do you... I hear you laughing, but where do we stand on that? Give us your opinion.

Doug Houseman:
The IJIA funding is a nice drop from an eyedropper into a swimming pool. It is not sufficient. If we were to take all of the transmission funding and utility facing funding and put it into one transmission in line, we would not have enough money to go from North Dakota to Pittsburgh. We need a lot more transmission infrastructure than that. Almost all of the IJIA funding creates more demand. It does not create more generation, more storage, or more transmission.

Doug Houseman:
Right now we're looking at per million customers in the United States, just on the distribution level, about $40 billion required to rehab the electric infrastructure transmission and distribution. IGEF offers right around $30 billion. We got 130 million customers. IJIA doesn't offer enough money to do one million, let alone 130 million. Now, you want more chargers? There's great IJIA money there. You want to provide more money for electric vehicles?

Doug Houseman:
Yep. But it's almost all funding on the demand side for electricity, not funding on the supply side or on the move portion of the industry.

Jason Price:
Yep. Well stated. All right. Well, now we're at the lightning round. This is the part of the conversation where we get to learn a bit more about you. Doug, are you ready?

Doug Houseman:
Yep.

Jason Price:
What book, movie, or show do you find yourself returning to time and again no matter how many times it's been?

Doug Houseman:
1632 by Eric Flint.

Jason Price:
What's your preferred way to recharge your batteries after a long day?

Doug Houseman:
Eight hours of real sleep.

Jason Price:
What would your career path have been if you didn't get into the utility industry?

Doug Houseman:
If I hadn't destroyed my knee, I probably would've retired as a lieutenant commander or commander from the US Navy after 25 years.

Jason Price:
Best piece of advice you've ever gotten.

Doug Houseman:
Listen, then talk.

Jason Price:
What do you hope will be your legacy?

Doug Houseman:
That in 100 years somebody will remember that I said something useful.

Jason Price:
Well done, and I'm sure that's not going to be an issue. Doug, we always appreciate the wisdom you bring to our show and our audience, so we'll reward you with the final word. What message or words of wisdom do you want our listeners to take away from this conversation today?

Doug Houseman:
I think the most important thing that any listener could take away today is to realize that the electric grid is a massive machine that is connected from one end to the other. And if you screw up one piece of it, you screw up all of it. You need to think about how do you make sure that the piece that you're inserting or taking out doesn't mess up the whole machine.

Jason Price:
Well said. Great conversation, Doug. Thank you again for joining. We're just going to obviously have to pull you in again in the not too distant future. Thanks for sharing your thoughts today. You can always reach Doug with the Energy Central Community where he welcomes your questions and comments. We also want to give a shout out of thanks to the podcast sponsors that made today's episode possible. Thank you to West Monroe.

Jason Price:
West Monroe works with the nation's largest electric, gas, and water utilities and their telecommunication, grid modernization, and digital and workforce transformations. West Monroe brings a multidisciplinary team that blends utility operations, technology expertise to address modernizing aging infrastructure, advisory on transportation electrification, ADMS deployments, data and analytics, and cybersecurity.

Jason Price:
Once again, I'm your host Jason Price. Plug in and stay fully charged in the discussion by hopping into the community at energycentral.com. And we'll see you next time at the Energy Central Power Perspectives Podcast.

 

About Energy Central Podcasts

The ‘Energy Central Power Perspectives™ Podcast’ features conversations with thought leaders in the utility sector. At least twice monthly, we connect with an Energy Central Power Industry Network community member to discuss compelling topics that impact professionals who work in the power industry. Some podcasts may be a continuation of thought-provoking posts or discussions started in the community or with an industry leader that is interested in sharing their expertise and doing a deeper dive into hot topics or issues relevant to the industry.

The ‘Energy Central Power Perspectives™ Podcast’ is the premiere podcast series from Energy Central, a Power Industry Network of Communities built specifically for professionals in the electric power industry and a place where professionals can share, learn, and connect in a collaborative environment. Supported by leading industry organizations, our mission is to help global power industry professionals work better. Since 1995, we’ve been a trusted news and information source for professionals working in the power industry, and today our managed communities are a place for lively discussions, debates, and analysis to take place. If you’re not yet a member, visit www.EnergyCentral.com to register for free and join over 200,000 of your peers working in the power industry.

The Energy Central Power Perspectives™ Podcast is hosted by Jason Price, Community Ambassador of Energy Central. Jason is a Business Development Executive at West Monroe, working in the East Coast Energy and Utilities Group. Jason is joined in the podcast booth by the producer of the podcast, Matt Chester, who is also the Community Manager of Energy Central and energy analyst/independent consultant in energy policy, markets, and technology.  

If you want to be a guest on a future episode of the Energy Central Power Perspectives™ Podcast, let us know! We’ll be pulling guests from our community members who submit engaging content that gets our community talking, and perhaps that next guest will be you! Likewise, if you see an article submitted by a fellow Energy Central community member that you’d like to see broken down in more detail in a conversation, feel free to send us a note to nominate them.  For more information, contact us at [email protected]. Podcast interviews are free for Expert Members and professionals who work for a utility.  We have package offers available for solution providers and vendors. 

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