Back in the year 2000, the far-flung electrification of America was described by the U.S. National Academy of Engineers as “the greatest engineering achievement of the 20th century.” Yet today, in the early 21st century, the electric power grid of the United States—and most other Western countries—is woefully inadequate, both for producers and consumers. The electric power grid in most locations was installed at the same time as the telephone system.
Unlike the phone system, however, the power grid has not had the same impetus to transform itself into something better from a rival system like the Internet. It is therefore vulnerable to terrorist threats, natural disasters (such as Hurricane Katrina) and human error (as with the “rolling blackouts” in the United States in 2003). More importantly, the power grid is simply running down. It is based on the idea of sending a fixed amount of electricity through fixed pipes, with no easy way to adapt to variable, flexible sources of electricity. It was also not designed to accommodate the levels of energy trading now common in the United States and around the world due to deregulation and the emergence of consumer choice of electricity supply.
Meanwhile, the demand for electricity is rising dramatically. Between 1975 and 2004, U.S. electricity demand grew by more than 100 percent, while spending on grid upgrades declined by 50 percent. Electricity is big, big business. With more than $600 billion in assets, the nation’s electric utilities are twice as large as the telecommunications industry, and almost 30 percent larger than the auto industry.
Compared to other industries of that size, the power utilities are surprisingly small. The largest market cap for an individual electric utility— Exelon—is $32 billion. This compares to a market cap of $365 billion for ExxonMobil. Of the more than 5,000 private and public utilities in business in the United States, only 17 boast market caps of greater than $10 billion. Many electric utilities are too undercapitalized to fund innovation. Following the trend of deregulation, research and development (R&D) budgets at most utilities were downsized. Some have lost all internal R&D functions. Cost-cutting is the major trend at most utilities, so they see the increasing importance of public dollars to now support the R&D they cannot do by themselves.
The following facts explain why government will have to play a larger role in making electricity deregulation work for everyone, including business and the environment: Roughly 70 percent of utility assets today are power plants, most of them built in the mid-1960s with 1950s technology. Only 10 percent of utility assets are in transmission facilities, akin to electron highways. The remaining 20 percent of utility assets are in the poles and wires of utility distribution systems that connect power directly to people.
All told, it is estimated that today’s dinosaur power grid costs U.S. business and residents $100 billion every year. “If present trends continue,” commented Roger Anderson of Columbia University, “a blackout enveloping half the continent is not out of the question.” The level of investment in concrete, pipes and sophisticated digital networks is estimated to be a similar number, ranging from $50 to $100 billion over the next decade.
Why does the grid need to be upgraded? Perhaps the biggest reason is the desire of a new generation of business leaders involved with the digital economy to have a grid that can provide a higher grade of premium power. Other reasons include heavy congestion on existing power lines, environmental considerations and trends toward distributed power sources.
At present, the grid is operating at full capacity in many regions of the country. Much of the transport hardware connecting power sources to people is reaching the end of its design life, further threatening the integrity of our energy supply infrastructure. After 30 years of underinvestment by private sector players, private and public utilities are poised to begin revamping the grid.
And then there are those pesky environmental problems. A smarter grid is a more efficient grid, more easily accommodating variable and intermittent power sources such as solar and wind, as well as on-site generators relying on fuel cells and micro-gas turbines. The days of central-planning energy are over. But deregulation will never work unless the grid becomes smart, price signals can be seen by customers, and fresh investments are made in transmission and distribution facilities.
In an ideal world, just as with computers and telecommunications, efforts to upgrade and revolutionize our contemporary power transport system would mimic what happened with the Internet: There would be smaller, cleaner and smarter solutions. Yet this hasn’t happened. Instead, the electricity infrastructure in Europe and America, in many respects, has been largely stuck in time.
The Denmark Exception
To understand why the grid needs to be modernized, we need to look at those few countries in which the intelligent grid has already been under way. Consider Denmark, which currently receives about 20 percent of its electricity from wind turbines of various sizes distributed throughout this country’s grid, and has a goal of generating 50 percent of its electricity from wind and other renewable resources by 2025. A government policy of mandatory access to the grid and subsidies covering 30 percent of capital investments helped spur the initial wind boom. Utilities even had to pay for any retrofits to accommodate all wind energy systems. If indeed we are to shift to renewable sources that are intermittent in nature, then Denmark offers some fascinating lessons about how best to manage large amounts of distributed generation, a key trend likely as the grid becomes more sophisticated.
No other country relies more on dispersed power sources than Denmark. “They had all of these tiny turbines, many only producing 50 kilowatts (kW) of electricity, that were invisible to the system. This was quite difficult to manage,” observed Jayson Antonoff, a sustainable energy consultant with International Sustainable Solutions. “Even in Denmark, people began to say, ‘This is crazy,’ because wind turbines were everywhere.” So, 10 years ago, this country shifted toward centralized wind systems, primarily located offshore. There are now only three pockets in the country where wind development is allowed on land. The activity on land is now focused on repowering—replacing the small, existing turbines with fewer but larger ones that are more efficient and have less impact. All of the new development is offshore with multi-megawatt turbines. The largest machines on the market today are five megawatts (MW), specifically designed for offshore installations.
Back in the mid-1990s, in order to increase system efficiencies and decrease greenhouse gas emissions (GHGs) associated with global climate change, Denmark required all non-wind electricity generators to not only produce electricity, but heat. Denmark has since developed new policies creating a market for thermal energy. Through public policies, Denmark is seeking the right balance between thermal and electrical energy. It is really a matter of the greatest efficiency. Today, if you are an owner of a cement plant or waste incinerator, and you generate excess heat, you can sell it. Planning and construction of distribution networks for thermal and electric resources are handled by the public domain in Denmark.
Of course, Denmark, a small peninsula country, is not an island when it comes to electricity. Because of an advanced international grid, it can access hydropower in Norway to the north and coal and wind in Germany to the south, so that is one way Denmark’s grid operators manage the ebb and flow of wind.
But in winter—when windy storms rage—the fleet of wind turbines operating on land and offshore can sometimes completely power the entire country. Since the hundreds of Combined Heat and Power (CHP) plants provide the only source of heat for many buildings, they must run during cold weather. The wind turbines may have to shut down during the periods when they could be producing the greatest amount of energy. Unless, that is, this extra power could be exported north and south.
The Technological Edge
Denmark, for all its flexibility, is not the technological leader. That role falls to the United States, where we are great at inventing technology gadgets and figuring out how to fix things. The Europeans are much more focused on strategy and policy and how to introduce behavioral changes. They see a problem, develop a policy to address it and assume the technologies will follow. Japan is also a policy and technical leader, beating everyone in the world to the punch with an aggressive solar energy program that is already winding down, and an unrelenting search for efficiency improvements. China, the awakening giant, is showing some signs of recognizing the need for a better grid, but so far, India has made more progress in developing premium power grids to serve the needs of new businesses locating there.
Several strategic public-private partnerships on grid modernization have been launched here in the United States. Among them is the Electric Power Research Institute’s IntelliGrid program, which is dominated by U.S. private and public utilities, but does include Electricite de France (EDF), the government-owned French utility serving 42 million customers in 22 different countries. In essence, the program pushes an open architecture for electricity similar to current common carrier platforms for telecommunications services. The term “open architecture” refers to the ability of all of us to call anyone on any phone, because the system is “open” to all consumers. This is currently not the case with the electricity grid, which was never designed to accommodate more than one service carrier, the electric utility monopoly. IntelliGrid has also been pushing the notion of a “self-healing” grid, one that would respond automatically to limit disturbances and boost both efficiency and performance.
“During the big blackout in 2003, which started in Ohio, the utilities right next door could not see what was going on with their neighbors,” said Rick Counihan, one of the early brains behind IntelliGrid, now San Francisco director for ECOS Consulting. The blackout rolled through 11 states and carried a price tag of $6 billion. “There is phenomenal value for companies and customers to be able to interact easily, but historical development of geographical monopolies reduced incentives to integrate distributed intelligence in our electricity system.
“By modernizing the grid with better communications, open architecture and distributed intelligence, we can increase reliability. We can also get greater use out of existing assets, and provide new services to electric customers that were not possible before,” he said.
Forms of “distributed intelligence” include sensors tracking temperature, wind speed and voltage, all factors impacting the capacity and efficiency of power transport. Today, the most innovation is occurring within the private sector with backup power systems, batteries, distributed power generation and redundant resources to ensure premium power quality. Regulated monopoly providers have been lagging behind on these types of initiatives.
West Coast is a Leader
It appears some of the advanced work on grid modernization is occurring on the West Coast. The Bonneville Power Administration, for example, pioneered the notion of an “energy web” that monitors grid operations via the Internet, instead of the radio-based communications used throughout most of the country. The Internet and computers make changes to AC units or other HVAC systems without any physical action at the buildings themselves. BPA also has in place a “non-wires” program that relies on energy efficiency improvements, demand response, and distributed generation to defer capital expenditures for the needed increase in transmission and distribution (T&D) system capacities. In some cases, for example, installing a solar photovoltaic system can bolster a weak point in the grid, and defer the need for much more expensive distribution line upgrades. Boosting the throughput of existing transmission lines by way of new metals that contract, rather than expand, when temperatures are hot (and line sag reduces throughput), is another novel approach to boosting the efficiency of today’s static grid.
Yet another public-private effort is the Pacific Northwest GridWise Testbed, currently investigating how a fleet of so-called smart appliances might interact with the envisioned new electricity ecosystem of the future. “Most appliances are dumb as a stone,” said Robb Pratt, project manager for the GridWise Testbed. “We just launched a program whereby 400 homes will interact in a virtual real-time market where appliances, thermostats and other controls will allow participants to be able to respond to price signals and reduce power consumption.”
The East Coast has its innovators, too. Some of the most advanced in network designs is occurring on the East Coast at Con Edison, the utility serving New York City. With the financial district being located in their New York City service territory, there can be no risk of interruptions. If a circuit breaks within Con Edison’s service territory, there is a network loop to prevent the kinds of single point failures that would be likely in much of our current grid, in which there is very little redundancy in the system.
Other East Coast innovators include Concurrent Technologies Corporation (CTC), a nonprofit firm with ties to the federal Department of Defense headquartered in Pennsylvania. “The sole mission of GridApp™ is to put technology in use, and not just by a single utility,” said Paul Wang, project manager of a CTC-led utility consortium called GridApp. “We are purposefully choosing projects where a single use can be replicated into multiple uses to have industry-wide benefits.” he said. Among the projects developed so far is “Substation in a Box,” a completely self-contained electricity substation that literally looks like a big box. It carries a much smaller environmental footprint than a traditional dispersed equipment substation, and therefore could ease siting and safety concerns.
The pool of government funding is insignificant, as compared to what is needed for the overall investment required in the next 10, 20 or 30 years for grid modernization—estimated in the range of hundreds of billions of dollars. Woefully, federal R&D budget outlays are still not balanced toward needs in transmission and distribution, as reflected in the fact that only six percent of the 2005 DOE R&D budget in electricity went toward T&D, whereas roughly 60 percent went toward power generation.
There was a little bit of good news for smart grid enthusiasts in the passage of the Energy Policy Act of 2005, which calls for nationwide reliability standards and other demand response and time-of-use metering provisions that may stimulate innovations inching us closer to the promised nirvana of an intelligent grid. Yet observers such as Patrick Mazza with Olympia, Wash.-based Climate Solutions claimed significant obstacles remain. “Traditionally, cautious utilities tend to hold back until success is demonstrated elsewhere,” he said. “So technological progress stalls awaiting the courageous act of some early adopter utility, or a public-private partnership to take the lead.”
Jesse Berst, president of the Center for Smart Energy, claims we have indeed reached a tipping point. “Computer intelligence is less expensive than old-style capital assets,” Berst said. He pointed to studies conducted by Pacific Northwest National Laboratories and the Rand Corporation that show a shift toward an intelligent system that substitutes bits for iron could save between $50 to $100 billion over 20 years. Berst noted that other studies show a return on investment of $4 to $8 for every dollar invested in a smart grid.
“We can’t postpone this any longer,” Berst said, noting that business-as-usual spending will fall short of what is now needed to make the grid modern. He estimated that investments on the magnitude of $5 to $10 billion annually over current funding levels will be necessary to move closer to a new era of “designer electricity.” Trends are beginning to move in a positive direction, he maintained, but there is much work to do: “Stop spending your life on managing legislation, regulation and uncertainty, and start leading customers to a new era of prosperity.”
Peter Asmus has been covering the energy industry for more than 15 years. He is author of Reaping The Wind, Reinventing Electric Utilities and In Search of Environmental Excellence.