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My thanks to Jeffrey Greenspan who pointed me to Commonwealth Edison’s Real Time Pricing Guide for details of the various additional charges that were missing from my analysis of the Impact of Real Time Pricing in Chicago.  This document provides a sample bill for a consumer on the real time tariff and it makes for interesting reading.  Many of the charges on the bill are the same as those for ComEd’s fixed rate plan.  However, there are a few additional charges that, as I suspected, reclaim much of the savings that my earlier analysis predicted.

The largest of these additional charges is something that ComEd are calling a Capacity Charge.  They describe this as a charge that covers ComEd’s costs to reserve enough electricity to meet demand at all times, including peak hours.  The charge is calculated based on a Capacity Obligation multiplied by a Capacity Charge Rate.  The Capacity Obligation is calculated once a year based on the consumers usage during the five highest demand hours of the previous summer.  In the sample bill that is provided in the ComEd guide, the electricity usage is 636 KWh compared to around 1000 KWh in my analysis.  The electricity supply charge is $27.77 which is broadly in line with what my analysis would have projected.  In this example, the Capacity Charge is $15.94.  Assuming that peak usage scales fairly linearly for all users, the capacity Charge for my hypothetical user would be around $25.  Of course, real time users can reduce their Capacity Charge by shifting demand to off peak hours but, at least initially, they are going to be stuck with a charge that significantly reduces their potential cost savings on the real time tariff.

Real Time users also pay a Miscellaneous Procurement Component Charge which ComEd describes as a charge that recovers the costs that ComEd incurs related to procuring electricity supply directly from PJM-administered markets for customers with hourly energy pricing that are not recovered through the application of the Capacity Charge, the Electricity Supply Charge, and the Transmission Charge. Similar costs for customers on the fixed rate are included in their Electricity Supply Charge.  Sounds like a charge to cover things we couldn’t charge you for under any other legitimate charge.  There are no details on how this charge is calculated but the sample bill shows a cost of $2.25.

 

Image by Duke Energy via Flickr

 

Next, there is a Meter Lease Charge for real time users which is another $2.25.  Ironically, despite the fact that smart meters actually reduce the utilities costs by eliminating the need for manual meter reads, real time users who are required to have a Smart Meter to record interval usage still pay the Standard Metering Charge and also pay this additional meter lease fee.  The document makes an argument for why this is the case but points out that the full cost for users after the first 100,000 meters will be $7.65 for the smart meter and notes that all customers are subsidizing the first 100,000 meters via a rider on the Customer Charge portion of the bill.

Other charging differences which are impossible to analyze based on the information provided by ComEd include:

• Different calculations for transmission charges because the supply for RRTP customers is procured differently (directly through PJM rather than through the Illinois Auction and recent procurement processes).
• Different calculations for the Purchased Electricity Adjustment, which ComEd describes as the balancing mechanism to assure that ComEd’s supply charges exactly match supply costs over time.  They also note that in 2008 there were seven months when this charge was lower for the hourly customers and five months when this charge was higher for the hourly customers so this one can possibly be considered a wash except that they don’t specify what the differences were in each of those months.

Based on this new information, I have updated the table of projected costs for my original analysis.

Model	Daily Cost	Monthly Cost	Saving
Standard Fixed Rate	$2.45	$73.50	–
Standard Low Cost	$1.16	–	–
Standard High Cost	$2.92	–	–
Standard Average	$1.61	$77.87	(6%)
Stay at Home Fixed Rate	$2.45	$73.50	–
Stay at Home Low Cost	$1.21	–	–
Stay at Home High Cost	$3.17	–	–
Stay at Home Average	$1.63	$78.44	(7%)
Peak Shifted Fixed Rate	$2.45	$73.50	–
Peak Shifted Low Cost	$1.02	–	–
Peak Shifted High Cost	$2.37	–	–
Peak Shifted Average	$1.40	$67.02	9%

Note, I have added $29.50 ($25 Capacity Charge and $2.25 each for the Miscellaneous Procurement Component Charge and the Meter Lease Charge) to the Standard Average and Stay at Home Average costs and $25 to the Peak Shifted Average to reflect the potential for this profile to reduce the Capacity Charge over the longer term.  Also, note that this analysis still doesn’t represent the entire cost but the other charges are either poorly defined and therefore impossible to predict based on the available information, or they are the same for both the fixed and real time tariffs.

In conclusion, it is apparent that the per KWh price is incidental to this game that ComEd is playing.  There are still savings to be had for consumers who aggressively manage their usage and the timing of that usage but for the casual consumer who isn’t willing to invest time and effort in reducing overall demand and shifting demand to off-peak hours, the real time rate looks less and less attractive.  This is unfortunate because it is in our best interests to find ways to encourage users to reduce and shift demand so that we can decelerate the ever increasing growth in demand for electricity but this plan is not the way to do that.

It has been a few weeks since I last posted to this blog.  That is largely due to the fact that I recently secured full time employment again and so I have had many other commitments.  My new job is not in the Smart Grid or energy field but there is a green technology angle to it.  I am working at a VC funded technology firm in Chicago called Cleversafe (www.cleversafe.com).  Cleversafe has developed a new data storage technology based on information dispersal algorithms that offers the promise of increased availability and reliability of data storage with lower overall cost.  In comparison to RAID 6 storage with replication, Cleversafe’s technology can reduce the amount of physical storage capacity required by up to 60% and, as a result, cut costs for power and cooling by that amount too.

In this column, I want to return to the subject of real time pricing in Chicago which I have discussed in a couple of earlier columns.  A colleague from the Green Technology Organization of Greater Chicago has recently switched over to real time pricing offered by Commonwealth Edison and, in anticipation of that event, he has been collecting data on the real time pricing rates over a period of almost 3 months from July through September.  The data represent 55 days during that period and, although some days’ data sets are incomplete, it presents a pretty good picture of the real time rates during a period that included some very hot weather and some relatively mild weather.  Daily peak prices ranged from less than 3c/KWh to over 23c/KWh.  Daily averages ranged from around 3c/KWh to 8c/KWh.  The standard fixed rate offered by ComEd is 7c/KWh.

To fully appreciate the impact of these rates, it is necessary to consider them in the context of an actual usage profile.  To do this, I created three hypothetical profiles as follows:

• A standard profile representing a fairly typical household in which usage peaks in the morning as people get up to go to work or school and again in the early afternoon through the evening hours when people return home.
• A profile representing a homebound person in which usage remains relatively constant all day.
• A peak shifted profile representing a modest amount of demand being shifted out of peak hours into the nighttime hours when rates are lower.

All three profiles aggregate to a daily usage of 35 KWh which is consistent with the average residential electric bill of around 1,000 KWh per month.

Using these three profiles, I then modeled the actual cost based on the fixed rate of 7c/KWh, a sample day from the period where energy rates remained very low, a sample day where energy rates peaked very high and an average of the real time pricing across all 55 samples in the dataset.  The table below illustrates the results of this analysis.  With no peak shifting, a typical consumer can reduce their average monthly energy costs by 34%.  With demand response, the reduction can be increased to 43%.  Interestingly, the incremental savings from shifting peak demand are not all that significant and this seems to bear out the concerns that many observers have raised about the value of demand response programs for residential consumers.  However, the other interesting thing to note here is that even for those whose usage profiles remain relatively constant throughout the day, such as the homebound or the elderly, there appears to be a significant cost saving associated with moving to the real time rate.

Model	Daily Cost	Monthly Cost	Saving
Standard Fixed Rate	$2.45	$73.5	–
Standard Low Cost	$1.16	–	–
Standard High Cost	$2.92	–	–
Standard Average	$1.61	$48.37	34%
Stay at Home Fixed Rate	$2.45	$73.50	–
Stay at Home Low Cost	$1.21	–	–
Stay at Home High Cost	$3.17	–	–
Stay at Home Average	$1.63	$48.94	33%
Peak Shifted Fixed Rate	$2.45	$73.50	–
Peak Shifted Low Cost	$1.02	–	–
Peak Shifted High Cost	$2.37	–	–
Peak Shifted Average	$1.40	$42.02	43%

Note however that this analysis only looks at the actual energy charges.  I have looked on the ComEd site for comparative details of the various charges that are added to the bill on each of these rate plans and I have not been able to find any data on this.  I believe there is an additional charge for the smart meter that is required to enable real time billing.  This charge would reclaim some of the cost savings associated with the real time rates.  There may well be other charges that reclaim even more of those savings.  I will provide an update on this analysis once I can find the additional data on the non-usage related charges.

My last posting on this blog elicited a strong reaction in one of the LinkedIn groups where I typically post discussion topics relating to my blog entries.  Initially, the response was relatively civil but clearly opposed to the central premise in that posting; that there is a role for both state and federal government to play in creating the regulatory and legislative environment in which new industries such as those working on green technology can compete effectively against more entrenched interests and ultimately thrive, producing jobs and wealth within the society.  However, it quickly turned into a rant about cap-and-trade, the size of government, the role of China in the world economy, the moral superiority of the US over all other nations, the current administration’s “socialist” policies and various other lightening rods of right wing opinion.  After battling to bring the discussion back to its original premise for about a week, I gave up, stopped following my own discussion and moved on.  In my absence, the discussion grew to over 100 posts and continues to receive multiple new posts per day.  The tone of the debate has become significantly more ugly with several additional people joining in, not necessarily to support my original position but to attack my attackers.  In the process, the topic of discussion has veered even further off course to include;

• Whether Barack Obama or George W Bush took more vacations as President
• Whether Barack Obama is a Muslim
• Whether Barack Obama was born in the US
• Whether the original respondent to my posting has the right to express his views on a LinkedIn discussion forum

Observing this does not give me any sense of personal vindication or comfort.  I feel that the entire message that I was trying to communicate has been lost in the heat of a debate that has nothing to do with my original posting and even less to do with reality.

I say this by way of a preface to inviting readers to check out an article in today’s Intelligent Utility Daily which uncovers the trail behind some of the opposition to Smart Grid and green technology in general.  As the article notes, there are legitimate reasons for people to be opposed to the current efforts by Xcel energy to push off the cost overruns in their Boulder CO, Smart Grid City project onto ratepayers.  There are similar grounds for concern about the actions of some other utilities around the country who have either demonstrated a lack of attention to consumer issues, as in the case of PG&E in California, or who have inappropriately tried to push all of the risk associated with Smart Grid deployment onto consumers, as in the case of BG&E in Maryland.  However, we need to be aware of the sources of funding behind some of the “grassroots” organizations that rise up to oppose these initiatives and be careful to discern where their agendas align with our own and where they begin to diverge significantly.  As my experience with the LinkedIn forum demonstrated, there are those who will begin by raising legitimate concerns but whose real agenda is simply to oppose and obfuscate anything that does not align with their personal ideology which may be based, not on the common good but on a narrow and self-serving interest.

As my earlier posting attempted to point out, there is a valid role for government to play in creating the conditions in which new technologies can come to market.  In large part this involves making sure that the existing regulations and market conditions that have been created to favor the incumbent technologies and service providers do not unfairly mitigate against new entrants that were not envisioned at the time those regulations were created.  This is an area that requires nuanced debate and objective policy making that seeks to place the best interests of society above those of narrowly defined special interests within either the entrenched industries or those that are seeking to replace them.   What passes for debate in the LinkedIn thread that I refer to above is symptomatic of much of our society today and it does not provide for the kind of nuance and objectivity that is required.  Instead, absolute positions are staked out and reinforced by like-minded individuals while those with differing opinions are demonized and discounted as crazy, untruthful and, more often than not, unpatriotic.

Last night, I attended a meetup event in Chicago to promote GE’s ecomagination challenge.  At that event, Bob Gilligan, VP of GE Digital Energy quoted statistics that illustrate a key point about the supply and demand of energy in the world.  The average US consumer uses 12,000 KWh of electricity per year.  In Europe, the figure is 9,000 KWh and in Japan, 6,000 KWh.  In China and India, large portions of the population have no access to electricity at all and the average consumption is just 1,000 KWh.   As important as it is for the US to reduce energy consumption, the bigger issue is the growth of energy demand in China, India and other developing nations as they seek to grow and modernize their economies for the good of their populations.  We need to ensure that people in these countries can have access to affordable energy without accelerating the destruction of our environment through additional mining, pollution and accidents similar to the recent gulf oil spill or the 2008 TVA coal slag collapse.  Newsweek recently ran an article highlighting the fact that in Nigeria, oil spills are a weekly occurrence and the cleanup efforts are minimal but we typically don’t even hear about such issues because they are half a world away.  This is a global problem that requires global solutions.  If the US wishes to be a leader in the emerging technologies that will be needed to solve this problem, we need a cohesive, long-range national energy plan that makes Smart Grid and clean renewable energy a priority at home first.  Only then will we be able to develop the technologies that can be exported to other countries to help them meet the challenge of sustainable access to the energy that will transform their societies and help to lift their people and their economies out of poverty.

The late Tip O’Neill is credited with making the statement that “All Politics is Local” and to a large degree that is true.  As I have before on this blog, utilities that ignore the local concerns of their rate payers and try to implement radical changes to the way electric power is distributed and paid for without addressing those concerns do so at their own risk.  Around the country we are seeing various groups raising objections to Smart Grid implementation projects, smart meter deployments, time of use pricing and other developments in the electric supply industry.  Some of these objections are broad based but many more are intensely local like the objections in Fairfax, CA claiming a health impact from the wireless communication employed by smart meters and the objections to paying around $500,000 to a consultant to ensure that the residents of Naperville IL get the maximum benefit out of the $22,000,000 Smart Grid Investment Project that city is implementing. While the problems cited may be specific to a certain locale, and the stakeholders who need to be mollified are local consumers of a specific utility, it doesn’t necessarily follow that the solutions should be localized.

The Environmental Law and Policy Center (ELPC) is an environmental advocacy organization with offices in several Midwest states.  ELPC works with state and local governments to promote clean energy, sustainable development and environmental protection in an economically sensitive manner.  ELPC was contracted by the City of Chicago to co-chair the Renewable Energy Working Group (REWG) which was chartered with evaluating and refining the targets in the clean and renewable energy portion of the Chicago Climate Action Plan and making recommendations for new policies and programs.  The goal of the Chicago Climate Action Plan is to reduce greenhouse gas emissions from the city by 25% below 1990 levels by 2020 as a first step toward a more ambitious goal of achieving a reduction to 80% below 1990 levels by 2050.  The clean and renewable energy portion of the plan is tasked with achieving 32% of the total goal.  Other portions of the plan address energy efficient buildings, improved transportation options, reduced waste and industrial pollution, and adaptation.  Last week, at the monthly meeting of the Green Technology Organization of Greater Chicago, Madeleine Weil of the ELPC spoke about this work.  In a wide ranging and stimulating talk that generated much discussion, Ms Weil laid out the policy and program recommendations for the clean and renewable energy portion of the plan.

Despite the size and influence of the city of Chicago, Ms Weil noted that one of the first tasks of the REWG was to ensure that Chicago became a strong advocate for state policy changes.  She noted that, without the proper regulatory framework at the state level, it would be impossible for Chicago or other cities to achieve their local objectives.  A key target of Chicago’s advocacy at the state level has been the state’s Renewable Energy Standard (RES).  The RES is a state law requiring that all Illinois utilities supply 25% of their power from renewable sources by 2020.  While this is not the most aggressive target in the country, it is a significant challenge and one that requires a lot of effort on the part of the utilities and a great deal of policy guidance on the part of the legislature to ensure that it is done in a way that maximizes the environmental and  economic benefits to the state of Illinois and its citizens.  Some of the specific changes advocated by the REWG include:

• Extending the in-state preference to incentivize local renewable energy projects within the state
• Emphasizing the use of long term contracts to create an environment that minimizes risk for investors in renewable energy  projects
• Supporting a graduated ramp up of the solar portion of the RES to ensure that plans are developed and implemented now at reasonable cost to meet the goal of having 6% of energy generated from solar technologies by 2015
• Securing an allocation of part of the solar portion of the RES for customer sited distributed generation to enable commercial, industrial and residential consumers to participate in the emerging market for solar energy

This last point is worth noting because it illustrates the complexity of regulation in this area.  Utilities meet their obligations to the RES, in part, through the purchase of Solar Renewable Energy Credits (SRECs) from producers of solar energy.  These SRECS are purchased in a reverse auction process which favors the large, utility scale suppliers who can afford to buy the market by under-pricing their SRECs.  Since the policy goal is to encourage consumer owned distributed generation, it is necessary to level the playing field by ensuring a specific allocation be set aside for this class of supplier.

Another significant policy recommendation advocated by the REWG concerns improvements to the state’s net metering rules.  Net metering is the practice whereby, if I have a residential solar installation, I can sell surplus energy back into the grid.  Under the current rules in Illinois, only facilities up to 40KW are eligible to participate fully in this scheme.  The REWG recommends raising this limit to 2 MW and Weil presented data showing a strong correlation between net metering best practices including high capacity ceilings and cumulative installed capacity.  In other words, allowing consumers to sell more power back into the grid incentivizes greater investment in distributed generation capacity within the state.  While this seems obvious, there is significant political pressure from the utilities to keep the lower limits in place and it is important to have advocates like ELPC to make the case for consumers and the overall interests of the community.

Another area of recommendations deals with enhanced market structures and regulations.  This covers a variety of areas but I want to comment on one in particular.  A renewable energy installation recoups its investment in three ways:

• By reducing the amount of energy purchased from the utility through on-site generation
• By generating revenue through the sale of energy back into the grid under net metering rules
• By the sale of Renewable Energy Credits (RECs).

RECs are a way of incentivizing investment in renewable energy supplies.  Utilities which are mandated by Renewable Portfolio Standards in the states where they operate, purchase these RECs as a way of meeting their obligation to deliver energy from renewable sources.  Currently in Illinois, there is no market for Renewable Energy Credits.  These markets do exist in other states, most notably PA, NJ, MD and CA.  In accordance with the laws of supply and demand, Illinois based renewable energy producers are selling their RECs into these other states where mature REC markets exist because that is where they get the best return on their investment.

The cost of a REC depends on the regulations that are in force in a particular state.  For example, in NJ, the regulations allow utilities to opt out of compliance with the renewable portfolio standard but they are required to pay $675/MWh of non-compliance which drives the value of a REC in NJ close to that level.  In other states, the value of a MWh REC is much lower.  As a result of this, and the fact that there is no functioning REC market in Illinois, many Illinois based renewable energy projects, including the 10 MW solar PV plant built by Exelon on a brownfield site in Chicago’s West Pullman neighborhood are planning to sell their RECs into market outside the state but they are waiting to see what Illinois will do.

This is an example of how, even the state level is not necessarily the optimal level for setting regulations to ensure an efficient operation of a national asset like the US electric grid.  As Ms Weil noted, there is a need for a national energy policy to prevent such distortions in the market that produce unintended consequences in electricity markets which are increasingly organized across multiple states.  Some weeks ago, I blogged about another example of problems caused by regulations taking place at too local a level concerning the permitting process for transmission lines which can take much longer than the actual construction phase if and when permits are ever granted.

This is not to say that all regulation should occur at the highest level possible.  Some things are best regulated at the federal level, others at the state level and some are indeed best left to local governments.  The key differentiator is; at what level can the regulators and legislators strike the best balance between consistency and flexibility, between setting national or regional policy and being responsive to local needs.  At the local level, the REWG advocates:

• Leveraging marquee projects like the West Pullman solar PV project to develop best practices for repeatable implementation of similar projects within the city.
• Targeting high impact sectors to reduce greenhouse gas emissions at lower cost.  Commercial and Industrial users make up just 8% of the customer base in Chicago but are responsible for over 50% of all CO2 emissions within the city.
• Implementing Property Assessed Clean Energy (PACE) which would allow local governments to provide upfront financing for renewable energy projects which is then repaid on the project owner’s property taxes.
• Incorporating renewable energy requirements into new building standards.
• Streamlining the permitting process for renewable energy projects.
• Developing solar access rights to protect a project owner’s investment.  For example, if I install rooftop solar on my home but somebody then acquires permission to build a 4-storey building on the vacant lot next door, that may block the sun for a period of the day, limiting my ability to generate energy from my installation.

The whole area of energy policy, legislation and regulation is extremely complex.  Normal market rules do not apply in this sector because energy is an essential commodity that all of us depend on to live and work, and for transportation. As a result this area has been highly regulated for many years and there is no real correlation between the prices that most consumers pay for electricity and the monetary and environmental cost to produce that electricity.  While there may be controversy today about government investment in clean and renewable energy technologies, the fact is that government has always invested in the major infrastructure programs and technology breakthroughs that have allowed our societies to develop and improve the lives of all citizens.  Government invested in the existing coal and oil fired generating technologies and nuclear power.  Government invested in the national grid.  Energy is a national security issue as well as an issue of critical economic and social importance and it is too important to be left solely to the market.  Likewise, it is too important to be left to a patchwork of local regulations and legislation.  We urgently need a national energy policy that sets the overall direction and which is supplemented by appropriate legislation and regulation at the state and local level to adapt that national policy to the local conditions.  Local variations may determine the appropriate mix of generating technologies among coal oil and gas, nuclear, wind, solar, hydroelectric, geothermal, biomass etc but these variations should exist within a framework that addresses the national priority of preserving our environment, reducing our dependence on oil, whether foreign or domestic, and securing the national grid against obsolescence, load induced failure or deliberate attack.  In the politically polarized environment that exists in the US today, there is a tendency to believe that government can either solve everything or nothing.  The reality lies somewhere in between and I find it encouraging to see cities like Chicago working with representatives of industry, consumer groups, policy advocates like ELPC and state and federal governments to seek the right policies to ensure that we will continue to have access to the energy we need for our society to function, while protecting the environment and encouraging economic development.  This is a delicate balance and one that needs nuance and subtlety not political dogma.

As mentioned in last week’s blog entry, a draft document from the Illinois Statewide Smart Grid Collaborative describing Smart Grid Applications and Technologies provides an excellent summary of various smart grid applications and their benefits to various stakeholders as well as a description of the technologies that would be used to implement these applications.  The ISSGC was charted by the Illinois Commerce Commission in 2008 to accomplish the following major goals:

1. Develop a strategic plan to guide Smart Grid deployment
2. Recommend policies to guide Smart Grid Deployment
3. Analyze benefits and costs for utilities and consumers.

Erich Gunther of Enernex Corporation was selected by the ICC to facilitate the ISSGC.

The Smart Grid Applications chapter of the final report was published on June 21 and will be reviewed at an ISSGC meeting this week.  The purpose of this chapter is to provide a definition of Smart Grid and its functionalities, providing a context within which the ICC can evaluate Smart Grid proposals.  The chapter addresses both applications and technologies which it defines as follows:

• Smart grid applications integrate hardware, software, and/or infrastructure (technologies) to deliver defined smart grid functionality and value.
• Smart grid technologies are the hardware, software, and infrastructure building blocks needed for the applications to deliver smart grid functionality/value.

The chapter defines the following Smart Grid applications:

• AMI Applications
• Customer-Oriented Applications ( in-home monitors, web portals etc)
• Demand Response Applications
• Distribution Automation Applications
• System and Asset Monitoring Applications
• Distributed Resource Applications
• Transmission Applications

The corresponding Technologies that are covered are:

• End Point Technologies (AMI meters, EV charging portals and in-premises devices)
• Line Technologies (capacitor banks, sensors, feeder switches, reclosers)
• Substation Technologies (fault monitoring, data concentrators, computer systems, FACTS devices)
• Telecommunications technologies
• Enterprise Systems Technologies (meter data management systems, asset management systems, SCADA etc)

The first thing to notice is the breadth that this report covers.  Much of the public debate around Smart Grid focuses only on smart meters, communication technology and demand response.  As a result, and due to some well publicized public relations disasters, there is a serious risk that the entire Smart Grid initiative will be poorly perceived by the public and rejected by consumer advocacy groups and public utility commissions.  The scramble to secure funding from the stimulus bill is also causing a rush to promote ill-conceived, narrowly defined plans that further erode the vision of a truly Smart Grid and undermine the effort to engage and inform the consumer about the benefits of this transformation of the national electrical grid.  Even within the topic of demand response, there is much more subtlety than much of the public debate on this topic would suggest.  The ISSGC report demonstrates an understanding of this and includes discussion of:

• demand response via price signals from the utility that leave the customer in control of how (or if) they will respond to the price fluctuations,
• direct load control which places the utility in control but only with the consent of the customer and in return for financial incentives that typically exceed the cost of any instantaneous energy savings,
• frequency sensing by devices or appliances at the customer premises to detect instability due to overload conditions within the grid and voluntarily reduce demand,
• signaling based on availability of renewable power to smart appliances that can choose to reduce demand when renewable power availability is low.

While some of these technologies are less mature and others have limited cost benefit projections, the fact that the ISSGC report addresses each of them shows the breadth of the analysis that has gone into this document and helps to expand the understanding of the range of possibilities that exist in the Smart Grid arena.  It is necessary to expand the discussion of demand response beyond the idea of a socialist infringement on private liberty by monopolistic utilities supported by an overreaching government which many commentators seem to see in this area.  Renewable based signaling in particular is something that I have seen no coverage of and illustrates the innovative potential of the Smart Grid which is difficult to predict.  Once we have reliable two way communications between the utility and the consumer via AMI systems, innovators will find new and exciting ways to leverage the available communications and data to develop new products and services that will benefit both consumers and utilities alike.

For each covered application, the report provides a description of the application, and identifies potential sources of cost, benefits and beneficiaries, and potential negative impacts. Benefits are assessed for likelihood and significance and categorized as primary or secondary benefits.  Beneficiaries include utilities, the regional electricity market, RTO/ISO entities, competitive suppliers and third parties, customers and society at large.  The customer beneficiary is segmented into residential/small business customers, medium sized businesses and large businesses.  Each of these groups is further segmented into active and passive participants.  Active participants are those who engage with the utility to accrue the benefits of Smart Grid.  Passive participants are those to whom benefits accrue as a result of general improvements in reliability, availability, cost etc .

Considering one specific area of Smart Grid applications about which there is much debate concerning benefits, the section on AMI applications provides the following major insights:

• Core AMI functionality has no direct customer benefit.  All customer benefits are indirectly achieved through benefits that accrue to the utility.
• The primary benefits of core AMI functionality which accrue to utilities include; increased field labor productivity, improved employee safety, and improved forecasting ability.
• Secondary benefits from core AMI functionality can include reduced back office support costs, reduced lost revenues through theft and improved situational awareness for the utilities, the ability for competitive suppliers and third parties to offer improved or expanded products and services and a reduced carbon footprint benefiting society at large.
• Remote Connect/Disconnect, which is an incremental capability offered on top of some AMI systems reinforces the core AMI utility benefits and adds the benefit of improved collections through remote disconnect.  Secondary benefits of this application include improved service to customers wishing to schedule move-in/move-out changes on their accounts.
• Another application that is enabled by core AMI functionality is Outage Management Support whereby the smart meters can report outage situations to the utility.  In addition to further improving field labor productivity, this application also improves system reliability and situational awareness for the utility as well as improving system availability for customers.
• Core AMI functionality can also enable Power Quality/Voltage Monitoring at the smart meter.  This application also delivers improved system reliability and situational awareness to the utility and improved system availability and power quality for customers.
• Customer Prepayment Utilizing AMI offers improved collections or cash flow to utilities and enhanced services to customers.  Note, the report assumes that customers choosing to participate in prepayment would do so because of some financial incentive such as not requiring a deposit payment to the utility.

This analysis is important to consider when utilities present rate cases, as BG&E did, that seek to transfer all of the cost of implementing core AMI functionality to the customer.  By categorizing the benefits and beneficiaries of various Smart Grid applications in this way, the report provides valuable information to the ICC to frame the debate about how a particular Smart Grid project should be funded.

If widely disseminated, this report should also help to inform the public debate about the breadth of technologies and applications that exist under the umbrella of Smart Grid and the benefits of Smart Grid in general.

In last week’s blog entry I discussed the steps that were being taken by the public utility in Naperville IL to secure consumer buy-in for the investments in technology that this utility has been making for many years and are now accelerating with the help of a grant under the Smart Grid Investment Project provisions of the ARRA stimulus funding.

Naperville is a city of 145,000 citizens, located in DuPage and Will Counties, 30 miles SW of Chicago IL.  Electricity in the city is supplied by the public utility which is owned and operated by the city.  The utility has over 57,000 meters (approximately 50,000 residential and 7,000 commercial & industrial customers) and experiences peak demand of 388 MW and annual energy usage of 1,550,000 MWh.  The 46 sq mile service area has 19 miles of 138 KV and 33 miles of 34.5 KV transmission lines, 72 miles of 12.47 KV overhead and 800 miles of 12.47 KV underground distribution lines.  Connection to Commonwealth Edison transmission lines is made at 7 locations around the city.

Over the past 18 years, Naperville’s public utility has strategically invested in technology to dramatically improve reliability, reducing average outage time per customer from 120 minutes in 1992 to less than 18 minutes today.  These investments have included implementing SCADA for real time monitoring and control as well as distribution automation, substation automation and an enhanced, secure fiber optic communications network.  Of these projects, the SCADA implementation is complete and the others are 70-80% complete.  Two AMI pilots have also been completed in preparation for a full AMI implementation.

The existing grid in Naperville consists of relatively new assets as a result of the significant growth that the city saw in the 80’s and 90’s.  Distribution Automation is already 80% complete using switches from S&C Electric in Chicago.  Distribution automation switches come in pole mounted formats for overhead distribution and in pad mounted formats for underground distribution.  Since over 90% of Naperville’s distribution network is underground, the majority of existing switches are of the pad mounted variety.  These switches allow the grid to reconfigure itself automatically when a fault occurs in the network.  All sections of the grid are connected to multiple substations, providing multiple paths for power to flow to that section of the grid.  Under normal operations, the switches are configured in such a way that the load is balanced among the various substations in an optimal manner.  However, in the event of a fault which causes loss of power to some sections of the grid, these switches automatically open or close to reconfigure the network, restoring power to the impacted customers and isolating the faulted section of the grid.  By completing the distribution automation implementation, the city expects to achieve significant additional reductions in the outage time experienced by its residents.

Another major objective of Naperville’s project is to implement VOLT/VAR optimization to increase power quality and minimize losses due to distribution inefficiency.  Energy losses in a distribution network are proportional to the product of the resistance and the square of the current magnitude.  The resistance of a conductor cannot easily be changed but the current flow can be managed.  Current flows can be defined as active and reactive.  Active current flows occur when the waveforms of the voltage and current are synchronized producing net energy flow towards the load devices.  Pure reactive flows occur when the voltage and current are 90 degrees out of phase resulting in energy ebbing and flowing during each half of the waveform producing zero net energy flow.  In a real world electrical circuit, inductance, which reduces reactive power, and capacitance which increases reactive power also play a role so there is a combination of active and reactive power flows.  Reactive power (VAR) can be regulated in the grid by means of compensation devices such as switched capacitor banks.  Voltage can also be regulated to follow demand more closely using special voltage regulating transformers at the substations and at key points along the feeder lines.  The net result is lower demand requirements due to reduced reactive power flows and being able to operate the feeder lines at lower voltages.  A Smart Grid implementation of VOLT/VAR optimization, such as that which Naperville is implementing, leverages sensing technology from substation and distribution automation along with advanced modeling techniques to create a more integrated grid level response as opposed to the more localized responses that were previously available.

Other portions of the Naperville Smart Grid Investment Project include:

• Implementing customer portals to allow customers to monitor their own consumption and provide access to service information.
• Provision of in-home real time energy consumption meters on a voluntary basis.
• Implementing Automated Metering Infrastructure using smart meters to provide two way communications between the utility and the consumer.
• Implementing a load control program to analyze the effectiveness of this approach for achieving demand curtailment during peak demand periods.
• Preparing the grid to be ready for the anticipated adoption of electric vehicles which have the potential to put significant additional stress on the distribution network especially the local transformers.

On the day that Mark Curran and Allan Poole came to talk to the Green Technology Organization of Greater Chicago, the city had held a mandatory pre-proposal meeting for vendors interested in bidding on the AMI, Load Control and HAN portions of the project.  The utility plans to install over 57,000 smart meters (~50,000 residential and 7,000 commercial/industrial customers).  They are technology agnostic and will select a solution that best meets the needs of the community based on the proposals received.  The meeting was attended by 55 people.  On the same day, the RFP for the MDMS and e-Portal portions of the project were released for bid and a pre-proposal meeting for these sections is scheduled for August 10.  Proposals are currently under evaluation for the distribution automation portion of the project.

At a total cost of $22 million, half of which is being provided by a matching grant from the stimulus program, the estimated net present value of the Naperville Smart Grid Investment Project is $34 million.  If carbon were to be priced at $20 per ton, this would increase the NPV of the project to $52 million due to the carbon reductions that are projected to occur as a result of the program.  The project is expected to take around 3 years to complete with ~90% of the funds projected to be spent by mid-2012.  Analysis done by West Monroe Partners indicates that the adoption of electric vehicles could double the cost savings from this project.

In summary, Naperville expects this project to help it and its customers to:

• reduce meter data acquisition costs,
• maintain and further improve the reliability of its electrical service,
• control operational costs and optimize the use of human resources by enabling self-healing within the grid,
• improve operational efficiency and infrastructure security through real time access to substation and distribution network status,
• enable remote disconnect and reconnect operations to streamline the process of handling customer move-in/move-out events,
• improve outage detection and reporting of outage occurrences and expected restoration to consumers
• support variable rate plans, energy conservation and enabling of smart home controls via the AMI network,
• provide access to improved data for engineering studies and projects to further optimize and/or upgrade the grid.

Coming next:  The Illinois Statewide Smart Grid Collaborative is meeting on August 19 to finalize their report to the State of Illinois on Smart Grid strategies.  A draft document by the collaborative provides a wonderful summary of various smart grid applications and their benefits to various stakeholders.  I have been studying this report and plan to summarize sections of it in the blog over the coming weeks.

The blogosphere and media channels have recently been full of news about the Maryland PSC’s decision to reject a Smart Grid program proposed by Baltimore Gas & Electric, even though this plan had already received ARRA stimulus funding and the utility claimed that failure to approve the plan by July 30 would cause those stimulus funds to be lost.  That case has been resubmitted to the PSC which is expected to rule on the revised proposal by August 5. We can expect more controversy whichever way the PSC decides.

In Hawaii, the PUC rejected a request to extend an existing AMI pilot and there has been significant backlash against smart meter deployments in Texas and California. Many commentators see these issues as setting precedent for other state utility commissions that will review Smart Grid proposals in the coming months and a person could be forgiven for reaching the conclusion that this whole Smart Grid thing is just another passing fad that is destined to end up in the trash can of technology history.  Regardless of whether your concern is about global warming, air pollution from coal fired and other fossil fuel generating plants or a strategic concern about dependency on foreign oil, such an outcome would be very short-sighted and would not help the US to implement the necessary steps to modernize its aging electric grid and begin to address the problems of runaway electricity demand.

A careful reading of the BG&E decision shows that the PSC was not ruling against Smart Grid in general or the specific technical merits of the proposed plan from BG&E but against a number of very specific flaws in the BG&E proposal.  One key problem that the commission highlighted was BG&E’s request for recovery of the capital and operational costs associated with the project through a tracker surcharge on consumers’ bills rather than through the more common method of recovery via per-KWh rates.  This would allow the utility to recover all of the costs up front and the PSC viewed this as unfairly transferring the risk from the shareholders to the consumers.  A second problem that they cited was the proposal for a mandatory time of use rate plan which was opposed by many advocates who feared that this would cause consumers’ energy bills to rise.  The third major objection raised by the commission was that they believed that significant additional money would be required to complete the consumer outreach efforts required to make the program successful.

Amidst all this negative publicity, the Green Technology Organization of Greater Chicago last week hosted its monthly meeting where Mark Curran, Director of the Department of Public Utilities – Electric  in Naperville, IL and Allan Poole, Former Director of Public Utilities in Naperville and now a consultant to the city, presented a case study on the Smart Grid Investment Project that the City of Naperville is currently undertaking.  In addition to providing a very engaging and informative presentation, Mark and Allan also presented a stark contrast to the experiences discussed above.

Naperville is a city of 145,000 citizens, located in DuPage and Will Counties, 30 miles SW of Chicago IL.  Electricity in the city is supplied by the public utility which is owned and operated by the city.  The utility has over 57,000 meters (approximately 50,000 residential and 7,000 commercial & industrial customers) and experiences peak demand of 388 MW and annual energy usage of 1,550,000 MWh.  The 46 sq mile service area has 19 miles of 138 KV and 33 miles of 34.5 KV transmission lines, 72 miles of 12.47 KV overhead and 800 miles of 12.47 KV underground distribution lines.  Connection to Commonwealth Edison transmission lines is made at 7 locations around the city.

As a municipally owned entity, the utility is not a profit center.  It exists to serve its customers and does not feed into or receive funding from the general revenue pool in the city.  The city decided in the 1960’s, prior to the major growth of Naperville, that all future distribution should be placed underground which has provided protection from storm induced outages.  The 72 miles of overhead distribution are concentrated in the downtown area where the cost and the technical challenges due to existing underground infrastructure preclude moving this existing distribution underground.  The conduit used for the underground distribution is also used for other services within the city.

In 1992, Naperville’s SAIDI measurement showed that the average customer experienced 120 minutes of outage time per year.  The city had a choice to make: they could dissolve the municipal utility and contract with Commonwealth Edison to supply power or they could invest in the utility infrastructure and take charge of their own future.  They chose to invest and started to build a smarter grid before the term Smart Grid was in vogue.  Some of the targets of this investment include

• SCADA implementation for real time monitoring and control is already 100% complete across the utility infrastructure.
• Distribution automation using S&C switches to isolate failed cables and reconnect power automatically is 80% complete across the utility.
• Substation automation is 70% complete.
• Two Automated Metering Infrastructure pilots have been completed.
• A secure, robust communication network is 70% complete.

As a result of these and other initiatives, the Naperville utility has reduced average minutes of outage per customer to less than 18 minutes today with the expectation that this metric will continue to drop as distribution automation and other projects reach completion.  The rapid growth that the city experienced in the 80’s and 90’s has helped to fund these projects and as a result, the bulk of the utility’s assets are relatively new.  The utility’s demonstrated emphasis on reliability has helped to draw a number of major commercial and industrial customers to Naperville.

Naperville currently buys power on the wholesale bulk market through a four year contract which is set to expire in 2011.  At that time, they will become members of the Illinois Municipal Electric Agency which will make them co-owners of generation assets including an advanced low pollution coal plant in southern Illinois.  This will help to stabilize prices for their customers.

Naperville has been deploying technology in pursuit of operational cost and reliability benefits for many years.  As a result, they were more than ready to propose robust, well conceived plans to attract stimulus funds to complete their Smart Grid deployment.  The Naperville Smart Grid Investment Project was truly “shovel ready” when the stimulus funds became available.

The city’s Smart Grid Investment Grant business plan is driven largely by continued reliability improvements but will also introduce peak/off-peak differentiated rates and offer customers the tools to control their energy consumption and costs.  The proposed differentiated rates are based on time of use and not real time pricing and the utility expects a 3:1 ratio between peak and off-peak rates.  As members of IMEA from next year, Naperville will benefit from relatively stable bulk energy usage and demand rates which are set annually.  IMEA buys around 15% of their total supply on the wholesale market which introduces limited variability on a month to month basis.  The purpose of introducing time of use rates is to allow consumers to shave peak demand in order to control the demand based pricing that the utility must pay to IMEA but, unlike BG&E’s proposal, these rates will not be mandatory for Naperville residents.

The total cost of the Smart Grid Investment Project is around $22 million of which the stimulus is providing 50% and the city is providing the other 50%.  However, the utility already had around $9 million reserved for the project so the incremental cost to ratepayers to accelerate the completion of the project is minimal.

Projected benefits of the project include:

• 5% reduction in total energy usage totaling 819,000 MWh over the period from 2012-2023.
• 6.5% reduction in peak demand from 400 MWh (projected) to 374 MWh by 2023.
• $22.3 million in customer electricity cost savings.  This is in addition to $450 million in savings compared to the projected cost of using Commonwealth Edison to supply Naperville’s electricity over the past 15 years.
• 180,000 tons of carbon emission reductions.
• Increased business opportunities and 139 new jobs to implement the project.

These and other goals are captured in a metrics benefits plan which is required under the ARRA stimulus funding grant.

One factor that really differentiates the Naperville utility from those that were discussed at the beginning of this article is in their consumer outreach efforts.  As a municipal utility, all actions of the utility are subject to review and approval by the city council and all decisions are reviewed in public by the council.  A Communication Education plan has been created and, in what may be a unique move, the utility and the city council have proposed a Smart Grid Customer Bill of Rights which is currently in draft form for review by the council.  This document is a response to the concerns that have been raised in many communities concerning smart meters and demand response programs and enshrines the customers’:

• Right to be informed: about rate structures, outages and demand information, financial and operational data on the Smart Grid project, and future developments, as well as being able to view their own consumption data from a convenient user interface.
• Right to Options: regarding their rate structure, how they wish to receive information from the utility and the purchase of appliances and devices that allow them to have better control over their electricity consumption.
• Right to Privacy: restricting the utility’s ability to release energy usage data and personal information, providing options regarding the collection, use and disclosure of data and, perhaps most importantly, clearly stating that the customer will retain control of ALL in-home devices and appliances.
• Right to Data Security: guaranteeing secure confidential and accurate consumption data and requiring the utility to have a cyber security plan, a summary of which can be accessed by customers.

It is clear that Naperville’s public utility has put in place many of the safeguards and actions that lead to a successful Smart Grid deployment.

• They have consistently embraced technology as a way to improve reliability and operational efficiency and Smart Grid is really just an extension of a multi-year program that is part of the long term strategy for the utility.
• Clear objectives have been set for the program and these are being tracked in a metrics plan.
• A communication education plan is in place
• The utility has embraced the need to engage with their customers and have proposed an innovative customer bill of rights that will help to achieve the stakeholder buy-in that is required for any project to succeed.

Hopefully other utilities will take their cue from what Naperville is doing and not from the failures at BG&E and elsewhere.

Mark and Allan’s presentation also included a lot of details on the Smart Grid project that Naperville are currently embarking on which are addressed in a later blog post.

Sometimes it is important to stop and take stock of what has been happening so this week’s column is a round-up of news items and updates on topics that I have covered previously.

The Green Technology Organization of Greater Chicago continues to grow and, as of this writing, membership has increased to 107 making this the largest group on meetup.com dealing with issues related to Smart Grid.  We are also the largest meetup group for Electricity and Natural Gas and the third largest for Electric Vehicles behind groups  in Vancouver BC and Toronto ON.   We recently picked up sponsorship from GE ecomagination as part of their efforts to promote the GE ecomagination Challenge: Powering the Grid.  This month’s meeting is on Thursday, July 29 at 7:00 pm in the Schaumburg Public Library and will feature representatives from the City of Naperville Smart Grid Project.  Check in next week for an update on the meeting and our local Smart Grid project here in the Chicago area.

Speaking of local Smart Grid projects, the US Department of Energy has launched a new Smart Grid Information Clearinghouse website which provides access to a host of information on what is happening in Smart Grid around the country.  The site, which is currently in Beta mode will launch officially in the fall. Because the site is Beta, I am not providing direct links to pages on the site since these are unlikely to be persistent links.  This is a great resource for anybody seeking to learn more about Smart Grid and I suggest that you bookmark the link to the site’s home page for future reference.

A map is provided on the site that shows the location of  ARRA-funded Smart Grid Investment Grant Projects, ARRA-funded Smart Grid Demonstration Projects and non-ARRA-funded projects.  Each project shown on the map has a link for further information.  This is a great way to find out what’s happening to bring the Smart Grid to your neighborhood.

The site also provides access to federal, state and private industry consumer awareness programs.  As an example; for the state of Illinois, the site provides links to information from the City of Naperville, IL Smart Grid Project, The ComEd Smart Meter Program, The Illinois Smart Grid Initiative and the Illinois Smart Grid Collaborative.  The federal page provides links to NIST, FERC and other government bodies while the private sector page includes resources from Edison Electric Institute, Galvin Electricity Initiative, General Electric, Google (yes Google!!) and others as well as links to non-profits and industry groups such as The Gridwise Alliance and IEEE.

Under In-Depth Information, there is a great section on technologies that provides an expanded glossary of Smart Grid terms with links to further information and sample vendors of these technologies.  Other sections provide a summary of federal and state legislation and regulatory activities, access to applicable standards including cyber security standards, and DoE sponsored workforce training programs.

Returning to topics that I have covered in the past:

• Intelligent Utility Daily reported on a story in the Chicago Tribune about a $25 Million investment by the government of South Korea to install Korean energy saving technology in up to 14 high rise buildings in Chicago over the next few months.  The Koreans are taking Smart Grid very seriously and see this as a huge export opportunity for their technology firms.  The island of Jeju off the south coast of South Korea is one of the largest Smart Grid demonstration projects in the world and serves as an R&D lab for Korean Smart Grid Technology.  The Chicago project represents a significant ramp-up of building energy efficiency efforts and helps to reinforce the message that the city was projecting at the conference on Chicago’s Clean Energy Economy that I attended back in May.
• Returning to the topic of Smart Grid Technology Wars, a reader sent me a link to a story on the local utility in Stratford Ontario turning the provincial government’s smart meter mandate into a new business opportunity by deploying WiFi technology throughout the city.  In addition to providing secure, reliable backhaul for the meter data, the system will also provide WiFi internet access to the city’s residents.  Free access to websites related to city services, local events etc will help to bridge the digital divide for low income residents while full internet access will be available for an additional fee.  The system uses WiFi access points provided by Motorola which implement a mesh network based on 802.11a/b/g/n technology.  This is a good example of a utility innovating not just around the technology but also around the business model which helps to increase the value of the service to local consumers.
• A good example of a utility making the effort to reach out and educate consumers in anticipation of the uptake of Electric Vehicles was featured in another Intelligent Utility Daily article recently.  Citing some of the same concerns that I highlighted in a column on Electric Vehicles in May, Southern California Edison has developed a range of charging rate options which include a standard residential flat rate, a whole-house time of use rate and a EV-only time of use rate.  SCE are using various outreach methods, including a web presence, information included in customers bills and a relationship with EV vendors in their service area to try to inform customers about these options before they bring an EV home and plug it in.  Of course, if this outreach effort is successful, it will also allow SCE to track the adoption of EV’s and plan for necessary transformer upgrades before any problems occur as a result of the additional demand placed on the system by the EV’s.

As I have become more involved in understanding Smart Grid technology and the process by which electricity is generated, transmitted and delivered to me, the consumer, I have developed a greater awareness of the complexity of the vast enterprise that sits behind the switch on the wall.  There is technological complexity that most of us take for granted that helps to ensure that the grid is always ready and able to provide power when I need it.  There is regulatory complexity that governs what utilities can do, how they earn their profits and how they interact with one another.  And there is market complexity that affects the cost of generating, transmitting and distributing electricity and the price that consumers actually pay for that electricity.

For many in the green movement, renewable energy is the future and we should be building out more and more renewable capacity, shutting down the coal, oil and gas fired power stations that spew toxic emissions into our environment and creating a new, sustainable future for ourselves and our children.  This is an appealing vision but there are a number of purely practical challenges with this that I will address briefly before getting to the more fundamental question of affordability.

The first challenge with renewables is the variable nature of their output.  Some forms of renewable power such as hydroelectric generation can be regulated but wind and solar technologies cannot.  One of the most complex things that transmission and distribution utilities have to do is to regulate the grid to ensure that capacity matches demand at all times.  This requires the ability to predict and control the output of generating plants in response to changes in demand.  A certain amount of variability can be accommodated and emerging smart grid technologies are pushing the boundary of how much renewable power can be integrated into the grid but utilities require a stable base capacity around which they can regulate the grid to maintain service and avoid brownouts and blackouts.

Another significant challenge for renewables is that the areas of the country that are most suitable for wind and solar generation are very distant from the major load centers where that power is needed.  Significant additional transmission capacity is required to move power from these generation sites to the cities and urban areas and there are many regulatory hurdles affecting the ability of utilities to build new transmission lines.

Turning to the economics, many people assume that wind and solar power, since they require no fuel, should be cheaper than coal, oil and gas fired generating plants.  That was my assumption too before I started looking into this in more depth.  The US Energy Information Administration (EIA), an agency of the US Department of Energy, reports that US electric utilities consumed almost a billion tons of coal at an average cost of $43.79 and over 50 million barrels of petroleum based liquid fuels at an average cost of $60.67 a barrel in 2009.   These are huge sums of money to be sure but the reality is that these fuel costs represent only a portion of the actual cost of building and operating a generating plant.  In a paper describing the Electricity Market Module portion of the National Energy Modeling System which is used in preparation of the Annual Energy Outlook, EIA provides a table of comparative capital and operating costs for various generating technologies.

A sampling of interesting data from table 8.2 in this paper follows:

• The capital cost for onshore wind generation, landfill gas or conventional hydroelectric power is comparable to or slightly less than coal fired generation at around $2,000-2,500 in 2008 dollars per kW of capacity.
• Offshore wind and Biomass capital costs are comparable to advanced nuclear technology at around $3,800/kW.
• Fuel cells, solar thermal and solar photovoltaic technologies are significantly more capital intensive at between $5,000 and $6,000/kW.
• Geothermal at around $1,750/kW, Gas/oil combined cycle plants at just under $1,000/kW and combustion turbines at $650-700/kW are significantly cheaper than coal, wind, landfill gas or hydroelectric power.
• Carbon sequestration technology adds significantly to the capital cost of coal oil or gas generation, pushing the costs above $3,700/kW for coal and over $1,900/kW for oil or gas.
• Turning to operational costs we see, as expected, that the renewable technologies have zero variable cost associated with fuel but, for the most part, the variable portion of the operating cost is not very significant.  Because of their bulk buying advantage, utilities can purchase fuel relatively cheaply.  Fuel costs for distributed generation (microgrids) is higher because they do not have this advantage.  Fuel costs for fuel cells and biomass are significantly higher than for large scale coal oil and gas fired facilities.
• Onshore wind has a relatively high fixed O&M cost of around $31 per kW of capacity which is comparable to scrubbed coal technology.
• More advanced coal technologies have higher fixed operating costs of $40-47/kW but the oil and gas fired technologies have much lower fixed O&M costs around $12-13/kW.  The combined fixed and variable O&M costs of these technologies are significantly lower than the fixed O&M cost of onshore wind.
• Nuclear ($92/kW), Biomass ($66/kW), Geothermal ($168/kW), landfill gas ($117/kW), offshore wind ($87/kW) and solar thermal ($58/kW) all have substantially higher fixed operating costs.
• Of the renewable technologies, only solar photovoltaic at around $12 can match the oil and gas fired plants for operating cost but, as we have already seen, solar photovoltaic has significantly higher capital costs than those technologies.

In summary, these data indicate that while wind is comparable to baseload generating technologies from a capital and operational cost perspective, it is significantly more expensive than the oil and gas fired plants that are typically used for non-baseload generation which is where wind needs to be competitive.  Solar and other renewable technologies are not competitive on cost although this may change with ongoing research and development of new materials for photovoltaics etc that will drive down the capital costs.  The other thing that could change the economics of the situation dramatically would be a sudden and significant increase in fuel costs resulting from supply and demand issues, political instability, or coordinated government action on climate change and environmental policy.

I am reminded of the statement sometimes attributed (perhaps inaccurately) to British Prime Minister Benjamin Disraeli that “there are three types of lies: lies, damned lies and statistics”.  The complexity of the model used by EIA lies in the many assumptions which include provisions for cost reductions associated with learning curves on new technologies, risk and contingency factors affecting projected capital costs, future fuel costs, and regulatory impacts of such things as the clean air act and tax credits and incentives for each generating technology as well as the impact of stimulus funds.  It is important to understand these for a full appreciation of the cost implications of a real world technology choice for a specific utility considering new generating capacity.  I do not profess that the data presented here is accurate in all contexts or that I fully understand the data.  However, for comparative purposes, I think the data is sufficiently clear.  I did compare the EIA data with data on capital costs from the National Renewable Energy Laboratory (NREL) which provides a very similar picture.  NREL are working on providing data on operational costs also.

There are companies like Intelligent Generation in Chicago who are developing solutions that attempt to address the economics and make distributed renewable generation more cost effective with a shorter payback time for the initial capital investment by adding intelligent storage of energy to take advantage of periods when energy is inexpensive.  If we are going to see a future in which we declare independence from fossil fuels, we need more innovation like this, which is not just technology innovation but business model innovation.  We also need strong policy support for state and federal governments to realize the goal of increased use of renewable and we need to find a way to address the issue of stable, reliable baseload generation which wind and solar cannot provide.  Geothermal, Biomass, Fuel Cells and other technologies have some potential in this area but their cost profiles are currently prohibitive.  Hydroelectric power is perhaps the best bet for replacing baseload generation but hydroelectric power also has significant environmental impacts that need to be taken into account.

So, it seems that for the foreseeable future at least, we are going to continue to rely heavily on existing coal oil and gas fired generating plants and we will continue to see new oil and gas fired plants being built to meet the ever increasing demand for energy.  Demand side management through load control schemes or variable pricing models will remain a key tool for the utilities to manage the grid until such time as renewable technologies move down their price curves and become more cost competitive with existing oil and gas fired generation.

Last week, NPR aired a segment on the popular Fresh Air Program dealing with the Smart Grid.

The interview with Joel Achenbach, a staff writer at the Washington Post, addressed various challenges with the current grid including:

• The reality that electricity generation is often remote from the load centers where it is consumed and discussed the power companies concerns with the difficulty of securing permits for transmission lines due to the segmentation of local and state authority.
• The aged nature of the grid technology, the lack of two-way information flow and the potential for improved efficiency with Smart Grid technology.
• The lack of viable storage technologies for electricity with the notable exception of technologies like pumped hydro and a few isolated large scale battery installations was also discussed.
• The absence of a national plan for implementing the Smart Grid in the face of skepticism expressed at local levels by state regulators as illustrated by the recent decision to reject BGE’s Smart Grid project in Maryland:  Note: I personally read the Maryland regulator’s decision not as a rejection of the Smart Grid concept but as a rejection of a poorly conceived business plan by a specific utility.

An interesting statistic that was quoted in the interview is that blackouts and brownouts cost US businesses up to $80 Billion per year.  Although the total cost of implementing a Smart Grid infrastructure far exceeds this figure, this data illustrates the financial incentives for the U.S. economy of overhauling the grid.

The entire segment can be found on the NPR website along with a text summary of the interview which includes a link to a fascinating interactive map of the U.S. Electric Grid.