The Goldilocks Dilemma

An old posting about why intermittency is not a big deal came to my attention today.  I re-read some of what had been said, especially when I had just sent out a paper on the topic yesterday.

I believe that the value of electric “energy” is often overstated.  The author of the old posting, Chris Varrone, inadvertently acknowledges this when he wrote

However, the energy in wind is worth 100% of the energy in nuclear (or anything else) in the spot market; wind energy in the day-ahead market may be worth a little less, but this can be “firmed” using energy trading desks or by using other assets in the operator’s fleet.

If the day to day differential can be handled by firming with other assets, then the value of the electricity is not just energy.  It is not worth debating what to call this other value, but a substantial part of the value in the spot market is something other than energy.

As to The Goldilocks Dilemma, the paper I sent out yesterday, I began by asking

Is the price paid to dispatchable generation too high, too low, or just right for intermittent generation?

I then answer

Though intermittent generators often argue that they should receive the same price as dispatchable generation and some utilities argue that they should pay less to intermittent generators, sometimes intermittent generators should face a higher price than dispatchable generators, such as when intermittent generation is part of the market during instances of extreme shortage.

The entire paper is available on my web site, the companion to this blog site.  Look for the hot link to the library near the bottom of the first page.  A hot link for the article is near the bottom of library index in the section called drafts.

The Electric Transmission Grid and Economics

Tuesday, 2013 October 8, I went to the MIT Club of Washington Seminar Series dinner with Anjan Bose of Washington State University talking about Intelligent Control of the Grid.  Anjan began with giving two reasons for the transmission grid but then seemed to ignore the predicate in explaining what the government has been doing in regard to the grid.

The first slide identified two reasons for the electric transmission system.  The first was to move electricity from low cost areas (such as hydro-electric dams) to higher cost areas.  This is an obvious reference to economics.  The second was to improve reliability.  Anjan did not get into the discussion of how that is an economics issue, but it is.  Reliability is greatly improved by increasing the number of shafts connected to the grid.  We can produce the same amount of electricity with five 100 MW generator or one 500 MW generator.  The five units provide greater reliability but also higher costs.  The higher costs are associated  with various economies of scale, including higher installed cost per MW, less efficient conversion of the fuel into electricity, and the need for five sets of round the clock staffs.  A transmission system allows dozens of 500 MW units to be connected at geographically dispersed locations, achieving the reliability of many shafts and the lower cost of larger generators.

But, the presentation had little to do with the economics of the power grid, and the investigations into those economics.  I noticed that much of the discussion during the question and answer period did talk about the cost of operating the grid, so people were indeed interested in money.

Anjan said that the financial people used different models than did the engineers who operate the system.  I have long said that we need to price the flows of electricity in accord with the physics of the system, by pricing the unscheduled flows.  The engineers and operators may plan to operate the system in a prescribed way, but the flows of electricity follow the laws of physics, not necessarily the same was the way some people have planned.

Anjan said that deregulation[1] has caused a dramatic decline in new transmission lines, especially between regions such as into and out of Florida.  My feeling is that new transmission lines would be added more willingly if the owners of the new transmission lines would be paid for the flows that occur on the transmission lines.  For instance, twenty years ago a new high voltage transmission line in New Mexico began to carry much of the energy that had been flowing over the lower voltage transmission lines of another group of utilities.  The group of utilities called the service being provided “vampire wheeling” and refused to make any payment to the owner of the new transmission line.  The new line provided value in the reduced electrical line losses and perhaps allowed a greater movement of low cost power in New Mexico, but that value was not allowed to be monetized and charged.

I note that a pricing mechanism for the unscheduled flows of electricity would have provided a different mechanism to handle the 2011 blackout in Southern California, which began with a switching operating in Arizona.  Engineers swarmed to the area to find data to assess the root causes but were initially blocked by San Diego Gas & Electric’s attorneys who feared that any data could be used by FERC to levy fines pursuant to the 2005 electricity act.  I remember a discussion at the IEEE Energy Policy Committee on that proposed aspect of the bill.  The IEEE EPC voted to suggest creating mandatory reliability standards.  I was the sole dissenting vote, arguing that the better way was to set prices for the unscheduled flows of electricity.  Thus, SDG&E and the Arizona utilities would have been punished by the market instead of risking a FERC imposed fine.



[1] I prefer to use the more accurate term restructuring, since the entire industry is still regulated, even though generation is often subject to “light handed regulation” by FERC, which approves concepts instead of specific prices.

Grid Security in India

On 2011 February 26, S.K. Soonee, CEO at India’s Power System Operation Corporation Limited posted on LinkedIn’s Power System Operator’s Group a link to a paper written by the staff of India’s Central Electricity Regulatory Commission.   “Grid Security – Need For Tightening of Frequency Band & Other Measure” can be accessed at      http://www.cercind.gov.in/2011/Whats-New/AGENDA_NOTE_FOR_15TH_CAC_MEETINGHI.pdf  Through LinkedIn I provided the following comments.

 I am dismayed that the simple elegance of the UI pricing vector, as shown in the two diagrams for 2002-2004 and 2007-2009, will be replaced by the convoluted vectors on 2011 May 3. It seems that there is a potential for mischief with having the multitude of simultaneous prices, with an undue accumulation of money by the transmission grid as some UI out of the grid is priced at very high prices at the same instant that other UI into the grid is being priced at a lower price. This is an unwarranted arbitrage for the transmission system.

The HVDC links between S and NEW could provide a warranted arbitrage situation where the grid with lower frequency delivers to the grid with the lower frequency. The different frequencies would result in different prices, with the price differences providing some financial support for the HVDC links.

I was surprised that there was no mention made in regard to Figures 1 and 2 as to when UI pricing started, and how that UI onset resulted in a narrowing of the spread between daily high frequency and daily low frequency. I believe these figures could be well supplemented by a presentation of histograms of the monthly frequency excursions, and how those histograms have changed over time. A numeric approach would include monthly average frequency and monthly standard deviation from 50 Hertz, a statistic for which you have a special name that I forget.

Parts of the Agenda Note discuss the serious impact of very short periods of frequency excursions. These short periods of concern are much shorter than the 15 minute periods used for determining UI. The various parts of the Agenda Note could be harmonized by reducing the size of the settlement period for UI from 15 minutes to 5 minutes or 1 minute.

There is a discussion of limits on the amount of UI power that a participant can transact. I question the need for such limits. As a participant increases the UI power being transacted, the price will move in an unfavorable direction, providing an additional financial incentive for the participant to reduce UI power transactions. For example, a SEB that is short of power and is buying UI faces higher prices as the UI transaction amount increases. These higher prices provide a multiplicative incentive for the SEB to reduce its shortage and its purchase of UI.

Many systems plan for the biggest credible single contingency, which the report treats as the single largest unit. The report shows that entire plants have gone out at a same time, suggesting that the biggest credible single contingency is a plant not a generating unit.

As an aside, in the listing of the generating capacity by size of generating unit, my experience in the US suggests that the list understates the number of generators. There would be many times the identified number of plants if the list included captive generators such as backup generators, which may be as small as a few KW. Again, based on my experience in the US, the total capacity of those unidentified generators will rival the total capacity of the identified generators.

I wonder why the under frequency relays in the East are set lower than the relays in the other regions.

I don’t understand the terminology that “Nepal has several asynchronous ties with the Indian grid (AC radial links).” My interpretation is that Nepal has a disjoint system with each section tied synchronously to different locations of India, making the sections synchronous to each other through their links to India.

Socializing the Grid

A friend sent me a message overnight that asked me, since my friend says I have an understanding of utility issues, to identify the misstatements in a 2009 January 15 article “Browner: Redder than Obama Knows” by Steven Milloy. http://www.foxnews.com/story/0,2933,480025,00.html   My response is below.  Now, as I am posting this to my blog, I realize that the article is over two years old.  When I began writing my response, I had focused on the January 15 and thought that I was only 11 days behind the time instead of two years.  Oh, well.  The interest in the article is current even if the article isn’t.

Before I talk about the Fox article, “Browner: Redder than Obama Knows”, let me talk a little about the socializing of the electric system, an issue I have been trying to correct for over twenty years.

Electric systems improve reliability by increasing the number of generators connected to the grid.  More generators with enough capacity and we are more likely to have enough electricity for everyone.  Electric generators have great economies of scale.  Larger units mean less steel and concrete per KW or KWH.  Perhaps more importantly, fewer power plant employees.  Manning an operating room 24×7 for a 2,000 MW plant takes not many more people than for a 300 MW plant.

So, eighty years ago electric systems were in a quandary.  To maintain high reliability, electric systems needed more units.  To keep costs low and improve profit margins relative to a fixed price, electric systems needed larger units.  So the trade off was between more, therefore smaller, units versus larger, therefore fewer, units.  The solution was to interconnect with one’s competitors which increased the number of units connected to the grid and allowed utilities to build larger, less costly, units.  In the summer of 1969 and from 1971 to 1976 I worked for American Electric Power (AEP).  In perhaps ten years times, AEP went from building 280 MW generators, to 800 MW, to 1300 MW, being able to achieve those economies of scale by having more interconnections with its neighbors than almost any other utility in the US.

Those interconnections created a form of socialism.  The utilities did not figure out how to charge each other for the increased reliability provided by the interconnection.  Reliability came to be considered to be a public good, not to be charged for.  Reliability regions created rules for their interconnected utilities, such as having a 20% reserve margin for each utility or having spinning reserves equal to the size of the largest unit.  If we assume only the 20% reserves, then a very small utility could build one large unit to enjoy the economies of scale and rely on the large number of interconnected units for reliability.  If an industrial facility builds and operates a cogeneration plant (whose per KWH fuel costs because of the steam usage is half of the per KWH cost of a conventional plant), then the industrial facility will not want to have a spinning reserve requirement that reduces the generation by on the cheapest unit on the system.

Over twenty years ago I wrote “Tie Riding Freeloaders–The True Impediment to Transmission Access,” Public Utilities Fortnightly, 1989 December 21 arguing for a de-socialization of the electric system, both of the generation component discussed above and of the transmission component.  I say that we need a system to pay for unscheduled flows of electricity on very small time increments.  That way the small utility with the single large unit would pay the current value of electricity whenever the unit went down.  If the unit always failed during the summer peak, then the prices would be very high.  If the utility did sloppy maintenance and the unit was out more than the average for the rest of the grid, then the utility would be making frequent payments.  The reliability regions were not able to devise a reserve rule to penalize the sloppy maintenance practices or the bad timing issues.  I say that pricing the unscheduled flows achieves the appropriate grid discipline, or at least better grid discipline.  India put into place such a pricing mechanism and improved its grid discipline.

The physical interconnection created a form of socialism of the generating system.  Real time pricing of the imbalances would remove some of that socialism.

For the transmission system, socialism comes in the form of loop flow.  Engineers often use the short hand of saying electricity flows through the path of least resistance.  But, when there are several paths of relatively low resistance, the electricity divides among those paths such that the marginal line losses on each path are the same.  Thus, two parallel identical lines will split the load equally between them.  Attach something to one of the lines and the load will split in some slightly different way, but not all going to the one line with the least resistance despite the short hand.

Higher voltage lines have lower resistance than do lower voltage lines.  Higher voltage lines are more expensive per mile of wire but less expensive per KW-mile, with much lower line losses.  Consider this another example of economies of scale.

Consider a small utility that has a low voltage transmission line connecting its customers over a long corridor.  Consider a large utility serving roughly the same corridor that builds a high voltage transmission line parallel to the other line.  If the lines are connected to each other at each end, total line losses are reduced when some of the power from the small utility travels on the wires of the large utility.  If there is a scheduled transaction for the flow, the small utility will pay a wheeling fee to the large utility.  Generally there is no scheduled transaction and the small utility gets a free ride, a form of socialism.  Some describe the claim by the large utility for a wheeling fee to be “vampire wheeling.”  My article says that the network needs to price this unscheduled flow by differentiating the price geographically in addition to the temporal differentiation discussed above.

In regard to the Fox article, the aiding and abetting has taken the form of support for carbon taxes that would impact utilities differently.  A utility with a large nuclear fleet would see its competitors costs go up.  That would competitively advantage the nuclear fleet owner and in restructured markets, such as those operated by ISOs, the price of energy from the nuclear fleet would go up by the carbon tax without the cost of the nuclear fleet going up.

In regard to decoupling, some utilities will weatherize my home, with little or no charge to me.  That will lower the amount of electricity that I consume for HVAC.  The utility will treat the cost it incurred to weatherize my home as a legitimate rate case expense.  This raises the price that everyone, including me, pays.  If the utility has 100 customers, then I end up paying in higher rates less than 1% of the cost that the utility incurred to pay for weatherizing my home.  With a thousand customers, I pay less than 0.1%.  But I will pay for weatherize other peoples’ homes.  Except, that my new, green and economy minded, wife and I already spent a fortune on new double paned windows and other weatherizing features.  So my costs will not get socialized but I would pay the cost incurred by the utility for weatherizing others.

The Fox article presents three ways for decoupling, different ways for the utility commission to treat the weatherization costs as a legitimate rate case expense.  Or the government could use stimulus money for the same purpose, a different form of socialization.

My comments above don’t actually identify and explain misstatements, just explain some of the statements.