P&E US 6

COVER NG P&E6 viz2:jan09 05/02/2009 09:31 Page 1

Pressure cooker

Prize fight

The environmental arena heats up for PSEG’s Ralph Izzo

Exelon gets tough on carbon emissions

Page 42

Page 94

It isn’t easy being green

Old king coal

Changing the color of your collar doesn’t make a new economy

Why Alliant’s energy strategy includes fossil fuels

Page 48

Page 100

www.nextgenpe.com • Q1 2009

Why President Obama’s energy plan could leave us in the dark Page 36

Sensus Ad:euro

2/2/09

10:44

Page IFC1

Sensus Ad:euro

2/2/09

10:44

Page 1

“Prices are escalating, transactions are occurring faster, data is being exchanged faster…

We had to automate to keep ahead with the industry and one of our most crucial steps was to bring in SunGard’s ZaiNet.” George Sladoje CEO & Chairman North American Energy Credit and Clearing Corp (NECC)

solutions for energy

©2008 SunGard

www.sungard.com/energy

Trademark Information: SunGard and the SunGard logo are trademarks or registered trademarks of SunGard Data Systems Inc. or its subsidiaries in the U.S. and other countries. All other trade names are trademarks or registered trademarks of their respective holders.

SUNGARD DPS AD.indd 2

2/2/09 11:04:31

Physical Power Challenged?

As a power market participant are you: » Securing the best transaction terms available? » Accurately anticipating physical transmission capacity? » Meeting contractual obligations in physical markets?

Accurate, real-time commodity scheduling is a requirement for success in today’s competitive energy markets. Remaining a nimble competitor and improving operational performance at the same time is becoming increasingly difficult.

SunGard’s power operations solutions compile, analyze, and manage high volumes of transactions and distribution information to help you gain the flexibility needed to respond to electricity market changes.

SunGard’s power solutions provide the integrated information utilities and marketers require to help them buy, sell, schedule, and settle physical power contracts. Designed to streamline physical delivery transactions, SunGard’s user-configurable power operations tools support processes ranging from contract compliance to settlement calculations, billing to invoicing, realtime generation dispatch to real-time curtailment management.

Electricity providers, schedulers, suppliers and others working in the interconnected electricity grid also rely on SunGard’s solutions to help them manage the related fuels costs, logistics, and environmental regulations.

It’s all about making more informed decisions. Whether you are faced with decisions about the purchase and safe-sale of power or need to utilize important cost data at the front-end of each billing cycle, forecast billing reports and budgets more accurately, and efficiently export data for reporting purposes, SunGard’s power solutions can help you to: • Make informed decisions about the scheduling, purchase and sale of power • Enforce business rules and generate warnings to drive real-time decisions • Forecast, plan for, and manage fuels costs • Forecast and manage emissions allowances and credits for regulatory compliance • Provide important cost data at the front end of each billing cycle • Forecast billing reports and budget accurately • Access contracts, schedules, inter-utility invoicing and reports online • Integrate information with other energy and corporate information systems • Efficiently export data for reporting purposes More than 275 companies rely on SunGard Energy Solutions to help them trade, produce, transport, account for and manage a range of business risks associated with gas, liquid and solid energy commodities.

For more information email us at energy-marketing@sungard.com, or call: North America + 1.888 296 1906

SUNGARD DPS AD.indd 3

Europe India + 44 (0) 20 8081 2000 + 91 20 6624 8000

Asia/Pacific + 65 6416 9790

2/2/09 11:04:31

Motorola.indd 4

2/2/09 10:40:43

Motorola.indd 5

2/2/09 10:40:50

Matrikon.indd 6

2/2/09 10:38:37

Matrikon.indd 7

2/2/09 10:38:41

Open link AD:euro

2/2/09

10:43

Page 8

EDITORS NOTE NGP+E6:feb09 05/02/2009 09:27 Page 9

FROM THE EDITOR

9

Consumption gone mad Why we can’t wait for someone else to save us from our energy greed.

A

“There’s still a big question mark around the details of this energy policy, particularly as it relates to controlling greenhouse gas emissions” John McConomy, Energy Analyst, PricewaterhouseCoopers (page 36)

“There are constraints on how much debt the nation can accumulate since the federal deficit is already substantial and growing” Ralph Izzo, CEO, Public Service Enterprise Group (page 42)

“The big unknown that could change things pretty dramatically is federal legislation on climate”

merica the powerful. We set the standard for global economies (even when things go awry), we rule the world with our military might, we lead the way in sporting triumphs, scientific discoveries and . . . energy consumption.

According to the government’s Energy Information Association, in 2006 – the most recent year for which data are available – we consumed 100 quadrillion Btu of primary energy, including more than 4500 billion kilowatt hours of electricity and 22,000 billion cubic feet of natural gas.

Lucky for us, we’ve just elected a president with a vision for change and a radical plan to drastically cut our energy usage, switch to more renewable sources, cut emissions and – that all important clincher – slash our dependence on foreign oil.

It’s a comforting feeling; we can sit smugly in our heated or air conditioned homes, watching our giant, flat-screen TVs, eating food fetched from the grocery store in our gas-guzzling SUVs, secure in the knowledge that President Obama will save us from ourselves.

Only he won’t. Not unless he can come up with a truckload of cash without plunging the country into an even greater pit of fiscal devastation. New technology to access renewable energy sources; additional infrastructure to encourage efficiency; more equipment to help cut carbon emissions: it all costs money, and in a global financial downturn, money is one thing that’s hard to come by.

Obama can, of course, borrow from future taxpayers. This may seem the easiest option, but it will only put off the inevitable, and penalize our children for our own energy-hungry lifestyles.

That’s if we can even agree on what energy efficiency means, or on what constitutes a ‘green’ energy source. Take the debate over so-called clean coal. Newly appointed energy secretary Steven Chu has pledged to support the construction of clean coal plants, and the DOE is partnering with the private sector to do just that.

There are those, however, who say that clean coal doesn’t exist. According to environmental groups such as the Sierra Club, the National Wildlife Federation and the Alliance for Climate Protection, all the talk of cleaning up coal is just a smokescreen to obscure the fact that 50 percent of our power comes from one of the dirtiest sources of energy on earth. In their view, no amount of investment in souped-up carbon capture technology is going to change that.

If we can’t agree on the fundamentals, how are we going to bring about real change? And even if we knew exactly what we needed to do, where would we get the money to do it? These are difficult questions, but ones we can’t ignore. Like it our not, government, utilities, environmental groups and ordinary citizens will all have to work together to help solve our climate conundrum. Our future – and that of our children and grandchildren – depends on it. n

Helen Howes, VP of Environment, Health and Safety, Exelon (page 94) Marie Shields, Editor

Cyveilllnace AD:euro

2/2/09

10:24

Page 10

Cyveilllnace AD:euro

2/2/09

10:24

Page 11

CintieronDPS.indd 12

2/2/09 10:22:46

CintieronDPS.indd 13

2/2/09 10:22:51

Black and Veatch AD:euro

2/2/09

10:20

Page 14

CONTENTS NGP&E6:jan09

5/2/09

09:16

Page 15

CONTENTS FEATURES

15

Money to burn The Obama administration has lofty aims, but where will we get the cash to fund our shiny new energy future?

42 The heat is on Ralph Izzo on the financial crisis, the environmental crackdown and how PSEG is hedging its bets on new nuclear

36

100

48

Hanging in the balance Eliot Protsch explains why Alliant won’t abandon coal as part of its energy strategy

The grass is always greener Why an economy based solely on renewables won’t work

Numerex AD:euro

2/2/09

10:42

Page 16

CONTENTS NGP&E6:jan09

5/2/09

09:16

Page 17

17

CONTENTS SMART GRID, ENVIRONMENT, ENERGY TRADING

116 GOLD SPONSOR

ROUNDTABLES 89 Risk management With Michael Hinton of Allegro, Mattias Palm of Navita Systems and Sharon Fortmeyer-Selan of SunGard Energy Solutions

113 Security With Gary Layton of Black & Veatch, Panos Anastassiadis of Cyveillance, Inc. and Marcel van Helten of GE Fanuc

ASK THE EXPERTS 68 Steve Pollock, TuVox 81 John Andre, Numerex

66 The deciding factor Bill Inmon explains how to organize your data for the most effective access

70 Walk this way Jason Few examines wireless technology development

INDUSTRY INSIGHTS

56

74 Close to home Is the US really ready to power itself?

60 David Wilkinson, RAM Mounting Systems 64 Mark O’Hearne, Millennial Net 99 Sarah Hetznecker, Conergy

77 Bright ideas How American Electric Power is helping to shape the intelligent energy future

82 Slow and steady wins the race Ameren takes a cautious approach to smart grid implementation

S I LV E R S P O N S O R

THE NEXT BIG THING 54 Warren Westrup, AT&T

56 Supply and demand

84 Trading up

104 The economics of solar power

Robert Simpson looks at the customer side of energy efficiency

Jill Feblowitz on the proposed changes to cap and trade

Why the sun is becoming an increasingly attractive source of energy

62 The future is smart

94 Championing renewables

110 A fair wind

Tom Hulsebosch on rolling out smart grid across the country

Exelon’s Helen Howes discusses alternative energy strategies

The opportunities for alternative energy sources in the economic slowdown

CONTENTS NGP&E6:jan09

18

5/2/09

09:17

Page 18

CONTENTS SECURITY, CUSTOMER RELATIONS

124

77

SPECIAL FOCUS: OIL & GAS 124 Drilling deep Devon Energy’s Rick Mitchell looks at the elements of effective oil exploration

128 Managing the talent crunch BP’s Andy Inglis works to plug the capability gap

134 Offshore opens up Will access to the outer continental shelf change oil and gas exploration and production?

116 You can count on me How NERC helps ensure we have electricity when we need it

122 The power to improve PSEG’s Margaret Pego on training to beat the looming skills shortage

EXECUTIVE INTERVIEWS

104

73 Walt Paskowski, Alcatel-Lucent 75 Britton Sanderford, Sensus Metering Systems Inc.

IN THE BACK 136 Comment: Looking for backup 138 Travel feature: Japan 140 Face off 142 In review 144 Final word: Mark Williamson S I LV E R S P O N S O R

GE fanuc AD:euro

2/2/09

10:26

Page 19

CREDITS NGP+E6:jan09 05/02/2009 10:14 Page 20

9-11 June 2009 North Carolina, United States

Chairman/Publisher SPENCER GREEN CEO/Publisher JAMES CRAVEN Director of Projects ADAM BURNS Editorial Director HARLAN DAVIS

Editor MARIE SHIELDS Managing Editor BEN THOMPSON Associate Editor NATALIE BRANDWEINER Deputy Editors MATTHEW BUTTELL, REBECCA GOOZEE, DIANA MILNE, JULIAN ROGERS, HUW THOMAS

Creative Director ANDREW HOBSON Design Directors ZÖE BRAZIL, SARAH WILMOTT

The Next Generation Oil and Gas Summit is a three-day critical information gathering of C-level technology executives from the oil and gas industry.

Associate Design Directors MICHAEL HALL, CRYSTAL MATHER, CLIFF NEWMAN Assistant Designer ÉLISE GILBERT

Online Director JAMES WEST Online Editor JANA GRUNE

A Controlled, Professional & Focused Environment NG O&G ’09 is an opportunity to debate, benchmark and learn from other leaders. NG O&G ’09 is a C-level event reserved for 75 participants that includes expert workshops, facilitated roundtables, peer-to-peer networking, and coordinated technology meetings.

Project DIrector DENISE TEIXEIRA Senior Sales Manager DREW CONTESSA Sales Executives JOSE TUGAS, YINKA ADESINA, ANDREW CUMMINGS, BROOKE THORPE, ARTY DEGUZMAN

Finance Director JAMIE CANTILLON

A Proven Format This inspired and professional format has been used by over 100 R&D executives as a rewarding platform for discussion and learning.

“Excellent location, good technical information from vendors and the ability to source new ideas off of solution providers can only enhance the industry.”

Timothy Roughan, National Grid “I got more than I expected.”

Werner Schweiger, Nstar

Find Out More Contact NG Oil & Gas at 212 920 8181 www.ngosummit.com

Head of Production and Events ROBERT SIMMS Production Coordinators HANNAH DRIVER, HANNAH DUFFIE, JULIA FENTON Director of Business Development RICHARD OWEN Operations Director JASON GREEN Operations Manager PHILIPPA LUDIN

Subscription Enquiries +44 117 9214000. www.nextgenpe.com General Enquiries info@gdsinternational.com (Please put the magazine name in the subject line)

Letters to the Editor letters@gdspublishing.com

Next Generation Power and Energy 33 Whitehall Street, 14th Floor, New York NY 10004, USA. Tel: +1 212 920 8181. Fax: +1 212 796 7010.

E-mail: newyork@gdsinternational.com

Legal Information The advertising and articles appearing within this publication reflect the opinions and attitudes of their respective authors and not necessarily those of the publisher or editors. We are not to be held accountable for unsolicited manuscripts, transparencies or photographs. All material within this magazine is ©2009 NGP&E.

GDS International GDS Publishing, Queen Square House, 18-21 QueenSquare, Bristol BS1 4NH. +44 117 9214000. info@gdsinternational.com

Wavecom AD:euro

2/2/09

10:47

Page 21

NGP+E US6:nov08

22

4/2/09

16:00

Page 22

FRONTLINE

CAFFEINE HIT

22

www.nextgenpe.com

RESEARCHERS IN NEVADA BELIEVE waste coffee grounds can provide a cheap, abundant and environmentally friendly source of biodiesel fuel for powering cars and trucks.

In a new study, Mano Misra, Susanta Mohapatra, and Narasimharao Kondamudi note that the major barrier to wider use of biodiesel fuel is lack of a low-cost, high quality feedstock for producing that new energy source. Spent coffee grounds contain between 11 and 20 percent oil by weight. That’s about as

much as traditional biodiesel feedstocks such as rapeseed, palm and soybean oil.

Growers produce more than 16 billion pounds of coffee around the world each year. “The used or ‘spent’ grounds remaining from production of espresso, cappuccino and plain old-fashioned cups of java often wind up in the trash or find use as soil conditioner,” said Sampson.

The scientists estimated, however, that spent coffee grounds could add 340 million gallons of biodiesel to the world’s fuel supply.

NGP+E US6:nov08

4/2/09

16:01

Page 23

FRONTLINE

23

NUMBER CRUNCHING New Energy for America Plan

5 million new green collar jobs by investing

$150 billion over the next 10 years

1 million Plug-in hybrid cars on the road by 2015

10% of electricity to come from renewable sources by 2012

25% To verify it, the scientists collected spent coffee grounds from a multinational coffeehouse chain and separated the oil.

They then used an inexpensive process to convert 100 percent of the oil into biodiesel.

The resulting coffee-based fuel had a major advantage in being more stable than traditional biodiesel due to coffee’s high antioxidant content, according to the researchers. Solids left over from the conversion can be converted to ethanol or used as compost, they noted in their report, which was recently published in the

American Chemical Society's (ACS) Journal of Agricultural and Food Chemistry.

Nearly three million gallons per year of the fuel could be produced by tapping only into the output of the Starbucks coffee chain in the US. Worldwide, taking all the used grounds from every Starbucks in the world would produce over four million gallons per year. Total biodiesel production per year using all coffee available is estimated to be 208 million gallons per year.

of electricity to come from renewable sources by 2025

Cap and trade to reduce carbon emissions

80% by 2050

www.nextgenpe.com

23

NGP+E US6 UPFRONT:nov08

24

5/2/09

11:22

Page 24

FRONTLINE

PROFILE Steven Chu NobelPrizewinnerandexperimentalphysicistStevenChuhasbeennamedas thenewSecretaryofEnergy.Knownforhisresearchincoolingandtrappingof atomswithlaserlight,Chu’soutstandingcontributiontosciencewonhimthe NobelPrizeinPhysicsin1997andhailedhisimportanceonenergymatters.

Chu’s current research projects are primarily concerned with the study of biological systems at the single molecule level, and are based at the Lawrence Berkeley National Laboratory, a Department of Energy-funded basic science research institution. As one of six directors, Chu has focused the laboratory’s work on issues of climate change, calling for breakthrough research in energy efficiency, solar energy and biofuels technology.

It has been his work as a vocal advocate for greater research into renewable and nuclear energy that has brought him attention from the political field. A member of the Copenhagen Climate Council, Chu has advocated an aggressive set of policies to be endorsed by President Obama for the development of clean energy sources, and is fully supportive of the President’s far-reaching cap and trade proposals.

Highlighting the risks of global warming, Chu said: “It is now clear that if we continue on our current path, we run the risk of dramatic disruptive changes to our climate system in the lifetimes of our children and grandchildren.”

The development of nuclear power and coal is central to Chu’s research on clean energy sources. He believes that through capturing carbon dioxide emissions, coal can be refined to become a greener source of energy. His support of carbon capture research is certainly a source of optimism for FutureGen, a public-private partnership to design, build and operate the world's first coal-fueled, near-zero emissions power plant, which had its funding cut by the Bush administration.

The progression of nuclear energy to become a primary source of power is also high on Chu’s agenda.With the US containing only an estimated three percent of the world’s known oil and gas reserves, Chu advocates a nuclear program, including a department loan program for new reactors and developing a long range plan for dealing with nuclear waste.

In order to limit emissions produced by existing coal and oil plants, Chu fully supports Obama’s cap and trade proposals, which he says must be part of a wider international agreement to reduce emissions. China is a great concern to the new Administration, and for Chu, a Chinese-American, the US must take responsibility in providing China with the technology to reduce its energy usage, particularly in its construction work.

The selection of Chu into the Obama Administration is certainly a smart move.

As a scientist – rather than a politician, oil tycoon or corporate executive – he can act as an unbiased advisor. Chu’s strategies are determined by advanced technological corporations and his experience thus far leading to his appointment can only position him as an educated selection to the Cabinet.

24

www.nextgenpe.com

NGP+E US6:nov08

4/2/09

16:03

Page 25

FRONTLINE IMPROVING THE ACQUISITION OF SOLAR POWER THE SOLAR ELECTRIC POWER significant investment of time ASSOCIATION (SEPA) has reand resources by both utilities leased a new report, “Utility and solar companies goes into a Procurement Study: Solar solar project’s initial developElectricity in the Utility ment. Current practices and proMarket”, aimed at improving cedures such as requests for large scale solar acquisition by proposals, negotiations and conelectric utilities, and providing tracting occur behind the scenes, innovative ideas for future probut are critical to the overall sucject procurement. cess of new solar generation.”

In 2008, more than 5000 The new research report is megawatts (MW) of new solar based on the results of two studphotovoltaic (PV) and concentrat- ies; one conducted to explore tradiing solar power projects tional methods for the were announced, procurement of largeIn 2008 and with the scale solar electricity more than eight-year exby the utility martension of the ket, and a parallel federal investstudy to explore of new solar photovoltament tax credit innovative methic and concentrating solar power projects (ITC), the market ods of solar acquiwere announced is expected to sition. The first part grow significantly, of the report dissects the SEPA said. traditional procurement Along with the tax credit exprocess, which involves the release tension, the revised ITC also alof a standard request for proposals lows electric utilities to utilize the (RFP) by utilities, to which solar credit for the first time, by both project developers respond. owning and/or investing in solar Responses are then internally projects, potentially creating a scored and selected by utility staff critical source of new projects and, after negotiations are comand capital financing during the pleted, a contract with a specific current economic downturn. company emerges.

“The past year was marked The second part of the report by an unprecedented number of looks at innovative procurement announcements for new largeideas, ranging from aggregation of scale solar power projects,” purchasing power by utilities to insaid Julia Hamm, SEPA’s executeractive auctions where pricing retive director. “A sponse could be more dynamic

5000MW

than a single bid process.

25

MORE MOBILITY MANY NORTH AMERICAN utilities are turning to mobile technologies as a way to streamline field operations, increase productivity and enhance customer service, Chartwell research shows.

In a recent survey, Chartwell asked 102 utilities to indicate their deployment stage for mobile workforce management systems, products and services in their efforts to improve distribution reliability performance. The results showed that:

35% 8% 5% 3% 4% 37% 8%

are using mobile workforce management systems for this purpose are considering such a system

are installing such a system

are planning to install such a system

are upgrading their systems

are not considering such a system; and

did not know

NEW INVESTMENT GROUP LAUNCHED EARTH CAPITAL PARTNERS LLP (ECP), new business with a specialist focus on environmental investment has been formed. Earth Capital Partners LLP (ECP) will aim to deliver attractive returns by investing in projects, companies and financial instruments, which address sustainable development challenges, such as climate change, water scarcity and energy security.

“Sustainable Development - ‘meeting the needs of today without jeopardising the ability of future generations to meet their needs’ - is at the heart of our model,” said Stanley Fink, Chairman of the new group.

Rufus Warner, CEO, said, “ECP’s mission is to build a fund platform of institutional quality and scale to invest in real assets that make a meaningful difference. ECP aims to lead change in financial markets by demonstrating that financing the transition to a low CO2, low pollution, resource efficient economy can be achieved sustainably and profitably.”

www.nextgenpe.com

25

NGP+E US6:nov08

26

4/2/09

16:03

Page 26

FRONTLINE

THE PERSISTENCE OF POWER As the biggest listed US energy supplier, Exelon are determined to extend their dominance of the US utilities industry with a dogged pursuit of the acquisition of NRG Energy. Exelon, worth about $38bn, placed an offer in October 2008 to buy the utility company for a huge $6.2 billion, which if agreed upon would solicit them as the largest supplier in the US. Following a rejection from NRG in November, deeming the merger to be risky and opportunistic, David Crane, President and CEO of NRG, was quoted in saying that the deal undervalued NRG. He has said it is likely that NRG shall be weighing up the possibilities of other investment offers, many from European groups.

However, Exelon view this as only a minor setback and are displaying more persistence than ever in its desired takeover. The utility giant has extended the tender period and are waiting on NRG’s shareholdings to provide a majority vote in favour of the takeover before the general meeting in May. With Exelon already receiving 47% of the vote, it seems more than likely that the desired target will be reached.

It is believed the potential partnership to follow on from Warren Buffet’s recent investment of Constellation Energy, and if the deal is to be completed, it will set the standard for other acquisitions by larger utility companies, following a downward spiral in share price in the industry by the financial crisis.

26

www.nextgenpe.com

SECURE WIRELESS TECHNOLOGY WE ARE AT AN EXCITING TIME in the telecommunicaand channel planning flexibility. tions industry; new technologies are popping up alGE’s MDS Mercury 3650, operating at 3.65 most every day, as are the applications that use GHz, is an industrially hardened, private infrastructhem. One of the most interesting applications is the ture wireless solution designed ‘intelligent grid’. As elecfor mission-critical MDS MERCURY™ 3650 tric utilities forge SCADA, data agahead it has begregation, video, come clear that the AMR/AMI and intelligent grid, with VoIP applicaits SCADA systems, tions. This soluadvanced monitortion ensures data ing and control algotransmission serithms, and power curity with AES 128-bit enmanagement features will cryption, network authentication with Radius not be realized without intelligent communications. support and MAC address filtering, and segregaThese communication infrastructures are made of tion of sensitive data using VLAN support. both wired and wireless technologies, howevCommunication protocols for both new and er, for reasons of economy and flexibililegacy systems are supported using ty, organizations are migrating serial protocols, analog and disGE’s towards wireless communication crete I/Os, and ethernet. The MDS MDS Mercury 3650 operating at solutions.

Mercury 3650 may also be conWireless communication netfigured to a Utility’s specific works for the intelligent grid need needs for either optimal to be both multifaceted and able throughput, using WiMAX based is an industrial hardened, private wireless to seamlessly integrate with new technology to achieve up to 9 solution and existing devices. Essential sysMbps aggregate, or for optimal tem requirements are reliability, availrange, (up to 14 miles). ability, scalability, manageability and security.

Deploying MDS Mercury 3650, communiTo achieve this, frequency bands, such as the recentcations networks provides utilities the means to ly allocated 3.65 – 3.70 GHz band in the United wirelessly collect all of the vital data required to enStates, must be utilized to provide the best combiable the Intelligent Grid. nation of range, speed, protection from interference GE Digital Energy – MDS (www.gemds.com)

3.65 GHz

WORLD MARKETED ENERGY CONSUMPTION (2005-2030) Quadrillion Btu (British thermal unit) Non-OECD OECD

436

2005

513

2010

583

2015

608

2020

652

2025

Sources: Energy Information Administration (EIA), Internatinal Energy Annual 2005. Projections: EIA, World Energy Projections Plus (2008).

695

2030

NGP+E US6:nov08

4/2/09

16:04

Page 27

27

FRONTLINE NERC CIP COMPLIANCE. ARE YOU THERE YET? THE NORTH AMERICAN ELECTRIC RELIABILITY CORPORATION (NERC) maintains comprehensive reliability standards that define requirements for planning and operating the collective bulk power system. Among these are the Critical Infrastructure Protection (CIP) Cyber Security Standards, which are intended to ensure the protection of the Critical Cyber Assets that control or affect the reliability of North America’s bulk electric systems.

NERC CIP requirements are mandatory and enforceable across all users, owners and operators of the bulk-power system. After going into effect in June 2006, initial compli-

ance auditing began in June 2007. The magnitude and reach of NERC CIP leaves most organizations asking themselves, “Are we there yet?”

To answer that question, first you have to know where “there” is. What does it truly mean to be in compliance? “Capturing, reviewing, reporting and retaining log data related to the access and security of the physical and electronic perimeter is at the heart of the NERC CIP standards,” says Andy Grolnick, CEO of LogRhythm, a leader in log and event management solutions.

“References to incident reporting and response planning for events that threaten critical cyber assets are also called out in the regulation, but un-

FROM BUTTER TO BIODIESEL EACH YEAR IN JANUARY, the Pennsylvania Farm Show unveils its butter sculpture. This year’s sculpture is dedicated to the National Guard and depicts a Guardsman saying goodbye to his family. A thousand pounds of butter went into the sculpture, which was converted to biodiesel by Lake Erie Biofuels at its biodiesel facility in Erie, Pennsylvania at the end of the show. Providing a certain symmetry, the company plans to provide the

biodiesel to the Pennsylvania National Guard for use in its equipment in the state and overseas. Lake Erie Biofuels is the East Coast’s largest operating biodiesel refinery, with an annual capacity of 45 million gallons. The company has produced biodiesel used in cars, trucks and trains, and recently partnered with Greenflight to provide the aviation fuel for the first jet flight across the continental United States using biodiesel.

derstanding what is truly required can be complex, costly and burdensome.

(LogRhythm offers a crisp and concise breakdown of what is required in the NERC CIP regulations for log and event management and how an organization can automate compliance reporting).

The NERC CIP standards provide a detailed prescription of systems, procedures and technologies for protecting the critical cyber assets that control or affect the reliability of our bulk electric systems. However, true protection is achieved not by reaching the destination of ‘compliance’ but rather when the spirit behind the standards is embraced through ever evolving best practices.

86

ISSUE IN NUM8ERS We’ll be investing approximately

$200 million 3 dollars over the next few years to install meters at the customer’s locale (page 100)

1100 feeders or circuits that traverse the geography We have

in North and South Carolina (page 56)

We have a

$100 million

solar loan program for our customers, which so far is approximately 40 percent subscribed (page 42)

Nuclear generation produces about 20% of the electricity in the US (page 94)

www.nextgenpe.com

27

NGP+E US6:nov08

28

4/2/09

16:05

Page 28

INTERNATIONAL NEWS

UK GREEN ENERGY MARKET TO GROW A MARKETWORTH MORE than £50 billion will be created for new wind, wave and tidal power equipment in British waters by 2020, the head of a new energy research and development group backed by the UK government has said.

David Clarke, chief executive of the EnergyTechnologies Institute, recently launched the first four projects backed by the group, which aims to encourage the commercial development of low-carbon energy sources including renewables, electric vehicles and power stations that capture and store carbon dioxide emissions.The ETI, based at Loughborough University, is still backed by just six companies instead of the 11 that the government hoped for. Each company has promised to contribute £50m over 10 years.

A market worth more than

$50 million will be created for new wind

FUND RUNNING OUT going all out with incentives.

EXPERTS HAVE PREDICTED that Canada aims to increase carthe Canadian government’s $1.4 bon-free electricity producbillion incentive program tion to 90 percent from for renewable energy Canadian the current 73 perprojects drying up government’s cent by 2020. far earlier then However the two planned, in just organizations say 10 months. Both incentive program is the government the Canadian Wind drying up far earlier than planned should have expandEnergy Association ed and extended the and the Pembina program in the federal budget in Institute believe the funds short January if it was serious about shelf life will discourage investstimulating the economy and ment in green energy production, boosting green energy production. just as the new US government is

$1.4billion

SOLAR POWER TO CREATE JOBS AUSTRALIAN GREENS LEADER BOB BROWN has announced that the party is investing in two 250 megawatt solar power stations for Townsville and the Darling Downs, as well as retro-

28

www.nextgenpe.com

fitting Queensland homes with better insulation and solar hot water tanks in order to reduce power bills and create new jobs.

Brown hopes to create more then 7600 jobs in the state.

WORK STARTS ON GULF ‘GREEN CITY’ ABU DHABI HAS STARTED TO BUILD what it says is the world’s first zero-carbon, zero-waste car-free city.

Masdar City will cost $22 billion, take eight years to build and be home to 50,000 people and 1500 businesses.

The city will be mostly powered by solar energy and residents will move in travel pods running on magnetic tracks. Abu Dhabi has one of the world’s biggest per capita carbon footprints and sceptics fear Masdar may be just a fig leaf for the oil-rich Gulf emirate.

Others fear Masdar City – on the outskirts of Abu

Dhabi City – may become a luxury development for the rich. The project is supported by global conservation charity, the WWF. The city will make use of traditional Gulf architecture to create low-energy buildings, with natural air conditioning from wind towers. Water will be provided through a solarpowered desalination plant, Masdar says. The city will need a quarter of the power required for a similar sized community, while its water needs will be 60 percent lower.

The city forms part of an ambitious plan to develop clean energy technologies.

NGP+E US6:nov08

4/2/09

16:06

Page 29

INTERNATIONAL NEWS

29

NEW OIL DEAL

BIOFUELS FROM AFRICA

by the Kingdom of Bahrain TWO OIL MAJORS HAVE National Oil and Gas SIGNED a deal to address Authority and Shell. growing demand for oil in the Qatar is the world’s Kingdom of Bahrain. Bahrain largest exporter of and Royal Dutch LNG and Qatargas Shell have Bahrain’s daily and Shell have signed a consumption of gas is signed a deal to memoranexpected to rise to supply LNG to dum of unDubai from derstanding 2010 onwards. to study gas cubic feet a day in Kuwait has also imports and 2007 started to import LNG whether these will from Qatar. be sufficient to meet de-

tion for biofuels has however THERE IS HUGE POTENTIAL for been hampered by the lack of biofuel production in subbiofuel policy, limited resources Saharan African countries such dedicated to the agricultural as Nigeria, Uganda and Angola, provided there is a concerted ef- sector, declining agricultural production and climate change. fort from key stakeholders. The “Sub-Saharan Africa repreproduction of feedstock and the sents a potentially lucrative fuel itself would ultimately lead market for the development, to socio-economic improvement growth and use of biofuel owing and, with the correct implementation and Production of feedstock and to its suitable management, the fuel itself would ultimately climatic conditions, vast the controverlead to socio-economic arable land sy about feed-

2billion

mand.

The study will look in particular at imports of liquefied natural gas (LNG) and imports via pipeline, according to statements released

According to www.arabianbusiness.com, Bahrain’s daily consumption of gas is expected to rise to 2 billion cubic feet a day from 1.3 billion cubic feet a day in 2007.

GREEN POWER IN CHINA YINGLI GREEN ENERGY’S wholly-owned subsidiary, Yingli China, has entered into an eight-year loan agreement with CDB, a government policy bank solely owned by China's central government. CDB provides mid to long term financing support for the development of key government projects and for construction in the infrastructure sector, basic industries, pillar industries and high-technology industry. Under the agreement, CDB has agreed to provide to Yingli China, subject to certain conditions, an aggregate of US$70 million to support Yingli China's construction of PV cell manufacturing lines with 100 MW annual production capacity.

improvement

stock used for fuel vs. food can be resolved.

Strategic Opportunities for the Biofuel Industry in Key SubSaharan African Countries finds that while the market is still in its development stage, there is extensive land available for biofuel feedstock production.

Expansion of the agricultural sector to include crop produc-

for feedstock production and the need for African countries to reduce their fuel import bills,” notes Frost and Sullivan Industry Analyst Mani James. “The production of feedstocks and biofuel would improve the agriculture sector which would, in turn, promote employment and wealth creation of these communities.”

www.nextgenpe.com

29

NGP+E US6:nov08

30

4/2/09

16:07

Page 30

FRONTLINE

IN MY VIEW ABDALLAH S. JUM’AH, President & CEO, Saudi Aramco Petroleum matters to everyone on the planet, because it is present in every facet of our societies and our economies. It allows us to transport people and materials, it helps us grow our food, heal the sick, manufacture goods, and make our surroundings safer, more vibrant and more comfortable.

Energy and economic activity are inextricably linked.

Because petroleum empowers just about every other industry on Earth, it fuels the growth and development of our economies, powers the prosperity of our societies, and helps raise the living standards of billions of our fellow human beings.

The first area requiring investment is research and technology development. I believe that technological advancements in upstream applications and operations will enable us to find and produce more oil more efficiently, and to effectively prolong the productive life of our reservoirs even as they open up new frontiers for exploration and development.

To my mind, principle in business comes down to one thing.

Identify your responsibilities as an organisation or a company and make only those commitments that you are confident you can keep in an ethical manner. The issue of defining your organisation’s responsibilities is one that fascinates me and that has played an important role in my time as head of Saudi Aramco.

Innovation is the motor that keeps an organisation moving forward through both choppy seas and still. Insight is the ability to look all around and make sense of those waters, charting dangerous rocks and reefs and identifying where the passage will be smoothest.

For me, petroleum is still primarily about people.

Our industry is currently facing a number of human resource challenges, however, and many companies find themselves caught between a retirement bulge which will see the departure of many of their most experienced personnel and a very young workforce that is not yet sufficiently experienced.

Early in the years I became president, I was asked what I wanted to be known for at the time of my retirement. My answer was, ‘I want to be known as the one who let the genie out of the bottle’. That meant encouraging and capturing the ideas and initiatives of our people, and then applying them to our work and our operations.

30

www.nextgenpe.com

NGP+E US6:nov08

4/2/09

16:08

Page 31

FRONTLINE MEASURING TEMPERATURE LUMASENSE TECHNOLOGIES is a global leader in providing quality sensor instrumentation to the industrial, medical and energy markets. Our products include leading global brands such as: Luxtron – fiber optic temperature measurement sensors; Mikron Infrared – thermal imaging systems and blackbody calibration instruments; Impac Infrared – non-contact temperature measurement sensors; Innova – trace gas monitoring and analysis; and Andros – non-dispersive and dispersive infrared gas analysis.

Our Luxtron temperature measurement products have been measuring transformer winding hot spots with fiber op-

1 2 3 4 5 6 7

31

FROM THE VAULT

tics for over 25 years. We are installed in over 3000 transformers globally and currently work with over 75 different manufacturing sites around the world. With this experience, we have learned through the years how to make a robust, solid system.

Today, we have over a 99 percent success rate in installing fiber optics without any breakage. We provide global support and training to all transformer manufacturers to ensure quick and correct installa-

P&E issue four, autumn 2008

tions. We have also reduced our pricing of fiber optics by 75 percent for a system since the early days.

So, why should you use a Luxtron fiber optic temperature measurement system?

Design verification on the transformers by measuring exact temperatures during a heat run or type test and comparing to calculated design values.

Dynamic loading conditions to have accurate, immediate indications during sudden loading of what is happening with the transformer.

In issue 4 of Power & Energy MANOJ CHOUTHAI, CIO of PSEG, divulges the secret behind the company’s savvy leadership, and why a strong understanding of technology is not enough to ensure success.

Go to www.nextgenpe.com to browse ‘Past issues’ and view the cover story of the Q3 2008 issue, and read of Chouthai’s innovative take on the role of technology within people management.

Accurately and safely control overload situations.

A WHOLE LOT OF WASTE? Maximize the amount of loading you put on a transformer without affecting the life by knowing exactly what the winding hot spot temperature is.

Ability to control cooling fans, circulating pumps and alarms/protective trips by using an accurate, quick response temperature from the fiber optics – and thus enable control of your hot spot by activating cooling and protection by an accurate reading.

Enable condition based maintenance and inspections using accurate information.

Eliminate calibrations and maintenance on temperature monitoring – our systems do not require calibration or maintenance … ever.

DISINTEGRATED GARBAGE could one day come to produce the electricity you use in your home. Davis County commissioners have adopted plasma-arc technology to extend the life of its Layto landfill, and do away with its 22-year-old incinerator. A plasma arc is basically a manmade lightning bolt that converts solid waste, which would normally be incarcerated, into gases for generating electricity. Although no such facility has previously been built in the United States, parts of Europe and Japan have been using plasma arcs for waste management for over 10 years. Contracts are in place for the technology to be deployed in many more states.

www.nextgenpe.com

31

NGP+E US6:nov08

32

4/2/09

16:09

Page 32

SMART GRID ROLLOUT

TUCSON

NORTH DAKOTA

KANSAS CITY

Who: Sulphur Springs Valley Electric

Who: North Dakota Public Service Commission

When: Last Updated by Simon on May 15

When: Last Updated on May 15

When: Last Updated by Simon on May 15

Mandating installation of smart meters by stockholder owned utilities for larger industrial/commercial customers.

Kansas City Power and Light.

Electricity meter initiative for 400,000 meters using wireless technology.

SSVEC is a non-profit co-operative serving a number of counties in South Eastern Arizona.

Who: Kansas City

Have selected Cellnet+Hunt to provide their TS2 solution to over 30,000 of the homes it supplies. The plan is to install the two way solution in urban areas to complement the existing Cellnet+Hunt AMR solution used for rural customers (currently 22k have AMR).

Looking to implement ToU programs, with specific tariffs to support the extensive Solar power initiatives in the area.

Meters will be solid state and provided by Landis+Gyr and General Electric, and will include facility for remote disconnect/reconnect.

The project is planned to be completed by 2010.

Where: Tallahassee, Florida

Where: Chicago, Illinois

Who: Honeywell, working with Elster

Who: Commonwealth Edison

When: Due for completion in 2010

How Much: Potential investments range from $20-250m per year from 2008-2013

How Much: $35 million ($14.9 awarded to Honeywell by the city) How Many: 110,000 electricity meters, 25,000 gas meters, and 85,000 water meters

FLORIDA 32

www.nextgenpe.com

When: 2008 to 2013 Where: Boulder, Colorado

How Many: Expanding the pilot program that served 1,100 customers to a full-blown project serving 120,000 customers

ILLINOIS

Who: Xcel Energy When: 2008 to December 2009 How Much: $100m project How Many: The Project will serve the 100,000 customers in the city

COLORADO

NGP+E US6:nov08

4/2/09

16:10

Page 33

SMART GRID ROLLOUT – AMI – Smart Grid

MISSOURI

PHOENIX

33

MISSISSIPPI

Who: Laclede Electric CoOperative

Who: Salt River Project

Who: Georgia Power

Who: Last Updated Nov 10

When: Last Updated by Simon on Jan 7

When: Last Updated by Simon on Jan 8

Deploying a low power radio (900 MHz) to concentrator solution based upon Elster's Electricity AMR infrastructure.

Subsidiary of Southern Co. – a power generator.

Serves 2.25m customers in Georgia.

300,000 smart electricity meters installed as at July 2008.

Running at 10k per month.

Has (at Jan 09) deployed over 500,000 AMI meters using Itrons MDM/Centron solution.

Looking to install smart metering for all 2.3 million electricity customers by 2012.

Municipal utility serving 35,000 customers in six counties.

Installing a Tantalus RF based network based on Itron Centron metering. Project to start in 2008 and complete within 24 months.

SRP serves over 925,000 customers with electricity and water in metropolitan Pheonix.

Plans to install 35,000 meters to deliver hourly interval data in suburban Atlantic.

BUILDING SMART GRID SYSTEMS Is your neighborhood on board?

THE MAP SHOWS a sampling of smart grid technology as it rolls out across the country: full grid systems in orange, and AMI systems in black. There are many more systems currently in the planning or early stages of implementation.

Where: Northern and Central California

Where: Portland, Oregon

Where: Southern California, except Los Angeles

Who: Portland General Electric Co.

Who: Southern California Edison

When: 2008 through 2011

When: Started June of 2008 and due for completion in 2010

When: 2009 through 2012

How Much: $1.74 Billion

How Much: $1.3 billion

How Many: Virtually all of PG&E’s customers will be served with the 10.3 million SmartMeter gas and electric meters

How Much: $130-135 million How Many: A total of 850,000 customers will be served

OREGON

How Many: 5.3 million meters will be installed across Southern California

CALIFORNIA (SOUTH)

Who: Pacific Gas & Electric

CALIFORNIA www.nextgenpe.com

33

NGP+E US6:nov08

34

4/2/09

16:18

Page 34

FRONTLINE

EUROPE CARRIES THE TORCH THERE HAVE ONLY BEEN $128 billion of energy utility deals in the US during the previous two and a half years, but with the European Union securing almost double that, $286 billion, this may prove a long term influence on the US. PwC, the professional services firm, advises that a combination of the number of deals decreasing in the EU, along with an expected surge of partnerships to form in the US, could close the gap between the two regions in terms of level of operations. The focus on usage of inter-state technology, smart grid, to become adopted in a national target is likely to see an increase in partnerships between utility companies. With such a fragmented system in place, it is expected that the biggest energy suppliers, such as Exelon who boast a net worth of approximately $38 billion, are to be seen working alongside the smallest of energy suppliers, who supply as little as 20 customers.

The fragmented system is proving tempting for those larger European companies who have maximized their capabilities in their home regions and are looking for expansion abroad. US utilities, unlike the EU, are fairly moderate in size, and therefore appear attractive to European investors who will be able to successfully manage them. The EU utility industry is dominated by large companies taking a high percent of supply between countries. For example, the US has no equivalent such as the market leaders EDF of France with a capitalization of $95billion or Eon of Germany, with a capitalization of $70 billion.

34

www.nextgenpe.com

WATCHING THE FORECAST WEATHER IS A TOP AND CONSTANT CONCERN for electric utilities. Temperature drives customer demand – requiring you to have sufficient electricity during peak times as well as influencing infrastructure maintenance to protect against blackouts.

Likewise, severe weather can substantially impact your operations. Lightning can strike substations, high winds and ice can bring down lines and snap poles, and hurricanes can destroy broad areas of one’s service territory.

Weather can leave thousands of your customers without power – sometimes during life-threatening heat waves and arctic outbreaks. However, easy-to-use technology is available to help you better anticipate demand as well as potential severe weather-related outages – allowing you to take proactive measures.

DTN/Meteorlogix offers many solutions to aid load management and operational decisions. Their load forecasts are the industry’s most accurate, and are used by approximately 70 percent of the IOU utilities in the United States. They deliver forecasts to meet the re-

quirements of a client’s particular load model, and their complete service includes ongoing delivery of observations and phone consultations with energy meteorologists, 24/7.

Additionally, the company supplies accurate, detailed local forecasts for nearly 2500 locations, based on advanced model data technology and managed by experienced meteorologists around the clock. These forecasts can help you anticipate conditions up to 10 days out, with hourly outlooks for the first three days.

Forecasts are updated each hour to provide the best, most current look at what will happen. Wind speed, temperature, and other information can be viewed as graphs – and you can set thresholds to automatically highlight items of concern. With this information, you can better anticipate spikes in demand and schedule crews when outages are most likely.

To assist long-term planning and business decisions, DTN/Meteorlogix also offers long-range forecasts from 15 days to five years out. Meteorological consultations are also available 24/7.

NUCLEAR PARTNERSHIPS THE RECENTSIGNING of the Indiaspecific Safeguards Agreement with the International Atomic Energy Agency has set India upon the path of nuclear trade expansion.The signing came following a trip to the country by US senior C-level executives, which

was applauded by the US-India Business Council as an expression of its companies to partner with India in the ever-growing future of nuclear.The final approval by the US Congress to end India’s nuclear isolation brings exciting predictions for the reformed partnership between the countries to continue in the development of safe nuclear power around the world.

NGP+E US6:nov08

4/2/09

16:11

Page 35

FRONTLINE

35

DATA INVESTMENTS IN AN ECONOMIC DOWNTURN DESPITE TIGHTER BUDGETS and cautious an acceptable budget for any organization. spending, the most resilient organizations First, it is important to understand the excontinue to seek innovative and cost-effective pectations. How should people access the dashbusiness intelligence (BI) technologies to boards? Will users make their own further leverage their data investchanges to the dashboards? ments. Many organizations have Are role-based permissions This option provides a made major investments in their and security necessary? data infrastructure to take adHow soon are the dashvantage of the benefits that boards needed? It is imdata insight brings. The obviportant to address the ous next step is to bring in data unique needs to select but requires programvisualization and real-time data the dashboard solution mers to put everything together access to enhance business operathat is the best fit. tions. A great way to make this a reality Next, explore the variety of is with dashboards. options available. An obvious place to Many stack BI vendors give the wrong imstart is with a current BI vendor. Find out about pression about dashboards. Dashboards do its dashboard offering to see if it fits the requirenot need to be a drain on IT staff or require a ments. Another option involves using toolkitlarge budget and implementation time. The type charts or widgets to create dashboards from right approach and the right solution can have scratch. This option provides a customized redashboards up and running in weeks, within sult, but requires programmers to put everything

customized result

together. A final option to consider is enterprise dashboard software that connects to various data sources and provides an interface for building dashboards.

Upon evaluation of the organization’s needs and options available, it becomes increasingly apparent which dashboard would work best and fit within the budget. Despite the economy, the demand for dashboards has remained steady.

Organizations continue to realize the importance of the insight found in their data to keep them competitive in a volatile economy.

COMPANY INDEX Q1 2009 Companies in this issue are indexed to the first page of the article in which each is mentioned.

Alcatel-Lucent 73, OBC Allegro 88, 89 Alliant Energy 100 Altair Nano 93 Ameren 82 American Electric Power 77 American Wind Energy Association 36 AT&T 54, 55 Bank of America 36 Baylor College of Medicine 128 Black & Veatch 14, 113 BP 124, 128 CERA 128 Check Point 47 Chevron 124 Conergy 99, IBC Cyveillance 10, 113 Devon Energy 124 DTN 34, 79

Dynegy 36 Energy Insights 84, 143 Exelon 36, 94 Forest Rim Technology 66 Frost & Sullivan 110, 136 Gazprom 128 GE Fanuc 19, 113 GE MDS 26, 53 Harvard University 140 Herriott Watt University 128 iDashboards 35, 76 Imperial College London 128 International Energy Agency 128 Invaluable Technologies 87 IPAA 134 Itron 96 Lehman Brothers 36 LogRhythm 27, 118 LumaSense Technologies 31, 59 Matrikon 6

Merrill Lynch 36 Millennial Net 64, 65 Mirant 36 MMS 134 Motorola 4 National Economic Council 140 National Resources Defense Council 36 National Wildlife Federation 36 Navita 89, 90 NERC 116 Nuclear Regulatory Commission 42 Numerex 16, 81 Oak Ridge National Laboratory 48 OECD 128 OpenLink 8 Petrobras 128 PricewaterhouseCoopers 36 Progress Energy 56 PSEG 36, 42, 122

Putnam Roby Williamson Communications RAM Mounting Systems Reliant Energy Rice University Saudi Aramco Sensus Metering Systems Sierra Club Smart Energy Solar City Solar Energy Industries Association Stratasoft SunGard TuVox University of Manchester Wavecom West Monroe Partners

144 60, 61 70 128 128 IFC, 75 36 70 48 36 121 2, 89 68, 69 128 21 62

www.nextgenpe.com

35

COVER STORY:18oct 04/02/2009 15:29 Page 36

COVER STORY

Money to burn More than a million people attended his inauguration. He plans to radically cut back our carbon emissions and break our dependence on foreign oil. But where will President Obama find the cash to save us from ourselves?

By Marie Shields

36

www.nextgenpe.com

T

hanks to the well-documented financial downturn, things are looking tricky for many companies in the energy sector. Constellation, for example, saw its stocks drop into the basement when it lost its credit line after the collapse of Lehman Brothers. Reliant found its credit lines closed after Merrill Lynch was acquired by Bank of America. Energy companies with heavy investments in merchant generation, such as Calpine, NRG, Dynegy, Mirant and Exelon, saw their share prices fall by an average of 50 percent at the end of last year.

Given the difficult economic circumstances, this doesn’t seem like a good time to be pumping billions of dollars into building infrastructure to support new technologies whose benefits are unproven. Yet that’s exactly what freshly inaugurated President Obama is doing with his plan for ‘new energy for America’.

The plan promises to “help create five million new jobs by strategically investing $150 billion over the next 10 years to catalyze private ef-

COVER STORY:18oct 04/02/2009 15:29 Page 37

Promises Obama says his government will provide investment to encourage efficiency, invest in low-emission coal plants, advance the next generation of biofuels and fuel infrastructure and begin the transition to a new digital electricity grid. This money will supposedly come from revenue generated from the proposed new cap-and-trade auction. However, the exact details of the auction process are not yet clear, nor do we know how much money it will generate.

Such systems rarely run smoothly, as is shown by the situation in Europe, which recently introduced an emissions trading scheme. Each European country developed its own allocation for the number of certificates it would issue, and as a result, in some countries certificates were over-allocated. This meant there were too many emissions credits on the market, and their price dropped sharply. While not exactly a failure, it did mean serious readjustments needed to be made to the scheme.

What is also unclear is the amount of money that will be expected to come from the utility companies themselves. Given the current financial environment, many companies will already find themselves strapped for cash, even without the need to find extra money to pay for new technology.

Because of this, says McConomy, “The whole process will be more expensive and will take a longer time than initially estimated. Companies across the industry are cutting back on investment due to the credit crunch and they’re being very, very smart about how they deploy their limited capital. We will see projects delayed, and some may be cancelled. The impact of this is that if the economy comes back quickly, there’s a risk that the power companies will have to purchase expensive third party power, their reserve margins may shrink and rate rises may be required sooner rather than later, with a potential rate shock to consumers, which will be troublesome for politicians.”

Money for building

forts to build a clean energy future; within 10 years save more oil than we currently import from the Middle East and Venezuela combined; put one million plug-in hybrid cars on the road by 2015; ensure 10 percent of our electricity comes from renewable sources by 2012, and 25 percent by 2025; and implement an economy-wide cap-and-trade program to reduce greenhouse gas emissions 80 percent by 2050.” Laudable goals, indeed. But just how feasible are they?

One of the major problems with Obama’s plan is that it fails to outline in detail how these goals will be achieved. John McConomy, US Power and Utilities Transaction Services Leader for analysts PricewaterhouseCoopers, points out: “There’s still a big question mark around the details of this energy policy, particularly as it relates to controlling greenhouse gas emissions – whether we will do this through cap and trade, or through a tax – how long the production tax credits will be in place, and whether there will be a need for new nuclear. It will be very, very difficult to achieve the plan’s goals short-term. People have to realize that this is a long-term process.”

Another challenge facing the US utility sector is its aging infrastructure. Even the best-maintained equipment wears out eventually, and a lack of investment in recent decades means that some has been in place for 30 years or longer. Distribution as a percentage of revenue decreased from 5.7 percent in the 1980s and early part of the 1990s to 3.5 percent in the past decade.

Obviously, there is upgrading to be done. The building of new nuclear plants to help in the race to lower emissions will need capital. Ramping up alternative energy technologies will require a major investment. In a financial downturn, where is the money going to come from?

President Obama himself admits that the cost of rebuilding will be considerable, and will add to the already enormous budget deficit. But he argues that this is the only way to break the vicious cycle gripping our economy.

The sunny side Obama’s plan states that 10 percent of the country’s electricity must come from renewable sources by 2012. Naturally, this has delighted existing alternative energy suppliers, although even they are concerned by the feasibility of making this change given the state of the financial markets.

www.nextgenpe.com

37

COVER STORY:18oct 04/02/2009 15:27 Page 38

financing for new wind projects even during the economic slowdown, and to extend the PTC beyond 2009 to provide additional stability to the industry.

Solar Energy Industries Association President and CEO Rhone Resch also feels there is an urgent need for new money: “Congress must use the stimulus bill to move us away from our backwards-looking, recession-burdened economy and toward a new era of recovery and prosperity, with solar and wind leading the way. Our industries have become powerful economic engines in the US, each year creating tens of thousands of new jobs and billions of dollars in economic investment. And we have the potential to put many thousands more Americans back to work. But due to the recession, projects are now being put on hold, factories are closing and workers face potential layoffs unless Congress refines the tax credits now so they work as originally intended.”

High cost Producing energy from current wind, solar and biomass technologies is more expensive than using fossil fuels or nuclear energy. In order to make renewables economic, companies depend on incentives, and these incentives have tended to be in the form of production tax credits (PTCs). For the past few years, PTCs have only been granted for one additional year.

The problem with this, as PwC’s McConomy explains, is that when you’re looking at investing in green technologies, you need more than a year. “When you only have clarity for one year that you’re going to have that production tax credit, it’s tough to make that investment decision. Without the tax cred-

“It will be very, very difficult to achieve the plan’s goals short-term. People have to realize that this is a long-term process” According to Denise Bode, CEO of the American Wind Energy Association, “The US wind energy industry welcomes and applauds President Obama’s vision of a clean energy future and his understanding of the vital role that renewable energy can play in the recovery of our economy today. We look forward to working with the President on the ambitious new energy policy agenda that he has outlined, including an early-action national renewable electricity standard, and investment in clean energy transmission ‘superhighways’ to cost-effectively bring renewable energy to consumers.”

However, she does sound a cautionary note: “The industry also looks forward to delivering on the President’s call to double renewable energy production over three years – but we can do so only if Congress makes an immediate, temporary change to the existing federal incentive for wind to make it effective in the current economic and financial context.”

According to the AWEA, the wind industry has been booming, creating thousands of new jobs. But now, with the economic downturn and the turmoil in the credit markets, that momentum is threatened. The association is urging its members to call on Congress to restructure the existing production tax credit for renewable energy so it will work to attract

38

www.nextgenpe.com

its, wind and solar are not as economic as fossil fuels, and people will spend according to their pocketbooks. For example, if I’m planning on building a wind farm, I need to go to my shareholders and tell them how much I’m going to spend. It can be tough, particularly in today’s financial environment, to make such capital expenditures without those credits being in place.”

Another cloud hanging over the industry is the lack of agreement about what constitutes a ‘renewable’ energy source, what the targets for using renewables should be, and when they should be achieved. Each state currently sets its own renewable portfolio standard, has its own targets, and has set a certain year in which it aims to hit these targets. Add to that the Obama team’s plan to introduce a national renewable portfolio standard, and there is a lot of potential for confusion.

This has resulted in a lack of clarity around how best to make a smart decision on where to invest. It makes sense to introduce renewable portfolio standards and encourage the use of green technology, but the definitions, the amounts and the timing vary enormously between states.

COVER STORY:18oct 04/02/2009 15:27 Page 39

Any federal plan will attempt to supercede what the states want to do, and in some cases are already doing, and the resulting complications could take some time to unravel.

Coming clean and green Obama’s plan also promises to encourage energy efficiency, invest in low-emission coal plants, advance the development of biofuels and fuel infrastructure and begin the transition to a new digital electricity grid, or ‘smart’ grid.

These are pretty vague goals that don’t always hold up under close examination. Let’s take ‘encourage energy efficiency’ for example: any big energy company worth its salt is doing this already. Check almost any utility company website and you will find a myriad of references to customer efficiency programs, customer awareness campaigns, partnerships with local government to reduce emissions, and implementation of ‘smart grid’ metering systems that give them more control over customer energy usage.

Exelon, for example, has produced a detailed plan for reducing its greenhouse gas emissions called ‘2020: A Low Carbon Roadmap’. In it, the company promises to reduce, offset or displace more than 15 million metric tons of greenhouse gas emissions per year by 2020. This doesn’t mean, of course, that Exelon will suddenly become emission-free – only that it will emit gases at a lower rate than in 2001.

Even to achieve this goal, the plan states, “Our best estimate is that the cost to implement the greenhouse gas abatement initiatives described in this plan would be in excess of $10 billion. Construction of a new nuclear plant would only increase that estimate,” although it doesn’t make clear where this money will come from.

Exelon’s plan also recognizes that long-term success in managing climate change requires broad changes in public policy, particularly in legislation to limit overall greenhouse gas emissions: “New low-carbon generating technologies will be slow to advance without dynamic, competitive markets; utility-sponsored energy efficiency programs for customers will be unsustainable if utilities can’t recover the associated costs; and the large upfront capital costs and risks associated with constructing new nuclear plants will be more than private investors can bear without federal loan guarantees.”

At the coal face Then there’s the debate about so-called cleaner coal. The Obama plan calls for investment in ‘low-emission coal plants’, and this in turn is endorsed by the new Energy Secretary, Steven Chu. At his confirmation hearing, Chu reiterated comments he had made previously about coal being his worst nightmare, saying that “if the world continues to use coal the way it is using it today, not only in the United States but in Russia, India and China, it is a pretty bad dream”.

www.nextgenpe.com

39

COVER STORY:18oct 04/02/2009 15:27 Page 40

However, Chu was forced to backpedal slightly in order to keep Republicans and coal-state voters happy. He refused to introduce a moratorium on new coal plants – favored by some environmentalists – instead backing the development of carbon capture and lower emission plants.

“We will be building some coal plants,” Chu said. “One doesn’t have a hard moratorium on something like that when we search for a way to capture carbon and store it safely.”

This will certainly be welcome news for projects such as FutureGen, an alliance between the big coal producers and the Department of Energy.

FutureGen bills itself as a “public-private partnership to design, build and operate the world’s first coal-fueled, near-zero emissions power plant ... [to] prove the technical and economic feasibility of producing low-cost electricity and hydrogen from coal while nearly eliminating emissions.’”

(Note the ‘near’ and ‘nearly’) Apparently the plant will “prove the technical and economic feasibility of producing low-cost electricity and hydrogen from coal while nearly eliminating emissions”.

Sounds great, doesn’t it? We can break our dependence on foreign oil, save the environment, and keep using coal! Of course, coal isn’t renewable, but we’ll forget that for now. The real problem with clean coal is that it doesn’t exist.

Or so say the environmental groups. Late last year, the Reality Coalition – composed of the Alliance for Climate Protection, the League of Conservation Voters, the National Wildlife Federation, the Natural

40

www.nextgenpe.com

FUTUREGEN FutureGen is a public-private partnership between the Department of Energy and the FutureGen Industrial Alliance, Inc, a non-profit consortium of leading international energy companies, to design, build and operate a coal-fueled, near-zero emissions coal plant.

The Alliance is responsible for the design, construction, and operation of the facility. The DOE is responsible for independent oversight and coordinating participation of international governments.

Alliance member companies will invest $400 million toward the project’s cost and bring technical expertise and power plant engineering and construction experience to the project.

The total cost of the project is estimated at $1.5 billion, with the vast majority going toward the design and construction of the plant and the balance to carbon capture and sequestration and other aspects of the facility.

COVER STORY:18oct 04/02/2009 15:28 Page 41

PwC’s McConomy says nuclear energy is an essential part of any green energy strategy. “It is very efficient and the operating costs are significantly less than other base load technologies. There’s a zero carbon footprint. The main issue is it costs so much money. It’s incredibly difficult for a single company to build a nuclear plant with a minimum cost of $10 million. We’re probably looking at 12 to 15 years out before we see the first one built in the US.” The safety issues that plagued the nuclear industry in the 1970s have largely been resolved, but the disposal of waste remains a problem, raising questions about whether nuclear energy is truly ‘green’. According to McConomy, “Current nuclear operators are still storing the waste on-site and until there is a viable policy, there will always be a cloud over the entire nuclear resurgence.”

However, he also points out that, “Fifty percent of our power in the US is either coal or oil driven. That’s not going to disappear tomorrow, so companies will still maintain those plants, but when you look at what the world is trying to do and the success of nuclear in Europe and in the US, it has to be part of a viable energy policy going forward. The main issues are cost, lead time, siting issues, and acceptance by the local populace; but in the big picture, in the long term, it has to be part of the policy.”

Show me the money Resources Defense Council and the Sierra Club – launched a national advertising campaign to put forward what they say is a simple truth: that there is no such thing as clean coal.

The campaign was conceived to counter the millions already spent by the coal industry on promoting the opposite: that clean coal does exist and is already being used in plants in the US. According to the environmental groups, this is simply untrue. “Everyone has a role to play in creating our clean energy future,” says Sierra Club Executive Director Carl Pope. “It’s time for the coal industry to stop fighting against efforts to bring about a green economy and instead start living up to its clean coal rhetoric.”

“Big coal is spending millions to make us think that coal use today is clean,’” adds Natural Resources Defense Council President Frances Beinecke. “But all their dirty money can’t hide the truth – coal as it’s used today is the dirtiest climate-killing fuel on earth.”

That’s not to say that we can’t use technology to make coal less dirty. But this does not seem like the best use of already limited resources, given that coal is not renewable. Better to allocate what funding we have to developing technologies for wind, solar and hydro electricity sources. Or, perhaps, nuclear.

Nuclear explosion Secretary Chu advocates a nuclear program, including a department loan program for new reactors and developing a long-range plan for dealing with nuclear waste.

Clean coal, nuclear, renewables, new technology, new infrastructure – any way you slice it, we’re going to need a lot of money to build this new energy future of ours. Where will it come from? The answer at the moment seems to lie in increasing an already enormous budget deficit, an idea that has made some industry leaders wary.

PSEG CEO Ralph Izzo, for example, a self-confessed fan of what Obama and his team have been saying worries that most of the funding for the necessary capital improvements will come from future taxpayers.

He feels that charging current rate payers would make for a fairer distribution of the penalties involved, given that those of us currently consuming cheaply produced electricity or gas are, in a way, contributing to the problem.

“This is as opposed to simply saying, ‘Regardless of how much energy you consume or what type of energy you consume, I’m going to now borrow money from the federal treasury and burden future taxpayers,’ because eventually this does have to get paid back,’” he says.

So what can we do? We can’t go backward – that’s what we’ve been doing for the past eight years. We can’t stay as we are, or there will be little of our planet left for future generations. We must to pursue strategies to cut back our consumption and find new energy sources. In a way, President Obama has no choice. He has to follow through on his strategies to bring about a greener, more energy-efficient future. What we need now are more details about how much this will cost us, and how, exactly, it can be achieved. n

www.nextgenpe.com

41

Ralph Izzo ed:18oct

4/2/09

15:55

Page 42

THE BIG INTERVIEW

42

www.nextgenpe.com

Ralph Izzo ed:18oct

4/2/09

15:38

Page 43

These are interesting times for the energy sector. The heightened federal focus on reducing greenhouse gas emissions, combined with the current financial instability, is exerting enormous pressure on utility companies across the country. PSEG’s Ralph Izzo gives Natalie Brandweiner the lowdown on an industry in turmoil.

A

saseasonedchampionofrenewableenergy, PSEG Chairman and CEO Ralph Izzo agrees with President Obama about the need for aggressive emissions targets as part of a major effort to get energy on a more sustainable course, but he does have some reservations about the methods that may be used.

“President Obama has energized our nation,” he says. “I am incredibly excited about the opportunities that lie ahead. My only cautionary note is about the need to maintain fiscal discipline. There are constraints on how much debt the nation can accumulate, since the federal deficit is already substantial and growing. My sense is that they will borrow the

money from taxpayers to bring about such change, and they will use whatever mechanisms are available to them. These fall into the category of issuing debt from a nation that’s quite indebted already, and that’s the point I disagree with.”

Izzoisnonewcomertorenewableenergy,hisfascinationwithitbeganwhen he was studying at Columbia University. His university days coincided with the oil embargo of the 1970s, turmoil in the Middle East and America’s search for energy alternatives. “I became fascinated with renewable energy resources,” he says. “I realized energy security was an important social concern and a compelling scientific issue.”

www.nextgenpe.com

43

Ralph Izzo ed:18oct

4/2/09

15:39

Page 44

Influenced by his graduate studies in fusion energy research, Izzo combines the two personalities of scientist and policy-maker. “My scientific background has helped me as a decision-maker to evaluate complex, multifaceted issues with rigor and discipline. Having spent years in the laboratory, I have a huge amount of respect for people dealing with fundamental operating challenges, such as ensuring nuclear power plants run well and electric and gas delivery systems are as reliable as can be. These challenges feed into the technical engineering side of me.”

Cost A big question on the nation’s energy agenda revolves around who should bear the costs of carbon-reduction efforts. “The way you get more of an equitable cost distribution is to focus on who is creating the problem to be corrected,” Izzo explains. “Carbon is a problem because some folks are driving vehicles that get low gas mileage or consuming electricity that is inexpensively being produced by coal. They should be bearing more of the near-term costs of having to solve these environmental challenges.”

Izzo strongly believes that investments in green energy can be good for business and help get the economy back on track. “The idea of jump-starting the economy through green investment makes enormous sense. It’s a worthwhile investment in basic infrastructure, and is a more effective and efficient utilization of our natural resources. The only question is how do you pay for it – we just need a slightly different approach.”

The current financial climate has pointed Izzo back in the direction of policy-making. “We are facing enormous challenges brought about by climate change, and now our policies are being drastically influenced by the economic challenges confronting us at the same time. The situation has led me to participate intensively in policy development and pursuing ways in which PSEG can help solve the problems that confront us in both the environmental and economic arenas,” he says. © 2008 The Record (Bergen County, N.J.) photo by Carmine Galasso

44

www.nextgenpe.com

Ralph Izzo ed:18oct

4/2/09

15:39

Page 45

Strategy PSEG has a multi-pronged strategy for combating climate change.

“From a technology point of view, climate change does not lend itself to one solution, as there are multiple fronts to be taken into account,” Izzo points out. “We are looking at everything from thin film photovoltaics to very standard and basic energy efficiency measures, such as weatherization, to lightemitting diode systems.

“At the highest level our strategy has three parts, built respectively around energy efficiency, renewables and new nuclear. On the energy efficiency front, we’re converting the vehicle fleet, changing lighting systems and heating, ventilation and air conditioning systems. In addition, we’ve sought and received regulatory approval for a $50 million program to help customers reduce their energy consumption.

Ralph Izzo is Chairman, President and Chief Executive Officer of Public Service Enterprise Group Incorporated (PSEG). His public policy experience includes service as an American Physical Society Congressional Science Fellow, in the office of former Senator Bill Bradley. Izzo began his career as a research scientist at the Princeton Plasma Physics Laboratory, performing numerical simulations of fusion energy experiments. He holds a PhD in Applied Physics from Columbia University and has published or presented more than 35 papers on magnetohydrodynamic modeling.

“We’re hopeful this is just the beginning of a much larger program. We’re currently operating on a local level for improving home energy efficiency. In the renewables area, along with our offshore wind program, we have a $100 million solar loan program for our customers, which so far is approximately 40 percent subscribed. We are about to file for regulatory approval of an initiative involving solar farms that we would build on our own property and that would be owned by us, which is different than the loan program whereby we facilitate the construction of solar projects by customers.”

Izzo adds, “Our most risky proposition nowadays is offshore wind, as we attempt to follow the example of our European counterparts and do what has not been done in the United States.

Since having won a request for proposals as the leading project to do so off the coast of New Jersey, we have a 350

megawatt project that we are in the early stages of developing, for which we are currently conducting the meteorological data acquisition.”

Reform Balancing the desire to implement greener policies and the finances needed to do this is crucial to PSEG’s strategy. Izzo stresses the importance of regulatory reform to foster an environment conducive to investment: “Basically, we have been saying to our state regulators we can do a good job of accessing the capital markets if together we redesign the way in which we’re regulated. There needs to be less of a lag and greater predictability from the investor point of view as to what is and isn’t allowed and how we will get compensated for it.

“If we can reduce the perception on the part of the investor about the regulatory risk associated with utilities, then we have two benefits. The first is that the utility is freer to invest in the things it regularly wants to invest in, and we can therefore create the environmental benefits and the economic stimulus that we’re seeking. Second, we can do that at a lower cost of debt, which then gets passed on to benefit the customer. It makes regulations clearer and more predictable, and therefore minimizes regulatory risk.

At the federal level, what we’re hoping to do is engage the new administration in a discussion of revenue: if money is to be made available, please condition it.”

As Izzo sees it, much will hinge on the states’ willingness to reform regulatory systems, push green policies in tandem with utilities, and as a result benefit from the resource allocation that the new administration in Washington is proposing. Coordination is important in his view, so that federal dollars can have the desired impact at the state level.

“If I’m giving grant money, which is generated by the taxpayer, at least I’m giving it to states that have investment dollars being deployed because they have modified their regulatory systems so that the customer, the generator of this carbon, has got more at stake. That’s the two-fold approach we’re taking. The first is direct regulatory change at the state level, and the second is linking the federal resources that we believe will be allocated to those states that are showing some initiative in this area.”

Caution President Obama has welcomed the return of nuclear energy as part of his green agenda, and yet questions remain. As the US utility sector prepares for the next stage of nuclear’s renaissance, PSEG is cautiously waiting for the specifics of Obama’s policies before moving ahead with new nuclear development.

“Fifty percent of the energy PSEG produces currently comes from nuclear, so it’s very important for us,” says Izzo. “I would like more clarity from the incoming policy-makers as to what their outlook for nuclear will be.

Specifically, the new energy secretary has expressed doubts about developing the high-level waste repository at Yucca Mountain in Nevada.

President Obama himself voted against funding for Yucca Mountain when he was a senator. If we don’t have a high level repository, I’m not sure it’s a good idea to go ahead and aggressively expand nuclear energy.

“On the positive side, I’ve heard the new President say that we need to invest in technology that will allow us to safely recycle, reprocess and reduce the amount of nuclear waste we produce, and therefore we can think of ways to entomb it at a much more diminished level, both in volume and

www.nextgenpe.com

45

Ralph Izzo ed:18oct

4/2/09

15:39

Page 46

in terms of activity levels. That’s a very worthwhile strategy to pursue, but we need to learn more about what that means for those of us who have an interest in investing in the next generation of plants. For this reason, PSEG has taken a more cautious approach than others to new nuclear power. We are not part of the first wave of developers.

“We are planning to prepare and file an early site permit in 2010, meaning that we would be asking the Nuclear Regulatory Commission whether or not they agree with us that we have room at our existing site for an additional unit. This probably wouldn’t be ruled on for at least two to three years, so we are a little behind other companies in terms of their commitment of major capital dollars,” says Izzo.

The turbulent economic climate has also influenced PSEG’s careful approach to a possible nuclear expansion. “Given the way energy prices are moving, whether for natural gas, electricity or coal, you would have to have a very different view of what’s going to happen to those prices in the nearterm to be willing to build a nuclear plant right now.”

spiral of the 2000s – have tended to provide a backlash to such a trend.” Despite the current economic climate, PSEG has not had any employee layoffs up to this point; in fact, it has continued to recruit newly qualified people into its operations. “Suddenly we have become a far more attractive employer than we were just six to 12 months ago.

We have fewer people wanting to leave, and more people wanting to enter. Now the challenge for us is making sure the skill sets match.

We’re working with county colleges, two-year colleges, four-year colleges and trade schools, to ensure that people are prepared to continue entering our workforce,” says Izzo.

Forward thinking

In 2008, PSEG was included in the Carbon Disclosure Leadership Index, which recognizes companies with leading approaches to climate change disclosure and governance practices. PSEG was also added to the Dow Jones Sustainability Index – one of only 10 electric companies in North America to be included. The index evaluates Workforce performance to help individuals understand how responIzzo believes the US energy sector is on the threshold sible a company is to society and the environment. of a historic transformation, reducing dependence on The future for PSEG will be shaped by the unfolding fossil fuels and developing more green energy – and energy transformation necessitated by climate change. of PSEG’s energy green jobs. “If we invest in green technology we can “We are eager to be part of a future where we electrify comes from provide not only economic stimulus in the short term by transportation and remove the carbon from electricity gennuclear power creating jobs, but we are doing something that will eration. We have ongoing relationships with solar panel serve us well over the long term; namely, making a more manufacturers, wind turbine manufacturers, the automoefficient use of our natural resources. If you’re going to borrow from fubile industry and the R&D community. We are not taking equity positions ture generations to solve the short-term problems that you’re having in those firms but see ourselves as a solution provider, not as a manufactoday – a significant downturn in the economy – you have a moral obligturer or an R&D house. ation to return something to those future generations.”

“Right now we’re trying to ensure that the regulatory rules are written He remains concerned about a potential shortage of qualified new in a way allowing our participation so we can be an effective vehicle for the people entering the industry, even though a growing number of employees deployment of capital. PSEG wants to bring about those two descriptors: nearing retirement have decided to extend their careers. “The phenomethe electrification of transportation and the decarbonization of electricity. non that existed a decade ago, and which persisted until a few years ago, We’ve had some effect locally, and have begun to scratch the surface of this of people taking an earlier retirement than had been traditional and leavon a national level through actively participating in some tax changes. We ing the workforce in their mid to late 50s, as opposed to their early to mid want to change the way in which utilities can participate in renewables, in 60s, seems to have diminished. The devastation that has taken effect in ways they were unable to participate only as recently as two months ago, terms of people’s retirement assets, whether that’s housing stock or equiand we’ll strive to ensure this is achieved.” ties, has pushed people to rethink their retirement plans. So we’re seeing PSEG’s eagerness to be a leader in the transformation of the energy quite a diminution in announced retirements among our workforce. sector is apparent in its commitment to greener policies, and with Izzo’s per“Moreover, many young people who in past years were enticed by the sonal mission to further develop renewable energy resources, there is latest craze – the internet bubble of the 1990s and the financial markets much hope for a greener future as 2009 unfolds.

50%

46

www.nextgenpe.com

CheckSP1.indd 47

2/2/09 10:21:59

The grass is always

greener Can Obama’s plan for the green economy really create five million new jobs and solve our environmental problems at the same time? By Natalie Brandweiner

48

www.nextgenpe.com

GREEN COLLAR ED P48-52.indd 48

4/2/09 16:19:18

T

he speculation prior to the appointment of President Obama brought with it rumours of great change to the American way of life, from how the average person consumes energy, to a federal level reduction of carbon emissions. Moreover, the air of optimism became extended with Obama’s pledge to ‘strategically invest’ $150 billion into creating five million new green collar jobs, tackling the ever increasing unemployment rate and simultaneously boosting the US economy.

But, with a definition so open and vague in meaning as ‘strategic’, can Obama really propose such dramatic targets and actually succeed in a time when even Citigroup hasn’t the economic ability to hold its factions together?

On 6 December 2008, Obama unveiled his ‘New Energy for America Plan’, in which he divulged his daring proposal for a national target of energy efficiency. During a speech given in November 2008 he claimed, “We'll put people back to work rebuilding our crumbling roads and bridges, modernizing schools that are failing our children and building wind farms and solar panels, fuel-efficient cars and the alternative energy technologies that can free us from our dependence on foreign oil and keep our economy competitive in the years ahead.” By far the most controversial project is the implementation of a cap and trade strategy to reduce greenhouse gas emissions 80 percent by 2050, under which all other green proposals are to contribute to. The question is whether his energy aims receive their dramatic status when viewed in light of Bush’s administration or whether they are far reaching in and of themselves; Bush’s persistent vow to veto any proposal of reduction of greenhouse gases meant the unwillingness and limitations of Congress attempts to really do anything serious regarding global warming. CO2 was not recognised by the Bush Administration as a pollutant, despite the Supreme Court ruling it to be so, and subsequently, Bush’s Environmental Protection Agency refused to introduce any sort of limitation scheme to regulate emission activity.

A change in attitude leads to a change in trend, and for Obama and the issue of climate change, the same is true. A champion of the catastrophes of CO2, Obama fully accepts the dangers the US now faces from its previously reserved environmental policies, and the responsibilities that the Democratic Administration must pay dues to. An acceptance of a cap and trade solution, rather than taxation on the emissions produced, are a direct way to ensure that those utili-

ties maxing their pollution credits can produce positive affects on the climate, with the pay proceeds building a clean energy future. It is this cause and affect plan with which Obama proposes to produce significant funds to create the five million green collar jobs, but the economic recession, which shows no signs of letting up in the shortterm, may not pose the right timing for such targets that have been critiqued by many as over-reaching and ambitious.

A portion of the revenue created from the cap and trade permit auction will be used to make investments that will ultimately bring about an increase, not only in employment, but employment that will reduce carbon emissions and thrust America into the international limelight as global leaders in climate change. This is Obama’s hope. The focus of such investments is on basic research, technology demonstration the furthering of aggressive commercial deployment and clean market creation. The acceleration of an increased production of plug-in hybrids, aimed at being produced in the US, is hoped to bring about a more energy efficient America, with its skilled manufacturing workforce advancing the next generation of biofuels and fuel infrastructure.

The link between energy efficiency and increased employment became formulated by academics, most notably following the study by the RAND Corporation and University of Tennessee, which found that if 25 percent of all American energy were produced from renew-

“We’ll put people back to work rebuilding our crumbling roads and bridges, and the alternative energy technologies that can free us from our dependence on foreign oil and keep our economy competitive in the years ahead” - President Barack Obama

able sources by 2025, this would consequently generate at least 5 million new jobs. Obama is not alone in his desire to solve the increase of both unemployment and carbon emissions with one answer. During the presidential elections, both John McCain and Hilary Clinton saw the benefits of green collar jobs, although both candidates produced less specific numbers as to how many exactly, being maybe a little less confident than Obama as to the success of such an initiative.

But what exactly does it mean to be a green collar worker, and how exactly does it differentiate from being blue? As renewable sources of energy, such as solar and wind, continue to rise, this will

www.nextgenpe.com

GREEN COLLAR ED P48-52.indd 49

49

4/2/09 16:19:18

Tesla Roadster all-electric sports car

create an increased need for manufacturing workers to be within those plants, producing the energy for US population demand, along with a parallel need for workers to be installing and constructing such energy. Tom King, director of the Energy Efficiency, Renewables and Electricity program at the Oak Ridge National Laboratory in Tennessee defines how public demand simply isn’t enough, there is still the need for funding to ensure such projects can be implemented.

“For example, in terms of solar energy, a number of individuals could be trained to install PV panels on commercial buildings or residential homes. Of course, these workers need to be trained, but once they have been done so there also needs to be the funding to allow them to work on specific projects. Therefore, there would need to be an infusion of funds to promote the installation of PV systems.” Exactly how much and to which projects will that $150 billion funding be ‘strategically’ invested?

The best project with which to employ the highest amount of workers, whilst simultaneously providing the funding to allow for these projects to continue on a long-term basis, is advised by King to be smart grid implementation. “On the electric grid side, for example, the best way to increase employment is a smart grid investment. If there were the initial funding to look at smart grid operations and deploy these technologies, then consequently staff would have to be trained to install those. This would work hand in hand with an increase of manufacturing demand, so there would also be such companies having to produce the smart meters. For both the short and long term, there are some things that could be done for promoting certain green jobs.”

50

out of credit

S

o, what about those companies actually working to develop the use of renewable energy? Is Obama’s strategy well overdue or well overdone?

SolarCity, California based solar installer startup, is the largest residential installer of green collar programs within the US and is currently active not only in the field of installation, but also in providing green collar training and in the creation of green collar jobs. Lyndon Rive, CEO, fully supports Obama’s attempts to increase green collar workers, and argues the blue-green hybrid transfer in no way to be selling out on strategy. “Obama is definitely creating new jobs. The blue-collar jobs – the construction industry, the housing industry – many of the industries associated with them have come to a standstill. So, although they’ve gone from blue to green, if they didn’t make this transfer, they would have nothing,” he explains.

As a company still only in its early days – SolarCity was established only two and a half years ago – its one of the fastest growing companies in the US, and added close to 450 people to its workforce since its inception. The biggest challenge that SolarCity face in progressing within the industry is not the training of staff or the creation of jobs,

www.nextgenpe.com

GREEN COLLAR ED P48-52.indd 50

4/2/09 16:19:29

Electronification of the transportation system, the commercialization of plug in hybrids, is certainly another way in which America’s workforce is being trained to adopt the label of green collar economy.

Obama is calling for one million Plug-In Hybrid cars, which have the ability to get up to 150 miles per gallon, to be on the road by 2015; Plug-In Hybrid cars that are expected to be built within the US. However, funding is greatly needed for such a project as this, both in terms of design and manufacturing.

As it stands, current hybrids still produce a large portion of gasoline, as the battery packs can only produce a very limited amount of energy, restricting long term journeys for hybrid type vehicles. When asked if energy storage in battery packs is a problem that can be explored and solved within the US, King advises that the manufacturing methods may only be available overseas, limiting the amount of green collar jobs that can actually be created within the US itself. “80-90 percent of the lithium batteries are manufactured overseas in Japan; the remainder are manufactured in China.” By leaning on another superpower to provide a different source of energy, King duly points out the limitations of “being handcuffed to the Pacific Rim rather than the Middle East”.

This is not the only critique Obama faces in his plan for the creation of five million green collar jobs. The ambiguity of meaning given

by Obama as to what exactly a green collar job allows for the numbers to become easily blurred, as a hybrid of blue-green collar workers is formed. For example, a blue-collar worker previously building an SUV, now building a plug-in, automatically qualifies for the transfer from blue to green. There is no actual creation of a new job as such, but simply a transfer from the old to the new.

but the availability of tax credits and the lack of a concretely regulated system within the US. As Rive explains, the current global economic crisis will have an affect on this, and certainly poses challenges to Obama’s deployment of an increase of renewable energy at this time. Although he regards Obama’s target of five million to be achievable, unless the system in which renewables are produced is changed, that will not be the case. The industry is faced with a dilemma due to the temporal nature of production tax credits: they are used to support the introduction of renewables by allowing investors to write off this investment against other investments they make. The dilemma that the industry is facing today is due to the way in which tax credit works in the US; it is via banks buying solar assets, and using the tax credit to help them achieve a decent return.

“In order to use the tax credit, you need to have corporate profits. The problem that the industry is facing now is that banks don’t have profits to use the tax credits, so the incentive that’s available in the US is difficult to use; in fact, it’s not being used much at all. Unless that problem’s solved, the job program won’t be effective.”

The Emergency Economic Stabilization Act of 2008, signed

Obama’s New Energy for America plan is also met with disapproval from many conservatives, who argue that the idea of environmentalism creating jobs results in damage of the current system and ultimately creates green-collar inflation. Plans for cap and trade of carbon emissions and a focused increase of renewable resources are merely only short-term plans that are argued to raise cost issues; led by the National Association of Manufacturers, they estimate that Obama’s strategy is likely to decrease the amount of jobs produced by four million in 2030.

Michael Gerson has been quoted in the Washington Post as saying, “It is another iron rule that prosperous, confident nations do more for the environment than economically struggling ones. And this sets up a conflict between Obama’s urgent environmental diagnosis – a cumulative scientific case for serious, possibly catastrophic climate disruption – and the economic and political realities of the moment.”

Many critics have argued Obama’s Administrative proposals to be far-reaching and have compared such desires for environmental change to the Jimmy Carter administration. During the oil crisis of the 1970s, the international stage held baited breaths as Carter deregulated oil and gas prices, created the Department of Energy and urged utility companies to produce cleaner and more efficient energy. How-

by Bush extended those renewable energy tax credits that were due to expire, but despite this, if tax credits cannot be monetized, there will be a decrease of employment in the industry, rather than an increase. The monetization of the 30 percent tax credit that’s currently available, and making the tax credit refundable, will lead to what Rive believes as substantial growth, both in renewable energy production and employment.

www.nextgenpe.com

GREEN COLLAR ED P48-52.indd 51

51

4/2/09 16:19:31

ever, Carter’s proposals were short lived and Reagan’s Administration did away with any restrictions to utility companies and decreased the focus on research and development of renewable energy.

It seems that for Obama to reach his targets, the whole fluidity of the tax system must change in order to set the stage for the triumph of a green collar economy. There are certainly better ways already tried and tested in the international field to promote wind and solar energy development, such as the success of Feed Laws, seen in Germany, Spain and France. Without further development of this, it poses the question of whether five million green collar jobs can ever be introduced, credit crunch or not?

Despite such alleged limitations of Obama’s strategy, there is no denying that the federal infrastructure is changing and the creation of a national grid is becoming ever more prominent. Countless utility companies are rolling out smart grid infrastructures, changing the way in which consumers use energy, and also the type of energy that can be consumed; boasting one of the largest fleets, Exelon’s nuclear generation produces around 20 percent of the electricity in the US. The deployment of an energy efficient federal structure will be crucial in creating the majority of green collar jobs. As King has already explained, the manufacturing and installation of the meters alone is certain to increase the number of those working to benefit carbon emissions, never mind the numbers of those actively working in the solar, wind and nuclear industry.

As environmental values take predominance in Obama’s Administrative policy, an increase in renewable energy production will ultimately lead to a drop in the cost and further the already growing

“Despite such alleged limitations of Obama’s strategy, there is no denying that the federal infrastructure is changing and the creation of a national grid is becoming ever more prominent”

consumer demand. It cannot be denied that renewable energy continues to increase and as a result becoming a market encompassing more and more workers to satisfy its growth. Even prior to Obama, the pressure from international communities for the US to realize its CO2 responsibilities has meant an influential shift in attitude nationally and therefore in trend.

The question remains as to whether Obama can reach his desired target of five million green collar workers. With so many variables subject to change, such as the unpredictable longevity of the economic crisis and the temperance of production tax credits, there is much to be seen over the coming months before an accurate decision can be deduced. Obama has set his standards remarkably high, now all he needs is to implement the policies behind his strategy to really ensure America does not see the failings of a Carter Administration twice. n

52

www.nextgenpe.com

GREEN COLLAR ED P48-52.indd 52

4/2/09 16:19:33

GEMDS_Ad_COL:euro

2/2/09

10:26

Page 53

AT&T ED:18oct

4/2/09

15:33

Page 54

THE NEXT BIG THING

From the boardroom to the bedroom (almost) Automating the self-operating, self-healing grid

T

he smart grid will require sophisticated enterprise-wide digital communications to enable the rapid transfer of data between monitoring devices, smart meters and in-home gateways with utility back-office systems and to the boardrooms where critical decisions will be made. Utilities have embraced service-oriented architecture (SOA), as a means of linking their various enterprise systems. SOAenabled systems are easily linked over IP, which is capable of operating over existing cellular wireless systems. Wireless communications are becoming more prevalent in linking disparate systems from the home, through the distribution systems, to substations, control rooms and beyond to the utility’s SOA decision systems. Utility communications of the future will interface even more so with a wide range of systems, some of them owned by the utilities and others owned and provided by carriers such as AT&T. Smart grid is a subset of the entire utility enterprise and it is linked to the boardroom by various increasingly intelligent systems.

“Utilities have to be able to reverse the flow of information and inform customers of their usage and serviceimpacting events” Utility leadership will need vital information to assess business performance and the utility’s communications network will play a critical role in this process. This vital information/communications network must provide data in real time and must provide the necessary information to all of the utility’s ‘back office’ decision systems and decision-makers.

For example, there must be information in a customer information system tracking what

54

www.nextgenpe.com

Warren Westrup has over 20 years of experience working for, or with, electric and gas utilities. From 2004 until 2008, Warren was with Verizon Wireless as an Enterprise Data Solutions Manager. In this role he worked with electric and gas utilities on custom applications that operated over the Verizon Wireless network. Warren joined AT&T in November 2008 as an Industry Solutions Practice Manager for the utility industry, covering primarily the western half of the country.

level of demand response a customer has agreed to, payments due to customers for curtailments, etc.

Utilities will also have to be able to reverse the flow of information and inform customers of their usage and service-impacting events, which means customers need to receive this real-time information on in-home displays, which implies two-way communications to the home.

The distribution grid itself will have to become much more automated, self-healing, and self-operating through the use of artificial and learned intelligence. Traditional SCADA will become more capable, and the data collected will have to be pushed further into various utility departments that have not dealt with such massive amounts of real-time data.

Demands on utilities’ communications infrastructure In the past, utilities typically owned most of their communications systems. Field service was handled through proprietary wireless systems. Often these systems in their current form are obsolete and upgrading them is either difficult, expensive or not an option. Furthermore, due to their proprietary nature interoperability,

which is seemingly an important feature of a national smart grid, is at risk.

As the deployment of smart meters and other monitoring devices on the smart grid become more widespread, they will have to be controlled and managed. Bandwidth and latency factors will also have to be carefully considered, especially if a utility intends to use proprietary networks with a limited amount of frequency spectrum.

Solutions A paradigm shift toward national and international communications interoperability already has occurred – one example is with the GSM standard on which the AT&T network is based. GSM is a global communications technology that is deployed in over 200 countries and has over three billion users worldwide. The good news is this enabling technology already exists to help utilities communicate throughout their enterprise and service area – from the boardroom to the home. With the availability and scale of public networks like that of AT&T, it is no longer practical for utilities to cobble together proprietary communications systems with varying standards or different functional purposes.

NGP&E4_AT&T.qxd:euro

2/2/09

10:19

Page 55

Simpson ed:18oct

4/2/09

16:20

Page 56

TECHNOLOGY

Progress Energy’s Robert Simpson advocates a balanced approach to energy efficiency, using intelligent controls on the grid to regulate usage.

W

hen we say ‘smart grid’ at Progress Energy, we’re talking in terms of a series of phased investments in our electric distribution grid. It’s something that will enable numerous new uses and enhance existing capabilities.

Examples of this are increasing our automation and increasing our communication capabilities on the grid. The key one in terms of what we’re investing in initially is the use of the distribution grid as a demand-side resource.

Regarding the government policy and the passage of legislation, and specifically the Energy Independence and Security Act of 2007, that legislation is an enabler of the strategy that we’re trying to foster within Progress Energy. We’ve looked out 20 or 25 years in terms of what we expect to happen in our service area.

People like to come to the Carolinas, our growth rate has been very good for a number of years, so we’re looking at what it’s going to take to supply the electricity needs of the future. We’ve got estimates that show that we could double our generation capacity requirements going forward.

That’s why we must come up with a broader strategy than just building new generation plants, particularly when you consider the environmental impact. To us, it’s about public policy. What does the public expect of an electric provider? It’s a new day, and we can’t just build new power plants like we used to.

We’ve developed what we refer to as a ‘balanced solution’, which has three major components. One of these is state-of-the-art power plants, whether that be building a new one or upgrading an existing one. The second is investing in renewable energy resources, such as wind and solar. The

Simpson ed:18oct

4/2/09

16:21

Page 57

third is deploying more demand-side management in energy efficiency ways to serve the demand. These are what’s driving what we’re doing. The focus right now is a major investment in a program we call DSDR.

energy efficiency programs. There is a regulatory and legislative incentive and requirement for utilities to make investments in other ways to serve future electricity needs, rather than just building plants.

Managing demand

The cutting edge

DSDR stands for Distribution System Demand Response. We’ve reWhen it comes to the DSDR program, no one else is doing what we’re quested approval of DSDR as a demand-side management program with doing. With DSDR, we are investing in the distribution grid to make it a dethe North Carolina Utilities Commission. The botmand-side resource that we can use to reduce tom line purpose of this program is to create a new load during peak times. Our economic evaluacapability from the distribution system, with the tion shows that this is more cost effective than ability to be a demand-side resource, which means building a peaking generator and it’s good for you can control consumption during peak times. the environment. Other utilities are taking difWe’ll be able to use the distribution grid to reduce ferent approaches to what we refer to as ‘smart peak load during peak times and do that instead grid’. I haven’t seen anyone in this country of building a peaking generator. doing specifically what we are doing with DSDR. When we invest in the distribution grid to make One challenge we had that we’ll have to it a demand-side resource, we’ll be adding 250 manage through the life of this project is that megawatts of demand reducit’s a capital intensive project. Like many comtion capability. The business panies, we have challenges in terms of securing case is that this is more cost efcapital to fund all of our priorities, whether it be fective than building a peaking generation transmission, distribution or a DSDR generator and it’s good for the program. We’ve got a very solid, specific project environment. That’s something plan to manage this – our target implementathat plays into the balanced tion date is December 31, 2012. It started as a solution. five-year program in 2008, so we have just startThere are three major ed the second year of this program. We’ve got Robert Simpson is Head of pieces to this, one of which is till the end of 2012 to deliver the 250 incremenDemand Response/Smart Grid at ‘feeder conditioning.’ We use tal megawatts.

Progress Energy. the term ‘feeder’; some peoThe challenge is to have a really good prople call it a ‘circuit’. We have ject management discipline in place, so that you approximately 1100 feeders or can effectively manage the schedule, your budcircuits that traverse the geography in North and South get and the performance requirements – the megawatts. Another challenge Carolina to serve customers. That’s the distribution is that the technology is required to take lots of data from many different grid. One of the investments needed to create DSDR is points on a distribution grid – our distribution grid extends over about to condition feeders, which means creating a flatter 34,000 square miles of geography – and process it. We’re doing real-time voltage profile so that when we reduce voltage to get analysis of the conditions of the system, so we know how many megawatts the megawatt reduction, we don’t exceed the lower we can get when the system needs it. regulatory limit of customer voltage. We want to do this in a way that has no impact and is not noticeable by the customer.

The other investments include putting intelligent controls and sensors out on the grid, adding a two-way communications capability, and putting in place the technology and computer systems that can process the data that will be coming back. We will always know what the voltage is everywhere on the grid, so that when we reduce voltage to get megawatts, we’re not going to violate the voltage to the customer.

Legislation was passed in August of 2007 in North We’re partnering with a vendor to design and develop the technology Carolina that requires electric utilities to provide by to do that over the next four years of the project. That’s a significant chal2019 at least 12.5 percent of its future energy from relenge, but it’s one that we consider high impact if it were to not work out newable resources. Twenty-five percent of that 12.5 right. It’s a low probability that it would be a problem because we’ve repercent can be from demand-side management and searched the industry and we know what the vendors are capable of doing.

“The challenge is to have a really good project management discipline in place, so that you can effectively manage the schedule, your budget and the performance requirements”

www.nextgenpe.com

57

Simpson ed:18oct

4/2/09

16:21

Page 58

Another thing that I would consider a challenge is to demonstrate the ability of this system to have the megawatts there for the length of time you need it. A typical peak in the summer here in North Carolina is four to six hours. When you’re reducing voltage and reducing the demand, because it is dependent on the behavior of the load, you have to demonstrate that it’s going to be there for that entire peak time for the person that’s dispatching the sources to serve the load. You have to know you can depend on it to be there.

The challenge is to prove that this is sustainable for the duration of the peak. We’ve been doing testing where we’ll actually reduce the voltage and measure and do statistical analysis to determine how much and how long.

Another challenge is once we design the system, we have to develop the processes and procedures and refine our approach. But how do you dispatch this to serve the load in the same way that you would turn on a generator or increase the capacity of a generator?

Minimal disruption The main point I would make is we’re not replacing infrastructure. We’re leveraging the existing distribution grid and we are adding equipment to that infrastructure, such as new voltage regulators and new capacitor banks. We’re balancing the load on that infrastructure, but we’re not replacing anything. We’re able to do that with minimal disruption to customers.

When we say ‘smart grid’ at Progress Energy we’re talking very specifically about a series of phased investments in the electric distribution grid.

58

www.nextgenpe.com

“We’re not replacing infrastructure.

We’re leveraging the existing distribution grid and we are adding equipment to that infrastructure, such as new voltage regulators and new capacitor banks” This DSDR, which is a peak load reduction tool, is the first phased investment with a very specific economic benefit to the company, the environment and to the customer. Once we make that investment, there are other functionalities that we will pursue in a broader smart grid strategy, such as a ‘self-healing grid’, where you can increase reliability to customers.

A self-healing grid is a grid with devices that communicate with each other so that you can isolate problems on the grid and get power restored more quickly or isolate where the problem is and not penalize all customers with an outage. That’s an example of a new functionality. The other thing is to be able to make a stronger connection between information the customer gets about their consumption and the utilities.

Customers can be more involved in decision-making around their consumption when prices are more attractive to them. That’s another functionality that you can get in the future. It’s all about a series of phased investments – they each have to stand on their own in terms of economic benefit.

DSDR is just the first stepping stone toward a broader strategy where we’re leveraging technology more to connect with the customer and improve the quality of electric service.

Lumasense AD:euro

2/2/09

10:35

Page 59

inDUsTRY insiGHT

Marketing to new customers If you have a product that installs into a vehicle, maybe yours is 30 percent lighter than the competition lending itself to better fuel economy? Installation time is

to break away from some of your old habits and look in new places to find value and savings. Keep in mind that customers that went to your competition may have done so because they did not see you at their industries trade show.

Many times your marketing efforts can be the first time that you connect with your potential customers. As it has been said many times, you never get a second chance to make a first impression. While that is not always the case, you certainly want to get things right the first time whenever possible. Now is not the time to put a new hire on the phones if your product is technical in nature. Product knowledge is extremely important and will help to sell your products

always a factor for fleets. Let people know that assembly and installation time can be shortened, saving valuable resources.

Advertisements to educate the public cost money, but people are actually reading the ads right now and looking for cost saving solutions. In the past, it may have just been

much more rapidly.

Also, when the customer hangs up the phone, nothing is worse than the customer wondering if they just made a mistake. Consumer confidence is not just a phrase for the nightly news. It will make or break you.

While this economy is certainly challenging

In tough economic times, it’s important to educate potential new customers about the specific benefits of the services you offer.

David Wilkinson

E

veryone knows the saying that you should buy low and sell high. Ideally, that is what you do to build wealth. Along that same line of thinking, when times are tough, it should be looked at as an opportunity to progress. Not necessarily to build wealth, but to build your customer base.

Now that companies are scrutinizing budgets like never before, purchasing managers are getting creative and seeking products and services they may not have considered before. Not because their current suppliers were not as good, but because it was easier to stick with what is comfortable even if the cost was slightly higher.

As it seems obvious that getting a product of equal quality for a lesser price always makes good sense, human nature will sometimes cause us to play favorites and override basic economics. Now that many companies are struggling to stay afloat and watching every penny, certain brand loyalties that worked out in the past must be reconsidered to save money and stay profitable. It is the job of every marketing professional within their respective companies to take this opportunity to educate potential buyers on their products.

60

“At no time in recent memory has it been more important to focus your marketing dollars on new customers” a magazine article or a blurb on a website that got little to no attention. Now the focus is much more important as it essentially will equate to saving money and possibly American’s jobs. At no time in recent memory has it been more important to focus your marketing dollars on new customers. Beyond that, existing customers can always use a reminder as to why they have chosen you themselves.

It is also important to maintain a wellrounded approach to your marketing. To get back to the investing analogies, you don’t put all your cash into a single stock.

Nor should you invest all of your marketing resources into a single publication or website. Websites, periodicals, trade shows and product representatives are four good ways to cover all your bases. If you intend to break into new markets, you may need

even the ‘blue chips’, it is incredibly important to search out and seize opportunity.

Innovating and offering solutions that meet and exceed expectations while keeping costs low is vital to progressing in the tough economic environment.n

David Wilkinson is part of the marketing and design team of RAM Mounting Systems in Seattle, Washington. With a background in science and technical writing, his job is to assist in product design and advertising. Finding new markets and attracting new customers has become Wilkinson’s focus for 2009.

www.nextgenpe.com

RAM mount.indd 60

4/2/09 15:39:13

RamMount_ad:euro

2/2/09

10:44

Page 61

SMART GRID

P&E talks to Tom Hulsebosch about the challenges of implementing the smart grid on a nationwide basis.

The

future is smart

P&E. What are the core areas of smart grid and what are its key advantages?

Tom Hulsebosch. We define smart grid as the combination of ubiquitous two-way communications, information technology and automated power grid controls capable of reporting status and being remotely controlled. The main areas of smart grid are advanced metering infrastructure, or AMI, which typically encompasses smart meters, as well as the automation of substations and the automation of distribution. The IT systems control those three core areas, and together, IT and those automation areas make up what most people call smart grid.

Any one of those three areas of focus can translate to increased reliability, decreased line losses, and improved service overall at a lower cost to the consumer. When you bring all three together, there’s a great synergy that makes the business case of smart grid really work.

P&E. Deploying smart grid throughout the country became government policy with passage of the Energy Independence and Security Act of 2007, and is also endorsed in President Obama’s energy plan.

Will a nationwide rollout of smart grid happen?

TH. It will happen, but it will be one utility at a time and area by area. It’s not something that has to happen countrywide before it happens in individual areas.

Each piece of the distribution network is independent of each other piece, although they are joined together by the transmission network. It can be done on a town-by-town, block-by-block basis. As you do this on a much wider scale, you’re able to do some really advanced things such as, distributed generation, which may take the form of solar panels on people’s roofs, or small wind generation.

P&E. What do you see as being the biggest potential benefits of the smart grid, both for customers and providers, and what are the implementation challenges?

TH. The biggest benefit of smart grid for the provider is that it enables support of a variety of demand response programs and time-of-use rates that can help the provider shift demand from peak times to nonpeak times. Smart grid solutions will also provide the foundation for providers to support distributed

62

www.nextgenpe.com

Holschbusch.indd 62

4/2/09 15:35:58

The size of the smart grid market Some estimates say that utilities will need to add 40 gigawatts of clean energy generation by 2030, with an investment of $2 trillion in transmission and distribution networks. Investment in software, hardware, and wireless networks to enable the power grid to manage this additional capacity will also be required.

Installing a smart meter costs between $100 to $300, depending on the sophistication of the meter. If 50 million were smart meters installed, the minimum cost would be $5 billion.

Smart grid technology has not received much investment in the recent past, but venture capital has recently started flowing in to the sector. Smart grid startups brought in a record $202 million in the third quarter of 2008 according to the Cleantech Group.

Utilities at the forefront of smart grid development include: • • • • • • •

Southern California Edison PG&E XCel Energy Austin Energy Sempra Oncor San Diego Gas and Electric

generation, PHEVs, and ‘vehicle to grid’ in a mass market fashion. The biggest benefit to consumers is that they will have the ability to monitor and manage their electric usage.

Customers who reduce energy consumption due to better awareness or shift demand from peak to non-peak times can actually reduce their electric bills.

One of the implementation challenges revolves around the communication challenge of being able to reach all those meters in a very diverse environment, from the meter closets in high rises to meters in the rural areas on farms.

One technology won’t be enough for most utilities, so you end up with a diverse set of communication technologies that are required in order to access the data from that meter, or

from the distribution automation device such as a switch or a recloser or a capacitor bank controller that may be on the distribution line, and get that back to the IT system.

This problem of ubiquitous two-way communication, in my experience, is probably one of the most difficult communications problems faced by utilities in the wireless space.

P&E. What is the current level of smart grid implementation among utility companies?

TH. The level of smart grid solution deployment over the US varies dramatically. For IOUs it is heavily dependent on their state’s public utility commission policy for recovery of the investment for these solutions. There are more utilities now moving forward with AMI deployments, distribution automation and substation automation initiatives every month. Municipal and cooperative providers must generate a compelling business case, and finding the necessary financial upfront investment required for smart grid solutions can be a significant challenge. Yet, given the current political environment, the intensity of smart grid evaluations, pilots and commercial deployments will only increase.

P&E. What potential challenges should companies consider before implementing a smart grid or an AMI? What tools can they use to overcome these?

TH. Some of the biggest challenges for utilities will be the scope of the changes required to get the full benefit of smart grid solutions. To get the full benefit, providers will need to modify their business processes, enhance their IT systems, enhance their wide area communication systems, deploy the necessary field technology, retrain their workforces, and sometimes even retrain their customer bases. The number of systems, business processes and organizations impacted requires that the providers take a thoughtful approach to change management if they are to realize the maximum benefits of the smart grid solutions they deploy.

Providers undertaking the implementation of AMI, distribution automation, demand response, distributed generation or substation automation should consider implementing a program management office to oversee and coordinate the activities, objectives and initiatives of the various organizations. The

PMO also needs to continuously measure and validate the benefits that the provider is expecting to determine when management intervention is required to make sure the smart grid business case is being met.

P&E. Will smart grid implementation involve disruption to customers?

TH. The cutover strategy for any new technology is a critical part of the solution’s deployment plan. Smart grid solutions can span a variety of systems and organizations in the provider, making the cutover plans very complex. It’s important to design cutover plans that incrementally add new functionality and new systems to ensure as little disruption of the service as possible for the end customer.

On paper this might look like a slower path to get full functionality and benefits; yet in practice it translates to projects that are more manageable, testable and predictable from a schedule, budget and benefits perspective. n

Tom Hulsebosch is a member of the management team of West Monroe Partners, where he is responsible for developing and leading the firm’s Energy & Utilities practice. He is a 20-year veteran of the wireless telecommunication industry with extensive experience creating and delivering solutions for enterprises, public safety agencies and service providers.

www.nextgenpe.com

Holschbusch.indd 63

63

4/2/09 15:35:58

InDUSTrY InSIGHT

What would Mr. Edison say?

Intelligent wireless sensors, united in a smarter infrastructure, can help transform how we consume energy and reduce our carbon footprint.

Mark O’Hearne

I

n 1879 Edison made the first public demonstration of his incandescent light bulb, in Menlo Park. He said: “We will make electricity so cheap that only the rich will burn candles.” Indeed electricity became so cheap that, rich or not, we now take electricity for granted. Today, the concern is that our growing reliance on electricity is in danger of disrupting the economic, social and environmental equilibrium. A 21st century Edison might say, “We must make electricity so ‘green’ and cheap that only the rich will burn carbon.” Affordable, mainstream energy solutions are critical if such a 21st century assertion will ever be a reality.

Given today’s information and communication infrastructure, the time and cost to deploy consumer-side energy monitoring and control systems is making the 21st century vision possible. Wireless sensor network (WSN) technology has come of age, and is ready to dramatically increase energy efficiency, reduce energy waste and optimize for peak-demand and other constraints. WSN is a natural extension of wellestablished and familiar line of information and related technologies, so accepted by consumers. It leverages and augments mainstream and familiar devices like thermostats and internet appliances, blending in unnoticed and readily adopted. Deployments of consumer-side energy monitoring and control systems can proceed in advance of and be congruent with the smart grid development. WSN offers immediate benefits through conservation and efficiency, while

64

forming a basis for future expansion and integration with the smart grid.

Some systems utilizing wireless sensor networks open a whole new dimension by measuring, communicating and processing information. These new systems enable information to flow bi-directionally from sensors and controllers to data systems and energy management software. They can provide secure access at the office, home or mobile phone. Consumers are empowered to make smarter decisions and trade-offs on energy consumption and cost.

“The tools exist today to utilize our energy more efficiently through a better understanding of usage and conservation measures” Within WSN technology are various ways to optimize performance that fit the applications and environment. For example manufacturing, military, agriculture and medical can require different tradeoffs. The new Zigbee Pro standard, although still early in its deployment, much like Z-wave, appears to be positioned more for the home area network within AMI. Other WSNs target commercial and industrial applications. For example, Millennial Net’s wireless sensor network devices are well suited for retrofitting commercial and industrial buildings.

Wireless networks can avoid the time, cost and complexity of hard-wiring. However, to retrofit existing buildings, devices and integrated systems should be designed for affordable, rapid deployment and robust operations in long-term use. Commercial and industrial applications especially need a reliable and scaleable WSN to adapt to different building configurations and unique building dynamics.

Highly responsive self-forming and selfhealing networks can enable wireless sensors to be easily installed and put into service with minimal cost and disruption. To facilitate retrofits, devices work with legacy HVAC systems, lighting and appliances, enabling significant immediate energy savings without mandatory upgrades to legacy equipment.

Also key for retrofits is low-power operation, so devices can be powered from existing equipment or operate on battery for years, avoiding added costs.

Today, government and utility-driven policies and incentives should encourage and promote greater leverage of readily available and low cost WSN and internet communications, information technology and infrastructure. Such systems will empower consumers, businesses, policy makers and utilities to wisely invest in new infrastructure. It will help consumers and utilities intelligently manage supply and demand, fostering energy conservation and revealing opportunities for continuous improvement.

Edison’s carbon-filament light bulb replaced candles and gas lights with electric lights, while he built the infrastructure making electricity practical, safe and affordable. Now we need to follow Edison’s spirit of innovation and make better use of the available energy. The tools exist today to utilize our energy more efficiently through a better understanding of usage and conservation measures. But the tools must be used to be effective. To quote Edison, “The value of an idea lies in the using of it.” It is time for us to take up Edison’s call. n

Mark O’Hearne leads business development and marketing, to commercialize and promote Millennial Net’s wireless sensor network technologies and applications. He leverages more than 25 years of industrial and building automation, enterprise systems and supply chain management. Prior to Millennial Net he held marketing and business development positions at Brooks Automation, i2 Technologies, Andover Controls and Digital Equipment.

www.nextgenpe.com

millinel net.indd 64

4/2/09 15:38:44

Millennial Ad:euro

2/2/09

10:39

Page 65

Inmon ED:18oct

4/2/09

15:34

Page 66

DATA WAREHOUSING

few months ago I found myself at dinner with the CIO of a large oil company. Through a wonderful meal and a few glasses of wine, my friend starting talking about information at his organization.

“Do you know how we make decisions? We make decisions by spreadsheet. Whenever the time comes to make a purchase or to hire a consulting firm, we justify what we are doing by backing up our decision with a spreadsheet.

“Now I don’t have anything against spreadsheets, but the truth is that you can make any decision you want around here because we have so many spreadsheets. And no two spreadsheets agree with each other. One person can make the decision to lay people off and another person can make the decision to increase capital expenditures. And each of them can prove their point by finding a spreadsheet that justifies their decision. There is just no believability that is associated with spreadsheets.

“We are making billion dollar decisions and we don’t have the slightest idea whether we are making smart decisions or not. You see, for all of the spreadsheets we have, we don’t really know what is going on in our oil company.”

If this little conversation somehow sounds familiar, consider this – you don’t have to settle for the anxiety and uncertainty of making decisions by spreadsheet.

Oil companies, manufacturers, airlines, banks, insurance companies and many more are discovering that it is both profitable and smart to create and use true ‘corporate’ data as a basis for making decisions. Corporate data doesn’t replace spreadsheets. Instead corporate data is provided to the spreadsheet community and serves as a basis for unifying decisions made from multiple spreadsheets.

A THE DECIDING FACTOR How efficient data access builds a solid foundation for corporate decisionmaking. By Bill Inmon

66

www.nextgenpe.com

Inmon ED:18oct

4/2/09

15:34

Page 67

Data source

ed for analysis. In any case, because the spreadsheet data has come from a single source, reconciliation is always a possibility.

Corporate data comes from the careful building of data from a reliable One of the characteristics of corporate data is the fact that over time source. Often times placed in a data warehouse, corporate data is data that corporate data starts to grow to be very large. Because data is detailed, beis believable and is carefully constructed to reflect the basic information cause data is historical, and because many different kinds of data are that a corporation needs on which to make decisions. placed into the collection of corporate data, the volumes of corporate data Some of the characteristics of corporate data are: corporate data is grow quite large. granular. It is at the lowest level of detail that makes business sense. By The corporate data is operated on by more than just the ubiquitous being at the lowest level of meaningful detail, corporate data can support spreadsheet. For example, it is normal for statistical processing to occur on the accountant, the sales manager, the finance manager, the marketing corporate data. And tools known as business intelligence tools are used to manager, and so forth. In addition, because corporate data is granular it access and analyze corporate data. can support future unknown needs.

In the early years of creating corporate data, organizations relied alCorporate data is also relative to a moment in time. Every unit of cormost exclusively on repetitive, transaction-oriented data. Data such as payporate data has one moment in time associated with it. It is organized into ments, meter measurements and so forth are all forms of repetitive data the major subjects of the corporation – wells, sites, production, storage, that found their way into the early forms of corporate and so forth and over time, as data ages, the probability of data and data warehouses. access drops and the data is placed in forms of storage But in today’s modern world, textual (unstructured) that are suited to holding large volumes of data. One of the “Great care must data is found in corporate data as well. In today’s world most important aspects of corporate data is its source. be taken so that with technology known as textual ETL, textual informaGreat care must be taken so that the source of corporate tion can be read, edited and placed in a collection of cordata is the best that is possible. The source is chosen the source of porate data. using the following criteria: How accurate the source is, corporate data is how complete it is, how up-to-date it is and how easy it is the best that is The value of text to access. possible” As an example of the value of being able to handle The source of data for corporate data is known as the textual data as part of corporate data, consider corporate ‘system of record’. This is a concept that has been used by contracts. If you ask an executive whether corporate conbanks for years in keeping track of the balance in an inditracts are under control, the executive surely says yes. But what the executive vidual accounts. When the bank establishes the system of record, the acreally means is that should there be a question about a contract, that a lawyer count information for a given account can reside nowhere else. Indeed, if a can find the contract and analyze the contract. bank starts to keep detailed up-to-the second information about an acBut if you start to ask questions about the 100,000 contracts the corcount in many places, the bank and its customers will eventually become poration has, the executive has no idea of the information found collectiveunhappy. ly in the contracts. Try asking an executive, “Out of our 10,000 contracts, Organization how many contracts are going to expire this year?” Or ask, “According to There are several ways to organize this corporate data. One way is at our 100,000 contracts, how many have penalty clauses that kick in if we the enterprise level. Here, many different aspects of the modern energy don’t meet certain standards?” “Of our 1,000,000 contracts, for our obligcompany are brought together and consolidated into a single model. There ations, how many are over $10,000,000 and how many are affected by a is power generation, power transmission, power storage, administrative inchange in rates?” The truth is that when taken into the context of collective formation and other forms of information that are all stored in an integratcontracts, top management has no real idea of the information held in ed manner in the same data warehouse. those contracts.

On the other hand, in many cases the scope of integration is not nearThe problem is that there is really valuable information that is found in ly so broad. There may be a data warehouse just for power generation, for text. There are contracts. There are customer service logs. There are warexample. When the scope of the data warehouse and corporate data is ranty claims. There is medical information. In fact it is estimated that 80 persmall, eventually the issue arises of exactly how to integrate multiple data cent of the corporation’s information is stored textually, not in the form of warehouses together. a transaction.

The collection of corporate data often provides a convenient resource But with the ability to read, edit and transform text through textual ETL, for auditing and corporate reporting. Once collected, spreadsheets are crenow it is possible to capture textual data into a data warehouse and make ated using the corporate data as the basis for the spreadsheet data. At this it truly corporate data. And once in a data warehouse with other corporate point there may yet be disagreement between people building and operatdata, decisions can be made using both textual and non-textual data. ing spreadsheets. But because all the spreadsheet data has come from a Modern decision-making requires data that is believable. Modern corcommon and believable source, there is always the opportunity to reconporations have discovered that the building of corporate data is the propcile the data. er foundation on which to be making important corporate decisions.

When such a reconciliation is done, usually the issue boils down to Bill Inmon is the CEO of Forest Rim Technology. what time span of data was used or what geographic regions were select-

www.nextgenpe.com

67

TuVox ATE:18oct

4/2/09

15:41

Page 68

ASK THE EXPERT

Customers calling Getting the best from voice communication.

I

t’s well known that there are many things that consumers don’t like about typical telephone communications – complex and confusing menu trees, ending up in the wrong place, waiting a long time for service and having to repeat information.

Fortunately, these issues are all solvable.

First, to get callers to the right place, streamline and improve the automated systems that greet every caller. The key is to allow the caller to openly say why they are calling (‘natural language’ intent detection). A well-designed natural language greeting eliminates the frustrations caused by a ‘press 1, press 2’ menu system.

Getting the caller intent correct is faster, easier, and also cuts down on costly transfers between call center departments.

Second, TuVox has found that given the choice, most callers will opt to use a voice selfservice system rather than wait on hold for a call center agent. Today's systems are far more intelligent and user-friendly than the touch-tone IVR systems of the past. For example, intelligent use of caller ID (ANI) allows a level of efficiency that wasn’t possible before through speedier caller verification and personalized information.

“Given the choice, most callers will opt to use a voice self-service system rather than wait on hold for a call center agent” Finally, forcing a caller to repeat information is the most commonly cited complaint today. A ‘screen pop’solution that acts as a bridge between the telephone system and the call center agent helps resolve this common irritant and allow the agent to begin solving caller issues faster.

Our guiding principle is that callers aren’t calling because they want to, they're calling be-

68

www.nextgenpe.com

Steve Pollock is Executive Vice President and Co-Founder of TuVox. Pollock is responsible for strategy, marketing and corporate development.

He is the co-author of multiple TuVox patents and speaks often about using self-service technology to achieve business results.

Prior to TuVox, Pollock was Vice President of Marketing for Edify Corporation, marketing IVR platform software and applications.

cause they have to. The faster you can help them, the happier they will be. In the real world, this means routing calls to the right place the first time and solving issues quickly.

A good first step for many companies is to fix their call routing issues by implementing natural language call routing. If great self-service applications and well-trained call center agents can only be reached via an arcane touch-tone system, then callers are forced to navigate through layers of confusing menus to try to find the ‘treasure’.

Many callers will become irritated, lost, or misrouted before they hear the first “how can I help you”.

Nowadays, companies can outsource call routing, leaving the existing IVR alone (for the time being), and have the routing application work seamlessly with the IVR and agents. Outsourcing may or may not include physically locating the application outside of the enterprise.

Not only does this approach free you from having to make a large capital investment, it allows you to run a sample of your callers through the application and measure results before expanding traffic.

A huge added benefit in starting with routing is the visibility you can obtain into your callers’ intentions. Rather than a convoluted picture of how callers navigated a touch-tone maze,

you’ll see details about what they’re thinking when they call. The wealth of information you obtain will help you improve the routing application and give you a clear roadmap showing what to leave alone, and what are the best candidates for new speech applications.

Automation opportunities include account status applications, the ability to make payments, service changes (start/stop service), program enrollment and many others. With today's generation of application analytics, you can continue to improve the usefulness and efficiency of self-service applications.

Finally, design all call types to shorten live agent time through a ‘hybrid strategy’.

Capture key data elements (identification, caller intent and specific data for each call type) and build this into the live agent call script. Since the caller has already given account details, the representative will have all of this data and can progress directly into the call. Done correctly, a minute or more can be shaved from every call.

Operational benefit can be achieved within months, positively impacting satisfaction and improving the bottom line. Take advantage of expertise and ready-to-deploy applications by working with a specialist like TuVox.

Stop flushing down the telephone.

money The way to ensure real business results for your IVR is clear: get a guarantee, in writing.

And we know you’ll be satisfied with the results: IVR performance • caller satisfaction • ownership experience

TuVox guarantees that our IVR solution will beat the performance of your current IVR solution, or you will get to use ours free until it does.

Why choose TuVox? You get: • A recognized leader in speech IVR applications and

innovative application technology.

• A partner who is big enough to handle the largest

applications and small enough to provide you with focused, personalized attention.

• Access to leading edge TuVox On Demand technology, including a portal featuring powerful tuning analytics and real-time updates.

• Stand-out application design and implementation by the award-winning TuVox Design Center team.

The TuVox Guaranteed Success Program. Available hosted or on your premise: you choose.

How can we do this? Experience. We’ve done it many times, often taking on challenges that our competition has avoided.

For details visit: http://www.tuvox.com/gsp ®

© 2007 TuVox. All rights reserved.

NextGenPE.indd 69

2/2/09 10:47:33

SMART GRID

Walk

this way

Jason Few tells Power & Energy how Reliant’s wireless technologies are developing as it sets out upon the path of smart grid implementation.

A

s Senior Vice President of Mass Markets and Operations at Reliant Energy, Jason Few is developing a series of solutions to update the functions of a traditional electricity company and provide consumers with the increasingly popular realtime smart grid technology options.

“We are evolving as a company to enable our customers to use less energy, to spend less and emit less. We’re going to do this by leveraging the smart grid and smart meters, and developing technology for in-home use, giving consumers the ability to have far more insight into their energy consumption. For a longestablished company like Reliant, developing premise-based or in-home consumer electronic equipment has not been something that has been focused on in the past,” explains Few. Few’s appointment to the role was prompted by Reliant’s recent adoption of wireless technologies for smart grid usage.

Formerly a product developer for Motorola, Few brings to Reliant his vast knowledge of wireless technology, and provides a forward-thinking approach in adapting such technologies for the utilities industry.

People focus The consumer is at the heart of Reliant’s interpretation of the ever-evolving definition of smart grid. “I don’t know that I have a formalized, a specific definition of smart grid, and from a residential and small business perspective we are far more focused on the capability that we’re going to be able to leverage from the smart meter.

“Such technology is going to allow us to make that information available to consumers on a real-time basis, providing them with the ability to make informed decisions about their energy consumption. For example, every time a consumer, whether they

70

www.nextgenpe.com

jason few.indd 70

4/2/09 15:37:54

are a residential consumer or a small business consumer, turns on a light, runs a dishwasher or runs their plant, they are making an energy purchase decision.

“Today, the challenge for residential customers, and for the majority of small businesses that have not invested in some type of demand capabilities from an energy standpoint, is having no idea of the energy purchase decisions they’re making. Smart meters give us the ability to add additional technologies to that, creating solutions which give consumers the ability to have that insight,” he adds.

Reliant’s technological development for the incorporation of smart grid is supported through its partnership with ZigBee Alliance, a solution provider of wireless technologies. “We are leveraging the ZigBee wireless technology from a standards viewpoint, as a way to deliver a consistent set of solutions for consumers off the smart meters. If you look at the smart meters, certainly those within our territories, ZigBee is a preferred technology that’s being leveraged within the smart meters themselves, so that wireless protocol gives us the ability to bring that information from the meter and into the customer’s home or business.

“We are leveraging that as the standard communications between our in-home solutions and communications with the meter; and within the home, we are leveraging that same wireless standard, providing the ability to have multiple devices communicate with each other.”

2009 is shaping up to be an exciting year for Reliant, with its smart grid technology still only at its trial stage. “One of the things that are maybe a little bit different or unique about our market dynamics versus some other markets is the current competitiveness of the utilities market. A beneficial effect of this is having strong incentives to develop compelling solutions for our customers as a competitive differentiator. However, one of the things that we cannot control is the speed at which smart meters are deployed, so right now we are in a trial state within our territory with our in-home solutions.

“The majority of this year will continue to be focused on trials and working through technology implementation issues, improving the products and really understanding how consumers actually use the technologies. Using ethnographic studies, we’ll be understanding how to make the solutions most useful, and impacting what we will be dealing with which will be one of the real challenges in this industry itself.

“Most people talk about building more generation, whether it be renewable energy or not, but we believe one of the things that doesn’t get as much attention as it should is the demand side. If you work on demand, this will actually increase the overall reliability of the system and reduce the cost for consumers when new generation is built. Our solutions are focused on helping consumers have enough information to deal with the demand side of the equation,” says Few.

Jason Few is Senior Vice President of Smart Energy for Reliant Energy, Inc, having joined the company in July 2008. He is responsible for leading the initiative to produce and deliver innovative energy solutions to give customers more control and better insight into how they use energy. Few previously oversaw Motorola’s global retail and distribution, global quality and customer advocacy, as well as marketing of the North American mobile devices business.

Good choices

ments in terms of how technology is to be used and deployed. We’ve not seen any major challenges in leveraging the technology from a development standpoint; our development process has been fairly normal. My experience in other developments has been to go through multiple development cycles to get the solution you want, especially when you’re developing brand new technology that hasn’t been in the marketplace before.”

Few believes that for each utility company, the challenges of implementing a smart grid system are fairly minor, as the industry as a whole is preparing for change. Any developments within the industry

With smart grid implementation at such an early stage, Reliant has faced challenges not in the operation of the system itself, but in ensuring the right choices have been made regarding the system.

“If I had to characterize challenges, it’s been getting through agree-

often happen at a slow pace, allowing for a smooth transition from the old to the new. With many people critiquing the idea of replacing the current grid system, arguing it causes major disruption when attempting to amalgamate the old with the new, Few proposes the practises

www.nextgenpe.com

jason few.indd 71

71

4/2/09 15:38:01

“If we can help lower the overall footprint of emissions, then our relationships with our consumers will improve as a result of this reduction in cost”

of renovation to be well understood and unlikely to affect the flow of power delivery.

“There’s a lot of focus on building new generation, and that’s certainly something we ought to be thinking about and working on from a renewable energy perspective, but that’s only part of where the focus ought to be. A big part of the focus should be on demand and dealing with demand.

“Our view is focused on how we help consumers, whether they be residential or business, understand how they can use less, spend less and emit less. We want to conduct this to the degree that we can leverage the smart grid and smart meters, and provide consumers with a set of solutions that give them the ability to actually do that. This reduces the need to continue to build new generation, whether it be renewable or not, and ultimately helps with reliability in the system. It reduces the cost that it would take to build new generation and allows for renewable energy to take a bigger percentage of the role of energy generation,” says Few. President Obama’s proposals to replace the US infrastructure are met with optimism: “As he has a bit more time to look at the issues and can take a look at the demand side of it, I think there’s an opportunity to take a different approach to the overall challenges that we have from a consumption standpoint.

“I look at the ability to use wireless technologies as a way to inform people about their energy consumption and the choices they’re making, to deliver that information to them through multiple media, whether it be the internet, standalone displays in the home or the ability to add automation type capabilities from a wireless standpoint so that people can do things either remotely or sensor-based.

Wireless already plays a big part today inside of generation facilities, and so will be a big part of that solution, and a big part of how consumers have an opportunity to make a different set of choices regarding energy consumption.”

72

Crucial progress Reliant have begun the development of the way in which they present energy consumption to their customers, and the next two to three years are crucial for the linking in of their progress with that of the smart grid as a whole. “There are a few things we want to accomplish at the trial phase. Firstly, we want to prove our solution set.

Our aims are to make sure we understand how it gets used by the consumer, because it’s important to ensure it’s not an initial novelty.

The last thing we want is for people to be interested in it initially and then be unable to incorporate it into their daily lives. We’re going to be spending a lot of time making sure we understand that so we can be certain that this technology, and the solution set that we deliver, has the impact we desire, which is to reduce demand.

“As an electricity provider, that may sound counter to our business goals, but we believe that if we can help improve reliability in the system, we can bring the overall cost down. If we can help lower the overall footprint of emissions, then our relationships with our consumers will improve as a result of this reduction in cost. Consequently, we will be able to not only acquire more customers, but also be able to extend the length of our relationships that we have with our existing customers.

“If you then fast-forward the next couple of years, our hope is that smart energy and what we do with smart energy will be just a core part of our overall offering in the marketplace and something that helps differentiate us from competition,” concludes Few. Reliant energy is still in the infancy of its smart grid implementation, and choosing the right technology products to begin the development of the system is crucial to the company’s strategy. Few has a strong background in wireless technology, and with his influence and the right product choices, 2009 promises to be an interesting year for Reliant as their strategy unfolds. n

www.nextgenpe.com

jason few.indd 72

4/2/09 15:38:02

ALCATEL:18oct 04/02/2009 15:22 Page 73

EXECUTIVE INTERVIEW

Keeping the channels open Walt Paskowski outlines how utility companies can use communications technologies to transform their businesses.

P&E. What are the challenges facing companies in the energy sector?

Walt Paskowski. Utilities in North America are undergoing difficult challenges that are causing a profound change on how they do business.

Utility and energy companies are going through acquisition and consolidations, aging workforce and infrastructure, fluctuating fuel prices, rising security and reliability awareness and stockholder pressure for profitability.

Understanding these challenges, how they impact utilities and finding creative ways to use available technologies to address them is now more critical than ever. Alcatel-Lucent is committed to this space and is continuously investing in resources and R&D efforts to be positioned to help utilities not only confront these challenges but also see them as opportunities to transform their business to a more dynamic and efficient model. These technology initiatives include smart grid, smart metering, workforce mobility and integrated security solutions, which address compliance standards including NERC/FERC. P&E. What role do communications play in the development of a federal smart grid system?

WP. The development of a smart grid system is dependent on gathering intelligence from all key components and connections on the national grid. Intelligent networking is the underlying technology that will enable smart grid applications. Developing and deploying an intelligent network capable of collecting and managing real-time data will enable utilities to expand their networks to include distributed generation sources, to gather real-time demand data through smart meters, and to monitor and manage the health of the grid.

Utilities will be able to improve the reliability of their network by monitoring and acting on grid performance data collected by their network; they will be able to more quickly recognize and predict changes in demand and take the appropriate power supply actions to satisfy their

Walt Paskowski, Vice President Sales, heads the Alcatel-Lucent Vertical Market Sales Team for the Americas. He has been with AlcatelLucent over 11 years, focusing on serving the needs of his energy, state and local government and transportation clients. The team has been involved in helping these clients with all aspects of their business, with a strong focus on their mission critical networking.

needs at the lowest possible cost; and they will be able to provide their customers visibility and control capabilities over their own usage via a web portal. Communications, the intelligent network, is the foundation for building this smart grid environment.

P&E. What is the best solution for ensuring security within a communication infrastructure?

WP. As the dependency on electricity grows, security emerges as one of the major concerns of the US government and of utility executives.

There is some debate in the industry on the breadth and depth of any security solution. On one hand utilities want to automate major functions and increase the mobility of their workforce. On the other hand, these initiatives, while

empowering utilities to become more efficient and competitive, make them more susceptible to security breaches.

Alcatel-Lucent understands that a careful assessment is required to study the overall infrastructure and identify potential risks in the development of a good security strategy, which should address all layers of infrastructure, including physical, network, services and applications. These layers are constantly evolving. A security solution should be flexible and dynamic to accommodate change.

P&E. How is the increased focus on energy efficiency changing the way in which communications are employed?

WP. Utilities are focused on increasing efficiency as both a way of meeting the growing demand for power and for achieving mandates in carbon emission reductions. The first element in addressing energy efficiency is being able to capture and analyze accurate, real-time usage data, which will require an intelligent network connecting the key end points from generation through to the energy users. Utilities are investing in technologies that will enable energy efficiency and demand response programs, including smart grid, smart metering, home area networks, in-home displays, smart thermostats and web portals. A secure, intelligent network is the key to enabling these applications and capabilities.

P&E. What is the importance of communications for a mobile workforce?

WP. Utilities are looking to mobilize their workforce to increase the efficiency of their operation and reduce operational expenditure. Mobility also allows utilities to make the right resources available when needed, which is critical when addressing emergencies and failures. A true mobility solution enables the workforce to become geographically independent and enhance the collaboration between the various organizations and expertise within the company. This collaboration includes voice, video and data and even applications sharing. Mobility solutions have multiple building blocks that need to be integrated and customized to address specific business models. When implementing mobility solutions, utilities should be focused on ensuring that security is not jeopardized. For this reason, security should be an integral part of any mobility solution. n

www.nextgenpe.com

73

HUW COMMENT:18oct 04/02/2009 15:33 Page 74

COMMENT

Close to home Is the US really ready to start powering itself?

By Huw Thomas

E

nergy independence was a key spoke of President Obama’s plans throughout the election, part of the multi-billion stimulus package to get America working again. Sustainable energy would contribute thousands of new ‘green collar’ jobs and the US would lead the eco-wave after eight years of neglect. Even for the non tree-huggers, independence holds plenty of appeal. Why should the US remain in thrall to foreign powers that don’t always have her best interests at heart?

Why should we pay over the odds for a commodity we can produce ourselves? When legendary oilman T. Boone Pickens starts building wind farms and declaring his intention to break America’s addiction to foreign oil it becomes clear that we’re witnessing a sea change.

Of course, no one is suggesting that the US is going to get over its thirst for oil overnight. The black stuff is a cornerstone of the American way of life and it’s going to take more than a quick dose of cold turkey to turn that around. But the new president has a stated aim of drawing a quarter of US power from renewable resources by 2025. It’s an ambitious goal, but conditions already exist to make at least some of this dream a reality. There have been huge advances in wind and solar energy in recent years, while the geography and climate of the US offers abundant possibilities for ecofriendly power generation.

But effecting such a huge change in the American energy landscape is going to take more than just erecting some wind turbines or solar panels and watching the juice start flowing.

Perhaps key among these challenges is the question of how to get this power to the places that need it. The US energy network is, in its current state, a series of disconnected loops.

There’s no way to get wind energy generated in Texas to homes in New York and remedying the problem is going to take quite a bit of time.

Just planning a fully integrated US energy network is a task that could

take years. The issues of where power lines will be routed and the need to obtain the proper permissions to do so, is unlikely to be resolved without considerable debate. Even those who specialize in green infrastructure have been caught napping. The preparatory work necessary for a project of this size has not been contemplated, largely because no one expected the funds for it to become available so suddenly. There is a very real risk that the long-term requirements of constructing such an infrastructure would fail to satisfy the Obama administration’s desire for quick results. If projects aren’t ‘shovel-ready’, funding could be funnelled elsewhere.

But all of these difficulties operate from the position that investing in green infrastructure and power is universally seen as a good thing. Even though the government’s infrastructure plan has been designed to address the current economic challenges facing the US, enthusiasm for more eco-friendly initiatives isn’t going to spring up instantly. It remains to be seen how much appetite there will be for more experimental technology when times are so uncertain.

It’s also fair to say that much of the growing interest in cutting dependence on foreign oil flowered when it was trading around $160 per barrel.

Now the price is hovering near $40 and many analysts are predicting that it won’t go beyond $60 before the end of the year. With prices this low, the American commitment to greater energy efficiency is likely to be strongly tested. And let’s not forget good oldfashioned self-interest. There’s a big difference between agreeing for the need for a new green power infrastructure and being happy to have power lines and wind farms erected in your backyard.

Fixing the economy and the environment at the same time was always going to be a tall order. Only time will tell if the new administration has bitten off more than it can chew. n

“Effecting such a huge change in the American energy landscape is going to take more than just erecting some wind turbines or solar panels”

74

www.nextgenpe.com

Intelligent Grid Risks P&E. What do you see as the primary risks involved in intelligent grid adoption?

Britton Sanderford. Utilities in the United States are rushing to adopt smart grid initiatives to solve the issues of generation capacity, uninterrupted supply, carbon footprint and aging infrastructure. They will likely adopt solutions sooner rather than later. But as with all change there is risk. The key risks to avoid in intelligent grid adoption are security breech, infrastructure obsolescence and communications reliability issues.

P&E. What specifically do you mean by communications reliability?

HBS. If the smart grid is going to allow us to extend the usefulness of the current electric generation and distribution infrastructure, the communications network requires the same reliability level as that expected in generation plants. Reliability goes hand in hand with the requirements for fast response time. This means that the communications paths themselves must have inherent automatic redundancy. This redundancy must be able to act within generation level time requirements in order to achieve the communication goals of the grid. Fast, redundant communications cannot be burdened with extensive rerouting algorithms which require

time to determine a new or alternative path to the desired endpoint. The FlexNet, single tier communications network, for instance, insures that the communications latency has a predictable delay versus mesh systems which inherently have variable delays proportional to the number of hops required and the amount of interference sustained.

“The communications network requires the same reliability level as that expected in generation plants” P&E. What are the answers to mitigating risks to the smart grid?

HBS. The first and most important point is sustainability; by that I mean protection of the utility infrastructure investment through network viability that insures usefulness through future changing and improving technology. At Sensus we refer to the philosophy of continual improvement. Every FlexNet endpoint is equipped with the ability to accept

Britton Sanderford was appointed to the position of Chief Technology Officer in July of 2006 when Sensus Metering Systems Inc. purchased the assets of Advanced Meter Data Systems LLC, (AMDS), which he had founded. Sanderford has published articles on multiprocessing computing, RF, protocols, modulations, telemetry and applications related to smart grid. He holds over 80 patents, pending and granted.

downloadable revised code. This capability is also inherent in the data collectors in the communications network which are called tower gateway base stations (TGBs). In addition to metrology and communications processors being downloadable, the actual communications core is software defined.

This means that modulations, protocols, frequency of operation, even data rate are defined in digital signal processing firmware and that means that the endpoints can be fully upgradeable as future requirements and features are developed.

Communications risks are mitigated by redundancy and speed of response time.

Sensus FlexNet uses APA (All Paths Always) technology; this ultimate form of self-healing ensures critical messages are delivered without re-routing delay. This means that every tower and every meter listens for every transmission on every frequency in parallel and all paths are used at all times simultaneously.

A mesh system uses a different philosophy of serial communications and serial path recovery. This serial approach takes time in order to ‘heal a wound’ and find an alternative viable path. This healing time potentially delays time-critical messages when time-tocure matters the most.

To avoid a security breech, Sensus recommends a layered security method.

First the spectrum that we operate on is exclusively available to the utility and does not compete with other users. Sensus does not offer a development kit to the public nor does it publish the core communications protocols and modulations. Each TGB is outfitted with both a primary and a secondary means of communications. Sensus recommends that one be a physical connection such as a wire or a fiber and the other be a wireless method including, if appropriate, satellite backhaul communications.

All of the risks facing intelligent grid early adopters can be lessened through awareness and planning. The time to act is now and the technology solutions are available in the market today. n

www.nextgenpe.com

SENSUS ED P75.indd 75

75

4/2/09 15:43:16

iDashboard_Ad:euro

2/2/09

10:27

Page 76

BJELOVUK:18oct 04/02/2009 15:24 Page 77

TECHNOLOGY

Bright

ideas George Bjelovuk tells Power & Energy how American Electric Power is helping to shape the future of the smart grid.

s Managing Director of Marketing, Research and Program Development, George Bjelovuk oversees gridSMART, American Electric Power’s (AEP) initiative developing its distributed energy resources and demand response programs. It is his commitment to incorporating green initiatives within the company’s strategies that differentiates AEP’s approach to smart grid implementation from that of other companies, and puts them in the spotlight on the energy efficiency stage.

Defining such a loose term as ‘smart grid’ can be challenging, with each utility company at a different stage in its infrastructure development.

The level to which technology has evolved within these companies is often the determining factor of the meaning of smart grid for the operation.

Bjelovuk defines his own understanding of the term: “At American Electric Power, we’ve developed a definition of smart grid that includes three fundamental components. Firstly, a new communications infrastructure and a simultaneous leveraging of existing communications infrastructures, whereby they exist in order to enable communications with our metering endpoints. This allows two-way exchange of information between our meters and the utilities’ back offices. This concept is called the ‘advanced metering infrastructure’ is one of those three components of the smart grid.

A

“The second component is an area we’ve evolved to call ‘distribution grid management,’ which enables the use of those same communications networks to allow the utility to better manage its distribution networks.

With this, we’re able to monitor the performance of its circuits, remotely control switches and reclosers, and monitor the status and operation of remotely controlled meters.

“The final area is the home area network, whereby utilities and consumers may engage differently in the future than they do today. Today, the interface between the utility and the consumer is the electric bill that shows up in the mail once a month. In the future, that interface will be provided in real time and will allow for greater interaction between the company and the consumer as new rate structures evolve and new messaging systems develop.”

This function of smart grid as simply enhancing communication isn’t enough for AEP. Bjelovuk expands that the distribution business of the future will be much more than just the deployment of these smart grids: “We’ve included two additional components into our gridSMART initiative that begin with energy efficiency and demand response programs for consumers, also recognizing that in the future we will need to interact with emerging sources of energy, such as distributed solar and wind, biomass,

www.nextgenpe.com

77

BJELOVUK:18oct 04/02/2009 15:25 Page 78

fuel cells and plug-in hybrid electric vehicles. We call this ‘distributed energy resources.’ Our definition of the gridSMART initiative includes the three components of smart grid, energy efficiency demand response programs and the integration of distributed energy resources.”

The focus of merging new forms of technology with an increased use of renewable energy allows for AEP, and not the consumer, to take the lead in determining control of the relationship between the two. Bjelovuk suggests that historically, it has been the consumer that has defined exactly how utility companies are to operate, and in turn, the utilities have pandered to consumer tendencies.

Changing behavior “The behavior related to their energy consumption would be defined by themselves, independent of any information, and utility generation and utility transmission have had to follow that behavior. In the future, utilities recognize that there will be opportunities for the companies to control that load as closely as they do the generation and transmission of energy, enabling us to reach a better equilibrium in the supply and demand equation.

“By sending signals to customers and interrupting water heaters or pool pumps or resetting, we are providing consumers with the ability to allow their thermostats to be reset during peak demand periods, resulting in the ability to flatten their load profile, according to these smart grids,” Bjelovuk explains. “From a consumer standpoint, energy in the United States has very little visibility. Except for maybe the largest industrial customers that consume millions of dollars of electricity daily, or for any consumers that have a reason to track energy costs on a more real-time basis, by and large, most consumers in the United States have very little visibility into the realtime consumption of electricity.

but whether a successful umbrella structure can be formed, considering the differentiation in state guidelines, is of concern to Bjelovuk. “The Energy Independence and Security Act 2007 asked public utilities commissions in the states to open a proceeding whereby they would review the plans for the utilities that they regulate, keeping in mind that utility operations are regulated on a state-by-state basis.

“For instance, AEP covers an 11-state footprint, and in our 11 jurisdictions our regulators are in different places and stages in terms of their interpretation of the Energy Independence and Security Act. Some have just recently opened dockets whereby they would begin the conversation with utilities around what is a smart grid and what will be required to advance the state of smart grid in their state.

Legislation “Others have gone so far as to work with the legislature and pass laws that ultimately cause regulatory rules to be formed around how utilities would introduce smart grid programs in their state. In fact, a rule was most recently passed whereby utilities could propose AMI systems and define both the functionality of those requirements and a recovery methodology for those investments,” says Bjelovuk.

Until a federal structure has been developed, AEP are already operating an amalgamated system with an interstate transmission system. “The

“As energy costs rise consumers will want more information from utilities about the rate at which they’re consuming electricity” “When the electric bill shows up at the end of the month, it’s a big surprise; opening the envelope is almost like receiving an Academy Award, you don’t really know if it’s higher or lower than it was last month, there is no frame of reference.

As energy costs rise, as they inevitably will do due to the need for new capacity and the need for environmental controls, consumers will want more information from utilities about the rate at which they’re consuming electricity, and it is smart grid deployments that enable that benefit.”

The deployment of a smart grid on a federal level is the ultimate aim of both utility companies and President Obama,

78

www.nextgenpe.com

George Bjelovuk

DTN_AD:euro

2/2/09

10:25

Page 79

BJELOVUK:18oct 04/02/2009 15:25 Page 80

high level of AEP’s vision for an interstate transmission grid is to allow sources of supply that may be located away from sources of demand to be interconnected in a much more effective way than they are today. Wind is a great example of this; if you look at a wind resource map of North America and compare that with the population centers of North America, they don’t necessarily overlap.

Therefore, AEP’s vision is to facilitate the development of an interstate transmission grid, whereby we can link those potential remote sources of energy to the locations of demand across the US.” Attempting to create an inter-state infrastructure is not yet a stage that many utility companies have progressed to, and being one of the first to implement such strategies certainly brings with it teething problems. “The biggest issue so far has been the pace of regulatory interest and the rate at which we’re able to deploy these systems due to available capital. Some of our states have been very interested in AEP bringing forth proposals for smart grid deployments and have created a framework within which AEP can get recovery of those costs. Other states, however, have not been moving at that pace, so the biggest challenge for us as a utility company operating in 11 states is trying to operate at 11 different paces,” explains Bjelovuk.

It is the amount of capital available between states that seems to be the determining factor as to how far the inter-state infrastructure is deployed, with Bjelovuk in agreement that the amounts available certainly temper the pace at which current projects are moving. “The real tempering factor for smart grid deployment is energy cost. In some areas of the country where energy costs are skyrocketing, you see regulators and consumer advocates lobbying hard for the advancement of technologies that might be able to give consumers a better handle on their energy cost. We’re fortunate that in most of our service territories our costs are very low, and as a result, the interests and the managing of these low energy costs counterbalances the deployment of the new technologies used for the infrastructure,” he adds.

A SMART GRID SHOULD BE ABLE TO: 1. Heal itself 2. Motivate consumers to participate 3. Resist attack 4. Provide higher quality power 5. Run more efficiently

80

www.nextgenpe.com

Future plans AEP’s forward-thinking strategy requires innovative technologies with which to create this inter-state smart grid system; it is their partnership with IBM that facilitated such energy plans. “As we started to develop our architecture for what is required from a systems standpoint at AEP, we recognized the value that a system integrator would bring to the project. We went through an analysis of all the potential partners we might have and from indepth meetings with IBM, learned that they as an enterprise have committed significant investments into environmental research and development.

Part of this was an investment in the research and technology around utility operation, so ultimately their vision and our vision seem to be in alignment. When we then announced our partnership agreement, it was around linking our R&D efforts in a way that would accelerate both of our abilities to acquire greater visibility of this project.”

The replacement of aging structures is a ball that has already started rolling for utility companies; slow and steady wins the race is certainly true when attempting to develop an inter-state national infrastructure. Bjelovuk adds that regardless of the economic crisis, there are many variables that slow down the development of the rate at which energy is consumed and so many factors which smart grid, implemented or not, has absolutely no control over.

“The fact of the matter is, there’s a line that runs down the street that serves your home, so you may be affected by remote challenges such as weather or even instances where the delivery of energy may be adversely affected because a car hit a pole or because the company is conducting a system upgrade. That’s the nature of this business; the delivery of electricity is real time, and that real-time flow of electricity gets interrupted from time to time.

“Energy is not necessarily driven by the deployment of the smart grid so much as it’s driven by the natural evolution and lifecycle of utility. That said, I think there are components that utilities will introduce into the distribution system that don’t exist today which are likely to cause disruption, and again, we’ll pursue those techniques and methodologies that are most likely to minimize the disruption to consumers while those technologies are being deployed. A good example of this is the smart meter,” he concludes.

AEP has set its goals high and its standards even higher. It refuses to settle for the basic components of a smart grid system, but is charging full steam ahead to meet the ever-demanding consumer call for energy efficiency. Will it be able to achieve this, given the current climate? Only time will tell, but the rollout of its inter-state infrastructure is backed with a rational strategy involving time and capital. 2009 will certainly be an interesting year for the company. n

NUMEREX:18oct 05/02/2009 09:15 Page 81

ASK THE EXPERT

What is M2M? n recent years, the ‘M2M’ acronym seems to pervade almost any technology discussion relating to the management of distributed endpoint devices. However, it is important to differentiate M2M in the electric utility industry from proprietary Mesh and SCADA/LMR systems. In this discussion, M2M is narrowly defined, as WSM2M (Wireless Subscriber Machine to Machine), using the following ‘ground rules’:

I

1 An architecture of wireless, data-only communications between the host and remote end points. The end points may be singular endpoints or gateways/concentrators that collect/manage sensor or meter data from local area SCADA or mesh networks.

2 M2M Data consists of packet or SMS/Text data.

3 One or two way data is transported over public wireless subscriber networks and is charged by usage.

4 The networks have national international coverage rather than proprietary regional solutions.

5 Non-proprietary data transport, following the OSI or TCP/IP models, intended to integrate to corporate IT systems.

Although the above traits seem to paint utility-focused wireless subscriber M2M into a corner, the above definition accounts for millions of monitored/controlled devices, primarily in the area of AMI-demand response. However the stars are now in alignment for M2M to be a critical element in the electric utilities technology roadmap for numerous asset management requirements.

1 Unit cost of wireless devices and data usage has dramatically decreased.

2 Wireless modules, the heart of an M2M solution, have a high degree of intelligence/capability, reducing the overall remote device bill of materials.

3 M2M devices now have embedded, over the air programmability, to greatly reduce site visits for firmware or configuration updates.

4 Geographic coverage continues to evolve. Fillin M2M satellite technology is now cost effec-

tive as a solution for those rural areas without terrestrial network coverage.

5 M2M systems integrators have evolved utilityspecific applications for AMI, sub station monitoring, fleet management, etc that greatly reduce implementation time and costs.

6 Network security is a major concern to the utility IT department, especially in light of the North American Electric Reliability Corporation (NERC)’s new eight Critical Infrastructure Protection (CIP) cyber security standards, officially mandated on January 17, 2008. It is noteworthy that components from each cyber security standard are addressed in ISO/IEC 27001:2005 (‘ISO 27001’), which is an international information security standard.

As mentioned above, security is a major concern in M2M solutions. IT managers view M2M as an internet solution with additional exposure due to the fact that data is broadcasted wirelessly.

Security in M2M wireless should be examined in three areas: • Mobile device.

• Host interface to the network.

• Internal carrier /MVNO security.

Mobile device From the beginning, the architects of the various wireless networks addressed the concerns posed by wireless hacking, in the network

standards. The details of call/session set up and data encryption is a separate topic. CDMA and GSM standards have different approaches to authentication and encryption, both of which are transparent to the M2M architect. Basically, public/secret key exchange and encryption are utilized when devices register on the network.

Furthermore, temporary and randomly generated ciphering keys are used on the data channels.

Carrier implemented firewalls preventing mobile terminate spam attacks.

Host interface • Utilization of VPN or frame connections to the M2M operator segregating traffic from the public internet.

• Use of private IP pools and DNS servers.

• SMS wakeup architectures, closing off the remote device to inbound IP session origination.

Internal security This element of security is often overlooked in the review of a proposed M2M solution architecture. However, as evident in recent news, data and customer records can be compromised at the provider level. In the case of Numerex, the entire internal organization, the M2M communication elements and processes have undergone ISO 27001 scrutiny and certification. Traceability, version control, documented procedures, access logs and restrictions to information are all addressed under this standard. As a result, customer information is not exposed to attack or theft.

In summary, as already supported in previous ‘Ask the Expert’ articles, Wireless Subscriber M2M will be a major contributor to electric utilities. A strong understanding of the strengths and limitations of WSM2M is essential in designing a secure, reliable and scalable solution. n

John Andre is currently Product Manager for Numerex’s Technology Solutions Business.

Previously, he was the Vice President of Business Development for Airdesk. In addition, he was the National Sales Manager for Motorola’s commercial cellular data business in their Personal Communications Sector.

www.nextgenpe.com

81

SMART GRID

P&E. What is Ameren’s definition of smart grid?

Charlie Schaeffer. We’re still listening to the industry and watching the trends. From my perspective, it’s anything automation-wise related to the electric industry or electric customers, on the customer side of the smart meter. Then on the distribution system, smart devices control load, sensoring and monitoring. Some of the technology has been around for years and some is only now getting talked about.

Roger Pontifex. Ameren’s Illinois utilities are participating in some workshops that are being conducted by the Illinois Commerce Commission. Those are joint workshops, so as to understand the implications relative to state regulatory interests in terms of reliability.

Also understanding the cost pressures that could come as a result, depending on the design taken.

CS. With regard to the Illinois Initiative and the benefits that would provide our consumers, adoption of the smart grid has improved the grid reliability, reducing the price of electricity by better managing both the load side and the customer side.

RP. The initiative kicked off in the middle of last year.

Of course, part of that was to try and obtain more information, and wait and see what else is happening across the nation, in the UN and across the globe.

Slow and steady wins the race

P&E. Please tell us about Ameren’s Price Initiative and what technology is being developed to introduce it.

RP. Ameren is an integrated distribution company, and consequently by law we cannot promote any particular rates; we have to be indifferent. The Power Smart Pricing Initiative was established in Illinois because the feeling by the Ameren Illinois Utilities and the Illinois Commerce Commission was that there would be an opportunity to improve reliability and

Ameren’s Charlie Schaeffer, Roger Pontifex and Joe Solari tell Power & Energy why a cautious approach is best when it comes to smart grid implementation.

82

Ameren.indd 82

www.nextgenpe.com

4/2/09 15:32:16

reduce cost to consumers. Also, we would be able to improve energy efficiency by offering a real time pricing product into the market. While Ameren Illinois Utilities has offered real-time pricing for many years as a stand-alone type of tariff, there was no ability to market that.

The creation of the Power Smart Pricing tariff was in response to a state initiative that would allow the utilities to hire an independent administrator that could market and try and expand the use of a real time pricing product into the residential sector.

Joe Solari. We currently have about 3400 residential accounts on that program. They’re all interval metered, so they’re billing on hourly real time prices, and therefore they shift their behavior based on what that price is. CNC Energy will alert the customer if the price exceeds a certain threshold, at 13 cents per kilowatt-hour.

RP. According to the customer’s individual choice, they do that in various ways. The customer can elect to get an email or a text message or they can get it through an independent experiment called a ‘price light’, which receives a pager signal and changes color based on tomorrow’s forecast hourly price.

dollars is very slow, it can’t be accomplished quickly. In terms of such projects being a major disruption because of extensive replacement of the infrastructure, typically, in the utility industry, we’re pretty cautious about how much we’re implementing at any one given time.

RP. To amplify, it is just by our charter to be more focused on providing reliable service. We are regulated, so the only question is going to be, who pays for these changes? We’re going to implement things in a way in which there won’t be any major disruptions caused, as that would be outside of our charter. We have to be thoughtful and very planned in what things we’re going to do, to ensure that they’re cost effective and provide solid benefits. That’s the advantage that the Illinois Initiative is providing us with: a platform for everyone to have a chance to talk through these issues, understand the implications and determine the appropriateness of different rollouts that could come down the road.

“There are billions of dollars of funding allocated to those projects, but the machine to spend those dollars is very slow”

P&E. What results are you seeing from that in terms of your consumers? Are they actively controlling the energy usage according to those tariffs?

RP. The customers are clearly using the forecasted day ahead price, which we make available after 16:30 every day, which would indicate what those price points would be. The four-year pilot is intended, through review of customer behavior, to determine whether or not customers are modifying their behavior based on pricing, and to what degree they’re doing so.

As part of the pilot, we have just completed an RFP and are in the process of awarding it to an independent organization that will be doing the review of all of the data. This will enable us to have an independent review of the values that should come out of that program.

P&E. President Obama has called for the introduction of a federal smart grid system that will inevitably involve extensive replacement of aging infrastructure. How can this be accomplished without causing extensive disruption?

RP. Ameren has deployed a tool set under automated meter reading, which actually does more than what the meter reading would do. In essence, it isn’t just the replacement of the meter reading, it’s the setting up of the backbone infrastructure, which allows you to be able to communicate with devices. For example, you could deploy relatively inexpensively radio-frequency devices that would activate capacitor banks.

CS. To echo what I recently heard in the news regarding the regular infrastructure projects: there are billions of dollars of funding allocated to those projects, but the machine in the process to actually spend those

P&E. Do you think Obama’s plan to roll out a federal system is feasible during the current economic crisis?

CS. It takes quite a bit of time to organize the skills and materials to do anything in terms of business and industry. Obama’s plans are good; it’s just uncertain as to how fast they can be executed. If they are executed fast, a lot more money will need to be spent than if you had a more manageable implementation.

P&E. What new wireless technologies will Ameren be using in 2009? How do you predict the utility sector as a whole to be advancing wireless technology in the next two to three years?

CS. In terms of wireless technology, we’re not necessarily deploying anything new, other than trying to leverage the existing assets we’re currently using. For example, we’re hoping at some point in 2010 to go to more of a two-way infrastructure with our AMR system in Illinois. We have the infrastructure for two-way, but by 2010 we’ll be able to fully utilize it. In terms of the utilities spawning this great wireless technology advancement, I’m not so sure that that’s Ameren’s focus in terms of building a wireless grid.

We’re still operating in the earliest of planning stages of understanding what smart grid can mean to us in the future. Communication is key. It’s one of the things everybody talks about in considering the mass quantities of data you will need, as well as reliability, to ensure the successful controlling of appliances. The communications technology is needed to be robust and we’re biding our time until we’re in the position to begin rolling out, until we really have a better understanding of our strategy. Essentially, we’re looking to leverage, where we can, the existing infrastructure that’s out there, either ours or that of other third party providers, and whichever is most cost effective. n Charlie Schaeffer is Manager of Technical Applications at Ameren Services, Roger Pontifex is Energy Delivery Business Advisor and Joe Solari is Manager of Development, Energy Delivery at Ameren Illinois Utilities.

www.nextgenpe.com

Ameren.indd 83

83

4/2/09 15:32:17

CAP AND TRADE

Trading up How will the proposed changes to cap and trade affect utility companies?

Energy Insights’ Jill Feblowitz takes a look.

T

here are two types of energy trading. One is physical Cap-and-trade trading, where you’re trading the energy commodity for President Obama’s proposal to introduce a cap-and-trade aucphysical delivery, which usually occurs on some kind of tion is a very interesting concept, and one that makes a lot of sense, spot market. The other is the futures trading, or financial although it probably won’t be one of the first things the new admintrading, where you’re not trading for delivery of the energy istration tackles, because there are some costs involved. The theory itself, but rather for hedging purposes or on the future expected behind cap and trade is that you put a cost on carbon, and then either price of a certain commodity. From a spot market standpoint for allocate carbon credits to companies that have plants that have power generators, it’s important for them to carbon emissions, or you require them be able to trade to get their commodity to to buy those credits on the market.

Possible problems with the market.

Each plant gets a carbon goal

cap-and-trade systems In the past, many companies have for the year, and if you’re below your used futures trading to speculate and earn carbon goal, at the end of the year you May be more complicated money. However, since Enron, the reputation can sell your remaining credits on the of speculative trading has been tarnished, market to companies that are above Permit prices may be unstable and now that US financial institutions are that carbon goal. The idea behind the orphaning out their energy trading arms, it cap-and-trade program is that you’re has become even less popular. penalizing companies that don’t reduce May pass the quota rent A lot of trading is done for hedging their emissions and rewarding the ones to business purposes: this is where risk management that do, because they get to sell their comes in. Here’s a simple scenario: Let’s say carbon credits.

Can be seen to you have some gas-fired generation, which It’s interesting to take a look at the generate corruption you sell on the market. You also buy gas in situation in Europe, which has had a order to generate the electricity. The price rocky road with the European Union and Administration and legal of electricity is low, but the price of gas is its emissions trading scheme. When the costs can be higher very high. Would it be better for you to sell scheme first started, each of the counyour gas on the market and buy electrictries developed their own allocations for ity from some other producer because the how many certificates they would issue. price is low, in order to fulfill your contractual commitments to deliver The idea is that you only issue enough certificates that will allow you energy? Much of this is related to the high volatility of the energy to ratchet down the production of carbon. Those certificates, it turns commodity. out, were over-allocated, especially in Germany.

If the price of gas has gone down, you might decide to buy some There were many more emissions credits on the market than gas and put it in storage. Then as the price goes up, you’re protected, there should have been in order to ratchet down the pollution levels, because you have the gas available to power your generation, and and the price of the carbon credit dropped precipitously when this you don’t have to take that risk. was discovered. At its peak it was about $40 per ton of carbon emisIn some areas, regulatory authorities allow you to pass on the sions, and then it dropped down to about $7 or $8. It wasn’t a failure price of, for example, natural gas to the consumer in a fuel adjustin the market, but it definitely needed to be adjusted. ment clause if the price rises dramatically. In other jurisdictions, The companies that participate in this EU ETS are utility compawhere the rates for power are regulated, that’s not allowed. At the nies and refineries and other plants that have a high level of carbon same time, your gas costs you more, so you would buy for the long emissions – it doesn’t go beyond the very high emitters. What’s term when the price is low so that in those times when the price happened now is because there’s an economic downturn in Europe, shoots up, you’ll be protected. the emissions levels are reducing automatically because these com-

84

www.nextgenpe.com

FEBLOWITZ.indd 84

4/2/09 15:35:14

“Utility companies are under a lot of pressure from their shareholders and their customers, and even credit rating agencies, to reduce carbon emissions”

panies are cutting back on production. This has deflated the cost of carbon to about $16. So in concept it seems simple, but in execution it becomes more complex.

Utility companies are under a lot of pressure from their shareholders and their customers, and even credit rating agencies, to reduce carbon emissions, and there are a number of strategies they are following. The first is to be upfront about what they’re emitting and the progress they’re making on reducing their carbon emissions.

Many utilities have joined voluntary associations like the Business Environmental Leadership Council (BELC), Climate Leaders (EPA), the Partnership for Climate Action and Climate Savers, where they make

information on their progress against goals available to the public.

There’s also the voluntary market, such as the Chicago Climate Exchange. It’s a way to show that you are publicly committed to your reductions, and the people involved in those markets trade emissions as well. Not only do they trade the certificates, they also trade carbon offsets. A carbon offset is where you invest in a reforestation project that will help reduce carbon.

Potential cost Coming back to the situation here in US with the new Obama administration, I believe there is some nervousness about cap and

www.nextgenpe.com

FEBLOWITZ.indd 85

85

4/2/09 15:35:19

ing certificates. This would be more straightforward and simple to administer, but the downside is that whenever you mention a tax, especially in economic times like this, people go crazy.

The idea is that you would put the tax on earlier in the stage of carbon production. Instead of taxing the utility companies that are causing the emissions, you’d put it on the coal, which is the highest producer of carbon emissions. And maybe you’d put it on gasoline as well, so that would cover the gas part of emissions, which isn’t covered by cap and trade. You’d put it on natural gas as well; even though natural gas tends to be a lot cleaner, it does produce carbon emissions.

Technology tools

Jill Feblowitz is Director of Business Technology for Energy Insights. Her understanding of the needs of the industry is grounded in her experience over the last 25 years working as a consultant and in the field.

As a practice director for Energy Insights, Feblowitz manages a group of analysts that provide researchbased advisory and consulting services that will enable energy executives to maximize the business value of their technology investments.

trade. There are those who think it could add to the cost of electricity and gas, and at this point, when there’s such weakness in the economy, you don’t necessarily want to add that cost on. People will talk about cap and trade for the next six months or so, but I don’t know if anybody will move on it.

A voluntary cap and trade market called RGGI started trading in the north east on January 1. Participation is mandatory for utilities in that area. Auctions took place in the fall and early winter, and the money raised is being put back into energy efficiency programs.

Of course, it’s still too soon to say how it will work out. There are proposals to put together a similar market in California and in the Midwest as well, but those are in the very early stages.

There’s also talk of a carbon tax instead of a cap-and-trade market, in which companies would just be taxed as opposed to trad-

86

Many companies are starting to look at systems to allow them to better track and manage their carbon emissions. First, there has to be a means for measuring emissions. Some systems exist – such as continuous emissions monitoring systems – that could be adjusted to measure carbon, as well as the emissions they currently monitor.

In cases where there is no active monitoring, there also needs to be a means for accessing data to estimate emissions. For example, an estimate could be made of carbon emissions based on fuel usage of a generation plant. There needs to be a way to account for emissions and then report them to internal management, reporting associations and regulators.

If you’re trading on the market, at the end of the year you have to verify that you did what you said you would do, or what you reported that you did – that you reduced your carbon emissions by certain amounts – and then you are awarded certificates based on your reduction at the end of the accounting period, or you have to buy them.

Third parties examine the data to verify actual reductions.

Companies that are already trading on the European market are using some of their existing energy trading and risk management software to trade carbon, especially in Europe. Others have built their own carbon management and trading systems while they were waiting to see what they needed as the market matured. Many companies use environmental health and safety applications to create a database of their carbon inventory and to show their progress against their goals. While these applications are not usually used at the trading desk, they are used for accounting, verification, reporting and compliance management.

Companies are also starting to consider using models to understand what their generation portfolio should look like. These models help them simulate the future – this allows them to say, “Let’s assume that a cap-and-trade system comes in at a particular time, and the cost of carbon is this amount; given our existing portfolio of generation, what would we be exposed to? Should we get rid of some of our coal-fired generation, which has a higher cost of carbon, and acquire nuclear generation? Should we invest in more renewables, which don’t have any carbon footprint, such as wind and solar?” This allows companies to do better capital and portfolio planning. At this point, modeling is done primarily using spreadsheets and consultants; however, Energy Insights expects companies will soon use analytical software to do this. n

www.nextgenpe.com

FEBLOWITZ.indd 86

4/2/09 15:35:21

InvaluableTechnoSP2.indd 87

2/2/09 10:31:41

Allegro Ad:euro

2/2/09

10:17

Page 88

RISK MANAGEMENT RT:18oct 04/02/2009 15:36 Page 89

ROUNDTABLE

The right strategy for risk management Today’s utility companies need a solid strategy in place for risk management. Michael Hinton of Allegro, Mattias Palm of Navita Systems and Sharon Fortmeyer-Selan of SunGard Energy Solutions discuss the way forward.

Michael Hinton is Chief Marketing Officer of Allegro. He is responsible for increasing market and brand awareness across the industry while leveraging Allegro's marketing resources to increase market share and competitive effectiveness. In addition, he serves as a senior customer spokesman to our market, including the press, industry analysts and partners communities.

Mattias Palm is Executive Vice President and Head of Product Management at Navita Systems AS. Since 1996, Palm has been working with designing commodity trading and risk management solutions for trading organisations across the globe. Before joining Navita in 2002, he was a Principal Consultant at PA Consulting and Cap Gemini. He holds an MSc in Electrical Engineering from the Royal Institute of Technology in Stockholm.

Sharon Fortmeyer-Selan is Senior Vice President of Marketing for SunGard Energy Solutions. She directs the planning and execution of all marketing activities for SunGard across all energy segments globally. She joined SunGard in 2004 and quickly set an agenda for emissions by launching the industries first software solution for carbon trading under the EU-ETS in late 2004.

P&E. Growing concerns over energy supply and emissions reduction are creating new risks and opportunities for energy and emissions trading.

What can companies do to combat these risks and take advantage of the opportunities?

Mattias Palm. Companies that are proactively seeking to take advantage of the new opportunities will, at the end of the day, be the winners. It will hit bottom line short-term, and it will require investments outside the ordinary. There is a tendency to defend the status quo as much as possible, but this only gives benefits in the short term. It is only four years since the first Kyoto period started and already emission trading has become one of the most important commodity markets in the world. And more importantly, the Kyoto protocol is only the beginning of a new world order in which commodities will become increasingly volatile and the pressure for environmentally friendly alternatives will sharpen over time. Alternatives will emerge, some will stick and some will disappear. Being able to assess the alternatives and to investing in the right one could quickly become a matter of survival for any energy company.

risk management issue for market participants, especially for generators of power and consumers of fossil fuels. Participants in this new generation of energy and emissions trading will require highly developed tools to assist in their trading and risk management of emissions driven transactions.

The amount and complexity of planning that generation asset owners will need to engage in to make sure that they cover their deficit of allowances and accurately account for any credits can be extensive.

These allowance limits will fluctuate as demand goes up and down – requiring generation owners to pay careful heed to the emission cost of incremental MW’s. Additionally, as non-asset players enter the market, especially those who are trading speculatively, the market will develop rapidly and concerns about market exposure for all participants will grow. Thus, the single biggest thing companies can do to combat these risks is to ensure transparency into what creates and contributes to these risks through tools that takes into account the total portfolio and interdependencies of all of the commodities impacted.

Michael Hinton. As the conflict of demand for energy and lack of ‘clean’ generation and energy sources grows, along with ever-increasing emissions regulations, the developing market for emissions trading will become a key

Sharon Fortmeyer-Selan. Beyond investing in infrastructure and technology for sustainable energy supply and emissions reduction, companies must integrate the information across their multiple operations to help op-

www.nextgenpe.com

89

Navita Ad:euro

2/2/09

10:41

Page 90

RISK MANAGEMENT RT:18oct 04/02/2009 15:36 Page 91

timize commercial decision-making. Linking asset management, emissions management, real-time data and trading positions allows trade floors to manage the full commercial implications of the enterprise.

Taking advantage of the many financial instruments available today is part of the equation. Companies operating in regions or countries that already have caps and the associated emissions trading schemes can hedge their risk and also take advantage of opportunities to make money by trading in both the primary and secondary markets. They may go to the market or to the projects directly to buy offset credits directly for their portfolio.

They may buy options on allowances to lock in their cost of emissions compliance or they may employ spreads or swaps across a mix of offset types, vintages or regions.

Integrating CO2 and other greenhouse gases into the portfolio is one step companies can take to help combat emissions risk. Taking similar steps with renewable and alternative energy sources, like LNG, can help mitigate the challenges of energy supply security. To manage this holistically, companies need a multi-commodity trading, risk, and reporting platform that aggregates position and operational information to support commercial decision-making.

three borrowers of funds (after government and financial institutions) at a time when access to capital is severely constrained by the global financial crisis.

Today’s crisis in credit markets has taught us that we cannot sustain easy paradigms of understanding for complex assets. Not only must companies adopt rigorous risk management practices, and enforce them, but they must adopt methodologies that support the complexity of energy businesses. Risk management must embrace complexity and be less reliant on simple models that express the world in unrealistic ways.

MP. The answer is really already in the question. Because commodity markets are becoming increasingly sophisticated, it is also becoming more and more complex to ensure proper management of the risks inherent in the business. In fact, a significant factor in the current financial crisis was the lack of transparency due to extensive trading in complex instruments, with limited knowledge about how to deal with the risks.

As commodity markets become increasingly interlinked with each other and to the rest of the financial industry, the need for a proper strategy to handle cross-asset risks becomes increasingly more important. Silobased risk assessments increasingly create an unmeasured covariance between different business areas. Companies that are able to measure and act on this covariance in a risk managed way will have a significant competitive advantage towards the ones that do not take this into account.

P&E. Why is a solid risk management strategy crucial in today’s sophisticated and capital intensive commodity markets?

MH. Recent exponential growth in the energy commodity markets has changed the rules and requirements of risk management strategies and systems. With this growing volatility, commodity risk managers are now seeing many of the risk analytics, strategies and solutions already being applied in financial trading circles “The amount and rapidly migrating into the energy commodity trading P&E. Risk managers need to be able to quancomplexity of planning space. However, a risk management operation is functify positions and exposures in real-time and tionally complex, dependent on many diverse skills, act quickly on that information. What tools that generation asset and very data intensive. Compounding the problem is are available to help achieve this? owners will need to the fast pace of financial innovation which can make SFS. Market complexity, price volatility and engage in to make sure many risk management models obsolete, and as a recompliance challenge energy companies to that they cover their sult, enterprises upgrading to next generation risk better understand and mitigate risk. In this deficit of allowances and management systems often lag behind the market market environment, timely and easy access trends. Additionally, many risk management systems to information is more important than ever to accurately account for fail to offer a holistic representation of different risks. enhance the ability of operational managers any credits can be Yet the need to greatly enhance the overall risk and traders to manage day-to-day business extensive” Michael Hinton management functions of an enterprise, with regards performance and to sharpen decision-makto both the financial and physical aspects of their coming. ZaiNet Real Time includes a real-time enmodities, is quickly becoming an overarching corporate mandate rather gine, limits monitoring, real-time dashboards, and a message center to help than an optional luxury. This is driving corporate focus on robust, solid risk energy market participants make better decisions in real time. ZaiNet realmanagement solutions. time dashboards provide decision makers with powerful visualizations for an accurate, complete picture of the business while letting them instantly SFS. Now more than ever companies are constrained by capital, by the cash drill down to details. Limits are available in real-time cubes for quick analyflow of their operations, financial state of long standing business partners, sis of existing exposures. By gaining immediate and streaming updates to as well as the liquidity of their franchises. With aging infrastructures, the forecasts, real-time market data and projected performance metrics, need to address new demands for energy from rapidly rising economies, traders can effectively manage their energy positions and maximize reward and the pressure for sustainability, energy companies are among the top to risk ratios.

www.nextgenpe.com

91

RISK MANAGEMENT RT:18oct 04/02/2009 15:36 Page 92

P&E. What do you see as the future direction of risk management in energy trading?

MP. The future direction will be significantly more focused on cross-commodity analysis than has previously been the case.

More and more energy related commodities are widely traded, and the price of energy is becoming increasingly correlated with non-energy commodities (e.g. metals, agricultural, freight, etc.) This means for many companies, only managing for example the price risk of electricity or natural gas, will not allow for efficient decision making; also the related market exposure in, for example coal, oil, freight, emissions, metals, etc. has to be taken into account. Companies that rely on silo-based decision making will be at a distinct competitive disadvantage to the companies that can actively pursue a multi-commodity portfolio strategy. And with the increasing need for managing a multi-commodity portfolio also come treasury related risks and how that correlates with the commodity portfolio.

“Today’s crisis in credit markets has taught us that we cannot sustain easy paradigms of understanding for complex assets. Not only must companies adopt rigorous risk management practices, and enforce them, but they must adopt methodologies that support the complexity of energy businesses” Sharon Fortmeyer-Selan MP. In general, there are plenty of tools in the market to acquire market information in real-time. However, the challenge is to utilise the market information to quantify positions in real-time, particularly when the complexity of traded instruments is increasing. Unfortunately, there is always a trade-off between speed and accuracy. However, this can be solved by combining analytical models for real-time processing with a reasonable level of accuracy with simulation based models for accurate batch mode processing. Ultimately, the risk tool should utilize the output from the simulation model as the baseline for real-time processing, and let the real-time models only provide the changes since the last simulation.

In addition, the development of computer speed has also enabled close to real-time simulations, allowing for a fairly accurate reassessment of the risk in the portfolio as the market moves intra-day. Being able to quickly make risk-managed decisions on how to act will enable a company to make the right decisions early, rather than just following the herd.

MH. The optimal scenario would be a holistic approach across strategic, operational, regulatory and financial risk functions. To that end, more enterprises are endeavoring to deploy cross-functional integration of risk solutions across the business lifecycle. Thus, deployment of advanced energy trading and risk management systems will require those solutions to be fully interactive with the balance of an enterprise’s risk management functions.

Additionally, companies will continue to broaden their use of analytics to provide for increasingly granular decision support. Advanced analytics will continue to be developed and enhanced to address transaction and asset valuation, risk measures and optimization.

Finally, the ability for an energy trading and risk management system to communicate with any financial exchange, market data provider, logistical entity, or other relevant external resource will become mandatory, rather than optional.

MH. Comprehensive commodity trading and risk management solutions exist today that interact with financial and logistical data from a variety of external, real-time sources. These solutions apply a complete set of analytical, simulation and optimization tools to ensure optimal trading scenarios, accurate position keeping, option and asset valuation and logistical plans for decision making.

An enterprise employing such a solution can use the risk reporting capabilities to quickly view and report on price, market and counterparty risk. The ability to generate various exposure type reports, including market, price, Greeks, and Value at Risk (VaR), is critical, along with the ability to report across a portfolio valuation for Mark to Market, Profit and Loss and P&L Attribution. Such functionality gives an enterprise the ability to benchmark against multiple curves. Additionally, top tier solutions can “Being able to quickly also provide simulation tools that allow for make risk-managed stressing of various market data parameters to decisions on how to act quickly determine overall portfolio sensitivity. will enable a company Coupled with the ability to see what is tranto make the right spiring today, systems such as these are now decisions early, rather enabling forward thinking and visualization than just following the tools that assist the user in making decisions herd” Mattias Palm based upon multiple scenarios.

92

www.nextgenpe.com

SFS. Several things will play a significant role in future risk management within energy or commodity trading. One will be a greater emphasis on dealing with complexity as decision makers look beyond simple expressions of risk to gain deeper understanding. Having witnessed a financial market meltdown and its ripple effects on global economies, management at all levels will place more demands on both the discipline and the tools surrounding risk. Expect to see more use of stress testing, back testing and scenario analysis to try to uncover hidden risks in the portfolio that now are assumed by upper level management.

Linking diverse operational areas to support commercial decision-making on the trading floor will drive further requirements for real-time or intraday risk analytics. Expect increased emphasis on tools to manage cash-flow and earnings risk as well as environmental risks. This later will drive considerations of weather and emissions risk for trading as well as carbon risks impacting project funding and company valuations. n

Altair.indd 093

2/2/09 10:18:37

nvironment strategies and policy decisions are crucial, considering both the current economic crisis and the recent election of an administration that is very keen on carbon reduction. As VP of Environment, Health and Safety at Exelon, Helen Howes is responsible for implementing the company’s most efficient environment and safety programs, and ensuring they comply. “I have oversight responsibility, which is tracking progress, looking at our compliance track record, looking for opportunities for us to improve our compliance and looking for opportunities to save some money, as we’re meeting our environmental objectives,” she explains.

Exelon, Fortune’s number one utility company, pre-empted America’s recent move towards carbon reduced policies, and began its own program to reduce emissions back in 2005. “We established a goal in 2005 and that was to reduce our Emission Three by eight percent by the end of 2008. We’re doing very well and are currently working with the Environmental Protection Agency on final validation of our numbers.”

The Department of Energy’s 1605(b) program, created in 1992, was established to keep track of programs to reduce emissions. Along with complying to this regulation, Exelon has also aggressively committed to the EPA’s Climate Leaders Program: “Climate Leaders is a

E

little different as it’s an inventory plan to reduce your greenhouse gas emissions through a variety of programs,” explains Howes. “The program was more focused on reductions and how utility companies were to achieve the goals they established. We have done that through a range of low carbon offset opportunities, such as through our own internal energy efficiency program within Exelon 2020.

“We’ve also procured renewables for our own use, along with offering some renewable programs to our customers in Pennsylvania.

We have customer energy efficiency programs that we did on a voluntary basis that we will be counting in our Climate Leaders Program. We are blessed because we have other technologies that the corporation is using to bring about greenhouse gas reductions via our very large nuclear generation fleet, which gives us one of the lowest carbon footprints among the major generators in the US.”

“The value of nuclear as a climate change strategy is being more and more acknowledged”

The nuclear option Exelon’s has one of the largest nuclear fleets across the whole of the US, but with continuing concerns around the safety of disposal, how have Howes’ policies assured the consumer public that nuclear expansion remains safe? “There are some who realize the value of nuclear as a low carbon option and recognize that nuclear generation produces about 20 percent of the electricity

Championing renewables Exelon’s Helen Howes takes P&E through the aggressive measures the company is taking to cut its carbon footprint and generate more power through alternative energy sources.

94

www.nextgenpe.com

HOWES ED P94,95,97,98.indd 94

4/2/09 15:38:07

in the US. That it is one of the options that must be on the table for any low carbon strategy. In terms of critiques, there are probably some non-government organizations who might put themselves in the antinuclear category, but who acknowledge that with a limitation of fossil fuels, there has to be a role for nuclear.

“What we’re now seeing is an evolution of thinking regarding the value of nuclear as a contributor to the solution. There are still a number of those who are anti-nuclear, I think that’s inevitable, but the value of nuclear as a climate change strategy is being more and more acknowledged. It’s certainly not done so as the only option, but it’s raised its status to be one of a number of options on the table,” says Howes.

Howes believes that the acceptance of nuclear as a viable and safe form of renewable energy is a challenge that has already been dealt with; a growing demand to increase the supply of nuclear is proof in itself that the consumer public no longer have the same attitude to it they once did. Instead, the challenges that Exelon, along with every other nuclear operator, now faces are in making those critical choices as to how to safely deploy nuclear as an energy source.

“The focus right now clearly is on safe operations of our existing plants; we’re in the middle of seeking life extension for them, as most of our plants have 40-year licenses. At the end of the 40 years, we have the ability to submit documentation to the Nuclear Regulatory Commission to extend the license another 20 years. At this stage, we have looked at around half of the fleet and extended the licenses for another 20 years.

Helen Howes joined Exelon Corporation as Vice President, Environment, Health and Safety (EH&S) in July 2003. In this role, Howes leads Exelon’s EH&S group, monitors the performance of corporate compliance with EH&S policies and programs and helps to develop recommendations for improving environmental risk management. She has 23 years experience in environmental management, environmental strategy/policy development, environmental planning and sustainable development work at the corporate level for Ontario Power Generation/Ontario Hydro, plus three and a half years of environmental management in a private consulting firm.

“For example, life extension of plants that might have retired last year have another 20 years of life; that’s the second focus of our nuclear plan. The third focus is to look at the potential of a new nuclear plant.

We have been looking at a location in Texas and are in very early days of what looks to be about a 10 to 15 year process. During this timeframe we would look at a site, get agreement on what nuclear technology we will use, and then go through a combined operating and construction licensing approval process until actualization of the plan is reached when the shovel hits the ground. That’s a relatively long period of time and we’re currently at the early days of that process.”

Alternative sources As a company whose projects do not involve the actual building or operating of renewable energy, Exelon tend to be towards the back end of the energy process. “We buy electricity from renewable projects: we have under contract some wind projects, as well as some solar projects. Epuron 1 is one example of this: we buy the electrical output and the renewable energy credit associated with those projects. There are two facilities in Pennsylvania; one is a three-megawatt wind farm that’s just north of Philadelphia, the other being only a onemegawatt facility in Philadelphia proper.

www.nextgenpe.com

HOWES ED P94,95,97,98.indd 95

95

4/2/09 15:38:15

ItronSP.indd 96

2/2/09 10:33:02

“We continue to look for other opportunities, such as working with other solar providers where we’ve provided the funding for the installation, for example, of solar panels at schools in the Chicago area. We’ve also been involved in funding projects to demonstrate the potential for solar power. One example of this is in Millennium Park here in Chicago, where we installed solar panels in a parking pavilion, which was LEED certified,” she says.

The Leadership in Energy and Design (LEED) certification program, a product of the United States Green Building Council (USGBC), is yet to be made compulsory. Despite international communities such as Abu Dhabi and Dubai becoming more and more stringent in accepting the LEED certification with each of their new developments, it remains to be seen if this will be implemented by Obama’s new Administration.

“We’ve not seen all of the elements of the stimulus package.

We’ve only seen some of the bare bones of what the House is looking at, and as it stands I don’t see anything there that is making LEED certification compulsory. But, these are early days, and there is much yet to hope for what is to emerge.

“The proposal is to extend production tax credits. Right now, it’s year-over-year, which is not effective in driving renewables.

Multi-year makes sense. There seems to be a fair amount of dollars being set aside for energy efficiency and conservation, and the best delivering mechanism for this could be our distribution utilities like ComEd and PECO,” says Howes.

The formation of a concrete extension of the production tax credit scheme is certainly something that is desired by all within the renewables industry. It seems typical of Obama’s energy efficiency plan, but as with the plan for the permanence of the LEED certification program, at this point we can only speculate as to what will happen.

Encouraging compliance “It’s hard to know whether there will be a federal renewable portfolio of standards, but it certainly is possible. Many of the states that we operate in already have renewable portfolio standards and that does drive investment in renewable energy. It’s one of the major reasons why we entered into this partnership with Epuron, because a number of the renewable portfolio standard’s requirements have a solar set-aside. Compliance does encourage investment in renewables, certainly renewable portfolio standards have provided incentives for companies to invest in solar,” says Howes.

Compliance between companies to integrate via a uniform set of standards and bring about a federal transmission infrastructure is one energy efficiency plan that is already underway. However, for Howes, the current system still leaves much to be desired and she views the transmission grid as still very much in its infancy. “The US is a very large country and there are places that have good renewable resources, but there isn’t the transmission infrastructure to bring the electricity from that location to where the consumers are.

“We are looking at working with others to expand the transmission system, to bring some of the wind generation from remote areas into populated areas. The same is true for solar. There are many details to work out, not the least of which is how to plan for the transmission grid’s

Exelon 2020 s a participant in the US EPA’s Climate Leaders Program, Exelon is already on track to reduce its greenhouse gas emissions more than eight percent below 2001 levels. The company’s goal is to reduce, offset or displace more than 15 million metric tons of greenhouse gas emissions per year by 2020. This is more than its current annual carbon footprint and is equivalent to taking nearly three million cars off the roads and highways.

Of course, Exelon will still emit greenhouse gases in 2020, although less than today. When compared to 2001 levels, best estimates indicate that the plan will reduce Exelon’s direct emissions in 2020 by 10 percent to 15 “The company’s percent (from 2001 levels). This will goal is to reduce, very much be determined by future offset or displace economic factors and demand growth more than 15 for electricity and natural gas. million metric tons If it achieves its goal, the emissions of greenhouse that Exelon will displace or offset gas emissions per as a result of this plan will, lead to year by 2020” a reduction in the total amount of greenhouse gases reaching the atmosphere by 15 million metric tons per year or more.

Exelon plans to achieve this through energy-efficiency programs that can provide the least expensive near-term reductions. Many of these programs produce net benefits for Exelon’s customers because the energy savings they

A

Continued on page 98

www.nextgenpe.com

HOWES ED P94,95,97,98.indd 97

97

4/2/09 15:38:18

generate more than outweigh the cost of the efficiency improvements. After efficiency, their next most costeffective options are to boost output from existing nuclear facilities, which emit virtually no greenhouse gases, and build new highly efficient, natural-gas fired power plants that will reduce utilization of older, higher emitting plants. By comparison, new nuclear plants and renewable energy are more costly, although both are needed in the long run.

1. Reduce or offset its carbon footprint by greening its operations.

2. Help its customers and the communities it serves to reduce its greenhouse gas emissions.

3. Offer more low-carbon electricity in the marketplace.

The company has developed a three-pronged strategy for achieving its climate goal: In part, the plan states: “Getting there will require significant investment. Our best estimate is that the cost to implement the greenhouse gas abatement initiatives described in this plan would be in excess of $10 billion.

“Construction of a new nuclear plant would only increase that estimate. Actual capital commitments will depend on economic and policy developments and will be made on a project-by-project basis as the plan is implemented.

“Of course, a sound strategy is also one that is flexible and responsive to changing conditions over time. We fully expect that our plan will evolve as better technologies become commercially available and as new opportunities or constraints arise. To assure that we are meeting our goals and to collect the information needed to continually refine and adapt our strategy, we will monitor our efforts on an ongoing basis and measure and report results at regular intervals.”

ExElon CoRPoRATIon is one of the nation’s largest electric utilities, with nearly $19 billion in annual revenues. It distributes electricity to 5.4 million customers in Illinois and Pennsylvania, and gas to 480,000 customers in the Philadelphia area.

In addition to energy delivery Exelon’s operations include energy generation and power marketing.

Exelon has one of the industry’s largest portfolios of electricity generation capacity, with a nationwide reach and strong positions in the Midwest and Mid-Atlantic. It operates the largest nuclear fleet in the United States and the third largest commercial nuclear fleet in the world.

Headquartered in Chicago, Exelon trades on the NYSE under the ticker symbol EXC.

expansion, given that it covers many jurisdictions and states. Some states have market drivers and other states don’t, and of course there is the issue of financing for it and the question of who will build it. We truly believe transmission planning is an important element. I haven’t seen a lot of details in the stimulus package related to transmission, but it will be a critical success factor for the integration of more renewables and certainly for greater service reliability across the US. “We will continue to invest in renewables to meet compliance requirements; we plan to have more retail product offerings for our customers, like PECO Wind, which is a retail product that we offer customers in Philadelphia. We will also continue to consume renewables for our own operations. For example, in the headquarters where I am, the building itself is to LEED certified platinum standard, there being at least 10 renovated floors, and 100 percent of the electricity that we consume here is from renewable energy.

“There will be a number of pushes and pulls, but I think the big unknown that could change things pretty dramatically is federal legislation on climate. We’re certainly advocates of federal legislation on climate change, we favor cap and trade programs, and I suspect federal legislation on climate change would do a lot to promote more renewables, more energy efficiency and more low carbon generation opportunities. Depending on how the carbon offset program is designed, it too could promote both energy efficiency and renewable energy,” concludes Howes.

Exelon is a company that has certainly been waiting in the sidelines for the American consumer attitude to become more receptive to renewables, and with the election of Obama and his New Energy for America Plan, now is the time to take charge. There is much speculation on how his policies will unfold, but there is confidence across the industry that energy efficiency is here to stay. 

Nuclear generation produces about

20 percent

of the electricity in the US

98

www.nextgenpe.com

HOWES ED P94,95,97,98.indd 98

4/2/09 15:38:21

CONERGY:18oct 04/02/2009 15:26 Page 99

INDUSTRY INSIGHT

Exelon-Conergy solar energy center A case study for fiscally-sound clean energy power plants

T

here are myriad reasons companies like Exelon, one of the nation’s largest electric utilities, are partnering with the solar energy experts at Conergy. Among them, experience. One in 10 of the solar energy systems designed, engineered or installed in the world have the power of Conergy behind them.

Another reason is economics. With newly extended tax credits, state-funded cash re(1) bates , mounting state mandates for renewable portfolio standards (RPS) and a groundswell of consumer support for sustainable energy, zx3 out-of-pocket expenditures and the deployment of sustainable energy solutions becomes an essential recipe for sustainable profitability.

A compelling case study on this concept is manifested in the Exelon-Conergy Solar Energy Center, the largest photovoltaic generation power plant east of the Mississippi. Featuring a three megawatt power capacity, the ExelonConergy Solar Energy Center is the first utilityscale solar energy power plant in Pennsylvania.

The project features more than 17,000 crystalline modules on 16.5 acres of land at Waste Management’s G.R.O.W.S landfill, just outside Philadelphia. This beautifully-built array produces electricity that has the potential to serve more than 500 homes each year with clean electricity. The yearly production of 3,700,000 kWh of clean, solar-generated electricity will reduce CO2 emissions by four million pounds, NOx emissions by over 9000 pounds, and SOx emissions by 28,000 pounds each year. This is as effective as eliminating the pollutants that come from driving more than 100 million miles on Pennsylvania’s roads.

“We are changing the way electricity is produced and consumed in Pennsylvania by developing renewable and alternative energy sources and implementing advanced energy efficiency and conservation technologies,” Pennsylvania Governor, Edward G. Rendell, recently said. Last year, Governor Rendell signed legislation that supports investment of up to $665.9 million to spur alternative and renewable energy development to help consumers and small businesses

Epuron), a wholly-owned subsidiary of Conergy AG that develops, funds and operates large-scale renewable energy systems.

Conergy’s solar energy solutions will benefit utilities such as Exelon by:

Sarah Hetznecker is National Sales Director for Conergy’s Projects Group. With 20 years’ experience in renewable energy and the environment, Hetznecker has managed over 250 solar projects, including the 3MW ExelonConergy SEC, California’s 1MW San Joaquin Water District system and a 2MW solution fueling the Army’s Fort Carson power arsenal.

reduce electricity consumption and save money.

That includes $180 million for solar projects.

“Solar energy offers investors, businesses and consumers safe, reliable financial return on their money, as well as a viable hedge against rising energy costs,” added Kim McLawhorn, CEO Conergy Americas. “The Exelon-Conergy Solar Energy Center illustrates Conergy’s core competency of delivering projects on time and on budget. We look forward to helping customers reap the expanded rewards of solar energy in the new administration’s clean energy economy.”

The Exelon-Conergy Solar Energy Center was designed, engineered and installed by Conergy’s Projects Group (formerly SunTechnics). It has a market valuation of $20 million. Exelon Generation, LLC is purchasing the power and renewable energy credits through a long-term power purchase agreement (PPA). Project funding was provided by Conergy Finance, (formerly

• Adding clean, reliable energy to generation portfolios.

• Providing peak generation when it counts the most.

• Providing credits to meet utilities’ RPS mandates.

• Taking advantage of a free, low-risk fuel source that arrives without transportation, storage, handling or processing.

• Easing grid stress, thereby increasing grid reliability.

• Offering limited transmission and distribution costs.

• Enhancing energy security through fuel diversification.

• Providing valuable credits utilities can use against anti-carbon generation regulations.

• Delivering voluntary environmental value to consumers and regulators.

• Stabilizing long-term electricity costs.

“This agreement is another important step in our effort to bring renewable, low-carbon energy to the marketplace,” said Ken Cornew, President, Exelon Power Team.

Initiating partnerships with the proven solar industry experts at Conergy is an investment poised to bring economic, regulatory, social and environmental returns – even in today’s skittish markets. Global strength and local expertise make Conergy the superior partner in the PV distribution and installation business.

To learn how Conergy’s turn-key, customized solar solutions can benefit your utility, business or public agency, phone Gary Sheehan or Sarah Hetznecker at the Conergy Projects Team, 1.888.396.6611. n

(1) Availability of cash rebates varies by state. Please check with your respective jurisdiction for details.

www.nextgenpe.com

99

Protsch ED:18oct

4/2/09

15:37

Page 100

FEATURE

Eliot Protsch, COO of Alliant Energy, tells Power & Energy why coal still plays a part in the company’s combined energy strategy.

100

www.nextgenpe.com

Protsch ED:18oct

4/2/09

15:37

Page 101

W

hen it comes to renewable energy, Alliant has adopted a strategy with a difference, believing that the importance of building a balanced generation portfolio does not necessarily include the absence of non-renewables. Instead, Alliant seeks to take a different approach from other utility companies and offer its consumers an increased amount of delivery efficiency through a combined approach.

“We have a fair amount of coal but also a lot of renewable wind energy; most of our renewable energy is primarily wind-produced,” says Eliot Protsch, Alliant’s COO. “We have a bit of hydro and some very small biomass, but as we look to the future, our endeavors will be focused on clean coal, wind and natural gas in a balanced manner. Assuming that the nuclear plants that we purchase energy from are relicensed, and we can reach agreement on favorable terms when those existing contracts expire, we will also continue to purchase that nuclear energy.”

Alliant once owned its own nuclear power plants, but has shifted its operations to purchase power agreements instead, allowing nuclear to remain an important energy source. The contracts that allow for the purchasing of energy expire in 2013 and 2014, with re-licensing being sought for 20 years. Alliant will be negotiating with the owners of the plant to purchase a power contract for that length in time.

The increased use of renewables, particularly nuclear, has been highly endorsed by President Obama, and is a form of energy provision that is increasingly finding favor with the American public. Alliant supports Obama and his energy strategy: “We’re pretty excited about the Obama energy plan, and others that have preceded it, and how it will evolve because of its tilt toward our renewable energy,” Protsch says.

Coal is king Alliant is unusual in that, in addition to its commitment to renewables, it also plans to continue using non-renewable energy, including so-called clean coal. While the company plans to spend $1 billion on wind energy in 2010, it has also received approval from the Iowa Utilities Board to build a coal-fired plant. Clean coal has been endorsed by the new Obama administration, yet environmental groups say it doesn’t exist. So why exactly has Alliant taken this approach?

Protsch says that Alliant always keeps the customer in mind, using various sources of energy to provide greater energy efficiency. “There’s a process that we and our regulators use to evaluate the best way to meet our customers’ energy needs. Can the need be met by conservation efficiency? Should it be met with wind? Should it be met by building natural gas-fired peaking plants, natural gas-fired intermediate load or base load, combined cycle type facilities? Should we build a new nuclear plant, or should we build a lot of wind in combination with gas or coal?

“The load curve that utilities have to respond to when customers flip a switch at a factory or the home varies considerably during the day. A certain amount of base load capacity is required: units that run all the time, except if they’re down for maintenance, which is typically the nuclear and coal plants. There are some forms of natural gas plants that can fill that need, but natural gas is a much more volatile fuel and historically has been a more expensive fuel than coal.

www.nextgenpe.com

101

Protsch ED:18oct

4/2/09

15:37

Page 102

Alliant’s 2007-2015 generation plan includes: • • • • •

300 MW of clean-coal technology in Wisconsin by 2012 350 MW of clean-coal technology in Iowa by 2013 300 MW of wind generation in Wisconsin by 2010 200 MW of wind generation in Iowa by 2010; and Nearly 60 MW capacity of biomass generation by 2013 in Wisconsin and Iowa

“When we evaluated coal versus these other alternatives, coal still provides benefits with the kind of carbon prices that we anticipate will come in the future. This combines with what we anticipate will be happening with natural gas prices over the long term.

“We committed to burn a certain amount of biomass in that plant to offset carbon. We also committed to convert some of our other coal-fired units to burn natural gas as part of the proposal to build that unit, along with building a very significant amount of additional wind generation. When you add it all up, on the day that unit comes online, our carbon emissions across our entire system will be no more than they are today. That provides justification of the building of the coal plant and the explanation why; we’re addressing the carbon issue with a balanced approach in mind. We’re choosing an option that we believe over the life of the investment will be the least cost to our customers,” he explains.

best wind regions in the continental United States,” Protsch says. “For this reason, renewable energy is tightly linked with our company’s mission and the capability to support the national and global objectives of tilting more toward renewable energy, at least as it relates to wind and biomass.”

The placement of Alliant’s operations is crucial to ensuring its success as a constant energy provider, and it is its strategy of inter-state coverage that lends the company the potential for great success. “We don’t get sunny days for 365 days a year, like Arizona, but when it comes to wind and biomass, capacity factors on wind machines are quite high in the upper Midwest. When you look at where all the wind is located in the United States for example, the state of Iowa is poised at number two in terms of wind energy capacity generated and that’s where we’re at in terms of operation.”

Alliant has based its strategy on transmission rather than ownership.

As a result, Says Protsch “We sold our electric transmission business at Iowa in 2007 and have premised on the view that the evolving federal energy policy to stimulate greater investment in transmission would be a plus for our service territory. It would enable the heightened interstate commerce of moving those wind resources from where it can best be produced to where the big load centers are and where our consumers live, ultimately benefiting the consumers. If you study the energy policy in the United States, that’s one of the quandaries we have in that most of the renewable energy is located some distance from where the electricity is needed. Our operations are aimed at facilitating that transmission,” explains Protsch.

President Obama’s target of ensuring that 10 percent of our electricity comes from renewable sources by 2012 is something that Alliant is aiming to meet, but with a realistic outlook that within areas of limited biomass transmission, such a figure may not be achievable. “In certain regions of the country, 10 percent is certainly a figure that can be reached; if you’re in a region of the country that’s not blessed with wind or solar, or hasn’t harvested biomass, it might be that the lead time is not sufficient.

“If we were to have a structure of our energy markets in the United States that allows some parts of the country to generate more and sell credits to those who have a little more difficulty meeting that, we can perhaps equalize the percentage across the country and achieve our national objective. For this to work, though, there are issues of transfer of wealth and cross-subsidization that have to be worked out as we formulate that policy,” he says.

“The utilities industry currently sells its service with a meat cleaver approach to rates” Smart meters

Wind power That’s not to say that the company isn’t putting a heavy focus on renewables. “We are very well situated to be on the super highway of commerce, as it relates to wind energy and energy produced with biomass, because the footprint of our service territory is in the middle of some of the

102

www.nextgenpe.com

An adoption of an inter-state grid system is the catalyst in which energy transfer can be facilitated, ensuring a much more efficient system with which to provide renewables. “We’ll be investing approximately $200 million dollars over the next few years to install meters at the customer’s locale; different kinds of meters that will enable us to do a lot of things to help

Protsch ED:18oct

4/2/09

15:37

Page 103

our customers manage their usage, as well as better optimize the utilization of our investments on their behalf. We call it load management, whereby voltage information is measured in real-time outage reporting.

“Over time, as more end-user products hit the marketplace with chips embedded into them, allowing them to communicate with the meter, along with other technologies that we will deploy, it will evolve toward load management within the home or the business, and the extension of this will become a lot more prevalent.

“An example of this would be if the residential consumer were to start up an electric oven, having just thrown a load of clothes into the electric dryer. The computer would then recognize the consumer is about to use a much higher amount of energy than if they had waited until after the oven usage was done, and so one of the machines would be pre-programmed to shut off and conserve energy.

“Little things like that across millions of households, is a pretty powerful tool. The point I’m illustrating from this is that the grid itself is sufficient to accommodate that. What really needs to be bolted on is the smart technology to recognize what’s going on with the customer and get that information back to the power grid managers,” says Protsch.

The emphasis on the importance of technology is vital for every utility company, to ensure that they have sufficient tools to support the infrastructure, and are able to manage this new form of energy usage; the choice of vendor is a decision that holds much consequence.

“The utility industry currently sells its service with a meat cleaver approach to rates: The same price from 8:00 a.m to 8.00 p.m, with a little bit of a discount for using the service from 8:00 p.m. in the evening to 8:00 a.m in the morning. What we will be doing in the future is pricing our product at different rates during different times, and alerting our consumers when there is a period of increased price. For example, here in the Midwest it can get hot and humid. Some August days it’s 100 degrees Fahrenheit and around 80 percent humidity, resulting in a heightened use of devices such as air conditioners. We will be providing customers with a warning signal in their homes, telling them how much it is costing them on an hourly basis, and allowing them to make an educated decision as to how much energy they should consume on a cost basis,” says Protsch.

In terms of rolling out smart grid technology during this particular time of economic recession, many critics have argued Obama’s strategy of a national infrastructure to be unachievable. Protsch disagrees with the lack of enthusiasm for the program, and believes the economic recession will only slow down the pace of structural redevelopment, as opposed to obstructing it. “It will have this effect unfortunately, because the development of these technologies is capital intensive. The recession is not going to slow us down as a company but has done so for the industry, and this has certainly affected us in terms of the contracts we’ve signed and the pace that we’re on. When a utility invests capital, it’s got to be paid for somehow, and this usually involves a rate increase to fund the capital.

Hybrid technology “Many of our investments displace other Eliot Protsch is Senior Executive “We’re one of four utilities in the nation forms of cost whereby you can substitute capiVice President and Chief using hybrid technology, whereby a satellite sigtal for fuel cost, and that’s true for the smart grid Operating Officer at Alliant nal is sent to one of our existing radio towers that to some degree. However, I suspect that with the Energy. Prior to being named we use for other communication purposes. This utility industry being the second most capital-inCOO in 2009, Eliot took on the eliminates the need associated with lots of other tensive industry on the planet after railroads in role of Chief Financial Officer technologies to bolt gizmos on top of poles that terms of dollar of capital per revenue, when the from 2003-2008, moving to Alliant have the potential to fall over during storms to company invests in a market that is strained, it Energy from its subsidiary, communicate with meters. We’ve deployed a is important to have the ability to raise capital at Interstate Power & Light Co., wireless communication medium whereby the attractive prices. where he operated as President. meters themselves are embedded with chips “Regulatory commissions must be supportthat will enable such functionalities, and more ive of the rate increases to deploy the capital at importantly, easily upgrade to any evolving functhese prices, and this may be a challenging equationalities, which the older meters wouldn’t be able to do. tion as we work through the recession. However, if you view this as a tem“The rest of the technology will be used once we better understand porary blip that we will get through, it should only be a minor slowdown what’s going on at the load center. We have the technology, in large part, when faced with the power of smart grid; if we have carbon externalities to ratchet our generators up or down, or via switch lines to change out recognized in electricity pricing, this will lead to a higher tilt toward energy transformers. The grid is something we are quite accustomed to dealing efficiency and renewable energy. So everything must be viewed in light of with, so that’s more just utilizing what we have. Over time, we’ll have to ineach other,” says Protsch. vest in enhanced billing systems that can offer better price signals. That will Alliant’s approach is certainly more wide ranging than that of many be one of the biggest drivers for big-time change in our industry, in a globother utility companies. It has not made a brazen attempt to jump on the al sense, one of the issues of this being that consumers don’t currently unbandwagon of renewable energy; instead it seeks to combine the old with derstand that energy prices vary considerably during the day, depending the new and bring about a new hybrid of energy delivery to US consumers. on the hour of the day and maybe where you’re located.

Only time will tell if this is a smart move or not.

www.nextgenpe.com

103

SOLAR ED:18oct

4/2/09

15:39

Page 104

ENVIRONMENT

THE ECONOMICS OF SOLAR POWER Don’t be fooled by technological uncertainty and the continued importance of regulation – solar power will become more economically attractive.

By Peter Lorenz, Dickon Pinner and Thomas Seitz

A

new era for solar power is approaching. Long derided as uneconomic, it is gaining ground as technologies improve and the cost of traditional energy sources rises. Within three to seven years, unsubsidized solar power could cost no more to end customers in many markets than electricity generated by fossil fuels or by renewable alternatives to solar. By 2020, global installed solar capacity could be 20 to 40 times its level today.

But make no mistake, the sector is still in its infancy. Even if all of the forecast growth occurs, solar energy will represent only about three to six percent of installed electricity generation capacity, or 1.5 to three percent of output in 2020. While solar power can certainly help to satisfy the desire for more electricity and lower carbon emissions, it is just one piece of the puzzle.

What’s more, solar power faces challenges that are common in emerging sectors. Several technologies are competing to win the lowest-cost laurels, and it’s not yet clear which is going to win. Rapid growth has created shortages and high margins for early players, such as the silicon refiners Dow Corning, REC Solar, and Wacker, as well as the component manufacturers First Solar, Q-Cells, and SunPower. Fueled by ever-increasing flows of new equity from venture capital and private-equity firms – $3.2 billion in 2007 – innovative new competitors are entering the sector, and with them the potential for excess supply, falling prices, and deteriorating financial performance for some time.

With competition heating up, the companies building the equipment that generates solar power must relentlessly cut their costs by improving

104

www.nextgenpe.com

the processes they use to manufacture solar cells, investing in research and development, and moving production to low-cost countries. At the same time, they must secure access to raw materials without tying themselves to the wrong technology or partner.

The evolution of technology looms large for utilities as well. If they hesitate to undertake large long-term investments until the dust clears, they risk losing customers to players such as panel installers willing to put up and finance solar units on the roofs of buildings in return for a share of the savings the owners enjoy. As always in the utility sector, it will be essential to deploy smart regulatory strategies, which in some regions might mean including solar investments in the capital base used to set rates for consumers. Government policies will also continue to influence the sector’s development heavily. Deciding when and how to phase out subsidies will be critical for creating a vibrant, cost-competitive sector.

Even in the most favorable regions, solar power is still a few years away from true ‘grid parity’ – the point when the price of solar electricity is on par with that of conventional sources of electricity on the power grid.

The time frame is considerably longer in countries such as China and India, whose electricity needs will require large amounts of new generating capacity in the years ahead and whose cheap power from coal makes grid parity a more elusive goal.

SOLAR ED:18oct

4/2/09

15:39

Page 105

The birth of a sector The solar sector includes a diverse set of players, including the manufacturers of the silicon wafers, panels, and components used to generate much of today’s solar power, as well as the installers who put small-scale units on individual roofs, utilities and other operators setting up enormous solar collection systems in deserts, and start-up companies striving for breakthroughs such as lower-cost thin-film technologies. All are operating in a dynamic environment in which long-held assumptions – subsidies, the primacy of incumbents, and the predominance of silicon-wafer-based technology – are being eroded.

Beyond subsidies Government subsidies have played a prominent role in the growth of solar power. Producers of renewable energy in the United States receive tax credits, for example, and Germany requires electricity distributors to pay above-market rates for electricity generated from renewable sources.

Without such policies, the high cost of generating solar power would prevent it from competing with electricity from traditional fossil-fuel sources in most regions.

But the sector’s economics are changing. Over the last two decades, the cost of manufacturing and installing a photovoltaic solar-power system has decreased by about 20 percent with every doubling of installed capacity. The cost of generating electricity from conventional sources, by contrast,

has been rising along with the price of natural gas, which heavily influences electricity prices in regions that have large numbers of gas-fired power plants. These regions include California, the Northeast, and Texas (in the United States), as well as Italy, Japan and Spain.

As a result, solar power has been creeping toward cost competitiveness in some areas. California, for example, combines abundant sunshine with retail electricity prices that, partly as a result of the state’s policies, are among the highest in the United States – up to 36 cents per kilowatt-hour for residential users.1 Unsubsidized solar power costs 36 cents per kilowatthour. Support from the California Solar Initiative2 cuts the price customers pay to 27 cents. Rising natural-gas prices, state regulations aiming to limit greenhouse gas emissions, and the need to build more power plants to keep up with growing demand could push the cost of conventional electricity higher.

During the next three to seven years, solar energy’s unsubsidized cost to end customers should equal the cost of conventional electricity in parts of the United States (California and the Southwest) and in Italy, Japan, and Spain. These markets have in common relatively strong solar radiation (or insolation), high electricity prices, and supportive regulatory regimes that stimulate the solar-capacity growth needed to drive further cost reductions.

These conditions set in motion a virtuous cycle: growing demand for solar power creates more opportunities for companies to reduce production costs by improving solar-cell designs and manufacturing processes, to introduce new solar technologies, and to enjoy lower prices from raw-material and component suppliers competing for market share.

We forecast global solar demand by estimating the payback period for customers in different countries and regions. (Payback estimates rest on projected system costs and power prices, as well as local sunlight and incentive schemes). Our analysis suggests that by 2020 at least 10 regions with strong sunlight will have reached grid parity, with the price of solar electricity falling from upward of 30 cents per kilowatt-hour to 12, or even less than 10, cents. From now until 2020, installed global solar capacity will grow by roughly 30 to 35 percent a year, from 10 gigawatts today to about 200 to 400 gigawatts3 (Exhibit 2), requiring capital investments of more than $500 billion.

www.nextgenpe.com

105

SOLAR ED:18oct

4/2/09

15:40

Page 106

Exactly where within this range actual installed capacity falls will deCompanies that use either of the current photovoltaic technologies, pend upon the evolution of solar costs, carbon costs, and power prices which generate electricity directly from light, are striving to reduce costs by (which in turn are heavily influenced by natural gas prices). Even though making their systems more efficient. In power conversion, efficiency means this volume represents only 1.5 to three percent of globthe amount of electrical power generated by the solar raal electricity output, the roughly 20 to 40 new gigawatts diation striking the surface of a photovoltaic cell in a given Several cells a year of installed solar capacity would provide about 10 period of time. For each unit of power generated, more efnow achieve to 20 percent of annual new power capacity over that peficient systems require less raw material and a smaller efficiencies of riod. This level of installed solar capacity would abate solar-collection surface area, weigh less, and are cheaper some 125 to 250 megatons of carbon dioxide – roughly to transport and install.

0.3 to 0.6 percent of global emissions in 2020.

Silicon-wafer-based photovoltaics. Although 90 per-

2023%

Average power price per households, $ per kWh1

106

www.nextgenpe.com

Cost per watt at peak hours, $ per Wp 1

cent of installed solar capacity uses silicon-wafer-based photovoltaic technology, it faces two challenges that Our demand and capacity forecasts assume continued could create openings for competing approaches. For improvement in solar-cell designs and materials but neither one thing, though it is well suited to space-constrained a radical breakthrough nor the emergence of a dominant rooftop applications (because it is roughly twice as effitechnology. At present, three technologies – silicon-wafer-based and thincient as current thin-film photovoltaic technologies), the solar panels film photovoltaics and concentrated solar thermal power – are competing and their installation are costly: larger quantities of photovoltaic matefor cost leadership. Each has its advantages for certain applications, but rial (in this case, silicon) are required to make the panels than are to none holds the overall crown. Major innovations and shifts in the relative make thin-film photovoltaic solar cells.4 Second, companies are starting to approach the theoretical efficiency cost competitiveness of these technologies could occur. limit – 31 percent – of a single-junction silicon-wafer-based photovoltaic cell; severExhibit 1: Within three to seven years, solar energy’s unsubsidized cost to end users will approach the cost al now achieve efficiencies in the 20 to 23 of conventional electricity in a number of markets, including parts of the United States (California and the percent range. To be sure, there is still Southwest), as well as Italy, Japan, and Spain. room for improvement before the limit is reached, and clever engineering techniques (such as concentrating sunlight on Top of sand background solar cells or adding a number of junctions The growing competitiveness of solar power made of different materials to absorb a Baseline for unit of larger part of the light spectrum more effimeasure/subtitle California Tier 42 California Tier 52 ciently) could extend it, though many of Denmark these ideas increase production costs.

Netherlands Italy Thin-film photovoltaics. The other 8 0.30 important photovoltaic approach, thinNorway Germany film technology,5 has been available for Hawaii 6 many years but only recently proved that Japan United Sweden Kingdom Australia it can reach sufficiently high efficiency 0.20 California levels (about 10 percent) at commercial 4 Spain production volumes. Thin film trades off France New York Finland Texas lower efficiencies against a significantly South Korea 0.10 lower use of materials – about one to five Greece 2 percent of the amount needed for siliChina con-wafer-based photovoltaics. The reIndia sult is a cost structure roughly half that 0 of wafer-based silicon. This technology 500 1,000 1,500 2,000 also has significant headroom to extend 1 Annual solar energy yield, kWh/kWp the cost gap in the long term.

Size of electricity 1kWh = kilowatt hour; kWp = kilowatt peak; TWh = terawatt hour; Wp = watt peak; the annual solar yield is market But challenges abound. The lower 1 the amount of electricity generated by a south-facing 1 kW peak-rated module in 1 year, or the equivalent TWh a year number of hours that the module operates at peak rating. efficiency of thin-film modules6 means 3 2Tier 4 and 5 are names of regulated forms of electricity generation and usage.

Grid parity as of 3Unsubsidized cost to end users of solar energy equals cost of conventional electricity. that they are currently best suited to Today Source: CIA country files; European Photovoltaic Policy Group; Eurostat; Pacific Gas & Electric (PG&E); Public large field installations and to large, flat Policy Institute of New York State; McKinsey Global Institute analysis 2020 rooftops. Furthermore, the longevity of these modules is uncertain; silicon-

Evolving technologies

SOLAR ED:18oct

4/2/09

15:40

Page 107

wafer-based photovoltaics, by contrast, maintain their output at high levels for more than 25 years. Of the most promising thin-film technologies, only one – cadmium telluride – has truly reached commercial scale, and some experts worry about the toxicity of cadmium and the availability of tellurium. A final complicating factor is that a new generation of nanoscale thin-film technologies now on the horizon could significantly increase the efficiency and reduce the cost of producing solar power.

Concentrated solar thermal power. The third major solar technology, concentrated solar thermal power,7 is the cheapest available option today but has two limitations. Photovoltaic systems can be installed close to customers, thereby reducing the expense of transmitting and distributing electricity. But concentrated solar thermal power systems require almost perfect solar conditions and vast quantities of open space, both often available only at a great distance from customers.

In addition, the ability of concentrated solar thermal power to cut costs further may be limited, because it relies mostly on conventional devices such as pipes and reflectors, whose costs will probably fall less significantly than those of the materials used in semiconductor-based photovoltaics.

Nonetheless, several European utilities now regard concentrated solar thermal power as the solar technology of choice.

con-wafer-based companies should hedge their bets by investing in advanced thin-film technologies.

Some manufacturers have considered establishing partnerships or vertically integrating – approaches that could give them access to supplies, customers, and financing but might also lock them into the wrong technology. To make the right trade-offs, the manufacturers of components for silicon-wafer-based and thin-film technologies should focus on fundamentals, such as manufacturing costs, efficiency improvements, and the movement of prices for raw materials.

Raw materials. Polysilicon is the main raw material for silicon-waferbased solar-cell manufacturers, which now consume more of it than the semiconductor industry does. Over the last two years, shortages and price spikes have been the result.

High margins have encouraged incumbents to add capacity and have attracted new entrants. Many observers have therefore been predicting that global polysilicon production capacity will at least triple from 2005 to 2010, while our forecasts indicate that demand for the material will only double during the same period. This mismatch suggests that the spot price of polysilicon could drop from over $200 a kilogram to levels previously seen in the semiconductor industry – as little as $30 to $50. Of course, if global demand for silicon-based modules surged, or if announced capacity additions did not materialize or were delayed (due to cancelled projects, quality issues, or the sorts of engineering and construction delays that are currently prevalent in many other capital intensive industries), the price effect might be dampened significantly. Industry participants should therefore screen supply and demand developments continuously.

Production process technology. The way companies manufacture solar cells has the largest impact on the cells' efficiency and their cost. Many incumbents have invested heavily in developing proprietary manufacturing processes. Some start-up cell manufacturers, by contrast, buy entire manufacturing lines from equipment companies such as Applied Materials.

Cell manufacturers are valuable partners for equipment companies hoping to tap into the growth of the solar sector. The equipment companies need formal partnerships that will allow them to retain ownership of the intellectual property associated with their manufacturing processes – a difficult trick that these vendors tried (and failed) to pull off in the semiconductor sector. The same thing could happen again unless equipment providers can figure out how to make their offerings extremely cost competitive and difficult for operators to imitate or enhance.

Producing in low-cost regions. Many leading silicon-wafer-based photovoltaic solar companies are located in high-wage countries.These manufacturers produce cells that are typically more efficient than those produced in lower-wage countries; for example, many German and US cells achieve an efficiency of 20 percent or more, compared with 15 to 16 percent for Chinese ones.

Yet countries like China and India will inevitably gain an overall cost advantage by developing the skills needed to produce more efficient cells.

Companies in regions with high labor costs should therefore constantly monitor the benefits and risks of locating their next plant in an area that offers lower-cost labor and generous subsidies.

“The extent and speed of this emerging sector’s growth will depend on its ability to keep driving down the cost of solar power” The road ahead The extent and speed of this emerging sector’s growth will depend on its ability to keep driving down the cost of solar power. No single player or set of players can make that happen on its own.

The necessary technological breakthroughs will come from solar-component manufacturers, but rapid progress depends on robustly growing demand from end users, to whom many manufacturers have only limited access. Utilities have strong relationships with residential, commercial, and industrial customers and understand the economics of serving them. But these companies will have difficulty driving the penetration of solar power unless they have a much clearer sense of the cost potential of different solar technologies.

In some regions, regulators can accelerate the move toward grid parity, as they did in California and Germany, but they can’t reduce the real cost of solar power. Poor regulation might even slow the fall in prices. Although these considerations make it difficult to predict outcomes and to prescribe strategies, certain economic principles do apply.

Solar-component manufacturers The fundamentals are clear for photovoltaic-component manufacturers that hope to remain competitive: there’s no escaping significant R&D investments to stimulate continued efficiency improvements, as well as operational excellence to drive down manufacturing costs.

Furthermore, in view of the technological uncertainty, established sili-

www.nextgenpe.com

107

SOLAR ED:18oct

4/2/09

15:40

Page 108

Utilities Although the distributed nature of solar power might seem to clash with the utilities’ business model of centralized electricity generation, these companies do have assets in the solar era, starting with strong customer relationships. They are also in a good position to integrate electricity generated at large numbers of different locations (such as rooftops) into the existing network. Many utilities could use their advanced metering infrastructure to calculate the full value of solar power during peak times. One way of leveraging these assets would be to form partnerships with component manufacturers. Building profitable partnerships will require utilities to develop new skills, such as installing and managing solar-generation capacity, as well as deciding which solar technologies best suit their service territories.

The technology that currently seems most attractive for utilities is concentrated solar thermal power, because it involves centralized electricity generation – much as traditional coal, nuclear, and hydroelectric facilities do – and is today’s low-cost solar champion. Its long-term cost prospects, though, are less favorable than those of some emerging photovoltaic technologies, so choosing it now is in effect a strategic bet on how quickly relative costs and local subsidy environments will change.

While the natural tendency might be to postpone investments until the technology picture becomes clearer, sitting on the sidelines poses risks for the utilities. As the cost of solar energy decreases, the growing number of

Peter Lorenz is an associate principal in McKinsey’s Houston office, where Thomas Seitz is a director; Dickon Pinner is a principal in the San Francisco office. The authors wish to acknowledge the contributions of their colleagues Joel Conkling, Stefan Heck, and Christer Tryggestad.

companies that will probably enter the business of installing solar equipment could cut off some utilities from their customers. Installers buy solar panels, mount them in homes and businesses, and then lease them in return for a stream of payments lower than prevailing electricity rates but still high enough to earn a healthy return on the panel investment. Since people who now pay the highest electricity rates would be the most likely to switch, utilities would lose their most valuable customers.

One way of coping would be to forge relationships with solar-cell and -module manufacturers that could help utilities claim a portion of this emerging business while they gain experience integrating distributed generating capacity into the grid. It should be in their interest to strike up such partnerships quickly, before disintermediation reduces their attractiveness as partners, since savvy manufacturers will pit them against installers in a quest for the most favorable financial arrangements.

Another approach for the utilExhibit 2: Installed global solar capacity will grow by roughly 30 to 35 percent a year, from 10 ities involves regulatory strategy – gigawatts today to about 200 gigawatts in 2020. for example, they could try to persuade regulators to add solar investments to their rate base (the Top of sand background expenses and capital investments The global solar market in 2020 that regulators use to calculate fair GW (gigawatts) Baseline for unit of retail electricity prices). Although measure/subtitle Cumulative installed capacity such a readjustment would raise electricity rates, utilities could Cumulative installed PV Annual PV capacity argue that the long-term benefits capacity additions would be significant: increasing 206 their reserve margins while making Concentrated solar 160 Annual economic demand thermal power 20 conventional power generation in20 Annual policy-driven demand 46 18 Photovoltaic (PV) vestments unnecessary, dampenCumulative installed capacity 17 16 ing future rate increases from 15 120 16 rising fuel prices, meeting environ14 mental targets, and accelerating 12 12 the decline in solar-power costs.

10 80 90 This approach yields a fixed return 8 17 160 on capital that might ultimately be 8 7 6 lower than what would be possible 40 4 if utilities bet successfully on the 3 73 4 25 2 right technologies, but it also miti3 2 6 gates investment risk.

22 1 5 2005

2010

2015

20201

0 2006

2008

1Estimate uses base-case scenario. Aggressive scenario predicts 400 GW in 2020.

2Estimated.

108

www.nextgenpe.com

2010

2012

2014

2016

2018

20202

0

Governments and regulators The decisions of regulators will affect not only utilities but also

SOLAR ED:18oct

4/2/09

15:40

Page 109

“If China installed solar panels on 13% of all new construction, the country would add 15 gigawatts of solar capacity a year” the entire solar sector. During the march to grid parity, well-understood and targeted subsidies will be critical to build the confidence of investors and attract capital. The impact of government policies in rapidly growing emerging markets such as China and India will be particularly important for the pace of the sector’s growth. Our basecase forecasts do not include aggressive growth in these markets. But if China installed rooftop solar panels on, say, 13 percent of all new construction in 2020, the country would add 15 gigawatts of solar capacity a year, about 40 percent of the world’s annual increase. Similarly, government policies encouraging the use of electric vehicles may also accelerate the growth of solar demand.

While the optimal regulations for different countries will vary considerably, all governments should focus on a few major factors.

Clarify objectives. Before establishing policies, regulators must decide whether they want to increase energy security, lower carbon emissions, build a high-tech manufacturing cluster, create jobs for installers, or any combination of these goals. Once regulators have identified and prioritized them, appropriate policies can be developed to stimulate specific parts of the sector.

Reward production, not capacity. Subsidizing capacity rewards all solar-power installations at the same rate, regardless of their cost-efficiency. Production-based programs, which reward companies only for generating electricity, create incentives to reduce costs and to focus initially on attractive areas with high levels of sunlight.

Phase out subsidies carefully. In virtually every region of the world, solar subsidies are still crucial; in 2005, when they expired in Japan, ca-

pacity growth declined there significantly. But since solar power could eventually be cost competitive with conventional sources, regulators must adjust incentive structures over time and phase them out when grid parity is reached.

Solar energy is becoming more economically attractive. Component manufacturers, utilities, and regulators are making decisions now that will determine the scale, structure, and performance of this new sector.

Technological uncertainty makes the choices difficult, but the opportunities – for companies to profit and for the world to become less dependent on fossil fuels – are significant.

1 Residential retail electricity prices in California increase with the end customer’s usage.

2 The California Solar Initiative provides $3.1 billion of subsidies to install 3 gigawatts, or three billion watts, of capacity by 2017.

3 One gigawatt = one billion watts. As a point of reference, the capacity of a typical coal plant is about 0.6 to 1.0 gigawatts.

4 Silicon absorbs light less well than the materials currently used to make thin-film photovoltaic solar cells, so they must be thicker to absorb the same amount of light.

5 Leaving aside nanoscale materials and technologies, there are currently four promising thin-film technologies: cadmium telluride, copper indium gallium diselenide, amorphous silicon, and thin-film polysilicon.

6 A module is a collection of cells that have been connected together to generate higher current and voltages.

7 Photovoltaic systems use semiconductor materials to convert light directly into electricity. Concentrated solar thermal power uses mirrors to reflect sunlight onto fluids, which heat up and then pass through a heat exchanger to generate steam and drive a turbine. Such technologies include parabolic troughs, power towers, linear Fresnel reflectors, dish Stirling systems, and solar chimneys.

www.nextgenpe.com

109

A FAIR WIND No industry is immune to a world in financial and economic meltdown, although there are some that are better positioned to withstand it and emerge fitter to embark on new frontiers.

The wind energy industry seems to be one of the lucky few. By Alina Bakhareva and Gouri Kumar, Frost & Sullivan

nevitably, the wind industry landscape at every segment of the value chain is set to change, with new players moving into top positions and many wind assets changing hands. Several key interrelated financial factors will influence the decision-making process in the short and medium term: level of financial leverage, schedule of debt maturity, availability of re-finance options, available cash, and credit rating and interest rates available to various players.

The need for financial resources varies greatly across the wind value chain. Equipment manufacturers may have favorable post payment terms with the component and raw materials suppliers and in some cases pre-payment for their wind turbine shipments, which reduces their need for external finance for expanding their production capacities and M&A activities.

Players engaged in wind farm construction are in greater need of funds, as it could take up to three years until their assets start generating power and cash flows. As typically wind farms are financed with 30 percent of equity and 70 percent of external finance, players at the upper value chain segment are most exposed to the financial market squeeze.

I 110

Independent investors and project developers with a high level of leverage and low cash level may fall first prey to the tightening market conditions as they will find it increasing difficult or expensive to turn to debt markets for re-financing or new debt. One example is Novera Energy, a mid-tier renewable project developer, which may sell some of its projects or stakes in its projects to the utilities. However, late last year the company, mainly producing electricity from landfill gas, was still positive about its wind development program aimed at increasing its wind power capacity from 15 MW to over 250 MW by the end of 2011.

Other examples are Theolia, a French renewable energy developer, which announced last October the sale of its 55.5 MW wind farm in Germany to enhance internal cash generation for financing future growth; and Babcock and Brown Wind Partners, an Australian-listed wind developer whose assets span six countries, which agreed to sell off its assets in Portugal as part of a large-scale disposal program.

While some players have to consider selling rather than buying, there is another category that seems to be able to benefit from the existing markets. Cash-rich utilities may choose not to approach banks

www.nextgenpe.com

BAKHAREVA ED P 110-112.indd 110

4/2/09 15:29:28

or debt markets as they can fund projects off their balance sheets. If they prefer to turn to debt markets, often the interest rates they are able to obtain are lower than those offered to other companies.

At cheap credit times, utilities could pay as little as 0.15 percentage points more than government bonds for their money. As of October 2008, that spread rose to 3.5 percentage points.

While some utilities are revisiting their development strategies, others are busy increasing their foothold in wind markets. RWE Innogy is actively expanding its business in Poland. Following its acquisition of the rights to develop some 300 MW of wind parks, it has gained access to a further 150 MW.

“Wind power will continue to grow and could well become one of the growth engines to drive the economy out of the recession” ENEL is planning to construct a 90MW wind farm in the region of Sardinia, Italy, and EDP Renovaveis entered the Romanian wind energy market through acquisition of 85 percent of two Romanian wind developers, which own several wind projects.

So, tightening financial markets seem to accelerate the trend of the changing structure of wind asset ownership where utilities share is rapidly expanding. Private investors, especially German, used to own over 50 percent of the wind assets back in 2002. Their share plunged to about 30 percent in 2006. Going forward, utilities and IPPs (independent power producers) will see their market share further expanding.

Long-term positioning Renewable energy, including wind power as the most mature technology, will continue to grow and could well become one of the growth engines to drive the economy out of the recession by generating new jobs in all value chain segments: equipment manufacturing, construction and installation and post commissioning services. The EU has reiterated its ambition to source 20 percent of its electricity from renewable energy sources by 2020. The second Strategic Energy Review, calling to make the best use of the EUMs indigenous energy resources, named renewable energy “the EUMs greatest potential source of indigenous energy”.

EU leaders also agreed that the Union should not weaken on its 2020 targets for renewable energy deployment despite some of the Members, mostly from Eastern Europe, expressing concerns in light of the current economic conditions.

As far as another big green energy development hub is concerned, the US is waiting for President Obama to start bringing to life his ambitious New Energy for America plan.

With all the limitations the implementation of the plan could face, it signifies a political will to change America’s energy landscape. And where there is a will, there is a way.

The plan calls for 10 percent of electricity to come from renewable energy sources by 2012 and 25 percent by 2025. Also, the Federal Production Tax credit (PTC), one of the few federal support mechanisms in the US, is envisioned to be extended by five years.

If implemented, this will become a major change from the present situation when the PTC is extended for a year every year. Five year extensions will provide much aspired long term stability to all sectors of green energy including wind.

Other countries, especially those in emerging economies such as Asia and Middle East, have seen their energy consumption soaring in recent years. Rapidly developing power gaps even threatened to set back economic growth rates in some of these countries. The threat made governments, especially in the Middle East, turn to renewable energy and take it onboard when planning the future of the national power industries.

Thus, one of the most important drivers for the industry, government support, stays strong during the cloudy economic conditions and this will reinforce confidence among market participants and investors.

Achieving our energy goals • Reaching 20 percent wind energy will require enhanced transmission infrastructure, streamlined siting and permitting regimes, improved reliability and operability of wind systems, and increased US wind manufacturing capacity.

• Achieving this goal will require the number of turbine installations to increase from approximately 2000 per year in 2006 to almost 7000 per year in 2017.

• Integrating 20 percent wind energy into the grid can be done reliably for less than 0.5 cents per kWh. • Achieving 20 percent wind energy is not limited by the availability of raw materials.

• Addressing transmission challenges such as siting and cost allocation of new transmission lines to access the nation’s best wind resources will be required.

www.nextgenpe.com

BAKHAREVA ED P 110-112.indd 111

111

4/2/09 15:29:35

A positive side?

Equipment prices will inevitably follow the raw material prices that sharply decreased in September- November 2008.

For example, wind towers accounting for up to 20-23 percent of the total wind turbine cost, the second most expensive element after blades, are predominantly made of steel. Steel prices after reaching an all-time historic maximum in JuneSeptember 2008 crushed down to December 2007 levels in less than three months.

Another factor contributing to a fall in prices is an increased level of competition along the value chain. The new reality will foster a fiercer competition between the suppliers, turning into a growth opportunity for those who are capable of reducing their costs and prices faster. Secondly, delivery and construction times will see a huge improvement, which in turn will make the project lifecycle shorter allowing for faster commissioning and a shorter wait until the project brings its first revenues.

Lastly, the asset valuations that jumped out of control recently will return to sensible levels. Those interested in growing their wind portfolios will have a chance to acquire existing and new projects at a reasonable price.

“China has jumped out of nowhere to fifth place in wind generation”

20 percent by 2030 Last year the US Department of Energy (DOE) published a report that examines the technical feasibility of using wind energy to generate 20 percent of the nation's electricity demand by 2030. The report includes contributions from the DOE and its national laboratories, the wind industry, electric utilities and other groups, and examines the costs, major impacts and challenges associated with producing 20 percent wind energy or 300 GW of wind generating capacity by 2030.

Outside influence For the first decade, the wind energy industry history was written by a handful of European countries joined by the US. More countries are joining in as wind turbines root around the world. A 2007 success story is China, which has jumped out of nowhere to fifth place, reaching close to six GW of installed capacity. India keeps its position close to the top with total installed capacity close to eight GW in 2007. Other countries experiencing significant growth include Canada, New Zealand, Brazil, Egypt and Australia.

Despite tightening credit market condition there is a lot of wind energy activity around the world. In Tunisia, Gamesa’s MADE signed a $260 million agreement with STEG (the Tunisian Gas and Electricity company) for supply of 91 of Gamesa’s wind turbines for a wind park that promises to become Tunisia’s largest. The Ethiopian Electric Power Corporation (EEPCo) signed a $275 million contract with Vergnet Group for the construction of a 120MW wind power park, and in Chile, Mainstream Renewable Power entered into a joint venture with Andes Energy to develop 400 MW of wind farms in the country.

200 MW is expected to be built by 2010. In Canada, Finavera Renewables singed a deal with GE Wind for supply of wind turbines for its wind projects in British Columbia.

Conclusion Although wind energy industry growth rates will slow down, it does not mean the industry will stall. While unfortunate for certain industry players, the economic slowdown will turn out to be a growth opportunity for others. Cash-rich companies and those with higher credit ratings will be able to extend their wind portfolios at reasonable prices.

Cheaper equipment available at shorter lead times for new installations as well as wider availability of specialized construction services and fiercer competition along every segment of the value chain will force a total project cost down. Once the economic outlook brightens, lower project costs are likely to make the investments into wind power more attractive for wider range of countries and type of investors.

During the next few years the industry will have a chance to take a breath, rectify remaining technical and operational drawbacks, train more technical personnel and enter a new market phase well equipped for a new wave of growth. n

112

www.nextgenpe.com

BAKHAREVA ED P 110-112.indd 112

4/2/09 15:29:38

SECURITY RT:18oct

4/2/09

16:16

Page 113

SECURITY ROUNDTABLE

High security Energy companies face ongoing threats from many sources around the world, with their communications infrastructure being particularly vulnerable. Gary Layton of Black & Veatch, Panos Anastassiadis of Cyveillance, Inc. and Marcel van Helten of GE Fanuc examine the issue and look at potential solutions.

P&E. How has more reliance on the internet and commercial off-the-shelf software brought new vulnerabilities to our wireless systems?

Gary Layton. Electric energy companies face many unique challenges in securing their infrastructure to meet the NERC CIP standards. Disparate facility locations make system-wide changes a daunting logistical challenge.

Real-time systems make patch application, validation, and user authentication difficult. The ‘layering’ of new technology on top of existing communication backbones, the many ‘gateways’ necessary to collect SCADA data and to transmit and/or receive wireless transmissions, these all become potential points where systems can be compromised.

Cyber Security presents an unusually daunting challenge for utilities because addressing it requires a toolset and knowledge base that is traditionally not located within the same experience pool that understands and manages the day-to-day operations of a power grid. Implementation of technology to provide solutions is traditionally difficult, at best. Even the ‘baseline’ task of assessing all of the possible points of vulnerability, and assessing the potential threats is a significant task.

Panos Anastassiadis. As with most new technologies, security is often an afterthought. Users are often so enthused with new capabilities, that they ignore the potential security threats that come with new machines. With the increased reliance on the Internet and commercial software, there is a bigger playing field for hackers to find and attack vulnerabilities. In older systems, hackers were forced to attack many devices in order to get to their target, but through wireless technology the number of vulnerabilities and hacker opportunities increases significantly.

Gary Layton is the Director of Marketing for Black & Veatch's Enterprise Management Solutions (EMS) consulting division. He is part of the management team that worked to help Black & Veatch establish a management consulting business within one of the most respected engineering and construction firms in the world. Layton has helped establish the division as one of the thought leaders in the industry and has overseen the growth of the division to its current 300 professionals.

His background includes 21 years with one of the world's largest computer enterprise infrastructure software providers where he was involved in enterprise security, asset management, and business continuity products and services.

Panos Anastassiadis is Chairman, CEO and President of Cyveillance Inc. He oversees all business aspects of the company and has more than 25 years of technology experience. Previously, Anastassiadis served as Executive Vice President at Merant, a leading e-business software solutions company. Anastassiadis also serves on the Board of Directors for the NVTC, Teoco and ADF Solutions.

As the Global Industry Director for GE Fanuc Intelligent Platform’s Infrastructure market Marcel van Helten is responsible for driving innovative solutions into the market. GE Fanuc’s Infrastructure market includes water, oil & gas and power. Marcel has been in the automation industry for 20 years, the last 10 years with GE Fanuc Intelligent Platforms.

www.nextgenpe.com

113

SECURITY RT:18oct

4/2/09

16:16

Page 114

“As part of the nation’s critical infrastructure, utilities play a vital role in the country’s ability to sustain itself” GARY LAYTON Marcel van Helten. Energy companies are increasingly using the internet and wireless systems to improve real-time decision-making, gain cost savings and improve functionality. For example, companies are enabling internet viewing and control for field employees and operators to expedite responses, drive down operational costs and improve labor effectiveness. As companies do this they are transitioning from secure SCADA networks, visible to only an operator, to control and information networks, to ones that expand beyond the secure domain. This potentially introduces vulnerabilities for access through the internet, hub or the intercept of wireless communications.

It is important to implement the right policies, processes and systems, and to find the correct balance of spend to reduce one’s risk. Many companies are turning to their software vendors to reduce their risks because of the vendor’s intense focus on providing flexible software. This drives much more comprehensive evaluation, development and testing plans from both a stability and security perspective. That in conjunction with the software markets relentless adoption of new technologies and long-term support plans is reducing the system’s existing and new vulnerabilities.

MvH. Specific threats posed from foreign countries center around Internetbased hacking attempts. These can be as simple as a packet flood attack, which is typically referred to as a denial of service (DoS) attack. This type of attack impedes software’s ability to respond to legitimate remote requests from either clients or other connected systems. This threat has the potential to affect the overall system in the event other critical elements of the system rely on timely responses over the same channel. A more complex attack is one that attempts to gain legitimate software-level access, which enables remote-operator-based functions. When remote control is accessed and given enough time, the intruder could impact the system by shutting down its main fieldbased components. A lot of attention, both ongoing and at time of design, is given to this vulnerability, and most have precautions placed at both the software and hardware levels to reduce one’s ability to perform intentional destructive actions such as surges, explosions or overloading.

GL. As part of the nation’s critical infrastructure, utilities play a vital role in the country’s ability to sustain itself. We certainly understand the strategic importance of the electric grid to both military and civilian activities, and understand how even the simplest activities of modern life are impacted without electricity. There have been an unusual number of hacking attempts that could possibly be being orchestrated by nations we might someday face in a conflict. As such, appropriate security measures must be taken to keep utilities up and running regardless of whether the threat comes from employees or foreign nations or agents.

Risk can be defined as the intersection of a threat agent and vulnerability. Once a viable threat agent and an exploitable vulnerability have been identified, the next step is to make an assessment of the impact and likelihood of an occurrence. The degree of risk is determined by analyzing the likelihood of occurrence and the organizational impact of an exploit. One of the key deliverables of a consulting engagement is an analysis that provides the client with the risk level for the system based on the likelihood and impact, and balanced against the existing countermeasures. The assessment also specifies recommendations for further mitigation of all identified vulnerabilities. Meeting NERC guidelines is required, but beyond that, utilities must balance the potential for an event against the cost of securing the asset.

P&E. What specific threats are posed to the energy and utility sector by increased terrorist activity and hacking attempts launched from foreign countries?

PA. An emerging threat for many utilities is the increasing presence of cyber extortionists, who threaten to reveal its targets’ vulnerabilities unless the organization pays for their silence. Due to the sensitive nature of the data they possess, many organizations often give into to these criminal’s demands and pay them off, rather than reveal the vulnerabilities to the public and face catastrophic reactions. While these criminals have historically targeted pornography and gambling websites, many are now targeting traditional organizations with these types of threats. With the downturn in the economy, many of these criminals are targeting P&E. SCADA systems are a vital part of the infraindustries and markets where the money is, which structure that keeps our electricity grid running, MARCEL VAN HELTEN but they can also be open to attack. What can right now is the energy sector.

Organizations must also be aware of web decompanies do to deal with this particular vullivered malware, which uses employees as their key nerability? target. When employees open infected sites from their web browser, they unMvH. The most important actions are to deploy security-based policies, knowingly download malware onto their computers, putting them and their orprocesses and systems into the existing systems and update the new sysganization at risk for intrusion, social engineering, data breaches and worse. tem specs. These items would center on detecting breaches in real time,

“A well-implemented SCADA system can actually be a tool to detect and inform about any potential vulnerability in real time”

114

www.nextgenpe.com

SECURITY RT:18oct

4/2/09

16:16

Page 115

the pre-emptive avoidance of attacks, and informing the appropriate personnel when they occur. A well-implemented SCADA system can actually be a tool to detect and inform about any potential vulnerability in real time; and when balanced with the correct level of hardware elements, it protects against commands with destructive intent. Additionally, built-in SCADA industrial workflows can help operators follow the right processes in case of an event and reduce the time to reverse or correct the actions taken by attackers.

Companies also should consider their supplier selection as one with experience in the industry and enough critical mass allowing them to work closely with operating system providers to continuously enhance their systems and keep ahead from a security perspective.

GL. Black & Veatch’s significant presence in both the utility market as an EPC contractor, and in the telecommunications business through our telecom division was a unique intersection of talents.

Today, as utilities focus on automation to enable asset management, improve operational efficiency and improve system reliability, a disciplined review of all of the SCADA collection points to assess the vulnerability of each is required to understand the threat. The broad exposure of security consultants brings knowledge of how other utilities systems have been attacked, and what countermeasures seem to be effective to a client utility.

PA. While many organizations in the energy sector are aware of the vulnerabilities associated with the SCADA systems, most are not evaluating or correcting these security gaps. The first step in guarding against outsider threats is to do a thorough audit of the systems and recognize that they do have flaws.

There are several additional actions that companies can take to strengthen their systems, including: • Access control should regularly evolve • Ensure the security of all control systems • Align systems with national NERC (North American Electric Reliability Corporation) standards • Continuously monitor for security updates and patches • Incorporate spam blocking software • Follow and closely monitor malware blocking feeds for potential threats • Create an open line of communication with security vendors Because of the current economic climate, many companies are struggling to put the resources in place to counteract any security threats and vulnerabilities. As a result, it is critical that organizations place an emphasis on educating their employees on these threats. For instance, if people know about the danger of using risky P2P tools such as Kazaa or BearShare, they would be less likely to use these tools and expose potential vulnerabilities of their systems. As part of this education process, organizations need to implement clearly defined policies that label risks for employees and deter them from leaking sensitive information.

P&E. What tools are available to help companies keep their communications infrastructures safe?

PA. Beyond traditional software and hardware, the most important tool to keep communications infrastructures safe is ‘wetware’ - the people that manage systems and protect documents. These managers should receive collected and analyzed data to determine the greatest threats to the infrastructure. These managers should also be charged with implementing information technology standards in the organization, including employee blog usage, social networking sites and internet content sharing applications.

Companies must take a multi-layered approach to secure communications by having an open dialog with ISPs and proactive standards established for their employees. Secure systems are built through shared communications. If companies don’t create an open, information sharing atmosphere with their customers, employees, partners and even competitors, there will always be vulnerabilities that exist to put communications infrastructures at risk.

GL. Vendors have brought ‘gateway’ products to market that meet some of the NERC CIP requirements. They are only part of the solution

“An emerging threat for many utilities is the increasing presence of cyber extortionists” PANOS ANASTASSIADIS

though, leaving many of the NERC requirements unmet and left for the utility to solve. And the unique profile of each utility, and the mix of technologies they have employed makes this a highly tailored exercise.

MvH. Some key technical elements to safeguarding communication systems are secure routers, data encryption, virus/malware scanners and firewalls – with all running the latest firmware and definition files. Another technical element that helps secure the infrastructure is the network communications design, whereby the critical system communications operate on a separate, isolated, highly secured network and are not susceptible to attackers. It is also important to regulate the level of access to a system, both from the operator and programming standpoints. When biometric elements are integrated into the control system, it limits specific functions that operators can perform via finger scans and when programming change control systems are in place one cannot access or alter the device programs without authorization. These types of access restrictions significantly reduce the possibility of a hacker performing the same operations remotely – reducing the potential impact in the event of a system breach.

www.nextgenpe.com

115

ASSANTE:18oct 04/02/2009 15:23 Page 116

COMPLIANCE

YOU CAN COUNT ON ME

Michael Assante explains how NERC’s CIP standards help ensure our electricity is there when we need it.

116

www.nextgenpe.com

There was a sense even before 2003 that mandatory standards were needed.

Looking back, it probably started in some of the western outages where there was an understanding that the voluntary model only got you so far and that there were still some gains to be achieved by standardizing and making the standards mandatory. And clearly, when the August 14, 2003 blackout occurred in the US northeast and south/central Canada, it captured the attention of folks all across North America and solidified the understanding that we needed to move toward a mandatory system.

It’s important to keep in mind what it would take in North America to achieve the most reliable system. That’s a very big land area with many different constituents and stakeholders involved. Before 2003, there was

ASSANTE:18oct 04/02/2009 15:23 Page 117

our registered entities or stakeholders participate in the process for deliberately putting together liability standards and then agreeing to be held to those same standards, and that makes it quite unique. The importance of this model is that you’re able to leverage the expertise that exists within the industry and open up a process so that we can all agree on what a true standard needs to reflect in terms of how to enhance reliability, and from there we, the ERO, enforce those standards.

It’s still a young model. The reality is that it takes two focuses as an organization to accomplish this mission. One is to work with all your stakeholders in a very open and deliberative process to develop these reliability standards, and the other part of the process is that once there is agreement and the standards have been accepted by the federal authorities, to enforce those standards.

The most important thing is that reliability is being improved.

work being done from industry proponents as well as organizations like NERC towards a mandatory system.

The blackout of 2003 was the final event that was necessary to solidify the idea that standards should be mandatory. The industry openly accepted that and worked with federal authorities and across borders and embraced moving forward with this concept of having an international electric reliability organization. NERC was put forward to be the ERO in the United States, and was accepted and approved by FERC and the Canadian authorities.

Even though the new approach is specific in that the standards are mandatory, it’s interesting in that the model itself has been self-developed by industry. We consider ourselves a self-regulatory organization, where

The idea was that the standards would be mandatory and enforceable, and you would need an organization that would take on that goal of enforcement. The industry understands that it will take a dedicated organization to go out there and conduct audits and make proactive efforts to make sure the standards are being enforced.

As the ERO, we’re responsible for looking at information and analyzing trends and being able to talk about the assessment for reliability going forward. By bringing information to the table and turning it into knowledge, we can have a positive impact on reliability in terms of enforcement. One of the best measures that shows the industry is committed to improving and ensuring reliability is that not only do we go out and conduct audits, but industry also self-reports potential violations of a standard.

Companies take an honest look at their own programs; they can run their own internal audits or assessments. If they find they might not be in compliance with a standard, they self-report that non-compliance. As a selfregulatory organization, we look very favorably upon self-reporting. It factors into the decision-making; it means you don’t have to go out and look for violations. If companies have their own culture of compliance and they’re looking for where they’re having issues and reporting those, that’s a very good sign that industry is on board with this. In 2007, more than half of the violations came from self-reporting.

It will take some time, as we begin to conduct an increasing number of audits in the field, to augment self-reporting with going in and examining across the set of reliability standards. We’re seeing a lot of progress toward meeting the mandatory standards. Not only does this progress show that companies are meeting the standards, but in a lot of cases, some of these standards are the minimum requirements necessary to ensure reliability, and many organizations are designing creative ways to even exceed what those standards call for.

I’m the chief security officer, so my focus is on the critical infrastructure protection standards, and we look at those as a set of minimum standard things that we do across the industry to ensure the protection of our critical assets and critical cyber-assets. A lot of organizations are very diligent around the issue of security-related risk, and they’ve been making big investments and putting a lot of effort into improving their ability to address risk, especially to cyber-assets, based on the realistic perception that this

www.nextgenpe.com

117

LogRhythm_ad:euro

2/2/09

10:34

Page 118

ASSANTE:18oct 04/02/2009 15:23 Page 119

is an emerging challenge for the nation – for any inter-connected and technology-reliant society.

There are two things that lay the groundwork for the concern that exists in the system today. From an industry perspective, and in understanding how this infrastructure works, we know how technology-reliant we are in operating the system and managing it effectively. Technology in a lot of cases becomes a helpful solution to ensure reliability, and there is a heavy reliance on that technology to help to manage the system.

When you get to the point of enlightenment, you understand how important technology is in the operation of the system. For example, if you look back at the 2003 blackout investigation, there’s a big focus on how important technology was relative to the information available in order to have situational awareness and manage the system. That’s a key part of why it’s so important to have a critical infrastructure protection regime in place.

need to do to protect your system. That starts with identifying your critical assets within the constellation of assets that you might manage, and then identifying your critical cyber-assets. Only by having a true understanding and knowledge of what needs to be protected will you be able to properly develop a protection strategy.

You also need good security requirements around things like personnel risk assessment, meaning you’re looking at the folks to whom you will provide unescorted access or electronic access to critical cyber-assets, and you’re doing the proper amount of diligence to ensure they’re not a risk to the system. You’re putting into place processes that allow you to manage risk, such as vulnerability management, testing of systems, developing business continuity and restoration plans and exercising those plans.

It’s a family of requirements that are designed to either set a minimum requirement, making sure that we raise the lowest level so that there is no

There are people out there willing to exploit our weaknesses for their own gain.

“Age doesn’t matter as long as it’s being maintained and operated well, and the best way to measure that is to look at the amount of events and understand why they are occurring”

If you look at the amount of cyber security events that are occurring in other industries – in government as well as the areas of e-commerce and financial services – there’s a strong understanding that what comes with technology is complexity and vulnerabilities. We need to be in control of the technology we’re relying on.

A lot of it has been speculation. You’ve seen it in media coverage about which electric power systems could be attacked. There is some evidence at a very low level that some events have occurred around the world, and we as an industry are committed to getting ahead of this problem.

Any standard is intended to set an assured way of doing things across the system. We’re probably one of the only infrastructures to develop real cyber security standards in a self-regulatory manner. Other regulated industries, such as the nuclear industry, have security requirements driven by a federal regulator. In the electric utility sector, we have self-organized as part of the self-regulatory process to develop CIP standards. We’re pioneering critical infrastructure protection, and there’s a recognition that you don’t always get that right the first time. We’re committed to enhancing the standards, and we have a process in place to continue to develop them.

The electric grid is an interconnection of systems – one utility is interconnected through its neighbors as well as being able to feed information to a control area or reliability coordinator that sits above it – and we need to understand the importance of this interconnection. It’s the reason that the standards need to apply to all of North America.

In cyber security, you’re only as strong as your weakest link.

It’s important to makes sure that no one entity puts the rest of us at risk because its practices allow for easy access to technology or the exploitation of vulnerabilities within its system. It’s one of the key reasons that these standards are so important.

Organizations need to have processes put in place so that they can have a flexible and dynamic protection strategy against whatever evolving cyber threat might occur in the future. One approach to building a compliance strategy is to meet these standard requirements in terms of what you

weak link out there, that everyone’s doing at least something to the same standard. The second piece is to have processes in place so that you can react to any emerging cyber threats as they occur. That’s what the CIP standards are trying to achieve.

Newer technology can represent more of a risk than aging infrastructure.

You have a shorter operating history with new technology, and it’s typically more complex than the technology it’s replacing, and you have to watch both sides of that spectrum. You have to watch infrastructure as it gets older and try to understand maintenance trends and what’s occurring with the equipment, and then you have to watch the introduction of new technology just as closely.

With older technology, you have quite a bit of history to understand and build from; you have a certain comfort factor because you have a lot of quantitative data relative to the equipment. With new equipment you don’t have that, so you have to do a lot of measurement, and you have to develop these regimes to understand how to best manage and monitor that technology as you deploy it.

A lot of the infrastructure is getting older; in some cases it has exceeded its estimated lifespan. But many utilities have made the proper investments in monitoring and management programs and are watching that problem very closely. Clearly, as the ERO, this is something that we study very carefully, and we don’t feel it’s a major concern. If you’re looking to bring new technology into the power system and at embracing renewable energy, investments do need to be made, but that’s typically to expand the system and enable it to align it with some of these newer possibilities.

www.nextgenpe.com

119

ASSANTE:18oct 04/02/2009 15:23 Page 120

We conduct reliability assessments and bring information and knowledge to the table for all participants to understand where the reliability risks might be, whether that be internal dynamics within the industry or external factors like economic growth. Our feeling about the infrastructure is that age doesn’t matter as long as it’s being maintained and operated well, and the best way to measure against that is to take a look at the amount of events and conduct events analysis and understand why these events are occurring.

At this point in time we’re not seeing a negative effect on reliability as it relates to the economic conditions. It’s probably too early to see how they will be impacting investments in the system; we haven’t yet seen any major findings relative to investments in the systems on a macro scale. Neither have we seen an impact to reliability; in fact, the ERO is still growing and making investments in our mission, and I’d suspect our registered entities are also continuing to follow their compliance strategies in making the appropriate investments to ensure they are in compliance with the standards.

I’m not going to speculate, because duration is a very important factor when it comes to economic issues, and as time goes on we will obviously watch the economic conditions and how those potentially could impact reliability.

120

one is not in compliance. This mitigation plan allows an organization to devise what investments or what process changes they need to put into place in order to be compliant.

We need to put in place mitigation strategies to resolve any reliability issues as quickly as possible. We manage that directly with the entities, and when they are reporting these things, they say, “We weren’t compliant, and now we’re ready for what comes with not being compliant.” The real focus from an ERO perspective is that we devise the mitigation strategies in order for us to immediately ensure reliability. They’re very aggressively managed to make sure there is no risk to reliability based on their self-reporting of a lack of compliance.

The same thing is true for an audit. When we audit against the standards and somebody isn’t in compliance, the important thing is each time these mitigation strategies are put together, that this is a learning opportunity. We take these mitigation plans and we make sure the industry learns from them.

We know we’re building corporate knowledge into the system of how to be compliant with the standards, and that’s an important part of the process that often gets lost. A lot of folks focus on the idea that they either report or we audit, and then somehow magically a penalty is decided, and that resolves the issue. The important point is not the penalty. Penalties are necessary, but more important is the development of these mitigation plans and their approval and the management of risk so entities become compliant. The sharing of that knowledge is the key to success for an electric reliability organization.

No enforcement program can prevent all system disturbances from occurring.

It’s our goal to achieve 100 percent compliance.

There are always issues that are beyond our control – there could be issues with weather, or the failure of equipment in the field introduced by human error. There are a number of causative factors that can cause a system disturbance.

The good news is that there’s a big effort in place to minimize their effects. It may be impossible to rule them out entirely, but the new regime of the ERO and industry’s commitment to adhering to mandatory standards is about minimizing these occurrences, and more importantly, minimizing their effects. The idea is to make these things smaller and smaller as we all get better at focusing on reliability.

We look at our mission in a broader sense as ensuring the reliability of the system, and standards and compliance is only a part of that mission – an important one, but still only a part. n

We’re seeing some real progress. As we work through the self-reporting of violations and we work with organizations, one of the key strategies of an enforcement program is to define a mitigation plan for when some-

Michael Assante is Vice President and Chief Security Officer of the North American Electric Reliability Corporation.

www.nextgenpe.com

Stratasoft_ad:euro

2/2/09

10:45

Page 121

f you’re looking for an example of workforce development in action, you couldn’t do much better than Margaret Pego. Currently SVP and HR Officer for New Jersey-based PSEG, Pego began her career with the organization as a secretary some 30 years ago. Since then she has risen through the ranks with the constant support of her employer. “I completed my undergraduate degree while I was working at PSEG and they paid my tuition,” she tells us. “I finished my MBA and made use of the tuition benefit program that we still have in place. We have a number of employees every year who take advantage of that.”

The importance of workforce development is perhaps more pronounced in the energy industry than in other sectors. It’s a 24/7 business that delivers critical products, and workers have to be ready to respond to challenges as soon as they happen. This requires an employee base that really knows what it’s doing.

The industry is also facing a looming crisis in staffing. “We have a lot of baby boomers who are planning to retire,” Pego explains. “We need to find a way to fill that gap to ensure that we have workers to take the place of those who will be leaving.” Some statistics say that about half of the 550,000 power industry workers, largely baby boomers, are eligible to retire within the next five to 10 years. This would be a headache for any business, but for a company with so many hi-tech, safety-critical positions, it is a major challenge.

“Our industry requires very specialized skills, especially in our nuclear and fossil plant operations, and our people have knowledge that can’t be learned overnight,” continues Pego. “We invest a lot in

I

The

our people – sometimes spending years getting them up to speed – so its important that we entice them to make a career of it.”

Next generation Under Pego’s leadership, PSEG is devoting significant energy to not only ensuring their existing workers are well-trained, but also to finding and attracting the next generation of employees. For those already with the company, there are many opportunities to develop skills and gain new insights into the business. “We have a supervisory academy and a leadership academy to ensure that our supervisors, our managers and our leaders are trained and have the tools they need to excel,” says Pego.

“We have also mandated development goals for all of our nonunion employees. It’s one of the things that we measure on our enterprise scorecard as far as what percentage of development goals have been completed. Managers work with employees throughout the year, and progress on developmental plans is tracked in a computer system and measured on a company-wide scorecard.”

Key to the success of programs like these has been the increasing influence of technology. “We’ve been very focused on bringing in a more integrated HR system than we had in the past,” Pego recounts. “We now have ‘emPower’ and it’s the first time that we’ve ever had our performance management, our goal management and our succession planning management in the same place, and we are now implementing the compensation module. In addition, it has an employee profile where an employee can go in and view their profile

power to improve

Huw Thomas sits down with PSEG’s Margaret Pego to find out how the company is training to beat the looming skills shortage.

122

www.nextgenpe.com

PEGO ED P122-123.indd 122

5/2/09 10:20:48

Margaret Pego joined PSEG in 1974, and has held a variety of management positions in the human resources department. She holds a Bachelor of Arts degree in business administration from William Paterson College, and a Master of Business Administration degree with a concentration in management and labor relations from Seton Hall University.

In addition, she holds a certificate in EEO studies from Cornell University, and has also completed the Human Resources Executive Program at the University of Michigan. She is also certified as a senior professional in human resources.

and update it. Once we implement the compensation and variable pay modules, all of our major HR processes will be linked. That is a tremendous step forward.”

Quote aside from the direct benefits to the company that this focus on development brings, it’s also extremely popular with the workforce. “We recently completed an employee engagement survey and learned just how much our employees value training and development,” Pego explains. “That’s an important validation, since we’ve long believed that development is one of the key components to retaining talent.” With skilled workers at a premium, such retention is immeasurably valuable.

Broad approach But Pego and PSEG have not focused their efforts solely on their own affairs. Realizing that the workforce challenge affects the entire industry, the company has taken a leadership role on a national level to ensure that the talent base will be wide enough for everyone. The company is heavily involved with an organization called the Center for Energy Workforce Development; so much so that PSEG CEO Ralph Izzo acts as chairman, while Pego herself is the chair of executive committee. “CEWD helps energy companies recruit and train prospective employees,” Pego tells us.

“We focus our energy on sharing best practices and working on marketing materials aimed at getting young people excited about opportunities in the industry.”

While Pego’s attention is clearly focused on the travails of her own sector, she is clear that her experience can be applied right across the business spectrum. “I think it can be useful to other industries,” she states. “We’ve placed a much greater focus on our workforce, on those that are coming in as well as those that are here and those that are leaving. We implemented a phased retirement program to help us with knowledge transfer and to keep some of our more experienced individuals engaged part time if that’s to their choosing. Any industry could do something like that. The key is convincing high-level business leaders to make workforce development a high priority. With that, you’re on the right track.” n

Going green Margaret Pego on people planning for the future of energy We look at our workforce holistically. We want to be sure we have a focus on ensuring the skills to power a green future, not just the current jobs we need to fill, but the green jobs that are coming down the pike.

We’ve developed initiatives in several areas, including developing a source of diverse, well-trained and prepared candidates.

We’ve done a lot to retool and retrain our current workforce, and we’ve looked at the other end of the spectrum, which is how do we go about reinventing retirement. We launched a Green Energy Academy at a local vocational school. The program exposes high school students to green energy by combining classroom and experiential learning to equip them to follow a particular career path.

Upon graduation, students can either enter the workforce immediately or go into one of the college degree programs we’ve helped to develop in partnership with various local schools. They participate in classroom sessions at the college and they also come to our training facility and do hands on training and summer internships with us.

That has proved very helpful in giving us access to a qualified group of students that we eventually recruit at the end of the two-year program.

www.nextgenpe.com

PEGO ED P122-123.indd 123

123

4/2/09 15:39:04

SPECIAL FOCUS

The search for black gold can be a challenging experience. Rebecca Goozee caught up with Devon Energy’s Rick Mitchell to find out why effective exploration requires more than a tattered treasure map and a sense of adventure.

A

s job titles go, they don’t come much more exciting than ‘Head of Exploration’. The very words conjure up images of adventure and derring-do, of pushing knowledge to the known limits, of going beyond the frontiers of what is possible. “We call it the Indiana Jones factor,” laughs Rick Mitchell, VP of Drilling and E&P Services at Devon Energy. “We like the challenge of finding ourselves in remote areas and supporting our divisions in setting up operations from scratch, where no drilling has been done before.” And while his role doesn’t necessarily require him to carry a bullwhip and a revolver, finding the buried treasure can still be a challenging experience.

Of course, just like Hollywood’s favorite fedora-wearing hero, Mitchell’s job isn’t all fieldwork; diligent research and hours of preparation go into making sure the search for oil and gas is a productive one.

He can typically be found going over drilling reports and talking with various divisions on what is working well or where there may be a problem, and assisting and supporting the staff. “I focus quite a bit of energy on our Devon Procurement Steering Committee, the group that oversees the major procurement of goods and services within our company,” he explains. In addition, Mitchell is in charge of the Supervisory Control and Data Acquisition (SCADA) group, which handles the remote monitoring of wells and facilities, as well as Devon’s major capital projects group. “My job encompasses many different things,” he says. “We’re responsible for supporting the seven different business units within the corporation, and we’re also the support group that helps and support all our exploration and production groups, as well as our marketing and midstream group. There’s a lot to do.”

While at first glance his role seems more Average Joe than Indiana Jones, Mitchell is facing a growing number of challenges within the industry. He believes that the top challenge is access, which is becoming more and more difficult. “That’s a common issue for all oil and gas operators,” he says. “At Devon, particularly over the past year, the E&P divisions have done an outstanding job of securing additional lands and picking up acreage from Canada through the US and internationally to where we continue to access and gain land at reasonable prices that will help us maintain profitability.” Nevertheless, Mitchell is a firm believer that more needs to be done to open new areas for drilling if the US is to meet its energy needs and achieve energy independence.

The other main challenge is controlling costs and ensuring the liability of operations. Costs have grown significantly since 2000, doubling across the board for just about every company in the industry.

One of the ways that Mitchell’s team has been supporting the E&P divisions in controlling costs is by ensuring efficiency in operations so that there is as little downtime as possible. “A deepwater drilling operation currently costs about $8 or $9 per second, a shallow operation is around $5 per second and a US onshore operation about $0.50 a second,” he explains. “Time is money, and when you can focus on efficiency and minimize problems, that’s one of the top ways in which you can control your costs.”

To help meet this challenge, Devon’s E&P divisions spend a great deal of time sharing best practices and lessons learned so that when they have a great market success rate or a good level of performance, it can be shared across divisions so problems are less likely to occur. “We capitalize on the learnings and experiences of others, which helps us to hit the next level of performance,” says Mitchell. “We spend a lot of time in supporting the divisions in experimenting with new technologies in a controlled environment, and in this way we can find that next level of technology that helps us improve and reduce costs even further.”

124

www.nextgenpe.com

DRILLING DEEP

RICK MITCHELL:18oct 04/02/2009 15:35 Page 124

RICK MITCHELL:18oct 04/02/2009 15:35 Page 125

“We’ve got fantastic deepwater and international teams at the moment and you will see Devon continue to explore and develop its existing discoveries”

FACT FILE Headquarters: Oklahoma City Founded: 1971 Employees: 5000+ worldwide Production: 224 million barrels in 2007 E&P Budget: $5.6-$5.9 billion in 2008

www.nextgenpe.com

125

RICK MITCHELL:18oct 04/02/2009 15:35 Page 126

THE BARNETT SHALE STORY Expansion and diversity As the largest US-based independent producer of oil and gas, Devon Energy provides three percent of all the gas consumed in North America and also produces about 600,000 barrels of oil a day. Since Mitchell joined Devon Energy in 2003, the independent oil giant has expanded to incorporate a diverse portfolio of exploration and production activities, including conventional oil and gas exploration and production in Canada, as well as good growth in heavy oil production and development in Canada and the deepwater Gulf of Mexico. The company also has a strong US conventional and non-conventional oil and gas production operation on the US onshore.

“After various mergers took place in the late 1990s and early 2000s, we had many different exploration blocks and areas all around the world, and Devon has now consolidated those into a strong and focused approach,” explains Mitchell. Since 2003, Devon has strategically defined its international approach and the company now works in just three main areas, China, Brazil and the former Soviet Union. “We have a wide variety of activities and projects throughout the company, and we’ve continued to grow production year over year, and that’s very exciting for us.”

Mitchell joined Devon Energy as Director of Deepwater Drilling and Facilities, a unit that he is still involved in today. In 2007, deepwater exploration accounted for around 10 percent of Devon’s portfolio, and the company is keen to keep expanding. “Right now, we have three deepwater rigs operating for us and our activity level is expanding,” he explains. “Over the past five to 10 years, Devon has spent a lot of time focusing on expanding its deepwater portfolio, and preparing some high impact and high potential prospects to drill.”

In terms of its deepwater exploration, Devon is concentrating on three main geographical areas, the first being the Gulf of Mexico. So far, Devon has four proven discoveries with partners in the Lower Tertiary trend, of which several are starting the drilling phase now – the Cascade project is one such example, and Devon expects to see the first production from the project in 2010. “We are also partners in Jack and St. Malo with Chevron, and the Kaskida project with BP, so we’ve got some very good projects underway, with drilling expected for both projects by the end of the year,” says Mitchell. “We are working very closely with our partners, and we’re working such that we can accelerate, get these projects moving and a return on production as soon as possible. We don’t have firm start-up dates for Jack and St. Malo and Kaskida yet, but we think they’ll probably be in the 2013 timeframe.”

There are two other areas that Mitchell is excited about, including deepwater China, which he considers a frontier area, citing the one significant discovery there by Husky Oil and Gas. Deepwater Brazil is another area with numerous prospects. Devon is currently one of the largest exploration and production companies with leaseholds in the area. Last September, Devon announced the preliminary results of an exploratory presalt well in the Campos Basin offshore Brazil. “We’ll be continuing with a rather aggressive and exciting exploration program in Brazil for several years to come,” he says.

126

www.nextgenpe.com

ot long ago, the Barnett Shale formation in north Texas represented a geological puzzle that had gone unsolved for more than 40 years. Geoscientists knew vast energy reserves were sealed inside the tight, black rock formed from organic material deposited 325 million years ago. The challenge was recovering them.

Through a lot of hard work and a great deal of unconventional thinking, Devon unlocked the stingy shale known for its low porosity and high complexity. Engineers use a method known as fracturing to foster permeability in the shale. Crews inject a mixture of fresh water and sand into the rock at high pressure to fracture the formation and release gas trapped inside.

The technology has given Devon access to vast reserves, transforming this challenging play surrounding Fort Worth into one of the nation’s most important natural gas producing fields.

In all, Devon has more than 3500 wells producing in the field. The company uses innovations such as horizontal drilling and advanced seismic technology to ensure each well reaches its full production potential.

Devon is optimistic about its future production growth in the Barnett Shale and will continue to expand and recover gas reserves contained under a dominant lease position of more than 715,000 net acres.

Through Devon’s pioneering efforts, the Barnett Shale has emerged as the largest natural gas field in Texas. Within the last several years, Devon has made significant advances in developing and enhancing production from the Barnett. The north Texas play has potential to remain one of the country’s most vital energy resources for many years to come. Devon’s accomplishments in the Barnett are an example of technology and innovation helping meet growing energy demands by finding new ways to tap North America’s remaining reserves.

N

Technology Technology has been vital in improving operations at Devon, and is quickly transforming E&P operations. With an evermore prevalent focus on horizontal drilling in the US and Canada, Mitchell has seen much improvement in the capabilities of the down hole drilling equipment to help drill horizontal wells. The number of horizontal wells drilled per year was about four percent back at the beginning of the century; now the figure stands at around 12 percent. Mitchell predicts a further focus on drilling technology that incorporates horizontal drilling and completion techniques. “In 2009, we believe that Devon could be drilling as many as 700 horizontal wells, and that’s a key area that will help us to become more successful,” he predicts.

He is also tremendously excited about some of the new horizontal completion technologies that are currently coming online. “These completion technologies allow us to drill and complete longer intervals so that we can stimulate more zones and maximize the production and reserves per well in a timely and cost-effective manner,” he says. Of course, one of the key changes that technology has made is that in almost every circumstance, safety techniques have been improved, from rig designs to the way in which the equipment is handled. Mitchell also believes there has been

RICK MITCHELL:18oct 04/02/2009 15:35 Page 127

a focus on making things more efficient, and Devon’s E&P divisions are doing a great job in this area.

Technology has also made it easier to access the reserves that lie in the most inhospitable places in the world, and possible to work with unconventional oil deposits such as oil sands. Although Mitchell admits that there have been challenges in these areas, he goes on to explain that a relatively large group of employees at Devon that have spent a great deal of time working in difficult places and have the experience to make these opportunities successful.

“Even though it’s difficult, you have to set up everything yourself and get going. There are a lot of people in our company who like that challenge and enjoy it – we certainly don’t shy away from that side of operations” “It goes back to that Indiana Jones factor,” laughs Mitchell. “Even though it’s difficult, you have to set up everything yourself and get going.

There are a lot of people in our company who like that challenge and enjoy it – we certainly don’t shy away from that side of operations.”

Environment

Rick Mitchell

Even in more remote locations, the onus is on improving productivity and reducing costs while making safety targets and environmental regulations. Mitchell says that Devon uses the same model throughout the organization regarding environmental and social issues. Devon has always put the environment and people first. “When you take the time, effort and precautions to put the people and the environment first, the challenges don’t seem to be as great, and you are accepted by more people in the community,” he explains. “People tend to want to help you and be a part of the team if they see you as a good corporate citizen.”

A major part of the exploration process is seeking input upfront about the areas Devon is working in, and Mitchell explains how employees will go in and meet with the local communities in the environment to make sure all goals are aligned from day one. “It makes a lot of sense to understand the area you’re working in, and who you’re working with,” he points out.

“And when we collaborate with the local people, we get potential problems sorted out in advance, and typically costs and performance then fall right in line and you don’t have to deal with unforeseen events, which can be costly and cause delays.”

Future focus Devon has plans to maintain its strong presence in Canada, where Mitchell wants to continue the good work in the heavy oil area. He believes that Devon is currently leading the way in producing natural gas from the

Barnett Shale in North Texas, the Woodford Shale in Southeast Oklahoma and other shale plays that continue to emerge, predicting growth in these areas. It is, he concedes, an exciting time.

Mitchell also says that work will continue with the ultra-deepwater programs, such as exploration in the Gulf of Mexico, Brazil and China. “We’ve got fantastic deepwater and international teams at the moment, and you will see Devon continue to explore and develop its existing discoveries. We expect to do more of the same, executing the strategies and programs that we have because we believe that these are the right places to be and the right things to do, and we’ll do our best to continue growing the company.”

He does, however, sound one final note of caution: for the industry to truly progress, more must be done to address the talent shortage. Much has been achieved already, but even so the industry cannot afford to take its eyes off the prize. “Everybody is just so busy right now,” he concludes. “We’ve got lots of new and relatively inexperienced people in the industry. It takes a lot of time and extra effort for us to ensure that we’re protecting our people and the environment, and then are able to execute and perform at a high level of expectation with all the new things going on and the significant levels of activity. It’s a challenge, but one we’re enjoying meeting.” n

OPERATIONS Devon’s worldwide portfolio of undeveloped oil and gas properties provides an extensive inventory of exploration drilling opportunities to enhance the company’s potential for sustained growth. Devon’s production is weighted toward natural gas and most of its operations are in North America.

■ 64 percent of production is clean-burning natural gas ■ 36 percent is oil and natural gas liquids, such as propane, butane and ethane ■ More than 90 percent of both production and proved reserves are in North America, including the US onshore, Canada and the Gulf of Mexico ■ Devon produces 2.4 billion cubic feet of natural gas each day, or about three percent of all the gas consumed in North America ■ About 40 percent of Devon’s gas production is from unconventional sources, such as the Barnett Shale in north Texas, and coalbed natural gas fields in New Mexico, Wyoming and Canada

www.nextgenpe.com

127

ANDY INGLIS ed:dec08

4/2/09

15:31

Page 128

SPECIAL FOCUS

The retirement of the babyboomer generation is only part of a far bigger challenge being experienced by many industries, including the energy sector: that of plugging the capability gap.

BP’s Andy Inglis tells us more.

I

n business, strategic challenges come and go and we usually conquer them in the end. That is what we do: we manage risks, whether they be technical, geological, commercial or political. And today, near the top of that list is capability.

The really big strategic issue for the oil and gas industry – like the utilities industry – is matching the earth’s resource endowment on the one hand, with the capability – technology, skills and know-how – required to bring those resources to market on the other. The days of ‘easy oil’ are well behind us. For international oil companies, and increasingly national oil companies too, new resources are harder to reach and tougher to produce.

Resources are now found in reservoirs that lie at greater water depths, at higher temperatures and pressures and require complex drilling and completion designs. Bringing them into production is going to be difficult. It will require that capability gap to be filled.

The global context Recent developments in financial and commodity markets are just the latest reminder that we are definitely living in interesting times. In the current chaos, it is easy to focus on the short term, but I want to maintain a longer-term perspective. There has been a period of exceptional worldwide economic growth. Although the short-term outlook for worldwide economic growth is evidently deteriorating, the fundamental drivers of long-term growth in demand for energy remain in place.

We have entered a new phase in global industrialization, led by China and India. When Europe industrialized, it involved 50-100 million people moving from a rural to an urban way of life. The US industrialization involved 150-200 million people. And those changes took centuries. But in the next decade, in China and India alone, over one billion people will be moving from a rural to an urban way of life. This will result in a dramatic increase in energy consumption to provide light, heat and mobility.

According to the International Energy Agency, by 2030, world energy demand will be 50 percent higher than today, and non-OECD countries are expected to contribute 85 percent of the total world energy demand growth between 2005 and 2030. Contrary to what you may hear from some quarters, there are more than enough resources to meet that demand. At the end of 2007, total remaining proved oil reserves stood at around 2.3 trillion barrels of oil equivalent. At today’s consumption rates, we believe we have around 40 years of proven oil reserves, 60 years of natural gas and 130 years of coal.

128

www.nextgenpe.com

50%

Expected increase in world energy demand by 2030

And let us not forget that enhanced capability would improve that resource-to-production ratio further. For instance, the worldwide average recovery factor for conventional oil reservoirs is around 35 percent of oil in place. If we can raise that by just five percent, it would add around 170 billion barrels to world reserves – enough for five years’ supply.

The task facing the industry is to ensure supply rises adequately to meet demand by bringing this oil and gas endowment to market. These resources are found in increasingly challenging environments – in the deserts of the Middle East and North Africa; in the deepest waters of the Gulf of Mexico, West Africa and Brazil; and in the Alaskan and

ANDY INGLIS ed:dec08

4/2/09

15:32

Page 129

Managing the talent

crunch

Russian Arctic. Many of these resources are controlled by NOCs that do not always have the same capability at their disposal as IOCs. To accomplish this, we need the smartest engineers and geoscientists.

Increased computing power and better technology will also make a huge contribution, but they are not a magic bullet. State-of-the-art software programs and seabed monitors are fantastic – but I’m not expecting them to walk into my office with a solution to the problem. Technology is only as good as the people who design and operate it. With capability, it is people who make the difference. Turning these resources into reserves and then production is going to require leadership, ingenuity and innovation as well as technology.

The capability challenge The first point to consider is demographic pressures. Looking specifically at averages, the average employee working for a major operator or service company is 46-49 years old. This is a problem we have been aware of for several years and which we have been addressing. The good news is that we see an increase in the 20-34 year old bracket – reflecting more intensive recruiting in the last 10 years. The fall in the percentage of 3549 year olds reflects a lack of recruiting during the years of lower prices, when the industry saw the main strategic challenge to be increasing efficiency through consolidation and mergers as opposed to building organizational capability.

www.nextgenpe.com

129

ANDY INGLIS ed:dec08

4/2/09

15:32

Page 130

STAFF DEVELOPMENT IN ACTION

In Azerbaijan, development of local talent has been achieved through a number of BP initiatives: Special entrance and development programs for graduate recruits: This is through the Challenge program; 50 Azeri graduates completed the program last year

I’m approaching 50 myself, so I am in that age group. And in some ways my own experiences are typical. I joined BP in 1980, and in 1990 was told that mechanical engineering was not considered core to BP’s strategy, that we would follow a track of outsourcing and use of the contracting industry.

This caused me to broaden into other disciplines and areas. I’m happy to now be back in the core of E&P. I have kept my technical roots, I’m a chartered engineer, very proud of it, and very passionate about ensuring we do not repeat the mistakes of 20 years ago.

The second point is that despite our best efforts, we are not attracting enough graduates from traditional recruiting areas such as the US and Europe. Even when people enroll on engineering degree courses intending to join the engineering ranks, this does not mean they will follow through.

One recent study found that of the 90 percent of students who originally aspired to work in the sector when they began their degrees, only 65 percent actually did so.

The overall impact of these pressures has been estimated by Cambridge Energy Research Associates as a potential 10-15 percent ‘people deficit’ by 2010, compared with the estimated number of staff needed to deliver projects. This is being felt across the industry – in oil and service companies alike. The issue is leading to project delays or deferral. Goldman Sachs’s study of the top industry projects shows that more than 40 percent have experienced a delay of a year or more.

I believe we are suffering from a number of what I would regard as misconceptions. Some of these misconceptions were once true, but are now outdated. The oil and gas industry suffered a boom and bust in the 1980s and early 1990s that left many with an impression of instability and a sense that there was no prospect here of a ‘career for life’. My earlier story regarding the outsourcing of engineering is evidence of that. The industry is also perceived as low-tech and out of date when set against other hi-tech areas such as IT, media and pharmaceuticals. Nothing could be further from the truth. Historically, this

130

www.nextgenpe.com

The Caspian Technical Training Centre: A $12 million world-class training centre dedicated to training technicians to work in BP’s Caspian operations – to date it has trained over 1000 technicians, with a steady state now of 100 per year Professional development of national staff: In 2007, more than 100 employees were supported by BP in their professional education, whether attaining chartership accreditation, or advanced degrees at UK and US universities Overseas assignment in other BP operations: Where Azeri staff can learn best practices from other operations to bring back to Azerbaijan

was also a very white and very male industry so it has been perceived as lacking in diversity. As an industry we must address and correct these unhelpful and old-fashioned misconceptions, so that we can be competitive with the other opportunities graduates have in consulting, pharmaceuticals and the media.

Attracting and retaining talent First we need to retain the talent of our experienced employees. People are working later in life today – certainly later than the traditional industry retirement age of 55 – but this cadre of employees also demands more flexibility. At BP we have a scheme in place to access the skills of our retired staff for specific challenges and projects of interest to them. We offer flexihours and part-time working to encourage individuals to work beyond the statutory retirement age. We have to be accommodating to continue to access this talent.

ANDY INGLIS ed:dec08

4/2/09

15:32

Page 131

ANALYZING REAL-TIME DATA The Advanced Collaborative Environment (ACE) is a high-tech environment where drilling, reservoir, facility and petroleum engineers can sit together and collectively analyze the data to maximize operating performance. An example of this in operation is a recent situation on BP’s Atlantis platform in the Gulf of Mexico, as Andy Inglis explains.

“A control responsible for the start-up of automated equipment failed, resulting in the shut-down of instrument air systems and gas compressors. Onshore and offshore personnel working through the ACE were able to assemble a team of engineers and automation specialists and troubleshoot the issue. Within 30 minutes, engineers onshore were able to lead the automation team offshore through the reset process and bring the failed system back online. If another 10 minutes had passed without functioning water or air cooling systems, the team would have been forced to shut down production. The savings through lost production avoided was nearly $3 million.

Today in BP, more than 35 of our assets now have ACEs. Cost savings run to the tens of millions of dollars – through reducing engineer and vendor trips offshore, as well as reducing non-productive time.”

Then, looking at the other end of the age spectrum, we also need to be sensitive to the aspirations of people in their mid-20s – often described as Generation Y. From our own interviews with new graduate entrants, we know that their top motivations are quite distinctive and in many ways different from past generations. For example, there is much less emphasis on having a job for life and much more on the quality of experiences and the chance to make a difference.

To attract and retain the top graduate talent, BP offers a development program called the Challenge Program. This began in 1993 with 30 people from the UK and US. Today the program has graduated over 3200 people and we currently have 1200 Challengers from all over the world in the program. Challenge is about building deep petrotechnical skills through a combination of on-the-job work experience, dedicated mentoring from experienced employees, clearly defined training and course curriculum, and field and operational experience. Graduation and intermediate reviews are based on competency assessment. This creates self-standing individuals, carefully placed into the right next roles with access to further learning offerings such as accelerated development programs.

We also need to get closer to talented students earlier, as they make their way through university. That’s the time at which we need to be there

to correct misapprehensions and ensure the full attractions of a career in energy are made clear. We do that through partnerships with major academic institutions, but also by raising our profile on campus. To be honest, I think we have more work to do here.

A diverse workforce Second, we need to correct some of those outdated misconceptions by continuing to diversify our workforce and celebrating that process. After all, that is simply a reflection of globalization in action. By 2020, over 50 percent of BP’s operated production will come from non-OECD countries, giving us much more geographical breadth and depth than in the past.

Many governments want to see greater local participation in the development of their country’s resources and we fully support their aims. Over the last decade or so our operations have grown rapidly in countries such

www.nextgenpe.com

131

ANDY INGLIS ed:dec08

4/2/09

15:32

Page 132

Improved efficiency Third, let me move to technology as a means to plug the capability gap.

Technology improves productivity by enabling us to perform tasks faster and with greater effectiveness and efficiency.

Let’s start with the basics in my own business. Historically our production engineers have spent up to 40 percent of their time looking for data. A quick win for us was to create a web-based information management system that allows our PEs to quickly access the data they need to do their jobs. Piloted in Alaska and now available across our operations, this tool has allowed us to reduce the amount of time spent on accessing data to less than 10 percent of the time, releasing our PEs to spend more time managing our wellstock and operations, increasing their ‘wrench time’.

Go back not too many years and our reservoir engineers would spend a week doing one history match; it may have taken six months to run 25 cases to find the one deterministic answer that matched. Now, with improved workflows and computing power, we can do well over 1000 history matches a week, a huge step change in efficiency, and importantly allowing multiple solutions to be found – which in turn has greatly improved our understanding of risk and uncertainty.

THE ROLE OF IOCs

BP operates all over the world, including the North Sea off the coast of Aberdeen, Scotland. as Angola, Colombia, Egypt and Trinidad. In all of these countries and many others, we have made an early priority of developing local leaders as well as local frontline workers. We adopted an approach of developing local talent, using the global capabilities of the firm.

Let’s look at the example of Azerbaijan. BP has been in Azerbaijan since 1992 and is the largest foreign investor in the country. We operate more than one million barrels of oil a day equivalent in Azerbaijan from two giant fields in the Caspian Sea – ACG, an oilfield, and Shah Deniz, a gas-field. We also had a leading role in the construction of the BTC pipeline that takes oil from the Caspian to the Mediterranean. In total, an investment of $28 billion by BP and our partners.

At $100/bbl, this production is projected to generate more than $25 billion of revenue for Azerbaijan during 2008. But we also want to generate human capital for the region by accessing and developing local talent and using local suppliers. Over the last 15 years, we have built up a workforce of 2700 BP staff and 1100 contractors and we have made a priority of employing and developing local talent. Today 83 percent of that workforce is Azeri, and we are aiming to reach 90 percent by the end of the decade. What we are creating in Azerbaijan is a replica of what occurred in Colombia over the last two decades. Today in Colombia, more than 95 percent of the staff are locals, including all senior management positions.

132

www.nextgenpe.com

International oil companies have a unique role to play in addressing the energy challenges of the 21st century.

1. IOCs shape the oil and gas markets and make them work. They are global multilateral energy vehicles. They form the bridge between producing and consuming nations. They are involved in the energy policy dialogue with all of the key resource holding governments and consuming nations 2. They lead the efficient resource development of oil and gas, working on the frontier of the energy industry 3. Only the IOCs – and one or two national oil companies, such as Saudi Aramco, Petrobras, Gazprom – have the skills, technology, know-how and balance sheets to effectively execute multiple complex and risky projects simultaneously, and apply the learning from them globally to drive efficiency 4. In terms of logistics, IOCs are the largest movers of hydrocarbons and most efficient managers of fuel infrastructure 5. They are pioneering investors into alternative energy solutions and energy efficiency 6. They also have strong diversified global asset bases not overly exposed to any single geopolitical risk

ANDY INGLIS ed:dec08

4/2/09

15:32

Page 133

“The really big strategic issue for all oil and gas companies is matching the earth’s resource endowment on the one hand, with the capability – technology, skills and know-how – required to bring those resources to market on the other”

Remote monitoring is another technique that enables us to achieve better performance with less labor-intensive processes. For instance, we are using remote monitoring on a number of our turbines in the Gulf of Mexico. Our vendor, who is located in California, monitors the operations 24 hours a day. Through remote monitoring, we have been able to increase the intervals between service shutdowns and push the operational limits of the machines. Benefits include real-time troubleshooting of the equipment by internal and external subject matter experts from around the world; production loss avoidance due to sustained equipment uptime; and deferred costs by extending the equipment lifetime through increased monitoring.

In the past, one individual was able to monitor 40 engines. Today that person can monitor 4000 – a 100-fold increase – because the system works by exception, flagging up potential problems, rather than by constant surveillance of all the equipment. As an industry we are beginning to understand the full potential of predictive analysis as the next evolution of this technology.

Anticipating events and hazards ahead of time, creating intelligent software to advise of, and in some cases make, corrective actions and adjustments.

These are early days for many of these technologies and we are learning more all the time, finding ways to increase further the productivity of our scarce human capability.

opportunity at every stage of a career. To deliver this strategy we have chosen to partner with the best educational institutions in the world. We all benefit from these partnerships. BP gets to teach the ‘BP Way’, in partnership with world-class educators. Our staff get the chance to develop as individuals. And I hope our academic partners benefit too.

We have built an impressive consortium aimed at building our capability by advancing our technical learning and development, involving five universities – Rice University, Baylor College of Medicine, Imperial College London, Herriott Watt in Aberdeen and the University of Manchester – each of which has its own distinctive area of expertise. Capability and managing talent have to be at the core of strategy for every company in our industry right now, and at the front of the deliberations for all boards. Sure, the guard is changing and that creates a major challenge for us. But it has to be seen as part of a far bigger picture. Our industry brings energy to markets from some of the most difficult places in the world. We are used to challenges. In fact we relish them. And we are managing the changing of the guard by seeing it as part of a bigger strategic challenge: plugging the capability gap.

At BP we are addressing this challenge in four ways: Attracting and retaining talent; developing a diverse workforce; leveraging technology to increase the efficiency of our organization; and offering a powerful learning culture, notably through partnerships with some of the world’s leading academic institutions. There is always more to do, but we know that building organizational capability goes right to the heart of our competitive advantage.

2.3 trillion

Remaining proved oil reserves at end of 2007 (barrels of oil equivalent)

Learning partnerships The fourth part of our strategy is to underpin the development of our staff with a world-class learning offer for all levels and ages of our organization. I talked earlier about one aspect of this, our Challenge entry program for graduates, and our goal is to provide the same learning

www.nextgenpe.com

133

O

ne of the major issues that the US oil and gas industry faces is access to resources. And when the extension of the ban on drilling the outer continental shelf lapsed last September, the opportunity to access a huge amount of energy resources shot sky high. Eighty-five percent of America’s continental shelf has been off limits since 1985; in other words, the industry has been unable to get access to those areas that contain an abundant amount of natural resources.

Bruce Vincent, VP of the Independent Petroleum Association of America (IPAA), believes that much of the outer continental shelf has potential. “The United States Geological Service has estimated the amount of available resources throughout the US, finding substantial resources,” he says. “The interesting thing about their estimates is that they’re based on decades-old data. The industry has made great strides with technology in the last 10 to 20 years. By using

modern technology, particularly with regard to the ability to process and analyze seismic data, our believe is that the resource base is probably larger than what’s currently estimated.”

Vincent believes that California has a big part to play, as it has an offshore area that is known for its tremendous amount of natural resources. As infrastructure is already in place here it is possible for a development to spring up fairly quickly, compared to some of the places on the east coast, for example. “California is attractive because it has previously been drilled in, and there’s a lot of data about the area, particularly offshore of the south. In terms of getting resources to market more quickly, California would be one of the places that would be prioritized,” explains Vincent.

It should be possible to get products from California to market within two to four years, he says, compared to five to 10 years if you look offshore of the east coast. “It’s a matter of where the opportunities are,

Offshore opens up Will access to the outer continental shelf change oil and gas exploration and production in the US?

134

www.nextgenpe.com

BRUCE VINCENT ED P134-135.indd 134

4/2/09 15:37:27

the existing data sets and the infrastructure that may or may not be in place.”

While the ban expired in September, it will take time before the industry is able to start making things happen. The Minerals Management Service, which oversees the Offshore Leasing Service, has to revise the 2007/2012 fi ve-year plan, which means it will probably take some time for any new leases to be issued. “It could be 2010 before exploration production companies can begin activity on the outer continental shelf,” confirms Vincent.

But while some areas may take up to a decade to produce new resources, the sooner it is started the better. “I learned a long time ago that things take time to do, and if we don’t ever start we will never get there,” says Vincent. “We need to give industry access to these areas. The industry is an incredibly technologically advanced, nimble industry that, given time, will tap the resources and make them available to the US and improve our energy security position.”

the industry wouldn’t be where it is today.

“Tough times help drive people to be creative and innovative,” he says. “The 80’s and much of the 90’s were difficult times for the oil and natural gas industry, and what they did is say, ‘We can’t do anything about the price, but we need to focus on the things we can control.’”

The oil and gas industry is a technologically advanced business and the leaders have created many new technologies from the geoscience/geophysical side, from understanding where oil and gas might be, to completion technologies that enable you to get hydrocarbons out of the ground in places that you couldn’t before. “It’s been those technological advances that have allowed the industry to continue to grow reserves in production and exploit the vast resources that are available to us today,” says Vincent.

“The best example of that is natural gas, which is projected to grow four percent this year. It’s remarkable quite frankly, to be able to grow production on a base that big. But it’s due to the development of technologies that have allowed the industry to tap into Attitude shift unconventional resources.”

There has been a shift in public opinThese are resources that the industry has known about for deion, and in recent polls, the majority want Congress to lift their ban on cades, but it is only now that they are about to extract the hydrooffshore drilling. Vincent believes that there are a couple of reasons carbons in a commercial and economically viable way. It is through for this. First, the American public realizes the need for the industry horizontal drilling, completion activities and multistage fracture to develop additional resources, both in reducing imports into the US simulation technologies, for example, that these unconventional and to create more supplies for the world. “The supply/demand balresources have been able to become economic. ance for oil and natural gas is fairly thinly balanced, and we saw how last year, for example, oil shot up to almost $150 a barrel. The best However, challenges still exist in the industry. Drilling tens of solution is to increase more supply, as well thousands of feet underground in highas to become more efficient and conserve pressure, high-temperature environments FAST FACTS: to reduce demand.” is extremely challenging, and as you go PACIFIC OCS REGION Second, the American public is aware deeper the better you need to be. “We that the industry has a 99 percent record of have to become more efficient in order to Acres under lease: 400,505 exploiting oil and gas production in an envidrive costs down. The financial crisis has Active leases: 79 ronmentally responsible way. People flock to triggered an economic downturn and a Producing leases: 43 the beaches offshore in Texas and Louisiana significant reduction in the price of oil and Barrels of oil per day: 63,000 where the industry has drilled successfully gas. From the industry’s perspective, we’ve Cubic feet of gas per day: 130,000,000 for decades. “The last real offshore oil spill been through these cycles for decades and Total oil and gas wells drilled: 1290 of significance was back in 1969,” explains we know how to deal with it – by driving exTotal development wells drilled: 999 Vincent. “It was in Santa Barbara off the penses down,” explains Vincent. “You need Total exploration wells drilled: 328 coast of California, and that still rings in to drive costs down so that you can conOil and gas platforms: 23 some people’s memories, but for decades tinue activities and continue what you are Miles of pipeline: 188 now, the industry has successfully explored best at. Technology is one of the things we Companies operating Pacific OCS resources in a responsible manner.” can use to do that. As technology improves facilities: 7 One reason that the industry has been for going deeper, we’ll be able to continue able to successfully exploit offshore is to unlock resources that are available, parSource: www.mms.gov technology. If it wasn’t for technology, then ticularly in places like the Gulf Coast.” 

“For decades now, the industry has successfully explored resources in a responsible manner”

www.nextgenpe.com

BRUCE VINCENT ED P134-135.indd 135

135

4/2/09 15:37:28

comment

136

Looking for backup Chandni Raj, Research Analyst at Frost & Sullivan, looks at whether alternate energy storages solutions are practical in the UPS market.

T

here is growing interest in alternate energy storage solutions in the UPS industry. But are they practical indeed for mass commercial use? The answer is ‘not yet’. Most of the interest generated is more or less on the academic side rather than marketing. The UPS market is still not ready to take on alternate energy storage technologies in a big way, simply because of the impracticalities associated with them. Many UPS manufacturers invest in research and development of alternate energy technologies for obtaining longer backup time as well as lifetime, along with promoting green technologies. Installed base for these technologies is currently low and their uptake is expected to be slow for the next five to seven years.

Key technologies The key alternate energy storage topologies are flywheel, fuel cells and ultracapacitors. The market for these topologies is very small and they are not expected to occupy a large share of the market in the short and medium term. The global flywheel UPS market occupied around one percent of the global UPS market in 2007. Industrial ultracapacitors, which includes UPS, occupied 0.5 percent of the global UPS market share. Most of the UPS systems with fuel cells and ultracapacitors are currently on trial versions and register slow sales.

Other than reducing the carbon footprint, what favors such technologies is the longer lifetime along with less need for maintenance. However, many challenges or roadblocks have hindered the rapid growth of this market. For example, alternate energy technologies are highly expensive and are not widely available. There are very few manufacturers offering these solutions for UPS systems. This also contributes to keeping prices high.

There is less awareness about these technologies among the masses and are therefore not preferred by consumers. UPS consumers would much rather opt for a reliable battery-based UPS system than a flywheel or fuel cell UPS. Additionally, the backup time for these topologies is much less as compared to that of battery-based systems. While battery-based UPS is capable of providing several hours of backup power, flywheels and ultracapacitors offer an extremely brief backup time. This makes them suitable for applications that require short backup time, and have a generator connected to the system. Although a typical power interruption does not

136

RAJ.indd 136

last for more than a few seconds, end-users prefer to have a minimum of 15-30 minutes of backup time, simply to avoid any surprises.

Reducing downtime For certain applications such as datacenters and telecommunications, even a few seconds of downtime leads to massive losses in revenues. Batteries, despite their environmental impact in terms of their chemical composition and disposal issues, are cheap, reliable, have long backup time and have been tried and tested over the years.

More than 90 percent of the UPS market still adheres to battery-based technology. There is a considerable reluctance in the UPS industry to shift preference from batteries to alternate energy for storage. A massive shift to alternate energy storage topologies is not expected to happen until 2015, as per the Frost & Sullivan report on World UPS Alternate Energy Storage Solutions. Thus, it is expected that battery-based UPS systems will dominate the market and remain widely preferred. Alternate energy storage topologies in the UPS market are expected to have very slow penetration, and can therefore be seen only as technologies for the future. These technologies would gain mass acceptance in the UPS market in the future, if technology advances enough to meet commercial requirements of long backup time and reasonable prices. ď Ž

www.nextgenpe.com

4/2/09 15:34:05

CATALOGUE PAGE P+E:jan09 04/02/2009 15:54 Page 137

Your World. Covered From the people you hire to the products you sell, if you’re in business, we’ve got it covered...

NextGen Power & Energy A poll of 4000 utility executives posed the simple question: what keeps you up at night? The answers were costs, new technologies, ageing infrastructure, congested transmission and distribution, viable renewables Available for: and inadequate generation capacity.

US

NextGen P&E covers them all.

Find out more: www.nextgenpe.com

Oil & Gas Collaboration between Government and multinationals to ensure the energy supply is developing on two fronts. O&G is the definitive publication for stakeholders and service companies to read about the regional projects, technologies and strategies affecting their group.

Available for: US, MENA, Russia Find out more: www.ngoilgas.com

Financial Services Technology Providing for its customer’s needs and demands is the goal of financial institutions now more than ever. But it is a tricky remit to fulfill. Your customers want it all – security, cost-efficiency, speed, added functionality and, most of all, convenience.

CXO Technology leadership is merging with strategic and financial leadership, and senior management is being called into a partnership for the future.

CXO brings together a range of voices with one shared vision: to develop a strategy that considers business needs and technology’s role in moving your company forward.

Available for: Europe Find out more: www.cxo.eu.com

Business Management What business processes work? What are the proven, successful strategies for taking advantage of domestic and international markets?

Can it be done? Read FST to find out…

Business Management is about real, daily management challenges. It is a targeted blend of leadership and learning for key decision makers in government and private enterprise.

Available for: US, Europe

Available for: US, Middle East, Russia

Find out more: www.us-fst.com

Find out more: www.busmanagement.com

Next Generation Pharmaceutical HRManagement HR needs three eyes: one on the past – don’t lose sight of the systems that generate value; one on the present – determine if current processes are efficient; and one on the future – be proactive in meeting new challenges.

HRManagement concentrates on the development of HR strategies, directions and architectures.

Available for: US, Europe Find out more: www.hrmreport.com

Approximately 50% of new drug development fails in the late stages of phase 3 – while the cost of getting a drug to market continues to rise.

NGP is written by pharmaceutical experts from the discovery, technology, business, outsourcing, and manufacturing sectors. It is committed to providing information for every step of the pharmaceutical development path.

Available for: US, Europe Find out more: www.ngpharma.com

gdsinternational

www.gdsinternational.com

JAPAN FOCUS

138

Eastern promise Home of the Kyoto protocol, Japan has pledged to reduce its greenhouse gas emissions – no easy task in such a high-tech society.

FAST FACTS

Tokyo skyline

C

omprised of 128 million people, Japan is the world’s 10th largest population and boasts an attitude of energy efficiency that sets the standard to other Asian nations. As a country that has very few natural resources of its own, and with utility costs high as a result, Japanese consumers are keen to use energy wisely and minimize the rate of energy consumption.

As a signatory and host of the Kyoto Protocol, Japan has pledged to reduce its greenhouse gas emissions by six percent from the 1990 level between 2008 and 2012. However, the likelihood of achieving this seems small as Japan’s

138

emissions reached record level in 2007: 1.37 billion tons of greenhouse gases were emitted, eight percent more than in 1990. The government accounts for this increase by citing the suspended operations at the Kashiwazaki Kariwa nuclear power plant in Niligata Prefecture, following damage to the plant by a major earthquake.

In order to increase its efforts to control emissions, Japanese utilities are being encouraged to invest in nuclear power plants, but this unlikely to be welcomed by consumers distrustful of nuclear energy. Instead, Japan is to adopt a cap-and-trade strategy during the run up to the 2009 Copenhagen meeting of the Kyoto Convention signatories.

As one of the most overcrowded cities in the world, men known as ‘pushers’ are recruited to pack people onto the city’s trains.

In the 1920s the University of Tokyo became one of the first Imperial universities and houses institutes for earthquake research, cosmic ray research, nuclear study, solid-state physics, applied microbiology, ocean research and Asian culture.

www.nextgenpe.com

japan travel back.indd 138

4/2/09 15:36:54

BRILLIANT BIOFUELS

An expanding number of airlines are slowly decreasing the amount of carbons emitted with a change in fuel usage. January 2009 saw the completion of test flights by both Continental Airlines and Japan Airlines using a replacement of biofuel, rather than petro-fuel. The greener fuel is a mixture of jatropha oil, algae oil and camelina oil, the latter being a debut for the usage of feedstock within a fuel mixture.

Japan Airline’s test fight was conducted in a Boeing 747-300, hosting a fuel mixture of 50-50 biofuel/Jet-A in a standardized engine. The pilot’s reports from the test stated the biofuel to be more fuel-efficient than 100 percent traditional jet fuel, a comparable finding with the results of the Continental Airlines test.

Kyoto Kyoto’s main industry is electronics, it being the home to giant brands such as Nintendo, OMRON, Kyocera and Wacoal. Its traditional heritage of kimono weavers remains one of the city’s major manufacturing sources, but the decline of this cultural heritage result in an overall decline of Kyoto’s total output, especially in relation to the success of Tokyo.

Almost the only city to escape the Allied bombings of World War II, Kyoto still retains a an unparalleled collection of cultural snippets, to be found amidst the redeveloped metropolis of the city. To taste a slice of traditional Kyoto, take a visit to Kinkaku-ji, the Temple of the Golden Pavilion: built as a retirement villa for Shogun Ashikaga Yoshimitsu at the end of the 14th century, the pavilion was notoriously burnt down in 1950 but rebuilt to reflect Kyoto in all its traditional stereotypes.

Nintendo DS

Tokyo The Tokyo Stock Exchange is the second largest stock exchange in the world, behind only to New York. At present, it lists 2271 domestic companies and 31 foreign companies, with a total market capitalization of over $5 trillion.

Situated between Tokyo Station and the Tokyo Imperial Palace is Japan’s business district, Marunouchi. Along with neighboring Otemachi, this is home to many of Japan’s largest companies, particularly those from the financial sector. Other business areas include West Shinjuku, which houses the Metropolitan Government offices. With recent deregulation easing market entry for foreign companies, Makuhari Messe, halfway between the city center and Narita Airport, and the new Tokyo Big Sight complex in Tokyo Bay have also made the city Japan’s major trade fair venue.

Shibuya – a major shopping area in Tokyo is a definite place to visit for anyone interest in Japanese fashion. Omotesando – a broad, treelined avenue leading downhill from the southern end of the JR Harajuku station– shows the other side to Harajuku fashion and is not only full of cafés and international brand clothing boutiques, but also includes the up market Omotesando Hills. This stylish center is full of the who’s who of world fashion brands including Yves Saint Laurent, Dolce & Gabbana, Porsche Design, Dunhill, Jimmy Choo and Adore. The center covers six floors and has a very fashionable interior design. While Paris and Milan may be the center of world fashion design, Omotesando is the center of world fashion consumption.

Tokyo Imperial Palace

www.nextgenpe.com

japan travel back.indd 139

139

4/2/09 15:37:01

Face Off

140

Cap and trade Obama’s New Energy for America plan intends a cap-and-trade policy to reduce carbon emissions by 80 percent. Power & Energy examines the proposal in light of the current economic climate.

Robert Stavins, Albert Pratt Professor of Business and Government Director, Harvard Environmental Economics Program, Harvard University

S

tavins is a firm supporter of President Obama and has argued vigorously in favor of a cap-and-trade policy to be enforced in the US. He argues that a market-based approach should be the crux of any plans to target emissions, and cap-and-trade is a much more popular approach than the alternative, a carbon tax. The popularity of this with utility companies will only bring about benefits for consumers, as they will not be subject to rising energy prices from those companies needing the leverage funds to pay the tax.

How far the cap-and-trade policy should reach is dependent upon the actions of other countries, argues Stavins. With a long history of anti cap-and-trade policies, the US must enter into pragmatic agreements internationally in order to ensure implementation of this new proposal is done smoothly and effectively. The primary aim of a cap-andtrade policy is for the US to re-establish international credibility. n

140

Lawrence Summers, former Chief Economist at the World Bank, former Treasury Secretary and incoming Director of the White House’s National Economic Council

A

s leader of the economic team of the incoming administration, Summers lays claim to a reserved policy of climate change which he made famous under the Clinton Administration. An economist rather than an environmentalist, he regards an aggressive policy on carbon emission to have devastating affects on the US economy, and as a result is wary of any form of movement toward implementation of cap-andtrade, be it slow or fast paced.

At a time of economic uncertainly, Summers regards the economy to be in no fit state to introduces a proposal which, he believes, will produce a rise in energy costs, further unemployment and add to the speed of the current recession.

Instead, Summers argues for the alternative of carbon emission tax, believing it to be of greater benefit to the economy. Although mindful of the diverse opinions within his administration, Obama has strictly ruled out a straight carbon tax and when forced to accept the inevitability of a cap and trade program, Summers believes that the only way for it to be workable is the creation of an escape clause if prices rise too quickly. Just like Stavins, Summers believes any progress by the US must be reflected through international agreements on carbon limits. n

www.nextgenpe.com

FaceOff.indd 140

4/2/09 15:33:09

MTB MAG AD:feb09 04/02/2009 13:22 Page 141

Dedicated To Finance

20,000 Challenges.

One Industry.

20,000 Executives.

One Community.

MeettheBoss.com membership reads like a financial services industry who’s who. CEOs, CIOs and other senior executives from the leading institutions are just two clicks away.

But there’s more. Weekly interviews with industry leaders are webcast on the site’s dedicated channel. These are combined with live, moderated discussion groups, video conferencing, IM and secure e-mail in one easy-to-use app that’s dedicated to financial services.

New York 8:50 a.m.

London 1:50 p.m.

Dubai 4:50 p.m.

Tokyo 9:50 p.m.

John is upgrading some core banking functions. He wants to know how to ensure a smooth transition, so he calls…

Paul, who has seen the benefits of an upgrade and is now sharing project management tips with…

Georgina, the turnaround expert who’s moving on to a new project in Japan, where…

Ringo has the local knowledge.

But he’s also planning for tomorrow, and that’s all about core banking…

If your network isn’t focused on your business, change it.

Join now: www.meettheboss.com MeettheBoss.com is simple, intuitive, unintrusive and secure. It’s also free to use.

Membership restrictions apply.

IN REVIEW

142

On the shelf These are interesting times in the utilities sector. P&E takes a look at what the recent crop of energy-related books have to say.

Energy Markets Price Risk Management and Trading

by Tom James Energy Markets: Price Risk Management and Trading is the practitioner’s guide to trading the markets and optimizing company performance using the correct price risk strategies and tools. Inspired by the successful courses run by Professor Tom James in global energy and commodities trading and price risk management, it includes a wealth of practical knowledge applied to the market place.

Power & Energy says: In the volatile energy markets, where risk mitigation is a major concern, the need for this type of guide is paramount. A practical guide to a complex subject.

The Off-grid Energy Handbook

by Alan and Gill Bridgewater

As our awareness of our own carbon footprint continues to grow, we continue to seek ways to be as eco-friendly as possible. This guide describes off-grid energy itself is explained in detail, and then seven different chapters take on the various different options available (solar, wind, wood, bio, water, geothermal and gaseous).

Power & Energy says: Generally concise and well-written information for the energy-conscious consumer.

Solar Revolution The Economic Transformation of the Global Energy Industry

by Travis Bradford In Solar Revolution, fund manager and former corporate buyout specialist Travis Bradford asserts – on the basis of standard business and economic forecasting models – that over the next two decades solar energy will increasingly become the best and cheapest choice for most electricity and energy applications. The book argues that ultimately, the shift from fossil fuels to solar energy will take place not because solar energy is better for the environment or energy security, or because of future government subsidies or as yet undeveloped technology. Bradford believes that the solar revolution is already occurring through decisions made by self-interested energy users.

Power & Energy says: Makes a strong case for a disruptive shift in the energy marketplace and throws light on a rapidly evolving industry.

142

www.nextgenpe.com

In review.indd 142

4/2/09 15:33:45

IDC.indd 143

3/2/09 15:46:04

Final word

144

The campaign trail Getting your projects elected

By Mark Williamson

O

ver the years I have observed that one can dramatically imlators or whoever is granting the certificate of need or authority prove the probability of getting needed utility infrastruchas some balance in the public testimony they hear. ture projects built and in service on time by managing the project as a political campaign, not as an engineering problem.

Navigating concern Approaching your project armed with the tools and strategy poliPerformed systematically, the election model can be used to ticians employ to get elected can get your power plant, transmisnavigate through concern after concern en route to getting your sion line, pipeline or other necessary system addition in service project approved more quickly instead of being stuck behind a faster, cheaper and with fewer lawsuits. vocal minority. In addition, the model shows your company how It’s natural to view these projects as engineering problems to organize for repeat project work, build coalitions, manage/ because utilities perform vital engineerdevelop messages and perform coming functions to keep the lights on and the munity outreach. gas flowing. The catch is that infrastrucAs the former Vice President, Major ture really involves the public – you’re Projects at American Transmission Co., siting the project near the public and you I have been directly involved in putting have to go through a lengthy public prointo service more than 300 miles of cess to gain regulatory approval. new 345-kilovolt transmission line and As a result, you need a model that thousands of miles of lower voltage the public can embrace – in this case, the transmission systems since 2002. political election model. Think of it as runMany projects, such as the recently ning a campaign: you conduct polls, craft completed 220-mile Arrowhead-Weston messages, make door-to-door visits, transmission line in Wisconsin, have host town hall-style meetings and the seen significant opposition that eventulike. Used correctly, the political model ally was overcome to get the project in can make infrastructure be viewed as a service. In a 10-month span from 2002 vital and important part of society. to 2003, we made 13 trips to, and spent For instance, let’s say in your sur35 days in, the line’s corridor, meeting veys you find out that the public is afraid 75 elected officials, 53 reporters and Mark Williamson joined Putnam Roby of electric and magnetic fields from the editors, 106 key opinion leaders and 14 Williamson Communications in early 2008 transmission line. With the election public employees. to be its Chairman and Energy/Utilities model, you would deal with them forthAs a result, we were able to place this Consultant, after nearly 30 years in various rightly (often one-on-one) and give them 345-kilovolt line – one of the largest extraexecutive roles with American Transmission the necessary information to alleviate high voltage transmission lines in the Co. and Madison Gas & Electric. their fears. nation – in service, the first in decades.

Or, you may encounter a group of Other projects, even those followconcerned citizens who were given bad information or even ing closely behind Arrowhead-Weston, have seen no significant misinformation. In this case, you would make sure they had an opposition after employing political campaign techniques. Most organized way of getting to publicly available information that’s have had to face involved regulatory proceedings before moving not coming from the utility or energy company. forward. I also have been a part of the successful building of The last group you may encounter is the one composed of coal-fired and natural-gas powered plants, as well as natural gas people who are against the project no matter what, for whatever pipelines. All of these projects have been successful because personal reasons they have. Here you need to make sure that the they were approached from the beginning as political campaigns. people who understand the need for the project and for having ‘Electing transmission lines, power plants and pipelines to public improved infrastructure get their opinion heard, so that the reguoffice’ is a metaphor I use, and one you should consider, too. n

144

www.nextgenpe.com

Finalword.indd 144

5/2/09 09:10:08

Conergy_Ad:euro

2/2/09

10:23

Page IBC1

Alcatel-Lucent AD :euro

2/2/09

10:16

Page OBC1