VOLUME 8 // ISSUE 3 MAY 11 // JUNE 11 energybizmag.com
THE DODD-FRANK THREAT ºº READY FOR THE CHALLENGE?
PEOPLE // ISSUES // STRATEGY // TECHNOLOGY
SMART METER WARS
ºº THE TAKEAWAY FOR THE REST OF US FROM CALIFORNIA’S CONTROVERSY
Nuclear The Next Act ºº NRG’S DAVID CRANE WARNS ABOUT PARALYSIS ºº GREENPEACE CO-FOUNDER: GOOD NUCLEAR OR BAD COAL ºº GLOBAL ROUNDUP OF UTILITY STRATEGIES
AN E N E RGY C E NTR AL PU B LIC ATION
energy/utilities /engineering
THE BUZZ FROM THE 2011 ENERGYBIZ LEADERSHIP FORUM
LEADERS YOU KNOW TODAY AND WILL KNOW TOMORROW SPEAK ABOUT GAME CHANGERS
CO-OPS SEEK CLEAR PATH FORWARD
ºº VALUABLE INSIGHTS ON FACING UNCERTAINTY
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MAY/JUNE 2011
32
28
Cover illustration
40
by Kevin Howdeshell
Features
14 Nuclear—The Next Act
Departments O U R TA K E
16 Keeping Nuclear Viable
4 Rethinking Nuclear Power
18 The Importance of the Nuclear Option
6
22 Nuclear in Perspective 24 Beyond Fukushima
28 The Dodd-Frank Threat 32 Smart Meter Wars
LET TERS
FINANCIAL FRONT
8 Co-ops Seek Clear Path Forward 12 Shaping the Work Force of the Future T E C H N O LO GY F R O N T I E R
59 Open Standards for a Smart Grid 60 State-of-the-Art Control Center 61 Net Zero
34 Energy Efficiency
62 Shooting for the Star METRICS
40 Geothermal Ready for Prime Time
64 World Energy Snapshot Bright Lights INTRODUCING
43 Energy Game Changers CEOs, entrepreneurs and policymakers weigh in on the forces shaping the energy economy.
Vol. 8, No. 3. Copyright 2011 by Energy Central. All rights reserved. Permission to reprint or quote excerpts granted by written request only. EnergyBiz (ISSN 1554-0073 ) is published bimonthly by Energy Central, 2821 S. Parker Road, Suite 1105, Aurora, CO 80014. Periodical postage paid at Aurora, Colo., and additional mailing offices. Subscriptions are available by request. POSTMASTER: Send address changes to EnergyBiz, 2821 S. Parker Road, Suite 1105, Aurora, CO 80014. Customer service: (303) 782-5510. For change of address include old address as well as new address with both ZIP codes. Allow four to six weeks for change of address to become effective. Please include current mailing label when writing about your subscription.
2 E N E RGYB I Z May/June 2011
65 Transmission Texas Style L E G A L E AG L E
68 Dealing with Fracking 70 California Commission Revamp 72 Innovations in State Regulation F I N A L TA K E
73 A New Wind Axis
A trAil blAzed What will tomorrow say about today? Itron’s software solutions improve utilities’ business intelligence and their ability to act upon it across the network. When the smart grid becomes a reality that benefits all, Itron will be remembered as an early leader in making a sustainable future possible.
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» OUR TAKE Rethinking Nuclear Power BUSTING THE 1950s PARADIGM IT HAS BECOME A MANTRA. POLITICAL leaders say it. Corporate chieftains repeat it. We need all options when it comes to energy, particularly now that billions of people in China, India and other corners of the world expect a better lifestyle. We need electricity produced by gas, clean coal technology, renewables — and nuclear power. But nuclear power has been dealt a seismic setback. Shortly after the Fukushima Daiichi plant was swamped by an epic tsunami, support for nuclear power in the United States tanked. Just 43 percent support new nuclear power plant construction in a post-accident poll — just below the level registered after the 1979 Three Mile Island accident, according to the New York Times.
After the much more serious Chernobyl accident in 1986, nuclear support declined to 34 percent. The much-heralded nuclear renaissance in America has taken decades to gain steam after the political and regulatory trauma of those two events. In the face of collapsing support for nuclear power, our nuclear strategy needs rethinking and updating. The first order of business is taking off blinders the industry adopted at the dawn of the nuclear age. Sixty years ago, Admiral Hyman Rickover decided to rely on uranium oxide surrounded by water to power nuclear submarines. “Rickover’s choice had lasting consequences,” Bloomberg Businessweek 4 E N E RGYB I Z May/June 2011
recently reported, as the same nuclear technology was adopted by America’s commercial nuclear fleet. Today, a new generation of large-baseload — watercooled — nuclear power plants awaits licensing and deployment. They employ new passive safety strategies that would make them For industry insights — safer than existing units. and my breaking blogs — visit www.energybiz.com . But there is little serious effort to radically rethink nuclear power, at least in America. China is actively developing pebble-bed reactor technology that uses small fuel balls immersed in helium, not water. The technology promises to be easier to control and less prone to catastrophic failure if coolant is lost compared with current nuclear technology. South Africa and at least one U.S. utility looked at pebble-bed reactors but abandoned that path a number of years ago. Some scientists are promoting a new approach to nuclear power that would combine current fission technology with fusion — similar to the process that powers the sun. China is looking at this technology and plans to test it by 2025. It would be safer and easier to control, and it produces lesser amounts of more manageable nuclear waste than current technology. It could run as a large baseload plant, like current nuclear power plants, and, perhaps more significantly, it can be used in a more nuanced manner to match the intermittent output of large wind or solar power installations. Tomorrow, safer and more flexible units can be located further from cities and help backstop renewables when the wind stops blowing and the sun isn’t shining. The units could become vital nodes along an expansive intelligent transmission grid. It is time to rethink the nuclear equation. We have a U.S. energy secretary who has the technical skills to get us moving in new directions, and a president with the political skills to convince us that there are alternatives to worrying about the limitations of a nuclear technology largely shaped in the 1950s.
Martin Rosenberg, Editor-in-Chief editor@energybiz.com
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» LETTERS In response to your article, “Wind Takes Hold,” [March/ April] a number of studies have reported that wind projects often underperform initial projections. This gap between expectations and results drives investors and CEOs to seriously question the economics of new wind projects, thereby threatening the pace of wind development. We Green Trade Wars Heat Up believe that a key driver of this underperformance is the approach used to assess the wind resource.
In response to your recent article, “Land of Rising Sun Power” [November/December], the gold standard of solar and wind power should be supplemented by the platinum standard of efficiency, which is symbolized by the passive house standards of Europe and North America.
Ever since the ’70s energy crisis, the approach to wind resource measurement with met towers and the forward modeling of that one-year resource measurement for economic projections has changed little.
In response to your recent coverage of solar power and fuel cells, it is plain that new technologies that are emerging will result in a marked shift in urbanization.
Dan ReicheR Goes To sTanFoRD º google guru: What Fixes We need
Volume 8 // issue 2 mar 11 // apr 11 energybizmag.com
people // issues // strategy // technology
º Jobs and riches go to the Victor
Women Rising
º execs thriVe in male World. hoW?
stoCk stARs
º hoW does your company compare?
Duke’s inDiAnA HeADACHe
º takeaWay lessons learned
An E n E rgy C E ntr Al Pu b liC Ation
energy/utilities /engineering
A Revolution in CustomeR CARe
making the consumer king
Modern monitoring equipment supplementing the met tower monitoring plus meteorological simulation science offer much more accurate and timely approaches to deliver a more accurate resource assessment much more quickly. Final economic modeling can be based on detailed data that allows for a much more accurate financial model, more targeted working capital plan and a more economically successful project. This approach enables developers to reduce the time to development with increased accuracy, which enhances and assures project returns. Ray Boothe Green Energies Enterprises Hurst, Texas
To contribute to the Letters column, please e-mail your submission to editor@energybiz.com. Provide your name, address and daytime phone number. Letters may be edited for style and space.
6 E N E RGYB I Z May/June 2011
A passive house uses 90 percent less energy compared with the average existing houses and would lessen the need for additional construction of power plants. Eckhart Stoyke Carbon Busters Edmonton, Alberta Canada
People will shift to smaller localities and so will companies. This will unburden the grids in cities and therefore affect grid expansion and reinforcement plans. I expect this to happen in two years time. Already technologies based on solar with 76 percent efficiency are available. So it is time to think about redeployment of resources. The need of the hour is to involve sociologists, economists and other persons to work out a plan for our energy future. Electric cars will definitely be there. Only small, smart grids are sustainable. Alok Misra Meerut, India
Nancy Perry, senior vice president of residential and business markets for TXU Energy, was incorrectly identified in “Women Rising,” [March/April]. Deepwater Wind has a partnership in place with Public Service Enterprise Group. They do not have a partnership with Consolidated Edison and the Long Island Power Authority, as reported in “Offshore Wind Accelerates in New England,” [March/April].
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energy/utilities /engineering 20 0 5 , 20 0 6 , 20 07, 20 0 9, 2010
» FINANCIAL FRONT Co-ops Seek Clear Path Forward DEALING WITH UNCERTAINTY // BY TOM ARMISTEAD UNCERTAINTY AND REGULATION WERE ON THE MINDS OF the executives of five electric cooperatives at an EnergyBiz Leadership Roundtable held in conjunction with the recent annual meeting of the National Rural Electric Cooperative Association in Orlando, Fla. Can co-ops accomplish their core mission of providing reliable and affordable electricity to rural members while complying with mandates for renewable energy and carbon-emission controls
LEADERSHIP ROUNDTABLE
issued without regard for the costs? In an era when effective conservation and ever-more-efficient home appliances are keeping the load flat or even shrinking it, how can rate structures designed for constant load-growth conditions be revised?
The utilities represented are located throughout the United States and include both distribution co-ops and generation and transmission utilities. The smallest of the denizens of the electrical ecosystem, owned by their members, co-ops are like canaries in the coal mine of the electricity industry, their senses finely tuned to detect shifts in the air. The discussion participants’ comments, edited for style and length, follow. ENERGYBIZ
What is unique about your cooperatives?
We are in the heart of the Marcellus Shale gas exploration, and that’s changed our day-to-day operations. We’ve got tons of growth with the gas operators and the drilling. There’s lots of risk for us in investing in additional capacity. KILMER
REYES I think what’s unique is how active our members are. We have attendees at board meetings helping develop policies. And even though they talk about not wanting higher rates, we also have groups saying you should go 100 percent solar. REASOR We’re projecting probably 2 to 2.5 percent growth this year. Some of our growth has come because we’ve picked up new territory with 100,000 new members. So our concern is where we’re going to get our next generation.
Our members for the most part have made the investments in the last few years, so we’re assuming that, with normal load growth, we can go another two decades without significant investments. MCLENNAN
CALCATERRA About five or six years ago, we embarked on a pretty hefty energy-efficiency program. Our goal now is that we want to reduce energy use by 12 to 18 percent by 2020. 8 E N E RGYB I Z May/June 2011
ENERGYBIZ A weak economy, regulatory uncertainty for carbon, volatile natural gas prices — how is this playing out in your cooperatives? MCLENNAN We have excess generation right now. About 38 percent of our capacity is from wind, and we’re selling that into the Midwest ISO market, which is depressed as a result of the economy. We’re selling a significant amount of energy at a loss. The economy has taken a pretty hard hit on our numbers.
We’re seeing good and bad. The good news for us is that it’s lowered our prices. Obviously the price of gas is coming down, so we’ve been able to do a 15 to 18 percent rate reduction over the last 18 months or so. The downside, though, is the regulatory uncertainty. We are trying to figure out where our next generation is going to come from. We continue to look at coal, but the uncertainty there makes that very problematic. Nuclear has its appeal, but the cost is pretty dramatic. That only leaves gas for baseload generation, and it’s very volatile. REASOR
PARTICIPANTS Ronald J. Calcaterra President and CEO Central Electric Power Cooperative Columbia, S.C. Jackson E. Reasor President and CEO Old Dominion Electric Cooperative Glen Allen, Va. Robert (Mac) McLennan President and CEO Minnkota Power Cooperative Grand Forks, N.D. Bobbi Jo Kilmer President and CEO Claverack Rural Electric Cooperative Wysox, Pa. Luis Reyes CEO Kit Carson Electric Cooperative Taos, N.M.
REYES Our concern as distribution co-ops is where our power suppliers are going to get their next generation and what that’s going to cost us. We don’t sell a
CALCATERRA
REASOR
lot of energy, so we’re concerned about this additional cost, whether it’s for carbon or increased RPS’s. Our situation is the same. At our generation and transmission cooperative, about 65 percent of our energy comes from nuclear, so we just have a portion that we have to look outside for. There’s been some discussion about additional investment in resources, but we just have to step back and wait. We really have a reluctance to commit. KILMER
ENERGYBIZ What are you expecting from the new derivatives guidelines to be issued this summer from the Commodity Futures Trading Commission? Do you rely on derivatives for hedging? Risk management?
We do, and I don’t know the answer to that exactly. We’re hopeful that NRECA and some other groups help the commission understand the impact of what they’re doing to electric cooperatives. I know our groups are getting some positive response and beginning to see some understanding, but I’m not sure we’re there yet. REASOR
I think we’re concerned as well about not just CFTC derivatives, but NERC compliance requirements now, and FERC issues that each of us are dealing with. I think the CFTC intended to go after things that we generally don’t do. We’re cautiously optimistic. MCLENNAN
ENERGYBIZ Are your members demanding Internet broadband access? And if so, how are you responding?
McLENNAN REYES We see broadband as really helping us with meter-reading or controlling smart appliances. We have this entire infrastructure, and I think we should be utilizing rights of way and get better connected with the consumer.
From a selfish standpoint, I think broadband access will have to be required in the future because of the control issues. I see a future for our business where you’re going to have absolute time-of-use rates, and appliances are going to respond automatically. CALCATERRA
MCLENNAN We’re providing customers a lot more information about how they’re paying for electricity. We’ve had a load-control program for about 30 years, and we can drop half of our load with the push of a button. ENERGYBIZ Economists are telling us that the recession is all over and the recovery has begun. How’s that looking for you? REASOR We were seeing some improvements as we came to the end of 2010, so we entered 2011 somewhat optimistic. Unemployment numbers were a little lower; we’re seeing new job creation. What I worry about now is the impact of gasoline prices.
From 2000 to 2007, we were growing at a 4.2 percent per year increase of demand. From 2007 to 2010, we were absolutely flat. The other thing that we have seen is, energy-wise, the residential class has been decreasing, and there has been a significant decrease in the industrial class for 2008 and 2009. CALCATERRA
energybiz.com E N E RGYB I Z 9
» FINANCIAL FRONT
KILMER ENERGYBIZ
REYES Why do you think the residential has
fallen off? A couple of reasons. We put out 2 million compact fluorescent light bulbs the last two years, and I think people have realized that they can conserve and be more efficient, and they are doing it. CALCATERRA
MCLENNAN We spent a significant amount of dollars trying to convince people to use energy wisely. What I don’t know yet is how much is the economy and how much is it that we’re fundamentally shifting with appliances and lighting and convincing people to use energy wisely.
Sounds like the conservation message is taking root. Is this your experience? ENERGYBIZ
MCLENNAN In Minnesota it’s required. And as for energy-efficient technologies, people are now installing high-efficiency washers and dryers and heating systems. I think a portion of it is just a natural evolution of technology that’s becoming more efficient.
I agree, it’s a combination of technology, the economy, and just being wiser. We’re changing our rate design to basically say we’re not going to live on kilowatt-hours anymore. We’re going to put everything REYES
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10 E N E RGYB I Z May/June 2011
in that fixed cost, and if you guys use 300 kilowatthours, I’m still going to get the money we need. That really is a struggle: As we look at using energy more wisely and reducing kilowatt-hour sales, how do you still recover enough revenue to keep the poles and wires in the air? We have a phenomenal amount of infrastructure that’s just waiting for them to flip the light on. MCLENNAN
ENERGYBIZ
What’s your worst nightmare?
The biggest difficulty I have is the uncertainty. I’ve been in this business for a long time and I don’t know what to do going forward. You can’t go coal, you don’t want the volatility of gas, and nuclear is extremely SCOTTISH TIDES expensive. There’s uncertainty in effiScotland plans to ciency, too, because now you’re relying develop a 10-megawatt on your consumers to do something. Just project to generate power from ocean tides, a lot of uncertainty. CALCATERRA
the largest such effort
in the world, according At the distribution level, my bigto UPI. gest nightmare is distribution issues like The effort will cost an safety and reliability. But in the bigger estimated $65 million. picture, in Pennsylvania, consumers can choose their electric supplier. At the cooperatives, our rate is still quite competitive because of our particular supply, but we do have some investment in the nuclear facility. It’s an administrative nightmare to have consumers going from supplier to supplier. KILMER
REYES In the end, we can’t deviate from our real roots of making sure that everyone has access. And with what I see with EPA regulation and cost of generation, we’re moving away from that in the rural areas, where people can’t afford service and we can’t get a rate structure that works. And that’s the core of our business: reliable, affordable electricity. I see us getting away from that with all these mandates.
Is it possible to meet the increasing demand for energy without impacting our environment?
Through Smart Grid technologies, energy efficiency can be achieved with reduced carbon emission for a cleaner future. Climate change is pivotal. The need for renewable energy solutions and greater sustainability is paramount. So what’s the answer? An integration of technologies customized to your needs, making it one flexible Smart Grid. Our Smart Grid technologies increase the ability to use renewable energy and promote the connection of clean generation to the distribution grid. In addition, these innovations offer rapid demand response for greater efficiency. Energy solutions that are green and smart. Now that’s what the world needs. For a comprehensive range of Smart Grid solutions, smart products and asset services, contact Siemens at 800-347-6659 or visit www.usa.siemens.com/energy.
» FINANCIAL FRONT Shaping the Work Force of the Future EMBRACING NEW POLICIES AND TECHNOLOGIES // BY CAROL WHITE U.S. UTILITIES ARE FACING THE challenges and opportunities that come with a work force that is approaching retirement. Finding the right mix of people for the 21st-century utility means developing strategies to attract a workforce suited to evolving energy policies and the quickening pace of new technologies. The energy policy agenda in the United States is evolving, but is certain to include action on economic growth, increasing domestic energy sources, energy efficiency and environmental concerns. New or second-generation technology, including distributed resources, renewables, smart grid, combined heat and power installations and other advances will be part of the solution. Our evolving work force will need to be responsive to the future. A second change driver is the needed focus on updating the existing utility infrastructure. Increased investment in transmission-and-distribution systems will also lead to new work force challenges. These trends highlight some key implications for what traits will be required of the work force of the future. Workers will have to have skills that bridge the disciplines of traditional electric engineering, mechanical engineering and planning. They must have increased expertise in alternatives to traditional pipes and wires solutions including renewable energy, combined heat and power and other distributed generation options. Valued employees GRID INVESTMENT will have the expertise to Dominion Virginia Power provide customers with reports it will invest $1.7 billion over two advice on how to fully utiyears in its grid to lize information about their boost reliability. energy use, leading to an increased focus on energy efficiency. They will have skills that will be needed to deal with the construction and day-to-day needs of our more modern systems. National Grid is actively engaging in several strategies to develop a qualified and diverse workforce to meet future needs. Alliances with local colleges, universities and trade schools, including internships, are under way to develop and support programs that encourage young people to pursue careers in needed disciplines. Last year, the company launched “Engi12 E N E RGYB I Z May/June 2011
neering Our Future” to inspire youth and to attract and develop engineers. The centerpiece of the initiative is the “Engineering Pipeline” program, a six-year development program that creates a recruitment pathway for promising high school students who want to become engineers. Another important effort includes identifying and supporting organizations and associations that are focusing on relevant training and development opportunities, such as the Association of Energy Services Professionals. To tap into the full pool of talent, National Grid is also working with organizations that advocate for the employment of women, African Americans, Latinos, Asians, Native Americans, veterans and individuals with disabilities. And finally, we can’t overlook the importance of developing a culture in which lifelong training and development are embraced, as the existing employee population focuses on developing new skills in response to our changing customer needs. All of these efforts suggest that the work force of the future will be increasingly diverse and better positioned. Both technical and analytical skills will be valued along with strong and effective communication skills. The future energy market will be exciting. Let’s work together to pave the way for those who will follow during these exciting and changing times. Carol White is National Grid director of policy and evaluation and chairman of the Association of Energy Services Professionals.
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Nuclear The Next Act NUCLEAR POWER HAS BEEN POISED FOR REBIRTH. THE FEDERAL GOVERNMENT FROM OUR ARCHIVES
hired staff and streamlined rules to deal with an anticipated avalanche of applications. New nuclear power designs have been touted as safer and more advanced than the aging 104 units now operating in the country. The federal government prepared to allocate tens of billions of dollars in loan guarantees to help jump-start the industry. Perhaps most remarkable was a new grand alliance between an influential segment of the environmental community and power company
ENERGYBIZ INTERVIEW
Tsunehisa Katsumata Tokyo Electric chairman MARCH/APRIL 2006
What are the primary business challenges confronting TEPCO? ENERGYBIZ
KATSUMATA The most important issue is to develop nuclear energy steadily and safely. … Now we are committed to perform highly transparent operations at power plants.
14 E N E RGYB I Z May/June 2011
executives eager to work together to promote nuclear power, renewable power and energy efficiency strategies. The goal was to throttle our carbon emissions and dial back our strategic vulnerability as we import an ocean of foreign oil. Then came Fukushima, the nuclear crisis in Japan. To assess where we are today with regard to nuclear power, and where we are headed tomorrow, EnergyBiz turned to two nuclear champions. They are an unlikely pair. One is a utility executive, the other, an early leader in the environmental movement. David Crane, of NRG Energy, and Patrick Moore, formerly of Greenpeace, lead off our coverage of “Nuclear — The Next Act.”
energybiz.com E N E RGYB I Z 15
NUCLEAR — THE NEX T ACT
Keeping Nuclear Viable DAV ID CR ANE ON R ISKS AND OPPORTUNITIES BY MARTIN ROSENBERG
DAVID CRANE INTENDED TO STEER NRG ENERGY INTO
the vanguard of energy companies pioneering the rebirth of nuclear power in America. With the nuclear crisis confronting Japan, his ambitions have hit a wall. As EnergyBiz was going to press, his company announced it cancelled financing for two nuclear units in Texas. NRG’s joint venture partner, Toshiba, will continue attempting to secure a license for the project. But NRG said completion of the effort is “not impossible but improbable in the present climate.” A rapid increase in the price of natural gas and federal law stamping a price on the carbon dioxide emitted by fossil fuel burning plants are two developments that could make the nuclear project viable, an NRG spokesman said. In our exclusive interview, Crane, 52, NRG chief executive officer, reflected on the situation facing his company His comments to EnergyBiz were made before the late April NRG decision to drop its Texas nuclear project. At the time of the conversation, the company had embarked on a review of its 5-year, $350 million nuclear investment. Crane’s comments and subsequent decision document the fast-paced, wide-ranging fallout from the Fukushima nuclear crisis. The interview, edited for length and style, follows. When were you planning to break ground on building these two plants? ENERGYBIZ
COMMENTS ON JAPAN’S NUCLEAR CRISIS ENERGYBIZ LEADERSHIP FORUM ATTENDEES /// 2011
The nuclear renaissance will continue. Nuclear will be relied on out of necessity. Chad Herrick
Energy Data Analyst Central Iowa Power Cooperative
CRANE We were going to have to do site work by the last quarter of this year. Full notice to proceed was going to be after the license was received. We were targeting mid-2012 for that.
How much of a delay do you expect? ENERGYBIZ
It is open-ended at this point. Our plant is so much different in every way from the Japanese plants, including the type of area where it is situated. It is not obvious to us that there should be any change at all to what we are planning to build. But we support the industrywide review by the U.S. Nuclear Regulatory Commission and others, and so you’ve got to give that time. If they decide that more work needs to be done, I hope they will focus on older plants in seismic CRANE
16 E N E RGYB I Z May/June 2011
areas right on the coast and they will release us to get on with our project. Would you say a nuclear renaissance is still on the horizon? ENERGYBIZ
CRANE A lot of work needs to be done to make the nuclear renaissance a reality. Part of it is the will of the industry and part of it is the political will. There is a surprising amount of political consensus supporting the idea of new nuclear plants in the United States. We have to look at what it is going to take to make that happen in the post-Fukushima world.
After the Three Mile Island accident in 1979, nuclear plants became a lot more expensive to build. Might you be facing a similar scenario? ENERGYBIZ
CRANE The difficulty with Three Mile Island was it was the first incident, so everyone was doing things for the first time. If there is one saving grace in all of this right now, it is that there is actually no plant in the United States that is fully under construction. If we allow the Fukushima event to be another Three Mile Island and that leads to another 30-year hiatus in nuclear plant construction, at the end of 30 years there will be zero nuclear power plants operating in this country. We will take nuclear from 20 percent of the energy mix for electricity to zero because we need to be adding four nuclear reactors a year by the year 2020 just to tread water at 20 percent. ENERGYBIZ Are you trying to get new owners invested in your two plants?
Well, it’s too early to say that we are doing that for certain because the owner that we were counting on playing a major role in this was Tokyo Electric, and they may be very focused in the months and years to come on rebuilding their own system in Japan and may have limited funds for external investments. So we are certainly preparing to look for new investors in our project, but we are not doing it yet. CRANE
ENERGYBIZ What do you think will be the complication of bringing investors into nuclear power investments in the United States? CRANE The first one is that no one wants willingly to walk into the type of uncertain situation that we are in right
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NUCLEAR — THE NEX T ACT
now because of Fukushima. So the first thing is that there is really no point in talking to anyone else until it has been settled and until there has been some word conveyed from the Nuclear Regulatory Commission and the Department of Energy about what type of review that they are planning. So hopefully there will be some clarity on that. Then it will be very easy to show people who understand nuclear power how substantially different our plant is, not only in design but also in its location in an area that has zero seismic risk. ENERGYBIZ So tell me what kind of internal review are you going through right now as you assess your commitment to nuclear? CRANE We’ve invested 5 years of time and effort and $350 million in cash in this nuclear development project. And while we would like to see it go forward, we also must evaluate how far we can go both from a time and a money perspective. If the NRC and the DOE say they are going to take another 2 or 3 years to evaluate everything down to the last rivet, then that’s well beyond our staying power.
Do you think the nuclear industry in this country has a major communications challenge ahead? ENERGYBIZ
The U.S. nuclear industry will have to do more to educate the public and to be frank to differentiate itself from the Fukushima experience. The public deserves and needs to be reassured. CRANE
At the end of the day, you are a businessman. Might we approach a point where you just cannot make the business case for nuclear power? ENERGYBIZ
CRANE It is something that I have spent an unbelievable amount of time thinking about with no resolution. Where we are is a little bit over a year from where we hoped to break ground for 5 years of construction so that our shareholders might see the first dollar of revenue from this plant in 2016– 2017. Over the last year or two, the nuclear project has been deeply unpopular with our investors and part of that is from investing in something that is high-risk and is only going to throw off revenue 10 years in the future. The American private enterprise system just wasn’t designed to have that type of time horizon. I would say that this clearly has been a major setback for the idea of nuclear power plants being developed in the non-rate base part of the American system, which is half the country. ENERGYBIZ
Bottom line?
CRANE If it turns out that there is going to be a multi-year delay in going forward, that makes it almost impossible for a company of our size to pursue the project further. ENERGYBIZ So how do you assess the prospects for constructing a new generation of nuclear power in America?
From a policy perspective, I’m an optimist. The only way we replace the existing fleet starting in the next decade in a way that is compatible with doing something about climate change is through nuclear power. If we have responsible public policy in this country, which hopefully will be bipartisan, the industry and the government could work together to bring about a nuclear renaissance. CRANE
The Importance of the Nuclear Option GR EENPE ACE CO-FOUNDER R EM AINS SUPPORTER BY MARTIN ROSENBERG
PATRICK MOORE TOOK A STEP ONTO THE WORLD STAGE
four decades ago as the co-founder of Greenpeace, the activist environmental group that pressed for an end to atomic weapons tests and the hunting of whales. Moore, 63, more recently became a proponent of nuclear power, one of the first of a group of environmentalists to move in that direction. With the recent ongoing, fastchanging nuclear crisis in Japan captivating the world and the power industry, EnergyBiz contacted Moore to discuss 18 E N E RGYB I Z May/June 2011
his position on nuclear power today. His comments, edited for style and length, follow. Given the nuclear power crisis in Japan, is nuclear generation still a viable option? ENERGYBIZ
MOORE Sure it is. There are over 400 plants operating around the world, and my bet is they are going to keep operating. The countries that have nuclear energy need the energy, and it is clean and safe. I really do not think there are
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NUCLEAR — THE NEX T ACT
very many plants in this world that are susceptible to the kind of double whammy that happened in Fukushima. The plant did survive the earthquake and it went into smooth urgency shutdown mode with no problem with all the pumps coming on and the diesel generators kicking in. Then, bam, a 30-foot tidal wave. If you look around the world, maybe they will find some sites where lessons can be learned from Fukushima. The most important one is making sure that your backup diesels are not susceptible to a wall of water coming ashore, and that is a fix that I’d imagine would be quite simple. ENERGYBIZ
There are a lot of environment alists who are concerned about nuclear waste. How do you weigh that against the problem of greenhouse gas emissions and global warming?
I do not have a huge concern about global warming or climate change in this sort of catastrophic sense. I don’t believe that that’s the way it should be framed. Nuclear waste is new fuel. Used nuclear fuel is in fact one of our most important future energy resources, and 50 years of spent fuel can make 500 to 1,000 years of energy. I do not see that there is a problem at the present moment with used nuclear fuel. It is being stored very well. No one is being harmed by it. One of those reactors at Fukushima was burning mixed oxide fuel from recycled used nuclear fuel. MOORE
What factors will shape the future of nuclear power? ENERGYBIZ
MOORE The new wild card, which is going to make a lot more difference to the future of nuclear, is the abundance of inexpensive shale gas that is being discovered and produced now in North America and all over the world. Apparently, Poland has enough shale gas to last 100 years. The interesting thing will be to see what utilities do. Will they put all their eggs into the basket where you have a real risk of volatility in price? Or are they going to invest in nuclear power because it is not so susceptible to fluctuations in price, and nuclear plants will be running for 60 or 80 years while gas plants tend to not last that long. ENERGYBIZ How do you assess how the media has covered the nuclear power plant crisis in Japan? MOORE There was a headline that basically said, “nuclear crisis deepens as bodies wash ashore,” and all through the 20 E N E RGYB I Z May/June 2011
story they were lumping the nuclear thing in with the tsunami and earthquake. It was almost as if the nuclear accident had caused the tsunami, and the bodies were washing ashore because the nuclear crisis was deepening. ENERGYBIZ Currently, we get about 20 percent of our electricity from nuclear power in the United States, and a lot of the plants that produce it are getting 30 to 40 years old. What level of production of our energy should we be getting from nuclear? MOORE The shells of those plants and the reactor cores are 30 to 40 years old, but most of the components have been swapped out. In the 1980s, we were commissioning 40 new nuclear power plants a decade. If we kept building at approximately that rate, we would have the share of electricity generated by coal and nuclear almost reversed today. Instead of it being 20 percent nuclear and 50 percent coal, it would be 50 percent nuclear and 20 percent coal. Who would argue that from an environmental point of view that wouldn’t be a better situation? When President Barack Obama proposed that we go to an 80 percent reduction in greenhouse gases by 2050, the Environmental Protection Agency said that 154 new reactors would need to be built.
But you think global warming is not a problem? ENERGYBIZ
MOORE
I don’t think it is now.
When you cofounded Greenpeace in 1971, you were against the U.S. hydrogen bomb testing in Alaska. ENERGYBIZ
COMMENTS ON JAPAN’S NUCLEAR CRISIS ENERGYBIZ LEADERSHIP FORUM ATTENDEES /// 2011
As a country, we have lost our edge in being a leader. The industry needs to become much more user friendly.
We just basically lumped nuclear energy in with nuclear Doris F. Galvin weapons and everything nuclear Energy Advisory Services WorleyParsons was evil because it involved radiation and it was a mistake. In retrospect, I believe we made a serious error because if we hadn’t done that, it is likely there would be more nuclear plants in the United States now and fewer coal plants, which would be good from a human health and environmental point of view. MOORE
ENERGYBIZ Some environmentalists now support nuclear power, and others are ardent foes. Do you think the ranks of environmentalists supporting nuclear power now will thin, and what is your strategy to address that issue? MOORE I don’t know. I have a feeling that environmentalists that support nuclear energy will continue to support it because they see this whole thing in a fairly objective way in terms of what our choices really are. There is nothing without risk in this world. We have to choose which risks to take. The nuclear energy industry has to remain sober and has to remain fact-based.
© Siemens AG, 2011. All Rights Reserved.
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NUCLEAR — THE NEX T ACT
Nuclear in Perspective A SAFE AND V I ABLE CLE AN OPTION BY STEVEN RUS
THE AFTERMATH OF THE TRAGIC EARTHQUAKE AND TSUNAMI
in Japan that crippled the Fukushima Daiichi power plant has caused an immediate impact on U.S. nuclear power generation. There have been calls from political figures for a moratorium on new plants, and escalated fears surrounding plants in seismically active areas. However, as the situation in Japan stabilizes, and more information is understood, we will find that nuclear power generation remains an important and safe clean energy solution for the country. Nuclear facilities — even today’s operating units — continue to evolve in order to meet more robust safety and security measures. One nuclear incident — and incidents that have the potential to affect nuclear operations — impacts the entire industry. Ensuring safe nuclear plant operation is of paramount importance. In the United States, the Nuclear Regulatory Commission has the statutory responsibility and authority to regulate the use of nuclear material to protect public health and safety. For operating plants, the NRC’s Risk Informed Reactor Oversight Process provides continuous assessment of nuclear plant safety performance through a series of inspections and a set of performance indicators. The process has high levels of transparency, and plant assessment results are readily available to the public on the NRC Web site. In addition to strong regulatory oversight of nuclear plant performance, the Institute for Nuclear Power Operations, an industry-sponsored organization, promotes a culture of safety through common purpose, high standards, accountability among its members, and unwavering pursuit of excellence. While we wait to understand the underlying causes for what happened in Japan, the industry is taking proactive steps to reaffirm its readiness to handle similar events. In addition to proactive measures to reaffirm our operating plants’ readiness, the next generation of nuclear technology provides even greater advanced safety features. Many designs have passive systems that rely on gravity and natural forces to provide cooling water in the event power is lost. Others have created advanced active systems that build in additional redundancy in addition to passive systems. In January, during his State of the Union address, President Barack Obama advocated a Clean Energy Standard that calls for 80 percent of the country’s energy to come from clean 22 E N E RGYB I Z May/June 2011
energy sources by 2035. Should this standard move forward, nuclear energy has to be part of the solution. Under Obama’s proposal, highly efficient natural gas would receive only partial clean energy credit, while nuclear, hydropower, renewables and clean coal developments would receive full credit. Among the full credit options, only nuclear and hydropower are proven, baseload utility-scale options. And only nuclear is available in all regions of the United States. In the words of Franklin Roosevelt, “The only thing we have to fear is fear itself.” Prior to the tragedy in Japan, the nuclear industry in the United States had previously received unprecedented levels of public support. Various polls now show a significant drop in overall public support for new nuclear initiatives. For this reason, continued public education that provides facts on the safety and security of our nation’s nuclear fleet is essential to moving forward with the next generation of nuclear power. Many within the industry would argue that the emergence of abundant and cheap domestic natural gas supplies will have a much greater impact on the industry than the tragedy in Japan. The abundance of shale gas has been called a “gamechanger” and the United States’ “new coal.” Indeed, Black & Veatch’s own projections foresee natural gas accounting for approximately 40 percent of the nation’s energy mix by 2035. The crisis at the Fukushima Daiichi power plant will cause the industry to take some time to understand what may need to be done to enhance the safety and reliability of existing and future plants. However, if we are to achieve nationalor state-level clean energy objectives, while maintaining a balanced energy portfolio and the world’s most reliable electric supply, then nuclear energy must continue to be part of the equation.
Continued public education that provides facts on the safety and security of our nation’s nuclear fleet is essential to moving forward.
Steven Rus is senior vice president and executive director of Black & Veatch’s nuclear business.
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NUCLEAR — THE NEX T ACT
Beyond Fukushima GLOBAL PL AY ERS PACE THE INDUSTRY BY DARRELL DELAMAIDE
AMERICANS WHOSE JAPANESE MAY BE LIMITED TO “SUSHI”
and “geisha” learned two more words in March as reactors at the Fukushima Daiichi nuclear power plant threatened to melt down in a catastrophe on the scale of Chernobyl. The crisis catapulted Tokyo Electric, one of the world’s biggest electric utilities, into headlines everywhere, as the company attempted to avert a full meltdown and fight a communications war at the same time. The nuclear crisis in the wake of Japan’s historic March 11 earthquake, which registered 9.0 on the Richter scale, called into question the use of nuclear power around the world. It threw a spotlight on other large global utilities, which likewise owe part of their dominance to extensive use of nuclear energy. Electricité de France, for instance, the French national monopoly and the second-largest electrical utility in the world after Germany’s E.ON, derives some 75 percent of its power from nuclear plants. French President Nicolas Sarkozy reaffirmed France’s commitment to nuclear power in the wake of the Japanese crisis. “France has made the choice of nuclear energy, which is key to its energy independence and in the fight against greenhouse gases,” Sarkozy said in mid-March. “I remain today convinced of the pertinence of this choice.” German Chancellor Angela Merkel, on the other hand, immediately ordered the closure of seven of the country’s oldest nuclear generators, which date back to the 1970s, for safety review. She thus reversed her earlier stance, which called for extending the life of these plants by an additional 12 years. The affected plants belong to the big investorowned utilities E.ON and RWE, the third-largest utility in the world, according to Forbes ranking by market cap, and EnBW, Germany’s third-largest electricity producer. 24 E N E RGYB I Z May/June 2011
As Japanese engineers struggled to avert the worst, it was unclear what impact this crisis would have on global utilities. Many of these huge companies are leaders in global best practices, which would have included an unblemished safety record in nuclear power prior to Fukushima Daiichi. These global giants are diversified both geographically and in their energy activities. Often based on national or regional monopolies, these companies have become much bigger than U.S. utilities, which are part of a historically fragmented and decentralized industry. E.ON, for instance, has about $65 billion in annual sales, compared with $17 billion for Duke Energy, the largest U.S. electric utility. Their size and diversity, as well as their large captive markets, position these global players to be leaders in technological innovation and development. E.ON The utility giant E.ON was formed in 2000 through the merger of Veba and Viag, two large diversified energy and engineering firms, and subsequently grew through acquisition, notably of Powergen in the UK and gas distributor Ruhrgas in Germany. E.ON has worked hard to reduce carbon emissions, both through more efficient use of fossil fuels and development of alternative energy. For instance, in addition to working on carbon capture and sequestration in coal-fired plants, E.ON has been part of an industrial consortium operating a pilot plant in Gelsenkirchen to develop “700-degree-technology,” an innovation that can increase the energy efficiency of a coal-fired generator by 30 percent. Development of new temperature- and pressure-resistant components will make it possible to blast steam superheated to 700 degrees Centigrade into a turbine.
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NUCLEAR — THE NEX T ACT
And in addition to pursuing alternative energy, E.ON has amounts both of hard and soft coal. Nonetheless, it is initiated more than 100 projects in smart grid technology involved in consortia on various fronts of energy innovation. with a focus on power flow and its dependence on wind, sun, Since 2008, for instance, RWE has taken part in a consumer behavior and batteries. pioneering project to use algae for carbon dioxide conversion. In March, E.ON was designated as an industry leader in The goal is to optimize the entire process chain from algae sustainable and renewable energy supply in an independent production to the final product. In a trial plant measuring survey of 13 utilities operating in the UK. The study, which some 600 square meters, or 6,500 square feet, the algae is included extensive input from customers, found that the fuel “fed” with flue gas from the power plant. The resulting algae mix of the electricity suppliers biomass may be suitable for use was just part of the picture. as fuel. “Seventy-three percent of our RWE has also partnered NUCLEAR – customer panel said that carbon with German industrial giant THE NEXT ACT and energy management was Siemens and other companies CONTINUE THE CONVERSATION! the major sustainability issue for to develop renewable energy SHARE IN THE DISCUSSION, their firm,” commented Vanessa sources for Europe in the deserts VOICE YOUR OPINION: O’Connell, author of the report of North Africa and the Middle Check EnergyBiz editor by Verdantix. Martin Rosenberg’s blog – East. The main focus of the www.energybiz.com/rosenberg Desertec project is solar thermal Electricité de France or email him directly at energy. The group estimates editor@energybiz.com with your EdF, the state-owned utility, thoughts and suggestions on one of the that by 2050, some 15 percent which enjoys a practical key issues facing the industry today. of Europe’s electricity needs monopoly in France, is virtually And join us for a could be covered from the synonymous with nuclear groundbreaking live webcast desert. Investment could reach energy. France has made the THE FUTURE OF NUCLEAR 400 billion euros, or $570 billion. biggest commitment of any POWER POST-FUKUSHIMA nation to nuclear power, with at noon EDT on May 19. Tokyo Electric Power Register for the free event at three-quarters of its electricity Tokyo Electric, also known as www.energybiz.com/nuclearfuture. coming from nuclear. The TEPCO, is the largest of Japan’s United States, where nuclear 10 electric utilities and one of power accounts for 20 percent of overall capacity, produces the largest in the world. Slightly less than 30 percent of 60 percent more electricity from nuclear than France. its 63,000-megawatt capacity derives from nuclear power, Another state-owned company, Areva, is one of the in line with the average for Japan, which is the thirdworld’s top builders of nuclear power plants. After the loss of largest producer of nuclear power after the United States a key contract to Abu Dhabi last year and delays in building and France. a new European pressurized reactor in Finland, however, the The utility has a history of underreporting or French government designated EdF to take the lead in future misrepresenting issues at its nuclear plants, and its erratic foreign deals to build nuclear reactors. communications during the recent crisis only worsened EdF has also developed an expertise in charging stations its reputation. Because of its reliance on coal and nuclear, for electric and hybrid vehicles, working in collaboration Tokyo Electric has shown little inclination to pioneer in with car manufacturers. The utility has plans for charging alternative energies. stations with private vehicle owners or residential complex Prior to the March earthquake, Tokyo Electric’s robust property managers, with local authorities responsible for infrastructure had made it one of the most reliable providers deploying recharging infrastructure networks, and with in the world. But the crisis at Fukushima Daiichi brought public and private parking garages. In the United States, worldwide criticism of the utility’s focus on nuclear power diversified manufacturers like Cleveland-based Eaton are — and regulators’ acquiescence. Given its liabilities from the taking the lead in this type of service. nuclear crisis and the daunting task of building new capacity to meet the demand of the Tokyo region, the future of the RWE RWE, like E.ON based in the highly industrialized Ruhr thinly capitalized utility as an independent, investor-owned area of Germany, is more of a classic utility, burning large company is uncertain, analysts said. 26 E N E RGYB I Z May/June 2011
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The Dodd-Frank Threat BROAD IMPACT OF WALL STREET REFORM BY RICHARD SCHLESINGER
IT’S HARD TO ARGUE WITH THE PREMISE OF THE DODD-
Frank Wall Street Reform and Consumer Protection Act that Congress passed on July 21. Its intention, after all, is to reduce risk, increase transparency and promote market integrity, and who’s against those things? The problem is, as the act applies to energy companies, it may have little to do with reducing systemic risk and a lot to do with making hedging against commodity price fluctuations much more complicated and expensive. 28 E N E RGYB I Z May/June 2011
Little about the law, at least as it affects utilities, is certain. And that might be the most frightening part of it. The law requires the Commodity Futures Trading Commission and other regulatory agencies to have regulations in place by this coming July that will govern how swaps are traded. But almost nothing, including the definition of a swap, has yet been formulated. It’s therefore difficult to judge precisely how Dodd-Frank will affect utility companies. But affect them it certainly will, and just how is becoming broadly visible.
The act repeals the exemptions derivatives traded over the counter used to enjoy and imposes a regulatory framework on them. That includes the swaps utilities and other energy companies use to hedge against commodity price fluctuations, particularly for natural gas and electricity. Almost all of these instruments will have to be traded through clearinghouses. That means margin and reporting requirements together with complex recordkeeping. Richard McMahon, vice president of energy supply and finance at the Edison Electric Institute, worries that the result could be a huge problem. He estimates that about half of gas swaps and about two-thirds of power swaps are currently traded over the counter. In most cases, these swaps don’t require posting margin. Centralized clearing, on the other hand, requires posting cash or cash equivalents as margin, usually about 9 percent of the transaction value. “We estimate that if our members were
... the average annual cash-flow impact to our companies would be somewhere between $250 million and $400 million a year.
required to put all those transactions on exchanges and run them through clearinghouses, the average annual cash-flow impact to our companies would be somewhere between $250 million and $400 million a year,” he said. “That’s a big number.” Where would that cash come from? It could be diverted from money borrowed to invest in new sources of green and renewable energy or to expand capacity or update and improve aging infrastructure, or companies could simply reduce their hedging and pass the volatility through to ratepayers. Neither alternative is really acceptable, and utility companies have argued that because they don’t contribute to the kind of systemic risk the law is designed to mitigate, they should be exempt from most of its provisions. Congress did and did not agree. There are several kinds of participants in the swaps market: speculators, such as hedge funds, investors and big banks that use swaps to bet on fluctuations in underlying financial products and commodities, and endusers, such as energy companies, agricultural companies, airlines and others that depend on commodities and that use swaps as a kind of insurance to hedge against wild price variations. The proportion of swaps used solely for speculation has ballooned over the past decade relative to the number used
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energybiz.com E N E RGYB I Z 29
DODD-FRANK
to hedge risk. One result was the financial meltdown, a repeat of which Dodd-Frank is designed to prevent. A company that can prove it uses swaps solely for the purpose of hedging against price fluctuations may qualify as an end-user, exempting it from some of the act’s requirements. But like everything else about Dodd-Frank, it’s unclear just how an end-user will be defined. Qualifying will depend, among other things, on the number of swaps traded, who the counterparties are and the aggregate amount traded in a given period. Mike Gill, senior policy adviser at the law firm Crowell & Moring, notes that only some, not all, transactions done by an end-user may be exempt from certain regulations. Even if it’s just to hedge, for example, the price of gas, if a company uses swaps and goes over a certain notional value, it may have to register as a swaps dealer. That means it might have to put up margin for its transactions. Hedge funds and other large financial institutions are generally opposed to the idea of position limits because they don’t want a limit set on the amount of capital they can use to play the market. Energy companies and other endusers don’t want limits so stringent that they interfere with their ability to hedge risk without incurring the burden of margin requirements. Bolstering the argument for end-users, Gill estimates that swaps used to hedge risk account for less than 5 percent of the total value of all swaps. To lump them into the same category as interest rate, foreign currency and other swaps used solely as leveraged instruments for potential profit does nothing to limit overall risk while creating burdens so onerous as to threaten the ability of end-users to use swaps at all. As Gill notes, if you’re an energy company, you don’t hold cash as an asset, as a bank or hedge fund does. If Dodd-Frank fails to make sufficiently broad exemptions for end-users, that situation could change, and if it does, credit needed for capital improvement could be tied up in meeting fluctuating margin requirements. And even if a company and its transactions qualify as exempt, its counterparties may be classified as financial entities, swap dealers or major swap participants. The counterparty would then be subject to the increased reporting and capital requirements under the act, and those increased costs would be passed along, generally increasing the cost of hedging. The uncertainty the act has generated may already be affecting the ability of companies to hedge risk. EEI’s McMahon says, “because of these cost issues 30 E N E RGYB I Z May/June 2011
and because of the uncertainty, we’re seeing a decline in the number of counterparties. As a result, the act could have the opposite effect of its intention, raising costs and taking liquidity out of the market. People just may not want to play in this space any more.” Even if they can avoid clearing swaps, end-users will still have to report all swaps to a recording depository, which will require energy companies to develop and staff a whole new infrastructure dedicated to reporting initial deals and updating them in real time as valuations fluctuate. “At the simplest level,” according to Crowell & Moring’s Gill, “they’ll have to have personnel and systems in place to confirm with the swap data repository everything they’re doing. That’s the least they’ll have to worry about, and that’s if they’re doing nothing but perfect hedges and they’re small.” The main burden for complying with whatever regulations the CFTC ultimately imposes rests with compliance officers. In the meantime, they have to convince senior executive and operations officers of the seriousness of the issue. Since it’s never been a concern in the past, this isn’t an easy task, but with such a short timeframe, it could become a serious challenge to get the personnel and infrastructure in place. And the inherent uncertainty about what the regulations will actually require makes planning to meet them extremely difficult. Commodity price volatility remains a serious risk to the entire world economy, not just to the energy sector. To take just one example, the price of crude oil went from $65 per barrel in June 2007 to $147 a year later, down to $30 six months after that, up to $72 in June 2009 and just over $100 early in 2011. There are many causes for those gyrations, including political instability and changes in underlying supply and demand ratios. But almost everyone, from private observers like George Soros to the CFTC, agrees that speculation remains a serious underlying cause. Dodd-Frank undertakes to address this serious issue. It remains to be seen, however, whether it can, under the pressure of a short deadline, formulate rules flexible enough to address the critical issue of safely limiting highly leveraged speculation while preserving the essential ability of companies to protect themselves and their customers from the risk of commodity price fluctuation without limiting the ability of energy companies to invest for the future.
... the act could have the opposite effect of its intention, raising costs and taking liquidity out of the market.
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Smart Meter Wars CONTROVERSY ERUPTS IN CALIFORNIA BY AL SENIA A SWEEPING PLAN BY REGULATORS AND UTILITY EXECUTIVES
to install more than 17 million smart meters in California by 2012 is generating growing controversy about health and cost ramifications from consumer advocates and threatening to derail the national move toward smart meter deployment. The state is already well on its way to jump-starting the imposition of an energy smart grid which is designed to lower peak demand for energy and allow consumers to better control their energy use and costs. Smart meters are a central element of that plan. The state’s three giant private utilities — Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric — intend to have their smart meter installations fully in place by next year. The multimillion-dollar cost of the smart meter project is being passed through to utility customers on their monthly bills. However, some customers in PG&E’s Northern California service territory have complained — and in some cases 32 E N E RGYB I Z May/June 2011
testified before the California Public Utility Commission — that they are suffering health effects including migraine headaches, heart palpitations and nausea from the emissions of the radio frequency meters. Some PG&E and SDG&E customers have also complained that the smart meters are inaccurate and caused their utility bills to spike. PG&E officials said the smart meters are completely safe and reliable. The complaints grew vocal enough, however, that Michael Peevey, president of the state’s PUC, directed PG&E in midMarch to develop a plan to allow customers who object to the meters to be provided another option. “I think it’s clear the time has come for some kind of movement in the direction of customer opt-outs,” Peevey said. He added that the health complaints to the PUC have been limited to the PG&E customer base. His initial order did not extend to the other two utility companies.
“We have not had complaints about radio frequency emissions or other concerns about smart meters from customers of other utilities in California,” said Peevey. RF Unknowns Peevey’s action came as a surprise to many and followed direct discussions he had with PG&E’s president. It also came in the wake of the introduction of a bill in the state legislature to mandate opt-outs for smart meters for all California utility customers. Several localities in the state have actually called for a halt to the installation of RF meters because of citizen complaints. Still more controversy was generated from the release of a 50-page draft report in January from the California Council on Science and Technology. That report, requested by several state legislators, concluded that current FCC standards involving smart meters are adequate and that properly installed and maintained meters emit less RF exposure than household cell phones and microwave ovens. However, the report also noted that “not enough is currently known about potential nonthermal impacts of radio frequency emissions to identify or recommend additional standards for such impacts.” It called for consumers to be given more information about all RFemitting devices and urged the PUC to “consider doing an independent review of the deployment of smart meters to determine if they are installed and operating consistent with the information provided to the consumer.” So although the state report found the smart meters currently safe, it expressed uncertainty about the unknowns involved.
It shows that neither we nor the utilities have done a very good job about educating people about the safety issues.
Growing Controversy Continued safety assurances from utility executives, the report’s release and Peevey’s action have done little to quell the growing controversy in California about the safety and accuracy of smart meters in the state. “CCST’s study doesn’t conclusively resolve the smart-meter debate,” said California State Assemblyman Jared Huffman, who co-sponsored the opt-out legislation. “The benefits of smart meters and a smart grid do not require wireless technology.” Huffman and others suggest customers be given the option of a hard-wired smart meter. Such meters are more expensive to install and maintain. Peevey said that the cost “should be paid by the customers who choose to opt out.” The proposed state legislation would make the opt-out choice retroactive for utility customers, which could cause even more confusion. PG&E already had installed 7.6 million smart meters by March 2010 and will install another
2.5 million by the end of 2012. SCE has nearly half of its planned 5 million installations in place. And SDG&E has replaced nearly all of its 1.4 million electric meters and 136,000 of its 850,000 gas meters. Meanwhile, smart meter opponents say an opt-out provision may not resolve any possible health issues because residents could still receive RF emissions from their neighbors’ meters. The escalating brouhaha has caused proponents of smart meters to re-evaluate their current strategy and wonder whether the issue will spread to other states that are not as far along as California in their smart meter deployments. The smart meter controversy has also touched Texas and Maine, but on a smaller scale. In Maine, for example, smart meter opponents are pushing for a moratorium and the opt-out option as Central Maine Power Company replaces 620,000 meters with RF technology. Maine’s public health director said last October that the smart meters pose no health risk because they operate on the same frequency as wireless routers used widely for home computer networks. Many in the industry see the growing smart meter controversy as a wake-up call. Some believe the energy industry should work collaboratively and proactively to quell fears about the technology. “I think it’s something that is a legitimate concern for many people, and it shows that neither we nor the utilities have done a very good job about educating people about the safety issues,” said Russ Vanos, vice president of marketing for Itron, which designs, manufactures, services and installs smart meters across the country, including meters in the SCE and SDG&E service areas. Vanos said the RF technology is completely safe and accurate and has been used in commercial and industrial applications for nearly 30 years. “RF meters are not brand new,” he said. “Our utility customers have used electronic technology on their commercial customers for years, and they work. They are safe. They emit less emissions than a microwave oven in somebody’s kitchen.” Vanos believes the industry has to step up, perhaps through an agency such as Edison Electric Institute, and do a better job of addressing any safety concerns. “This is an issue we have to address as an industry,” he said. “The utility company has the most at stake. They own the end consumer. We have never marketed to the end user. We viewed it as their issue. But today all the vendors need to work collaboratively with the utilities and with each other and communicate to our customers.” If the move toward smart meters is slowed by the RF emissions issue in California, there are alternatives for the smart grid such as power line carrier (PLC) meters that are used more widely in Europe and China than in the United States. They are more expensive and come with their own controversy over interference issues. But some utilities have used the technology to deliver broadband to rural customers. energybiz.com E N E RGYB I Z 33
ENERGY EFFICIENCY
Toward Greater Building Smarts SUPPORT AND MEASUREMENT NEEDED // BY JOHN W. CONOVER IV NEVER HAVE WE BEEN SO POWERFULLY reminded of the role energy plays in our daily lives. There are tremendous supply challenges that should provide a convincing argument for corporate leaders to be as energy efficient as possible, as multinational corporations play an increasing role in responsible energy use. Yet there are still challenges these leaders face when implementing companywide sustainability initiatives. In fact, a recent global research report provides insight into the key reasons companies struggle or succeed in implementing effective energy-efficiency programs, as well as ways leaders can implement successful sustainability programs. The survey identified four common gaps in perceptions and operations among executive leaders, policymakers and industry leaders globally that hamper the value of corporate energy-efficiency initiatives. The first gap is in opinions. Only one-third of managers below the C-level thought that energy-efficiency initiatives were well integrated into their business strategies versus half of C-level and CEO-level respondents. The second gap is in leadership. Forty percent of respondents agreed that senior management support is critical to integrating energy efficiency into business initiatives, and those that don’t have support are more likely to fail. The third gap is a lack of measurement. Only 26 percent of respondents said their organizations had conducted an energy audit, and 22 percent said that their organizations do no measurement. The fourth gap is in the perception of regulations. Half of global respondents see regulation as a benefit while 28 percent deem it a burden. The global marketplace continues to become more competitive, and companies around the world still struggle to find the right solutions to enhance their energy efficiency, minimize their environmental impact and maximize their productivity. However, there are ways leaders can begin to make progress in these areas. Measurement programs help companies monitor usage and equipment efficiency, and also identify potential cost savings. By incorporating a proactive maintenance approach, which includes comprehensive 34 E N E RGYB I Z May/June 2011
energy audits, companies can better gauge their energy usage and track the efficiency of their equipment. Half of respondents from our survey said that their organizations’ energy-efficiency initiatives are either very important or somewhat important to customers, indicating that the significance of integrating sustainability initiatives will increase in the future. By not integrating these initiatives into their overall business strategies, companies may not accurately gauge customer demand for equipment and technologies that deliver valuable energy savings. Although CEO and upper management support is essential, energy-efficiency initiatives can be driven by respected leaders at varying levels. There are many ways that companies can approach their energyefficiency programs, whether through a team-based approach with multiple participants, or spearheaded by someone in the role of chief sustainability officer or environmental manager. Building support throughout the organization’s network is essential to long-term success. From the start, companies should outline clear short-term and long-term goals that everyone in the organization can rally around. Equally important, companies should proactively communicate their successes in pursuit of these goals so employees have a clear sense of company progress and the importance placed on achieving the defined objectives. John W. Conover IV is president of Ingersoll Rand’s Security Technologies Sector and chairman of its Sustainability Council.
Making a Dent in Energy Waste THE PURSUIT OF EFFICIENCY // BY RICH EARLEY COMMERCIAL AND RESIDENTIAL buildings together consume 40 percent of the nation’s electricity. With the dramatic rise in energy prices, going green is not an option, it’s a necessity. Optimization of large commercial building design and operations is increasingly sophisticated, with many competing companies and technologies providing significant value, but its sole objective is to minimize end-use consumption and expense at the retail meter. Two misconceptions are implicit in this thinking. The first is that all kilowatt-hours consumed are the same or, at best, differentiated broadly by on- or off-peak prices. They are not. Instead, electricity is produced season to season, day to day, and hour to hour from a wide range of generating resources. Electricity is produced with different fuels, efficiencies, environmental emissions and costs. It is subject to varying states of grid congestion, especially in the urban core. The second is that electricity is an hourly commodity. It is not. Instead, grid supply and demand are synchronized second to second by frequency response and minute to minute by regulation. Supply and demand then are further synchronized by balancing markets that clear every five minutes. In addition, spinning reserves and inefficient combustion turbines are deployed to cope with rapid load swings and generatorforced outages. As a result, especially in congested metropolitan areas, the retail meter boundary masks the significant complexity and inefficiency of electric system investment, operations and markets — and so fosters only a superficial commercial building contribution to grid economy, efficiency, reliability and environmental performance. On the grid side of the electric meter, varying electrical demand dictates significant complexity and inefficiency in electric system investment, operations and markets. Long development lead-times and longlived assets mean that the electric system was built for different energy policies and a different demand than it currently serves.
... going green is not an option, it’s a necessity.
Daily variation of the electrical demand is substantial and inefficient — upward demand excursions require the investment in and the dispatching of inefficient peaking plants, and downward excursions at night impair the operation of efficient and environmentally sound baseload power plants. “Unit commitment” dictates that grid operators forecast all of this variation a day in advance. Hourly and shorter variation of electrical demand is also substantial and inefficient – requiring a complex array of generating technologies and ancillary service markets to perfectly balance demand and supply in the electrical grid at any time. Furthermore, demand response technology is only deployed to avert conditions of grid stress — curtailing customer demand during a relatively small number of days — and is not focused on unlocking efficiency potentials on the supply side. The introduction of large quantities of intermittent renewable energy sources will exacerbate these differences and the associated inefficiencies. By harnessing a building’s thermal mass, algorithms can drive 15 to 30 percent operating cost savings to the building’s bottom line while simultaneously delivering significant megawatt storage capacity to grid operators. Thermal mass — a property that enables building materials to absorb, store and later release energy — already exists on a multimegawatt scale in large, grid-congested metropolitan areas. By aggregating and optimizing the thermal storage properties of multiple buildings, CUE unlocks valuable transmission and distribution capacity for utilities and grid operators in the most constrained environment: the urban city. Building-to-grid integration allows grid operators to better manage distributed sources of load, generation and storage in real-time, optimally balancing supply and demand while improving grid reliability and utilizing renewable energy resources. In the future, commercial buildings will no longer be seen just as buildings, but as assets with tremendous positive impact on wholesale energy markets. Rich Earley is chairman and chief executive officer of Clean Urban Energy. energybiz.com E N E RGYB I Z 35
Data Makes the Difference The (R)Evolution in DR and Efficiency and One Utility’s Move to the Future
H
ave the successful demand response and energy efficiency programs started to “top out”? Over the past several decades, utility demand response and energy conservation programs across North America have been relatively successful while slowly evolving given the tools at their disposal. Today’s utility faces a new set of challenges that demand a major leap forward in program effectiveness – more cost effective, improved predictability, broader adoption and deeper behavioral changes. To this end, the design and adoption of energy efficiency and demand response programs need to change in significant ways. First, the design of energy efficiency (EE) programs will begin to leverage the 36 E N E RGYB I Z May/June 2011
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detailed energy consumption data to segment and target customers then provide them feedback so that they can begin to take charge of their energy bill. The same data holds the potential to facilitate the creation of portfolios of utility demand response (DR) programs making some form of DR program available to everyone.
There is an old adage that you can’t control what you can’t see. The granularity of smart meter data in concert with Home Area Networks, smart appliances and other electronic devices has the potential to change people’s use of energy as never seen before. Research studies have shown that even basic feedback leads to conserva-
The design and adoption of energy “ efficiency and demand response programs need to change in significant ways. ”
tion behavior. With today’s technology, it is possible for consumers to see how they are using energy in near real-time across multiple communications platforms and make decisions on how to change their energy usage and save money. This level of detail and the timeliness of the data also helps them to be more engaged in DR programs and to perform even better to save more money. Smart meter data is critical to this revolution in EE and DR programs that utilities will be offering. Traditional EE and DR programs essentially run blind. Their impacts to both the utility and the consumer are not known until months later. Smart meter data in conjunction with presentment from in-home devices, web portals and other platforms provide essential feedback to both the utility and its customer as to how well they are performing. The signaling of the opportunity and value of the opportunity will improve adoption and participation. Utilities need to think of this data as a gold mine when it comes to the design and implementation of EE and DR programs. More granular data not only gives them insight into their customers’ energy use behaviors but it facilitates the design of EE and DR programs that have not been possible until before. Utilities can’t think of this data as just billing data. It has far greater applications than just billing or presenting usage information on feedback devices in people’s homes. When combined with other customer data, it can provide a window into what drives energy use and when it is used. Utilities can now apply the sophisticated techniques used in retail and other consumer industries. This new data has the potential to help utilities better manage their distribution system assets by targeting specialized EE and DR programs to specific areas and improve system reliability and prevent brownouts or blackouts. This data does come at a price. To effectively use this enormous quantity of data, new systems to store and analyze it are required. We are only just beginning to imagine all the potential applications for this data. Some utilities, like San Diego Gas
today’s technology, it is possible “ With for consumers to see how they are using energy in near real-time across multiple communications platforms and make decisions on how to change their energy usage and save money.
”
& Electric (SDG&E), are taking this leap forward. They have seen the value of new smart metering and data management solutions to not only improve operational efficiency but also the potential for demand response and energy efficiency.
SDG&E Leverages New Meter Data for Energy Conservation and Customer Engagement SDG&E has always supported energy efficiency and conservation initiatives. This experience has brought SDG&E to the closely-held view that better information is key to the utility’s future success.
In 2008, SDG&E established its Smart Meter Program, which relies on smart metering and meter data management to provide accurate and detailed data to help the utility and consumers make more intelligent decisions. With more than 90 percent of SDG&E’s customers having smart meters, this data is the power behind smart meters that will drive the advancement of the utility’s demand response and energy conservation programs. SDG&E’s Smart Meter Program has three essential components: an online tool designed to give all residential and
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business consumers visibility into their energy usage habits; a proactive community involvement program; and an information infrastructure that collects and delivers the data. Itron developed this information infrastructure, which starts at the meter. SDG&E plans to extend this information infrastructure to web presentment. SDG&E’s smart meters incorporate a system that can evolve as future applications of an intelligent grid are identified. SDG&E’s Smart Meter Program began with several key objectives in mind, and envisioned the adoption of energy-saving technology that would foster a satisfied customer experience while building trust in security aspects of this new technology. “Putting energy usage information in the hands of our customers educates them on the changing face of our utility and the benefits of adopting these new technologies,” said Ted Reguly, director of the smart meter program office for SDG&E. “This enhances our relationship with our customers. “For SDG&E, this data will be critical to continue to meet our long-term
energy goals targeting energy efficiency, demand response, sustainability, and energy reliability.” SDG&E’s goal is to meet the energy needs of tomorrow—today. “Our Smart Meter Program directly aligns with our business strategy to provide in-home energy management solutions to benefit customers, support energy inde-
Smart Meter Program “ The has rolled out on-time, on-budget and with an ethos of stakeholder satisfaction at its heart.
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pendence and provide tools for customers to manage their electricity consumption and costs in a more efficient and informed manner,” said Reguly. SDG&E is replacing the electric and gas meters throughout its territory with Itron OpenWay® CENTRON® smart meters and OpenWay 2.4GZ gas modules to collect advanced meter data and provide it to the collection system. SDG&E has also purchased Itron Enterprise Edition™ (IEE) Meter Data Management software, which manages large volumes of electric and gas meter data for adaptable, scalable integration between back-end utility systems and data analysis applications. This software allows the capture of meter data in hourly and 15-minute intervals, yielding sophisticated analytics in terms of precise customer usage data. SDG&E has also licensed IEE Customer Care, which allows customers to view their energy usage information online and is planned to be available to customers mid-2011. Combined with advanced meter data, Customer Care will help customers
fully comprehend how much energy they are using and when they are using it. SDG&E’s Smart Meter Program has a number of benefits for both the consumer and utility: • Saves Energy, Time and Money – Data collected by smart meters can help customers make decisions about reducing energy usage and save money. Smart meters also automate and streamline meter reading activities, reduce re-bills and ensure billing accuracy. • Ensures Privacy – With frequent data collection over a secure network, SDG&E’s meter readers no longer have to access the customer premise to acquire reads. • Identifies Problems Faster – Smart meters help SDG&E pinpoint and resolve outages quickly, keeping customers happy. Unaccounted-for and unmetered energy usage can also be easily identified with the new technology. • Allows for New and Improved Programs – SDG&E can create extensive demand management, conservation and incentive programs for its consumers. Interval meter data enables better planning for and management of peak loads. • Helps the Environment – Smart meters can help consumers save energy, which in turn saves natural resources and reduces the need to build new power plants for generation. Meter reader visits to homes are eliminated and means less trucks on the road. • Enables Future Smart Homes and Businesses – Smart meters provide consumers additional benefits such as automated bill notifications and remote smart appliance control from the home or business. SDG&E’s customer experience approach has been to encourage transparency and collaboration toward the utility-customer goal of energy conservation with an effective two-way communication plan. The utility collaborated with its customers on the best approach to the smart meter
installation experience. This included the timing of the initial notification letter to customers, the message content explaining the meter change-out process, and the creation of collateral. SDG&E also ensured that open lines of communication with customers were in place so that customers fully understood the meter changeout process and its impact to their lives. Through this open dialog, dedicated Smart Meter Program representatives were made available to answer customer questions. This communication process included an outbound phone call to customers two days prior to meter change-outs, informing them of the upcoming installation. SDG&E refers to their communication plan as the “90/60/30 Day Plan”: • 90 days prior to install: Presentations were given to community leaders and elected officials. • 60 days prior to install: Utility representatives participated in a community event. • 15-30 days prior to install: Letters were mailed to customers announcing installation. • 2 days prior: A phone call was made, announcing the installation. • Day of: Installers knocked on customer doors to make a personal connection prior to installation and survey their experience.
• 2 weeks after install: Field representatives conducted a personal visit to answer questions. SDG&E’s post-installation activities included an “In Field Liaison Program.” Within two weeks after meter installation, customers received a personal follow-up SDG&E staff who answered questions and offered information on programs and services. This approach added to the customer experience and helped build trust among the customer base.
Through these visits, SDG&E personnel were able to collect feedback which included a minimal amount of complaints. Approximately 15 percent of customers provided concerns and feedback that were captured and addressed. In terms of its deployment, SDG&E is on schedule to be the first utility in the nation that will have completed the installation and implementation of its new smart meters. The Smart Meter Program has rolled out on-time, on-budget and with an ethos of stakeholder satisfaction at its heart. SDG&E currently has 1.8 million smart meters and gas modules installed at customer sites, with plans to have 2.4 million smart meters installed by the end of 2011. This type of program is not necessarily the answer for every utility. But, the value of data and the measured approach to their programs is applicable to nearly all as they seek to address tomorrow’s challenges. Chris Haslund is a Senior Product Manager for the IEE MDM team at Itron. She is responsible for Itron’s online presentment and demand response solutions. David Hanna is a Senior Principal Energy Consultant for Itron. He provides energy consulting services for Itron and its customers.
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Geothermal Ready for Prime Time POTENTIAL FOR AN ADDITIONAL 60 GIGAWATTS // BY WILLIAM OPALKA ASK ANYONE INVOLVED IN THE GEOTHERMAL ENERGY
industry why that resource should be developed and the phrase “clean renewable energy that’s baseload” is bound to come up in the first minute. And why not, given that in the right circumstances, it can be a significant contributor to the energy mix. Nowhere is the right circumstance more present than in California, with about two-thirds of the U.S. installed capacity of about 3,100 megawatts. Geothermal is often forgotten in the conversation about renewable energy, with wind and solar sucking up most of the oxygen. Consider that in 2009, in large measure due to economic stimulus, wind capacity rose by 10,000 megawatts. Geothermal, in that same year, topped 100 megawatts for the first time. But what those megawatts can provide is what the resource’s champions want to emphasize. In California, a likely littleknown fact is that geothermal delivered twice as much electricity to the grid as wind and solar combined in 2009. In 2009, the 1,700 megawatts of installed capacity in California produced about 13,000 gigawatt-hours of electricity in-state, compared with 846 gigawatt-hours for solar and 4,949 gigawatt-hours for wind, according to the California Energy Commission. That’s fitting, because the Golden State is where the geothermal industry first arrived in the United States 50 years ago, with the construction of the 11-megawatt Geysers, the nation’s first commercial geothermal site north of San Francisco. 40 E N E RGYB I Z May/June 2011
But geothermal is mostly a story of potential. Resources have been identified in nine states and most of the installed capacity is in California and Nevada, with increasing interest throughout the West. “There are more projects today in the development phase than there have ever been,” said Scott McKillip, SAIC vice president of facilities and design build. He said more than 7,000 megawatts are under development now, with industry potential of up to 15,000 megawatts by 2025. “Lower-temperature binary systems have developed over the last three years or so, so that will allow geothermal to spread into more states. Resources with temperatures above 300 degrees have been developed to date, but the new systems allow sub-300 degree resources to be opened up,” McKillip added. That technology advancement will be necessary for geothermal to expand its reach. “The potential is 60 gigawatts, but we only have 3 gigawatts,” said Peter Asmus, senior analyst with Pike Research who heads up its renewable energy practice. “Since 1990, capacity has doubled, but that’s only a 3.1 percent annual growth rate.” The development cycle can be lengthy, up to 10 years, and the capital requirements can be rather hefty in the process.
There are more projects ... than there have ever been.
Wind resources can be developed in as little as three years under the right circumstances. Unlike geothermal, multimillion-dollar drilling of test wells could discover inadequate resources. “Unlike other renewables there’s so much risk in finding the resource. The development risk makes it very expensive, which is one reason it’s been going so slow,” Asmus added. One other issue is that it competes with oil and gas drilling, not only for drilling rigs and equipment, but also for trained personnel to intelligently search for resources. One other impediment, which all renewables experience, is the lack of a long-term commitment to clean energy at the federal level. “I think geothermal is being impacted dis-proportionately by the lack of action on carbon,” Asmus said. The U.S. Department of Energy has a renewed interest in the resource, with more federal dollars dedicated to projects and research than ever. Federal stimulus funds provided $400 million for geothermal research two years ago. That supported more than 100 projects, including project grants and research activities. On the project development side, U.S. Geothermal closed a DOE $96.8-million loan guarantee to construct its planned 23-megawatt plant at Neal Hot Springs in Oregon. The project is the first geothermal development to go through this process for innovative technologies that was created by the energy act of 2005. U.S. Geothermal claims that the project’s supercritical binary geothermal cycle technology is more efficient than geothermal binary systems, allowing the use of lower-temperature geothermal resources for power generation. Idaho Power has a 25-year power purchase agreement in place. Additionally, five geothermal projects are on a list of 19 U.S. Department of the Interior’s Bureau of Land Management’s priority projects for developing renewable energy on public lands this year. Geothermal created its own buzz in 2007 when a Massachusetts Institute of Technology study on enhanced geothermal systems indicated there is a 60-gigawatt potential outside of the traditional steam resource areas of the West. The study showed that drilling several wells to reach hot rock and connecting them to a fractured rock region that has been stimulated to let water flow through it creates a heat exchanger that can produce large amounts of hot water or steam to run electric generators at the surface.
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Modeling Solar Costs EVALUATING FINANCIAL RISK // BY SALVATORE SALAMONE DO YOU BUILD YOUR NEW SOLAR INSTALLATION USING
wafers of crystalline silicon or thin-film cadmium telluride? Do you start now or wait another year or two for a more favorable discount rate? Do you locate it outside of Boston or Seattle? Each choice has risks and uncertainties and all have financial implications. Until now, utilities and investors have had little help in making these decisions when developing new solar power generation systems. Argonne National Laboratory, teaming with analyst firm Gartner, and using sophisticated simulation techniques, has developed a methodology for evaluating the lifetime cost, cost uncertainties and associated financial risks of building and operating a commercial-scale solar power generation system. Today, the common metric to assess a solar facility is the dollar per watt. This metric is derived by adding the price of the solar panels, installation, wiring, subsystems and other components and dividing that total by the maximum electricity output of the system. Argonne and Gartner claim a better metric is the levelized cost of energy, which is derived by dividing the lifetime cost of the system by the lifetime energy produced. Levelized cost can be thought of as the price at which energy must be sold to break even over the system’s lifetime. It is measured in cents per kilowatt-hour and takes into account the project costs and operating costs. Cost calculations also factor in other parameters like the amount of sunlight in a given location, conversion efficiency of the solar technology, degradation rate and financial considerations including the discount rate and taxes. Although levelized cost calculations has been around for many years, it has been misused when applied to solar. “In typical projections for solar energy, many assumptions are swept under the rug, and we wanted to make a small step toward lifting up that rug and showing how you can truly get a handle on those assumptions to develop a more accurate picture of the potential costs,” said Argonne solar researcher Seth Darling, who leads the development of the new approach. Many factors used in cost calculations have a range of values, but are typically entered as a single value. The Argonne and Gartner model tries to address these variations and uncertainties by factoring in the probability associated with each parameter’s value. For example, the researchers studied the 30-year history of solar insolation for Boston, 42 E N E RGYB I Z May/June 2011
Chicago and Sacramento, Calif., and created a probability distribution for each city. They also developed probability distributions for degradation rates, discount rates and operational costs. Essentially, these distributions specify a range of values for each parameter and the probability that each value will occur. Darling noted that the distributions used may not be the best; people should focus on the methodology, not the specific values used in their model. Employing a commonly used mathematical technique called Monte Carlo simulation, the cost is calculated by picking values from each distribution randomly based on the probabilities. This process is repeated over 1 million times. This produces a range of levelized cost values and estimates of the likelihood of that cost’s occurrence. A simulation might find a particular project has an average cost break-even price for electricity of 15 cents per kilowatt-hour, with a 90 percent certainty that the rate would be between 10 cents and 18 cents. An investor could then look at the factors that produce that price variability and look for ways to reduce financial risks. For instance, the choice of a lower-cost panel certainly cuts the initial project cost, but a more expensive product might offer a better degradation rate. Similarly, choosing a product from a vendor that has much more data about degradation could limit the uncertainties and thus reduce the investment risk. If the discount rate is a source of great uncertainty, a utility might seek other funding or lock in a slightly higher fixed rate early on to reduce the chance of greater variation over time. Other factors, like the amount of sunlight in a given location, obviously cannot be controlled. Darling noted that the biggest challenge with using the methodology is that much of the required data is lacking. In particular, what’s needed is a publicly available real-world database across the country of solar insolation, degradation of materials in specific locations, and other information used in levelized cost calculations.
In typical projections for solar energy, many assumptions are swept under the rug...
ENERGY
GAME CHANGERS More than 300 energy executives and senior policy
Shortly after the conference adjourned, the nuclear
members gathered in Washington at the third annual
power plant crisis in Japan emerged as a huge potential
EnergyBiz Leadership Forum February 27–March 1 to
game changer affecting the future of nuclear power
discuss “Energy Game Changers.”
around the world.
All acknowledged the impact of the crushing federal
The dimensions of change from the anticipated and
deficit, the split in Congress and the early launch of
the unexpected will have profound consequences in
the 2012 presidential election cycle. Sweeping federal
coming years.
energy initiatives seem unlikely.
In the following pages, we are pleased to present edited
Utility executives and thought leaders grappled with the
comments made by speakers who gathered with us a
fact that tens of billions of dollars of energy investments
few weeks ago.
are waiting to be made by entrepreneurs, utilities and their customers amid uncertainty.
energybiz.com E N E RGYB I Z 43
Industry Insights from Oracle Executives Recently Oracle sponsored the EnergyBiz Leadership Forum, to take part in the discussion about the biggest challenges and greatest opportunities for utilities in the next five years. During the Forum, Christopher Perdue—vice president at Sierra Energy Group, a division of Energy Central— sat down with Guerry Waters and Brad Williams for a more intimate discussion. The highlights, edited for style and length are below. What are the major challenges, threats, and opportunities facing the power industry? WATERS: The biggest challenge is the change in the pace at which utilities are making investments. Under normal circumstances, investments would have been made incrementally over time, and not in one fell swoop. Utilities are being put into a very difficult situation. They’re being regulated, and they’re being besieged by possible legislation that is mandating a lot of initiatives. Those who seek rapid change have good reasons; there’s a concern about the environment, reducing carbon, having the capability to bring in more renewables. In order to do that, central infrastructure changes will need to be made. And that is hundreds of billions of dollars, perhaps trillions if you include transmission. One of the biggest issues that needs to be addressed is how end consumers are going to buy into the need for this investment. We need to communicate the value proposition from their point of view. WILLIAMS: One of the bigger goals is the adoption of renewable energy—the intermittent renewables in particular, wind and solar. Utilities have to be able to integrate them as a clean future energy supply; but they also have to deal with the intermittency, which is going to create a much bigger role for demand response. Electric vehicle adoption is another challenge that can be very disruptive to a utility if it’s not managed properly. The other complexity that utilities have to get their arms around is delivering and communicating to their customers the value of the smart grid investments
44 E N E RGYB I Z May/June 2011
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that utilities are making. They must be able to quickly identify for the customer the value of these new technologies. What do you think Congress, the Obama Administration, and Federal Regulators can do to help with these tasks that face us right now? WATERS: There has to be a collaborative effort with the utilities and with the regulators and the legislators about defining what that future needs to be. Right now, we’ve got the absence of a national energy policy. Are we actually putting a lot of the utilities and others at undue risk because we don’t know what the future portends?
Guerry Waters Vice President, Industry Strategy Oracle Utilities
WILLIAMS: We need to have a comprehensive policy that each state regulator adopts. It needs to create the right environments for where the investments need to be from the utility side, and it needs to create opportunities for the consumers to participate in those new markets.
Brad Williams Vice President, Product Management Oracle Utilities
How has the economic downturn affected the power industry as far as its ability to keep the lights on in an affordable way that is socially acceptable? WATERS: The utility industry responds to what’s happening in the economy. In the utility industry, all of a sudden we went from projections of how we’re running out of energy—we’ve got to build, build, build in order to be able to meet the future growth—to a situation where we have an excess. We will still need more energy, but the timing is further out. WILLIAMS: The economic downturn bought some time for the utilities to address supply and affordability issues. But now we’re starting to see reliability issues re-emerge in places where there are rolling blackouts because there hasn’t been the investment to keep up with growth. You know the federal government has been spending a lot of money in the name of economic stimulus on Smart Grid efforts, R&D, energy efficiency. Do you think these investments have made a difference? WATERS: Well, ironically, for a while they actually had a negative effect, because everyone was waiting to see who was going to get the money. But now the projects have been selected, the money is starting to flow, and projects are moving forward. I think these projects are going to demonstrate whether Smart Grid technologies and business processes meet expectations. Are they going to be worth the investment, what’s going to be the justification for them, and are they truly going to have a payback or not? In the longer term, we’ve got to continue to put more money into R&D. There are some fascinating demonstration projects out there that are going to be quite inventive. I think we will see a model to help us really understand how we can bring the consumer into
all of this. The Smart Grid isn’t just a pure technology play. WILLIAMS: For the most part yes, absolutely— stimulus funding has been very positive. The investments have laid a technology foundation, for utilities to build on to attain more incremental value. There was, however, one less positive result: utilities got some consumer and regulatory pushback on these investments. Consumers and regulators didn’t understand that, in many cases, the investments were a foundation. For instance, smart metering is a building block to enable real time pricing, to enable more advanced demand/response and consumer participation. You can’t have those programs without a foundation, but many regulators and consumers haven’t really made the connection. So the challenge is: how do you get in front of the media and consumers so they support the technology that permits them to make energy choices? That will come, but there’s been a bit of a delay as we build out that foundation.
www.oracle.com/goto/utilities
energybiz.com E N E RGYB I Z 45
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ºº CONFERENCE PROCEEDINGS
It’s All About Change BY NICHOLAS DONOFRIO Change. It’s all about change. Everything good that
happens, happens because of change. Now, there’s lots of change going on in the world. The question is: What’s your capacity for change? Yes, you’re in a regulated industry. There are rules, legislation and organizations that want and need to govern you and, unfortunately, sometimes slow you down. But you can simply say, “OK, if those are the rules of the game, we’re going to play it a little differently.”
Nicholas Donofrio
While some people say all we need to be innovative is to practice better science, or better engineering, or better mathematics, or to just get back to the basics, I say the basics are not going to do it. They’re not going to do it because that’s what everybody who’s competing against you is doing — the basics. If you want to stay in that primordial ooze and try to swim your way out — stick with it. Keep doing it. On the other hand, if you want to innovate, go beyond the basics. Innovation is about focusing on the pursuit of real and lasting value. Innovation — the pursuit of lasting value — is what the energy industry in this country needs to do more of. Think about the environment that you need for real change — which is probably the antithesis of the environment in which you live. You need an open, trusting, collaborative, multidisciplined and global environment. This is the environment that’s required to create the hotbed of innovation that matters. Let me focus now on energy specifically. I call myself an “energy inclusionist.” Yes, I like nuclear, I like renewables, I like coal, I like everything. But I’m not naive. We’ve got to find a way to make room for all sources of power. It’s not me versus you, it’s not us versus them, it’s not this versus that. It’s the whole thing. It’s the integrated thing. It’s the system. 46 E N E RGYB I Z May/June 2011
We don’t think like systems people in energy; we think like component people. Is that what you’re going to be for the rest of your life? A component provider? I’m not trying to insult you; please do not take it that way. But even if you’re good at gas, or good at oil, or good at coal, or good at solar, you’re still a component in the grander scheme of things. The grander scheme of things is this: Everything is integrated. Are you thinking about that? Include the transmission, the distribution and the end-users. Who is thinking about that? Who gets to integrate that? Or to optimize that? It may come as a surprise to you, but until recently, no one in the U.S. government had an end-to-end view of our energy strategy. After a great deal of work on the part of advisory groups made up of industry, education and government experts, the president asked the secretary of energy to lead a mission to develop an integrated energy policy. As a member of one of those groups, I strongly urge you read the President’s Council of Advisors on Science and Technology (PCAST) report titled, “Accelerating the Pace of Change in Energy Technologies Through an Integrated Federal Energy Policy.” So we now have someone who has to stand up and be responsible for the broad system-level thought on energy strategy. Each of you has to stand up for a system-level thought here as well. That is how you’re likely to win in the end. In the world of energy, you can’t have an integrated strategy without considering the distribution/ transmission grid. Yet, it’s not clear to me that you understand the grid as a true end-to-end system or as critically important in the whole scheme of things. Is it just a component, a large one, and best dealt with piece by piece? What should be frightening to us all is that the Chinese are building a 21st-century national grid, which is something we all should hunger for. It’s going to be incredibly rich, robust and capable — likely the envy of the world. What is our attitude here? Is it that our grid has been this way for 90 years, it is complex, it works and has never let us down — well almost — so just let it be? Real innovators would take this challenge and turn it into an opportunity to create real value.
Innovation is what the energy industry in this country needs to do more of.
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Do we have people with the skills and talent to be real innovators? Innovators tend to be both deep and broad, and I am concerned about the breadth of people. Sadly, most of us were educated in a system that left us deep like an “I,” but not broad, like a “T.” For the most part, the same higher education model exists today. The world keeps generating more I-shaped talent each year. Yet the demands of the 21st century warrant more innovation, more innovators, more T-shaped people. My sense is the United States understands this better than most countries. If we can pick up the pace of change in our education model to enable more T-shaped talent, more innovators, we can continue to thrive and lead. Though China, India and Korea will produce more engineers, more scientists and better scores than we will, can
they change as fast as we can to the model that really matters for innovation leadership? We are a country of pioneers. We take great pride in our inquisitive nature; we feel free to ask not just how, but why and, more importantly, why not. Innovators are free thinkers. And to think freely you simply need to be free to think. In our country, it is these precious freedoms that allow us to pursue things in strange and different ways. And we’re fools if we don’t cash in on it. I am betting we will and that our better days are ahead of us. To all of you in the energy industry, it is my sincere hope that your best day is always tomorrow. We are counting on it. Nicholas Donofrio is IBM Fellow Emeritus and Kauffman Foundation Senior Fellow.
Solving Multiple Dilemmas CEOS WEIGH IN
MICHAEL MORRIS American Electric Power
Solving multiple dilemmas — that’s what my colleagues and I do each and every day. The challenge begins, obviously, at the generation end of the equation and goes into the transmission piece and then ultimately down to distribution and delivery to our customers. What we have concluded is that if our friends in Washington and some of our friends in various states would get out of the way, we could get this job done. Miraculously, the lights would stay on, power cost would be reasonable Michael Morris and everybody would move in their own directions. We need to have renewables. You can’t have renewables without transmission. I had the honor of being in China to talk to the folks at China Grid. It took them 18 months to go from planning to synchronizing a 1,100-kilovolt, 1,100-kilometer line. But our 100-mile, 765-kilovolt line took 18 years to build — 16.5 years to get the authority, a half year to bid it out to make sure it was cost effective and then a year to build it. I obviously don’t support the Chinese form of government, 48 E N E RGYB I Z May/June 2011
but we have problems with the process that we go through here. At the distribution end of the business, we all are moving toward a smart grid with us getting more information to our customers. Yet at the state level, it’s very difficult to get a state regulator to address the issue of the capital that’s needed and the impact it has on rates. So the answers are in front of us if the politicians and regulators would ease up some. We could all get this done and we’d continue to have the most effective and efficient electric system in the world.
THOMAS FARRELL Dominion Power
We are the fastest-growing service territory in a 13-state region, and we have been for the last five years. We have a 25 percent generation deficit over the next 10 years. We have all the major food groups in our generation pie chart: nuclear, coal, gas, some oil. We have renewables, hydro and the largest pump storage facility in the world in the Virginia Mountains. We’re also looking at new nuclear. We’re a couple of years behind Southern Company in how we’re going to go about this. We’re going to get our combined construction and operating license and then decide where to go from there.
Thomas Farrell
ºº CONFERENCE PROCEEDINGS
We have the largest natural gas storage facilities in the United States, about a trillion cubic feet. It’s all along our pipeline system, which actually is the spine of the Marcellus Shale region. There’s a series of things that have to be done. We have more than $1 billion in construction projects in the works right now in our gas system, but none of that has to do with Marcellus Shale. We expect to spend more than $10 billion over the next five years on growth projects across our regulated utilities. Almost $2 billion of that will be spent trying to develop a Marcellus Shale region infrastructure.
FACTS American Electric Power owns 38,000 megawatts of generation and 39,000 miles of transmission, the most of any utility. Dominion Power has 27,600 megawatts of generation and operates the largest natural gas storage system in the country, with 942 billion cubic feet of capacity.
There’s clearly a cost to modernizing our generation fleet, but I frankly don’t believe that replacing 50- to 60-yearold fossil plants with much more efficient, cleaner, modern generating assets is going to be the train wreck that some people describe it to be.
THOMAS FANNING Southern Company
As a relatively new chief executive officer, I thought it might be interesting to talk about our priorities going NextEra Energy is the forward. There are five. largest wind power and The first is to keep in mind that solar generator in the customers are in the middle of United States. everything we do. There’s a lot of Southern Company has debate going on right now about a 42,000 megawatts of LEWIS HAY lot of issues. What we always have generation and is a leader in America’s nuclear NextEra Energy to do is translate that back to what power renaissance. The press likes to make a big deal out happens to our customers as a result of of the differences among the CEOs in these issues. the companies in our industry. We’re all The second priority is leading the after the same objective. We all want to have reliable, low-cost renaissance of nuclear power in America power for our customers, and that’s what’s really going to drive with our Vogtle 3 and 4 projects. I am continued growth and prosperity in the United States. delighted to say they are on time and We all want to ultimately get cleaner, on budget. we want to keep our costs down, we want The third is to work to put in place to be reliable. The challenge is trying to the appropriate national energy policy. figure out the right path to getting there, We need all the arrows in the quiver. We particularly when we don’t have an need nuclear, we need 21st-century coal, energy policy in our country. The rules we need gas, we need renewables and we Thomas Fanning of the game seem to keep changing. need energy efficiency. The fourth priority There’s a lot of promising technology, is smart energy. How can we employ but much of it hasn’t really been proven technology in our traditional generating fleet and incorporate Lewis Hay at scale. new sources of generation, including renewables? We intend One of the things I just wanted to to deploy about 4.6 million smart meters by the end of touch upon is the rhetoric that says if the U.S. Environmental 2012, and we’re already up around 3.2 million. How will Protection Agency continues down the path it is on, it’s going our customers think differently about our product and use to be devastating for our economy, and electricity prices will it differently? Our fifth priority is developing our work force. What skyrocket. And any attempt to modernize our nation’s fleet is really going to cost customers dearly in terms of higher costs. may carry us forward may be a different set of skills. We Now I want to be clear — I have my own concerns about the must continue to develop the human resources that make us great today. EPA. But we do have an administrator who listens these days. 50 E N E RGYB I Z May/June 2011
The Generation Lions THE FUTURE OF COAL, NUCLEAR AND NATURAL GAS
KENNETH HUMPHREYS FutureGen // Chief Executive Officer
There are 540 coal plants in the United States and their net output is 337 gigawatts. They provide a little bit less than 50 percent of our electricity. It is coming from an asset base where a good portion of it — about 15 percent — is greater than 50 years old. Another 20 percent is between 40 and 50 years old. Although many of them have been upgraded over the years, they are candidates for retirement. It’s also the case that the coal fleet is far, far cleaner than it was a few decades ago. In the long term, I’m optimistic. We will end up with a slightly smaller U.S. coal fleet, but a cleaner fleet. It does come at a significant cost. Depending upon whose estimates you believe, it’s probably $50 billion to $100 billion or maybe more. One thing I’m quite confident of is that there will be continued political debate around carbon. It won’t just be in the United States, it will be globally. And so, for the coal industry as a whole, it’s very important for us to engage that debate on the best terms possible and the most informed Kenneth Humphreys terms possible. This is a challenge that is best taken on by public and private partnerships because the commercial gap between what the market will support today and what the first-generation technology costs is large. FutureGen is the only project in the entire country that’s capturing the entire flue gas stream at a high rate and integrating that into saline formations. That’s the gamechanging technology that’s going to be the workhorse in a mature industry that involves carbon capture and sequestration.
JAY SURINA NuScale Power // Chief Financial Officer
Developers of small, modular nuclear units are looking to change the paradigm for nuclear power, and not only from a perspective of generating electricity but also changing the business paradigm. NuScale Power technology involves 45-megawatt electric modules that can be built in a factory and shipped to a site and fueled at the site. There aren’t any pumps in there, there are very few valves and there’s little to break. The simplicity of the design adds to the economics.
The core heats water and it rises through natural circulation. The steam is created in a halo coil steam generator, and the water falls down through natural circulation back into the core and heats up again. The big containment building that you see in the nuclear power plant of today is being replaced by a module that’s 65 feet in height and 15 feet in diameter. It’s also very good for seismic capabilities. You can go from 45 megawatts to any multiple of 45 megawatts you want. We’ve heard a lot about the nuclear Jay Surina renaissance, but thus far we haven’t seen a lot of nuclear power plants being built. The biggest reason is that large nuclear power plants are very expensive. By building smaller, modular-type plants, their owners have much less financial risk.
SCOTT ROTRUCK Chesapeake Energy // Vice President
The natural gas is there. Technologically, we can get it out because of horizontal drilling, hydraulic fracturing and pad drilling where we can drill multiple wells off of the same pad to produce a tremendous amount of British thermal units of energy. Recently, there was a New York Times story about the natural gas industry and whether we are managing the water resources correctly. I’ll tell you this. We are. Get underground and understand the sophistication of this process and think of it as much akin to surgery. Scott Rotruck When we go out there and do a site, we cordon off the whole area. We have primary, secondary and tertiary containment. Nothing gets out. It’s a closed-loop system. The hydraulic fracturing is taking place in the formation in a more solid shell, for instance, a mile to a mile and a half below the earth. We get about 20 percent of the produced fluids that come back. We perfected the ability to be able to reuse it. It is a tremendous story of success, but it’s only really the beginning of what shale gas can offer this country. It is crazy to send $1.5 billion a day overseas to people who don’t like us to provide us with foreign oil. We truly can produce a lot more of our own energy in this country. energybiz.com E N E RGYB I Z 51
ºº CONFERENCE PROCEEDINGS
Renewables Face New Challenges ARE THEY READY FOR PRIME TIME?
DAN ARVIZU U.S. National Renewable Energy Laboratory // Director and Chief Executive
Renewables are here. They produce 10 percent of our electricity-generating capacity, about 130 gigawatts. Fiftythree gigawatts of that amount come from nonhydroelectric renewables. The nonhydro portion is about 4 percent of our overall electricity generation. It surprises some folks to know that renewable power generation is nearly equal to the energy that we obtain from U.S. offshore oil production. Renewable energy power generation tripled from 2000 to 2009. The less-good news is that we are on the verge of making a fairly significant Dan Arvizu mistake when it comes to new energy opportunities. When we start talking about budget cuts that are 30 or 40 percent or more, that sort of retreat is absolutely shortsighted. We’re trying to enable the private sector to move its technologies in the marketplace. Federal support for applied science shouldn’t be a partisan issue. Spending money on renewable energy is something that we all need to recognize as being a part of the beneficial investments the country needs to make. Regardless of anyone’s political ideology, renewables are imperative for the future.
LYNDON RIVE SolarCity // Chief Executive Officer
Solar City is the largest residential and commercial solar installation company in the country. When we deploy an asset, we own it with the investor, and we provide it in the form of a lease. The value proposition to the homeowner is simplistic. You can get a solar system on your roof and pay less for that solar power than what you’re currently paying for power. Lyndon Rive Today, solar is still subsidized. In order to reach a point where it’s not subsidized, we have to achieve economies of scale. We’re going to address the barriers to adoption. 52 E N E RGYB I Z May/June 2011
The number-one barrier is the up-front cost. Most people cannot afford $20,000 or $30,000 to install a solar system. But as the market matures, solar is ready for prime time.
JOSH RICHMAN Bloom Energy // Vice President
The Bloom Energy fuel cell technology has unique attributes. It’s not a hydrogen fuel cell technology. It’s based on low-cost materials. A flat, square ceramic is the core of our technology. It’s no mistake that our company is based in the Silicon Valley where they know how to manufacture a flat, square piece of sand at high volume and low cost. We convert fuel to electricity at an unprecedented efficiency in the world of power generation. We’re approaching 60 percent electrical efficiency. We’re fuel-flexible. It’s an all-electric solution. It’s not Josh Richman combined heat and power. It’s a continuously available, reliable baseload solution. You can ramp down or ramp up. When you ramp down, the efficiency doesn’t decrease materially. You can couple our technology with the grid or with intermittent renewable resources. We now have a little more than 10 megawatts installed. Our availability has been over 99 percent. We’ve had zero safety-related issues. And we currently are working on some utility pilot projects.
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electric I water I Gas I aMI I Da I Dr I MDM I outage Management I Conservation Integration I Deployment I Business Case Support I regulatory assistance
ºº CONFERENCE PROCEEDINGS
Getting the Transmission Built A PATH TO THE 21ST CENTURY
JON WELLINGHOFF
It will accommodate modern generation options such as renewable energy.
Federal Energy Regulatory Commission // Chairman
We need to start guiding markets into what we believe are the most efficient structures to get innovative transmission projects built. Planning and cost allocation are the two most important parts of getting transmission developed from a regulatory standpoint. We are looking to deal with it by regions and by those regional planning authorities over which we have authority. We also propose to require each pair of neighboring regions to coordinate transmission planning and cost allocation, and this is very important. Each region is to propose its own Jon Wellinghoff cost-allocation method and the Federal Energy Regulatory Commission is not requiring a one-sizefits-all approach. We are simply giving the regions broad principles with respect to cost allocation. FERC is trying to set up a regulatory construct that enables competitive transmission development and for fair and full cost allocation so that we can have a robust transmission system that can deliver to our consumers reliable, clean, costeffective energy.
ROBERT MITCHELL Trans-Elect // Chief Executive Officer
The Atlantic Wind Connection announced on October 12 that Google had decided to invest in a project that we have been working on for about a year and a half. That idea was to build a subsea cable from northern New Jersey to northern Virginia in five segments over 10 years. A substantial amount of offshore wind generation must be developed for companies to justify making an investment to build new factories to build turbines, blades, cable and the other products that will go into the manufacture of offshore wind turbines. Some 8,500 parts go into the making of a turbine and supplying those parts represents a tremendous opportunity. Robert Mitchell The offshore project that we are proposing will use direct-current technology. It will have offshore converter stations accumulating wind up and down the coast. A relevant study says if wind farms are combined on a backbone over at least 200 to 300 miles — and ours would be 350 miles long — the variability of wind production could be smoothed out.
PHILLIP G. HARRIS Tres Amigas // Chief Executive Officer
Tres Amigas will unite the three grids of North America together so we can move power back and forth. I began to develop this concept in 2007. We announced it in 2009. New Mexico, according to the Western Governors Association, can produce 27 gigawatts of renewables. Here is a state with a 5-gigawatt load that is going to put out 27 gigawatts of renewables. Ultimate economic efficiency in Phillip G. Harris provisioning electric services means establishing accurate price signals. To that end, we must plan for an integrated, dynamic grid that is interactive with consumers and markets. The grid of the future will be predictive rather than reactive and will be able to store large amounts of energy. 54 E N E RGYB I Z May/June 2011
JOSEPH J. WELCH ITC Holdings // Chairman, President and Chief Executive Officer
The United States’ electrical transmission system needs a lot of work and a lot of investment just to put it back into the condition that it was in when it was constructed. What does it take to get transmission built? What are the impediments? We need a national energy plan. With a national energy plan, it gives us something common to build to. The second thing that we need is a way Joseph J. Welch to price transmission. We need a way to have customers pay for it. We can have all the energy policies that we want, but we have to be able to site electrical transmission and build it.
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Top of Mind IT Issues BY JILL FEBLOWITZ
LEADERSHIP maps, GPS, geospatial information ROUNDTABLE renewables, smart phones and system models, work history and PARTICIPANTS cloud computing have introduced customer information system data Rebecca Blalock new challenges and opportunities to make it available on handheld Chief Information Officer Southern Company for CIOs. CIOs must also “keep devices. The user in the field can the lights on” when budgets are understand, “Where is the asset, Mark Griffin tight. At the EnergyBiz Forum, we what’s the condition of that Head of the Energy Practice Tata Consulting group in North America got the CIOs’ take on how they’re asset, what’s the history of approaching this new environment. maintenance on that asset, David Harkness what do the engineering Chief Information Officer FEBLOWITZ How has your role as a Xcel Energy drawings look like on that CIO changed over the years? asset?” When field workers can make updates on a HARKNESS We have to do more with less. We’re a service organization and we need to change the way we think real-time basis, customers that are calling about an about problems. For example, you might want to roll out a outage can know immediately when restoration Rebecca Blalock capability that takes 10 programmers. We need to say, “Well, is expected. Smart
grid,
integration
of
instead of having 10 people doing it, maybe we should buy a hosted solution. Maybe we should purchase something and integrate it versus building it from scratch.”
FEBLOWITZ What’s the one piece of the smart
BLALOCK You have got to apply technology in the most efficient way. The other real challenge for the CIO is leadership development. As the economy begins to recover, some of our best talent will be going to other places. When I interview executives in our company, the thing I hear most often is, “I don’t want a bunch of order takers. I need your team engaged with us and helping us to see what’s possible with technology so that we can help our company be the best it possibly can be.”
BLALOCK
GRIFFIN Expectations in the industry are changing with
what is happening in the outside world with Google, Facebook and all the rest of what is confronting customers. We, as service providers, need to be recognizing that we need to add value from the first conversation forward. FEBLOWITZ With all the intelligent devices on the grid, do
you think that the industry will embrace a data governance model that covers data from the operational side and the IT side? HARKNESS I’m not sure if the industry will get to the point of having a data model that the whole industry adopts. I do agree with Becky that we absolutely have to do that within our own companies. One example where we are seeing a convergence of operational and IT data is with assets on the grid. We have clients that are taking data from outage management systems and combining it with 56 E N E RGYB I Z May/June 2011
grid you’ve installed that your company couldn’t do without? We’ve been doing a lot of “smart” stuff already at Southern Company. Certainly the stimulus money allowed us to accelerate some of it. When we took a direct hit in our service territory from Hurricane Ivan, we had about 800,000 people out in Alabama and 200,000 of those people were restored with a click of a mouse. That’s how much automation is in our system, and where we’re headed is that the mouse won’t even have to be clicked. There will be so much automation that the system will automatically sense what can be turned back on and when.
Mark Griffin
HARKNESS I’d have to say it is what we have done
with our wind integration. It’s such a big piece and we developed the application for wind forecasting. Once you get to a point where you get so much wind as part of your portfolio, it’s really essential.
David Harkness
GRIFFIN At TCS, we recently worked with a project in India called the NEPL, which involved approximately 20 million smart meters in India. What we’ve learned from that is that there is not one answer. There’s not going to be a unifying, single smart grid phenomenon that’s going to coalesce and the industry is going to move forward lock step. Jill Feblowitz is vice president of IDC Energy Insights.
ºº CONFERENCE PROCEEDINGS
EnergyBiz 2011 KITE Awards INDUSTRY STANDOUTS
LEWIS HAY III NextEra Energy // Chief Executive Officer CEO of the Year
Lewis Hay got his start working in a steel mill in his native western Pennsylvania and he still can exhibit a “blue-collar streak,” according to Moray Dewhurst, the vice chairman of NextEra Energy, who has known Hay for three decades. During the go-go years about a decade ago when Enron and others went overboard in energy trading, NextEra — formerly known as the FPL Group — chose a different course. Dewhurst credits Hay for seeing an opportunity in wind back then, when others were building their trading operations. He also steered the company to expand its nuclear holdings. “We all have access to the same technology, the same capital,” he said. “Longterm, what makes a difference is people.” For all these reasons, EnergyBiz is proud to honor Lewis Hay with the KITE Award for chief executive officer of the year.
Lewis Hay
TRANS-ELECT Energy Company of the Year
Trans-Elect plans to build a $5 billion transmission backbone in the Atlantic ocean, along with the help of Google and others. In the opinion of EnergyBiz, the architect of that effort — Trans-Elect — for the boldness of its vision and scope of its ambition deserves to be honored as the energy company of the year. Trans-Elect has a tradition of pushing the envelope. When it was conceived in 1998 by Robert Mitchell and others, it became the first independent transmission company to buy transmission assets from investor-owned utilities. Trans-Elect co-founder Frederick Buckman, the former CEO of PacifiCorp and Consumers Power, said, “I view this situation not as an endpoint but as the first of what may be several large investments from large, nontraditional players in the energy sector.”
Robert Mitchell
TOM KUHN Lifetime Achievement
Many executives of American utilities have worked with Tom Kuhn over the years. First Jim Rogers, the chief executive of Duke Energy, said, “He is an excellent consensus-builder in our industry — often taking viewpoints that are far apart and finding where there is consensus so we can collectively move forward.” Tony Earley, of DTE Energy, said, He’s honest and straightforward — he’s learned the skill of disagreeing without being disagreeable.” John Rowe, the chief executive of Exelon, observed: “His ability to manage Washington politics is only exceeded by his ability to repeatedly withstand the trials of aligning utilities with very different viewpoints, a feat which he accomplishes with grace and decorum.” EnergyBiz has selected Kuhn, the president of EEI, to receive the EnergyBiz KITE Lifetime Achievement Award. 58 E N E RGYB I Z May/June 2011
Tom Kuhn
» TECHNOLOGY FRONTIER Open Standards for a Smart Grid GIGATON EMISSIONS SAVINGS // BY LORIE WIGLE AS THE NUMBER ONE PURCHASER of renewable energy in the United States and a strategic investor in renewable energy startup companies, Intel is helping lead the development of the clean energy industry. An imperative that is closely linked to clean energy is to help make smart energy a global reality. We must accelerate the integration of and synergy among intelligent renewable energy sources, smart grids, smart buildings and empowered energy consumers. According to a report by The Climate Group, the application of information and communication technologies to enable smart grids and smart buildings has the potential to avert 3.71 gigatons of CO2 equivalent global emissions, worth $464 billion in global energy cost savings, by 2020. To achieve this goal of energy savings and CO2 avoidance the energy sector must undergo a significant transformation, including rapid integration of renewable energy sources, the build-out of smart grids and technology-based empowerment of energy consumers. An issue facing smart grids is the absence of an agreed-upon specification prescribing how all grid components should be designed and made to communicate with each other. There are many competing open standards and proprietary protocols. To help WIRELESS CAR CHARGE address this interoperability challenge, Evatran, a Virginia key grid subsystems and consumercompany, has partnered with Google to develop side systems should be open platforms a wireless method of designed to flexibly support a variety of recharging electric standard interfaces. In addition, grid sysvehicles, according to a report in the Wytheville, tems should be future-proof, supporting Va., Enterprise. new innovations and the integration of Cars would park over a future applications and services. power pad, which would then transfer power to Grids need to be smart, programthe vehicle’s batteries mable and adaptable. A way to achieve through electrical induction, with a full this is to use open standards and recharge taking about microprocessor-based intelligence four hours. throughout the grid. Distributed intelligence, throughout the grid and its end points, enables optimized levels of automation and decision-making at each link in the chain. It also enables greater communication, visibility and collaboration across the entire energy chain.
Distributed, connected, collective intelligence is optimizing effectiveness in the energy network as a whole. Embedded microprocessors in distributed renewable energy sources, such as wind turbines and solar systems, enable them to exchange data and operational status with the grid. Real-time monitoring, analysis and control are enabled by microprocessor-based intelligence in the electricity transmission and distribution networks. Energy management dashboards running on PCs and other microprocessor-based systems empower energy consumers to view and optimize the behavior of the networked energy assets within their personal smart grid — from appliances to rooftop solar systems and electric vehicles. And networks of efficiency-minded consumers are using PCs and online social networks to share best practices, aggregate energy savings and participate in carbon-reduction competitions. Utilities, government regulators, technology and grid vendors should get involved and participate in the discussion by joining consortia and smart grid efforts, such as the Gridwise Alliance, the Smart Grid Consumer Collaborative and the Demand Response and Smart Grid Coalition. The successful transformation of the energy sector to the smart energy sector requires the ability to harness the full potential of renewable energy sources, distributed microprocessor intelligence, open standards, consumer empowerment and network effects. Lorie Wigle is general manager of Intel’s Eco Technology Program Office and president of the Climate Savers Computing Initiative.
Gatherings// Technology Frontier June 8–9
Waste Conversion Technology Congress
Philadelphia
June 15–16
West Coast Energy Management Congress
Long Beach, Calif.
June 29–30
Concentrated Solar Power Summit
Las Vegas
For more information about these and other events, please visit www.energycentral.com/events.
energybiz.com E N E RGYB I Z 59
» TECHNOLOGY FRONTIER State-of-the-Art Control Center HIGH-TECH TOOLS INTEGRATE RENEWABLES // BY YAKOUT MANSOUR THERE IS A NEW TOOL SHARPENING California’s renewable vision. It is in the form of a state-of-the-art system control center that houses the first dedicated renewables dispatch facility in the nation. As the state approaches a goal of generating 20 percent of its power from renewable resources, which escalates to an ambitious 33 percent by 2020, ensuring reliability brings new meaning to California grid operations. The California Independent System Operator anticipated this new era and designed a mission-critical wing at RADIOACTIVE its new headquarters that COAL ASH hosts one of the most Coal plant waste modern control centers in releases more radioactivity into the the world. nearby environment than Advanced grid visualizanuclear power plants, according to an article in tion and other technology Scientific American. is now at the fingertips Fly ash from a coal of ISO operators as they plant releases more radioactivity into the manage a 25,000 circuitenvironment than a mile transmission system comparably sized and the competitive nuclear power plant. power market that supports operations. Robust systems provide increased reliability and efficiency, readying the ISO to respond to the most challenging conditions including sudden changes in electrical demand, power plant disruptions or fast-moving fires and other natural disasters. Operators on 12-hour shifts also value adjustableheight work consoles. The new tools focus on fast start up of power plants, voltage stability, renewable forecasting, congestion management and reliability. Computer systems provide this information with pictures rather than thousands of individual data points. For example, in an 80-foot-wide by 6.5-foot-high video wall, displays contain multiple layers of information at a glance and quickly alert operators of potential problems. Ten new visualization screens display information including a series of customized screens the ISO partnered with Space-Time Insight and Google to create. The geospatial technology provides wind and solar patterns as well as real-time production. Fire and severe weather tracking screens detect grid events with visualization 60 E N E RGYB I Z May/June 2011
Photo courtesy of California ISO
tools that help operators zero in on pertinent information that leads to sound decisions. A new energy management system provides the latest application software on the newest server hardware. This increases performance and automation functions. It also enhances wind and solar performance forecasting as well as advance weather prediction to anticipate consumer demand on the grid. The new control center also uses visual monitoring units that provide operators with better access to precise grid data at a fast rate. The synchrophasor technology takes a pulse of the power grid every 33 milliseconds rather than the old standard of every four seconds. The official move to the new headquarters in January exemplifies California’s commitment to the environment. Not only does the new control center provide high-tech visualization tools that help integrate diverse resources, it also showcases sustainable building design and is expected to achieve a high rating for efficiency and sustainability as designated by the U.S. Green Building Council’s LEED program. The control center itself is a mini-power plant with a photovoltaiccovered roof that, combined with PV carports on site, generates up to 750 kilowatts or about a quarter of the facility’s energy needs. Yakout Mansour is president and chief executive of the California ISO.
» INTRODUCING Net Zero IMAGINING EFFICIENCY // BY JEFFREY M. BAKER IMAGINE A FUTURE WHERE BUILDINGS are highly energy efficient, cost less to operate, and emit less greenhouse gas than today’s standard office building. Imagine a future where all employees have a window view regardless of their rank or tenure. Imagine a future where windows convey daylight deep into the building illuminating all work surfaces and can be opened to provide fresh air. Imagine a future where occupants and building systems communicate constantly to optimize comfort and energy performance. Imagine a future where all this is achievable at commercial scale and an affordable cost. This imaginary future is on display today at the U.S. Department of Energy’s Research Support Facility located at the National Renewable Energy Laboratory in Golden, Colo. Employing tools and technologies developed through DOE’s Office of Energy Efficiency
The sun rises on the new National Renewable Energy Laboratory support facility in Golden, Colo. Photo by Dennis Schroeder, National Renewable Energy Laboratory
and Renewable Energy, the facility redefines the energy performance standard for highly energy-efficient, large-scale commercial buildings. Using advanced energy modeling and standard construction materials and techniques, the facility uses what nature provides to exceed today’s most stringent energy performance standard by 50 percent. Highly efficient and operable windows allow sunlight and fresh air to penetrate every workspace while shielding occupants from nature’s extremes. The
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» TECHNOLOGY FRONTIER building’s control system constantly monitors environmental conditions and alerts employees when to open and close windows. The wide-open office environment provides employees with the feeling of being outdoors by removing walls and doors that typically inhibit staff interaction and creativity. All this, plus a U.S. Green Building Council’s LEED Platinum rating, for a construction cost of $259 per square foot. Completed in June 2010, approximately 825 employees now occupy the 222,000-square-foot office. The building’s energy performance is exceeding its design expectations. But why stop there? The agency designed the facility to be a living laboratory in which state-of-theart building tools and technologies can be deployed, monitored and refined. For that reason, many of the lessons learned from the original structure are being deployed in the design and construction of a new 138,000-square-foot wing to the building. The result is a 17 percent improvement in energy efficiency over the original design and a 5 percent reduction in construction cost to $246 per square foot, a short 12 months later. In preparation for a design competition, DOE handed each team a copy of the draft request for proposals and used the draft to improve team understanding of the project’s performance goals, to address issues raised by the team, and to build team SUPER WIND confidence and trust. Instead TURBINE of handing them a final request Vestas has developed a 7-megawatt offshore for proposals that contained a turbine in a bid to boost prescriptive list of specifications power output and cut costs associated with and a conceptual design for the wind generation. design-build team, DOE defined Initially, it will be performance goals for the project, deployed primarily in northern Europe, allowing the teams the creative according to a report license to develop solutions that from Datamonitor. achieved those goals. The facility’s architecture, construction materials, operating systems — even furniture — were developed by each individual design team through an integrated, whole-building design process. The successful team was awarded a firm, fixed-price contract replete with performance goals and substantiation criteria. Why is this important? Simply because 19 percent of our nation’s primary energy is consumed by commercial buildings. Without significant improvement in the energy efficiency of this critical sector we will not achieve our national energy goals of energy security, economic competitiveness and environmental quality. Jeffrey M. Baker is director of the U.S. Department of Energy’s Office of Laboratory Operations in Golden, Colo. 62 E N E RGYB I Z May/June 2011
Shooting for the Star DOE’S NEW SOLAR INITIATIVE // BY KEVIN LYNN THE DEPARTMENT OF ENERGY HAS launched the SunShot Initiative to reduce the cost of solar energy systems by 75 percent by the end of the decade making it cost-competitive — without subsidy — with conventional generation. While photovoltaic installation rates have averaged 48 percent growth per year over the last 10 years, solar only provides about 0.1 percent of the nation’s electricity. If we reach SunShot’s installed cost target of $1 a watt for utility-scale PV, solar electricity could provide 14 percent of America’s energy by 2030. Much like the Apollo Program, an initiative of this magnitude will require a national effort in research and development, advanced manufacturing, and science, math and engineering education. SunShot will help the United States win that race, commercializing and scaling-up solar innovations. To reach this goal for utility-scale systems, PV module costs are anticipated to drop to 50 cents a watt of direct current, balance of systems to 40 cents a watt of direct current, and power electronics to10 cents a watt of direct current. DOE recently hosted a series of workshops in Washington to receive input from stakeholders on power electronics, grid integration, and PV balance of systems costs. Representatives from DOE and its national laboratories met with people from industry and academia for four day-long workshops focused on developing a more concise and consistent understanding of the costs associated with installing solar PV systems. Specifically, the workshops helped DOE better understand how to reduce costs in power electronics and grid integration, reduce costs in balance of systems hardware and make regulatory and process improvements that can reduce system costs by streamlining transactions and enabling scale. Kevin Lynn is acting head for systems integration at the Department of Energy’s Solar Energy Technologies Program.
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» METRICS WORLD ENERGY SNAPSHOT Energy Leaders
Expected Life Expectancy
The United States is the global leader in energy resources, eclipsing Russia, when the proven reserves of oil, natural gas, coal and uranium are combined, according to the recently published Routledge Handbook of Energy Security.
COAL 137 years
URANIUM 85 years
The United States is the global leader in coal reserves, holding an estimated one-third of the global reserves. Russia leads in natural gas reserves.
92
NATURAL GAS 60 years
Proven Reserves - 2008
U
uranium
OIL 43 years
Global Resources Based on recent reserve-to-production ratios, the world has 137 years of coal remaining and 43 years worth of petroleum. While these estimates may not reflect vast natural gas deposits of shale that have been discovered, they do show the relative abundance of broad categories of energy resources.
Oil, Natural Gas, Coal, Uranium [billion barrels of oil equivalent] Source: Routledge Handbook of Energy Security
BRIGHT LIGHTS Awareness Of Lighting Efficiency Law
Support Incandescent Bulb Phase Out
21%
OPPOSE
67% UNAWARE
AWARE
Two-thirds of Americans believe it is a good idea that traditional light bulbs are phased out in favor of more efficient lighting technology. Yet only 40 percent are aware that federal law requires a 28 percent boost in lighting efficiency, according to a recent survey of 1,000 people by EcoAlign. Switching from conventional light bulbs to more efficient LED lighting could halve the amount of energy needed for lighting by 2025, saving $100 billion worth of energy, and eliminate the need for 100 power generating plants producing, on average, 1,000 megawatts of power each, EcoAlign reported.
12%
SUPPORT
NO POSITION
The federal government estimates that lighting consumes 20 percent of electricity and costs $40 billion a year. The government will phase out the sale of most incandescent light bulbs by 2014. Source: EcoAlign
64 E N E RGYB I Z May/June 2011
» INTRODUCING
Photo courtesy of Oncor
Transmission Texas Style ONCOR’S SHAPARD PREPARES FOR A SMARTER ERA // BY MARTIN ROSENBERG ONCOR IS A TEXAS-SIZED TRANSmission and distribution company with an outsized vision of the potential of a smarter grid. Robert S. Shapard, as chairman and chief executive officer of Oncor, oversees his company’s 14,000 miles of transmission and 120,000 miles of distribution lines serving 3.2 million end points, making it the sixthlargest transmission and distribution company in the country. Earlier this year, he was elected chairman of the Gridwise Alliance, an organization promoting smart grid. Shapard recently was interviewed by EnergyBiz to discuss the future of Oncor and the grid. His comments, edited for style and length, follow. How has Oncor’s energy demand held up in recent years? ENERGYBIZ
SHAPARD Our growth rate in Texas has been a little more robust than the national average. But the last couple of years with the economic recession we saw our growth rates drop dramatically. We actually lost load on the commercial and industrial side and saw the residential load flatten out. We are beginning to see growth again, but we’re not back to our
traditional 2 percent annual growth rates. We are probably half that. ENERGYBIZ You operate the sixth-largest transmission and distribution company in the country. How has deregulation been affecting you and is it working?
It is. In Texas, natural gas is on the margin all the time. So you run all your nuclear plants and your coal plants around the clock because they have the lowest incremental cost to operate. Gas plants are cycled up and down to meet peaks. So in a deregulated market, gas always sets the price of electricity. When natural gas prices ran up, deregulated electricity prices ran right up with it. In the short run after deregulation, prices were higher. But now that gas prices have fallen, it’s really benefiting consumers. SHAPARD
In North Texas, customers were paying 9.6 cents a kilowatt hour pre-deregulation. Now, a decade later, customers can get a fixed price for a year for about 8 cents. So it’s substantially lower than what it was a energybiz.com E N E RGYB I Z 65
» INTRODUCING decade ago despite 10 years of inflation. Deregulation has really benefited consumers because we’ve had a lot of clean, more efficient power plants built. We’ve mothballed the old inefficient units. We had a lot of retailers come into the market and a lot of competition. Some are proposing building new transmission links, such as the proposed Tres Amigas project, to allow power to travel further to where it would be in demand. Does that make sense? ENERGYBIZ
There are a lot of people in this country who want to invest in electric infrastructure as long as there is some clarity or regulatory certainty. It’s not difficult to raise the money. ENERGYBIZ Since you bring up Energy Future Holdings, they are facing some big hurdles getting their financial house in order. According to news reports, investors are increasingly concerned that it might default on its debt. What implications might that have for you?
I’d have to take a closer look at the economics to see if it makes sense. Is there sufficient excess capacity in one region that can find a home in another to justify the investment? Nobody has shown me a compelling economic value for that one yet. SHAPARD
ENERGYBIZ
Describe the wind power picture
in Texas. We are up to about 11,000 megawatts of wind in Texas today, which is equivalent to the next three largest states combined. If Texas were a nation, we’d be fifth or sixth in the world in terms of wind generation. You do reach a point where you can’t take more wind once you get beyond a certain percentage of your total load just because of its lack of reliability. SHAPARD
Talk a little bit about the competitive marketplace in Texas. ENERGYBIZ
There are upward of 100 retailers in Texas competing for the consumers’ business. I deliver regardless of who the retailer is — to the home and to the businesses. SHAPARD
ENERGYBIZ
Describe your capital expenditure
programs? In large part because of the build out for the CREZ — Competitive Renewable Energy Zones — Transmission project in Texas to connect all this wind, we are investing over $1 billion a year in capex right now. SHAPARD
ENERGYBIZ Do you anticipate having any trouble raising that money?
Nope. We’ve got a strong investment, great credit ratings. Our majority owner is Energy Future Holdings, which has credit problems. Their credit ratings have dropped well below investment grade but we’re ring-fenced from them and under separate governance. Therefore, we still have a strong investment grade rating and so we can raise capital. SHAPARD
66 E N E RGYB I Z May/June 2011
Deregulation has really benefited consumers because we’ve had a lot of clean, more efficient power plants built.
SHAPARD Fortunately, it won’t have any implication. When the sponsors came in and bought Energy Future Holdings, Texas and the rating agencies insisted that Oncor be ring-fenced from that. So we’re under separate governance. There is no cross default or cross ownership of debt. We operate completely independently. So if, in fact, they have a financial problem, we would be excluded from that. We are separate from them. ENERGYBIZ
What does the smart grid mean
in Texas? When you are talking about smart grid, a lot of people think of just simply smart meters or advanced meters. On the meters front, Texas is well advanced. We will have most of this state deployed with advanced meters by the end of 2012 because CenterPoint Energy and Oncor deployments are going to be complete. AEP will be well down the road. By 2013, we will basically have all the major utilities complete in the state. California and Texas — we’re leading the charge. SHAPARD
ENERGYBIZ Does that mean you’ll have a time-ofday rate regime in place?
We will be able to provide the retailers with the information to offer time-of-use rates to all the customers in this state. That’s right. SHAPARD
ENERGYBIZ
What do the regulators think about that?
The regulators like that. They like the fact that customers are going to get a lot of options. There are already two retailers that have the time-of-day rates. These meters give consumers better information about their own consumption so they change their behavior. SHAPARD
In addition to smart meters, we are installing smart switches on the distribution system that will allow us to identify a fault in the system quicker, isolate it and route around it without any human intervention. On the transmission grid, we are able to install microprocessor relays to identify and route around problems. There are a lot of really good improvements we can make on the transmission and distribution system other than just the meter. ENERGYBIZ
What about cyber security threats?
When you automate it creates concerns that people can hack into those systems. We have all kinds of security protocols in place and these new systems are designed with that. SHAPARD
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What one or two or three key things have you learned in Texas in the last decade that you think would be applicable around the country? ENERGYBIZ
The model we developed here in Texas is completely applicable. We’ve spent a lot of time in the last few decades discussing the generation end of the business, and a lot of progress has been made. It’s time to focus now on the grid. I think that’s where the real fertile opportunities are for the next decade. Like the rest of the country, we have existing generation capacity that can’t be fully utilized because of transmission constraints. So, before you go build another power plant, get better use of the ones you’ve got. SHAPARD
This journal is technically co-sponsored by eight different IEEE societies.
If we can get better use of existing capacity, connect renewables and give consumers the information to use energy smarter, we will save billions of dollars a year in this country in cost to consumers, and it will have a dramatic impact on the environment. energybiz.com E N E RGYB I Z 67
» LEGAL EAGLE Dealing with Fracking ENVIRONMENTAL DANGERS CAUSE CONCERN // BY GARY M. STERN DRILLING FOR MARCELLUS SHALE yields vast resources of natural gas in states such as Pennsylvania, Ohio and West Virginia, providing an economic and environmental bonanza. However, new evidence hydrofracking creates millions of gallons of wastewater laced with carcinogens, corrosive salt and radioactive elements like radium that are polluting water systems from Pittsburgh to Baltimore. Articles in the New York Times and Pro Publica raised questions about the integrity of water systems in Pennsylvania. How are regulators reacting to this new information? In fact, Environmental Protection Agency scientists said tests showed that sewage treatment plants were unable to eliminate waste toxins, which were polluting Pennsylvania and Ohio’s water systems. Indeed, in early 2011, Pittsburgh officials advised citizens to drink bottled water and avoid tap water. EPA officials told the Times, which wrote a three-part expose on drilling’s damaging effects, that this incident was “one of the largest failures in U.S. history to supply clean drinking water to the public.” As a result of this new data and publicity, Shawn M. Garvin, EPA’s regional administrator, issued guidelines to Michael Krancer, the acting secretary of Pennsylvania’s Department of Environmental Protection, to test for radioactivity at water plants within 30 days in March. Moreover, EPA instructed the Pennsylvania department to review DUKE CHARGERS permits issued to treatState regulators have ment plants processing approved of a plan by this waste water to ensure Duke Energy to provide free charging units for compliance with the law. residential customers’ Nonetheless, Marcellus electric vehicles. Shale drilling reaps benThe utility plans to distribute 150 of the efits. “Thousands of people units, according to a have died from air pollution report in the Raleigh, and one of six people in N.C., News & Observer. Pennsylvania has elevated signs of mercury, mostly derived from coal-fired power plants,” noted John Quigley, a consultant to nonprofit Citizen for Pennsylvania’s Future and former secretary of Pennsylvania’s Department of Conservation and Natural Resources. In the last three years, Pennsylvania’s environmental agency has strengthened regulations to ensure safety 68 E N E RGYB I Z May/June 2011
including establishing rules about water withdrawals, dissolving solids and limiting wastewater discharged into a river, Quigley said. Moreover, it established strict criteria for constructing these wells and increased the number of investigators from 88 in 2008 to 202 in 2010. But regulations haven’t gone far enough with regard to recycling water, Quigley added. The natural gas industry says it recycles 70 percent of water and is striving to recycle 100 percent of it. But radioactive material occurs naturally in water, which hydrofracking brings to the surface. Hence, it must be monitored and regulatory agencies haven’t been tracking recycled water. “If regulations remain where they are now, we’ll have huge problems regarding contaminating water systems,” said Kent F. Moors, director of the Energy Policy Research Group at Duquesne University in Pittsburgh. Recently elected Gov. Tom Corbett of Pennsylvania plans to increase the number of wells in Pennsylvania from 1,600 to thousands more in the next few years, which will exacerbate the dangers. Moore would like to see penalties increased on natural gas companies that contaminate the water. Though penalties can rise to $100,000, some companies consider these fines part of the cost of drilling. Moors noted that solutions are emerging from companies such as Ecosphere Technologies that remove harmful chemicals from hydrofracking. “Right now, we don’t have regulations that oblige companies to use the new technologies that limit the problems,” he said. Moors said most large drillers police themselves and clean up the wastewater. Much of the contaminants stem from “marginal companies and mom ’n’ pop drillers who stay one derrick ahead of the sheriff,” he said. But John Hanger, former secretary of Pennsylvania’s environmental department until last year, who now runs Hanger Consulting in Harrisburg, Penn., accuses the Times of creating a “fictional narrative of lax regulation and oversight of gas drilling in Pennsylvania.” Hanger says that tests in Pennsylvania have come back negative for signs of radioactivity based on federal water standards. Moreover, from Jan. 1, 2008, to June 30, 2010, the state agency issued 1,400 violations to the gas industry, demonstrating its stringent enforcement of regulations.
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» LEGAL EAGLE California Commission Revamp BROWN PURSUES RENEWABLE ENERGY GLORY // BY AL SENIA CALIFORNIA’S ENERGY BUSINESSES and utilities are about to experience the sudden jolt of Democrat Jerry Brown’s return to the gubernatorial helm. Within his first few weeks of taking over the governorship from his Republican predecessor, Arnold Schwarzenegger, Brown utilized an aggressive combination of executive appointments and legislative initiatives to return the state to a global leadership role in both renewable energy development and green jobs creation. His main goal, signed into law in April, is to increase the state’s renewable energy mandate from HAWAIIAN HYDRO 20 percent to 33 percent by 2020. The Federal Energy Brown moved quickly to recast Regulatory Commission the Public Utilities Commission and has approved plans to develop a 2-megawatt the California Energy Commission, hydroelectric facility which sets energy policy and direcon Wailua Reservoir in Hawaii, according to the tion subject to legislative approval, Associated Press. with pro-consumer appointments. A local co-op said it How pro-consumer is Brown? He would use a stateowned earth-filled dam named Mike Florio, the senior attorbuilt in the 1920s. ney for the Utility Reform Network, a San Francisco-based ratepayer advocacy group and a major thorn in the side of the state’s three major investor-owned utilities, to the PUC. He also selected Carla Peterman, a solar photovoltaic and climate-change expert — and a board member of the Utility Reform Network — to the Energy Commission. The appointments raised eyebrows because both agencies have appeared to be more business-oriented than consumer-oriented for more than a decade. Certainly, the appointments will change the style, if not the substance, of the agencies. Florio, for example, immediately after his confirmation embarked on a statewide “listening tour” to meet with utility customers, who have traditionally been politically outmuscled at the PUC by energy service providers.
Gatherings// Technology Frontier June 21–22
Renewable Energy Finance Forum
New York
July 26–27
Utility Solar Conference
San Diego
For more information about these and other events, please visit www.energycentral.com/events.
70 E N E RGYB I Z May/June 2011
For his part, Brown never has been a political shrinking violet. He was a strong proponent of solar energy during his original terms as governor from 1975 to 1983. Now, he aims to restore the state’s lost luster in renewables. “When I was governor, California was the world leader in renewable energy, and it led the nation in efficiency standards,” Brown said when running for governor last year. “Until the early 1990s, nearly all renewable energy development in the U.S. occurred in California. That has changed. China is now the world’s top renewable energy producer, and Texas and Iowa generate more wind power than California.” He clearly wants to change that reality. Brown’s Republican predecessor Schwarzenegger actually pushed the state’s private utilities toward renewables by very publicly lobbying for a 20 percent renewable energy mandate. Traditionally, California utilities have relied heavily on coal. Now Brown is upping the ante on renewables, expanding the mandate to public utilities, and emphasizing the impact on job creation in the state, whose unemployment rate is among the highest in the country. Truth be told, the state’s large public utilities have been pushing renewables anyway, and some are as close to meeting the state’s current goals as their private counterparts. Specifically, Brown wants California to produce 20,000 megawatts of renewable energy by 2020. This involves developing 12,000 megawatts of localized energy on warehouses, commercial buildings and schools and another 8,000 megawatts of utility-scale renewable generation by 2020. The California Energy Commission is working on this part of his energy plan, which needs legislative approval. However, Brown’s main focus is working closely with state lawmakers on an ambitious Clean Energy Jobs Plan that seems certain to pass the state legislature later this year. The hope is that these moves will ignite more renewable energy investment in the state. John Perez, the state assembly speaker, called the program a strong package “that has the potential to create millions of jobs in the coming decades.” That has yet to be proven, but Brown seems intent to propel California even more aggressively down the renewables road.
Texas and Iowa generate more wind power than California.
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» LEGAL EAGLE Innovations in State Regulation CALLING ON NEW SKILLS // BY RICHARD KORMAN LAUREN AZAR, A PUBLIC UTILITIES commissioner in Wisconsin, said that the time she spends working on routine rate and construction cases “is what we get the paycheck for” — that, and upholding state environmental rules and protecting the public’s interest. But a new territory that Azar is exploring, building a better electricity grid, has taken her far from the regulatory routine. She played a key role in obtaining $14 million in funding from the U.S. Dept. of Energy to form the Eastern Interconnection State Planning Council last year. It is trying to knit together 49 regulatory entities into one that can coherently plan the electricity transmission future for a large part of the United States and Canada. Protecting the public’s interest, Azar and other commissioners say, now requires some imagination rarely needed by a previous generation of regulators. Tightened environmental rules and the need for costly revamping of generation and transmission assets call for some regulatory creativity. New federal initiatives, such as stimulating market competition and an expanded role for the Federal Energy Regulatory Commission in transmission siting, are also likely to require innovation by state commissioners. “It’s not like 20 years ago, when the only consideration was whether rates were fair and service was reliable,” said Paul A. Centolella, a member of the Public Utilities Commission of Ohio. A challenge facing many state utility commissioners is how to keep rates low while providing utilities with the means to recoup their investment in new generating and transmission assets. Earlier recognition of construction costs, in the form of early determinations of prudence, has been a common solution. Many commissioners also use construction work in progress and cost trackers. The Public Utilities Commission of Ohio has encouraged utilities to begin pilot smart grid programs by allowing them to recover costs in the rate structure, Centolella said. When the Ohio commission approved First Energy’s pilot involving 44,000 customers in its Cleveland Electric Illuminating Service territory, the commissioners set First Energy’s cost recovery rider as a fixed monthly charge rather than a usage-sensitive charge. Ohio regulators also encouraged smart grid initiatives by allowing First Energy, and a new program set for 72 E N E RGYB I Z May/June 2011
roll-out by Duke, by working with both on experiments in dynamic pricing and load requirements. “To really implement it is a transformative change for a utility, but we’re trying to do it in a prudent way,” Centolella said. The energy agenda in the state had been set in 2008 by an innovative bill adopted by Ohio lawmakers, with input from the commission, Centolella said. Not all issues related to early innovative cost-recovery around the country have been settled in every commissioner’s mind. Tony Clark, the chairman of South Dakota’s commission, wants to see scholarly research that settles the question of whether early prudence determinations are in fact saving utilities on construction-related borrowing. On another front, the Commodity Futures Trading Commission is formulating rules to enact the new securities law, the Dodd-Frank Act. Commissioners have tried to explain what is at stake. “We’re dealing with it proactively by making the CFTC understand that in energy, Dodd-Frank was a solution in search of a problem,” said Kenneth Anderson, a Texas commissioner. “If done badly,” Anderson said, Dodd-Frank could have a “huge impact on utilities.”
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» FINAL TAKE A New Wind Axis NEW DESIGN OFFERS FAST RETURNS // BY SUMMER DERUYTER
Rendering courtesy of California Energy & Power
THERE IS A NEW PARADIGM BLOWING in the wind — one that has the potential to improve both the economics and public acceptance of wind power. Vertical-axis wind turbines, which have struggled to establish themselves in the wind industry, may now be getting their second wind, thanks to a clever new turbine design and a brainy rethinking of wind farm layout. The concept is simple. By producing highly efficient vertical-axis wind turbines, and then packing them in closely spaced arrays, an innovative California company believes it can produce more power per acre than typical utilityscale turbines, without causing the problems that have often led to the rejection of utility-scale wind. California Energy & Power developed the CalePower 10-kilowatt vertical axis turbine in collaboration with scientists from the Graduate Aeronautical Laboratories at Caltech. This design uses a computer-controlled airfoil to channel high-velocity air into the turbine intake, while blocking oncoming air from impeding the returning turbine blades. This has the effect of greatly increasing the power production and efficiency of the turbine while providing a higher degree of control over turbine power output. In effect, the forward airfoil acts as a regulating device on the turbine, providing more air to the blades under low-wind conditions, and less air to the blades under high-wind conditions. The result is a smoother power output to the grid than is available from other turbines on the market today.
The performance of the Cal-ePower turbine is augmented further when deployed in distributed generation systems. By placing these self-regulating turbines in closely spaced arrays, a high power density and finely tuned power output can be achieved. Power density is the amount of power contained in a unit of volume. In terms of wind power, this means the capacity in kilowatts that can be placed on an acre of land. Currently, the American Wind Energy Association estimates that it takes about 60 acres to install 1 megawatt of utility-scale wind turbines on open, flat terrain. This equates to a power density of 17 kilowatts an acre. California Energy & Power can best this power density by placing two of its 10-kilowatt turbines on one acre of land. However, Summer DeRuyter CE&P estimates that, under the right wind conditions, up to 20 turbines may be able to be placed on one acre — producing more power per acre than utility-scale wind. This high power density can then be finely controlled by a central computer that coordinates all airfoils in the array to act in concert, producing a consistent flow of power to the grid. Dr. John Dabiri of Caltech is also investigating this ability of vertical-axis turbines to provide high power densities. He has set up a field demonstration site near Lancaster, Calif., using arrays of counter-rotating turbines that do not have forward airfoils. In addition to these benefits, the Cal-ePower turbine is much more likely to be welcomed by government and public agencies because it is less than 50 feet tall, produces little noise, does not interfere with radar or communications and is less likely to harm wildlife. The fact that is most likely to speed the incorporation of this technology into the energy mix, however, is that all of these benefits are included in a turbine that has one of the fastest returns on investment in its size class. California Energy & Power will have units available for sale in the third quarter of 2011. Summer DeRuyter is research director of California Energy & Power. energybiz.com E N E RGYB I Z 73
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