Design options for an optimal energy future

Today is an exciting time to be engaged in evolving the world’s energy systems. With the right supportive environment, adaptive business models could emerge that benefit both incumbents and new entrants. The result could be a safer, cleaner, and more prosperous world for all. 

After extended graduate reading and research on modern electricity regulation, markets, and operations, I’ve concluded that there are several tools at our disposal that could accelerate the development of new capabilities in our energy systems. In this paper, I outline ten examples of design options that could significantly enhance and catalyze the transition towards a first-best energy future. [Read more…]

Communication networks for the smart grid

After a century of relative stability, the current decade is seeing a dramatic pace of change in the generation, distribution, and consumption of electricity. Driven by technology and ambitious policy objectives, this rapid evolution has begun to stretch the electricity system in fundamental ways. In order to support the new capabilities (e.g. distributed generation, demand participation, etc.) being introduced, the electricity system needs a ubiquitous layer of information for situational awareness, coordination, and control. Developments in information technology have enabled the weaving of a “packet grid” that supports information flows independently of the “electron grid”—this combination is generally referred to as the smart grid.

As of today, most utilities still rely on legacy communication networks that were purpose-built for the support of individual applications. An integrated network architecture will be required to meet the evolving needs of the electricity system while maintaining reliability, security, and performance. In order to make effective decisions, power sector leaders will need a basic understanding of smart grid network technologies. This paper outlines some of the fundamentals of communication networks for the smart grid. The content comes from extensive ad hoc reading of Google queries, Wikipedia, and a book written by Budka, Deshpande, and Thottan from Alcatel-Lucent Bell Labs. For a more in-depth understanding, reading this book is strongly recommended. [Read more…]

Breaking the cycle: demand participation

When electricity markets were originally designed, it was assumed that responsive demand would play an essential role. After nearly two decades of experimentation, most electricity market models have yet to incorporate demand participation.

Because most electricity markets evolved with inelastic demand as a foundation, market power became a real problem. Conversely, the control measures that were put in place to mitigate the exercise of market power have become an impediment to responsive demand. We can break this cycle now by implementing demand participation with today’s technologies.
[Read more…]

Back to the future:
Spot Pricing of Electricity (Schweppe, 1988)

In 1988, MIT Professor Fred Schweppe, BU Professor Michael Caramanis, UCSD Professor Roger Bohn, and MIT researcher Richard Tabors published a book titled “Spot Pricing of Electricity” that forever transformed electricity markets in many parts of the world. Unfortunately, that same year Fred Schweppe tragically passed away.

Although Schweppe has been credited with developing the foundational concepts for competitive electricity markets, the premise of his work—demand participation—has been largely absent from most market designs. The following is a summary of the book, which has become scarcely available outside of select academic libraries. Schweppe’s original work contains detailed mathematical derivations and additional content beyond what is covered here. [Read more…]

Smart grid demonstration: Olympic Peninsula Project (PNNL, 2007)

After nearly a decade of advanced metering deployments, the power industry is ripe for major advancements in the role of demand-side management. As smart grid technologies ranging from sensors to data analytics mature and gain traction, new market models are emerging to unleash the value of information technology in electricity markets.

Before many companies began developing new products and services to capitalize on this opportunity, national laboratories within the Department of Energy (DOE) were already engaged in ambitious and promising demonstration projects to prove the value of demand participation with evidence from field data. The most prominent projects have come from the Pacific Northwest National Laboratory (PNNL)—a DOE laboratory operated by the Battelle Memorial Institute and affiliated with the GridWise Architecture Council (GWAC). [Read more…]

Understanding the basics of reactive power

Reactive power is both obscure for non-engineers and important in the design of electricity systems, especially at the distribution level. While understanding reactive power requires knowledge of integral calculus, the basic intuitions can be understood without rigorous mathematical study. As distribution systems become more complex with distributed energy resources and demand automation, industry participants need a common grasp of the implications of “imaginary power” for system efficiency and stability. [Read more…]

An actionable roadmap for utility self-disruption

If you are a decision maker in the power sector, you have probably been grappling with a whirlwind of perspectives on the disruption of the regulated utility business model. Undeniably, the convergence of innovations such as distributed energy resources, demand-side management, and information technology has introduced a pace of change recently unimaginable in this historically slow-moving industry.

Looking beyond alarmist predictions and controversial debates, utilities are beginning to grasp the enormous value creation potential of these changes. As power sector leaders work to overcome daunting challenges such as bureaucratic cultures, perverse regulatory incentives, and the fear of self-cannibalization, we need an actionable roadmap for self-disruption. As a starting point, the utility industry needs a positive example to illustrate the process of disruption management. [Read more…]

Could distributed solar disrupt electric utilities?

Over the last few decades, utility companies have seen their monopolies eroded by deregulation. As utility customers increasingly begin producing their own energy, reliance on the grid for electricity is decreasing. The technology for distributed generation has evolved rapidly, and while it is still not “good enough” from a purely technical perspective, it has rapidly been approaching this threshold as supporting technologies such as electricity storage and demand response have begun resolving barriers to system integration. My good friends and classmates Meghan Sherlock and Ayman Awaluddin co-authored the following analysis with me based on Clay Christensen’s predictive models of disruption theory. [Read more…]

Energy policy: theory of economic regulation (Stigler, 1971)

In his 1971 paper “The Theory of Economic Regulation”, George J. Stigler proposed a framework to consider the motivations of various stakeholders and the influence that they have on regulatory policies. His premise was that the state could use its power to prohibit or compel, through financial restrictions or benefits, to selectively help or hurt industries. Furthermore, the theory of economic regulation should explain the affected parties, form of the regulation and effects on allocation of resources. [Read more…]

Decentralization of US utility power generation (Lovins, 2002)

Most of the claims and data in this article are based on “Small is Profitable” by Amory Lovins at the Rocky Mountain Institute.

Distributed resources have emerged not simply as spontaneous technological development but as an evolutionary reaction to the shortcomings and costs of overly centralized resources. Looking through the lens of history, large generating units first achieved and then forfeited economic advantage. Although the maximum power plant size was forecasted to reach 3GW by 1990, it peaked at 1.4GW in 1970. Contrary to the intuition that bigger is more efficient, engineers, managers and policy-makers since the early 20th century have repeatedly been reminded that technological progress, financial requirements and practical constraints have a dramatic effect on the economies of large scale. [Read more…]