by Dan Watkiss, Bracewell & Giuliani
Those channeling cash to the energy industry under the American Recovery and Reinvestment Act of 2009 must evaluate critically proposals to invest or guarantee investments of billions of dollars in a network of extra-high-voltage (500 kV or 765 kV) transmission lines–the so-called -backbone grid–across North America.
Today’s grid, analogue and balkanized, needs an institutional and technical makeover to meet growing demands of a digital economy, including interregional power flows across control areas, while simultaneously reducing exposure to cascading blackouts.
But arguments being advanced for massive investment in a backbone grid are specious; they make a more persuasive case to invest first in making the existing transmission grid smart so it can monitor and remotely control power flows, better moderate demand volatility, increase efficiency and integrate intermittent generation from wind and solar resources.
Typical of nationwide backbone grid advocacy is an October 2008 report from the Center for Energy Policy and the Environment at the Manhattan Institute for Policy Research, -The Million-Volt Answer to Oil.
The report states that price spreads of 1 to 3 cents in the spot price for wholesale electricity during peak demand are inefficient.
From this premise, the center argues that a backbone grid resembling a continental checkerboard could supply all or nearly all North American demand at all times at a uniform, low price from baseload coal, nuclear and wind plants that have high capital costs but relatively low operating cost.
These baseload units would displace peaking and midmerit generation that has the least or lower capital costs but highest or higher operating costs. In the center’s words, -A (backbone) grid with a broader reach shifts the economic advantage toward bigger plants, more capital, cheaper fuel, lower environmental impacts, and cheaper mitigation of those impacts, because more grid pools more users and thus turns fickle peaks and valleys into flat, steady baseload demand.
The center urges the federal government to remove all obstacles to a nationwide backbone grid, including the preemption of state and local control over right-of-way siting and property condemnation.
Others more inclined to proactive national energy policy argue from the same premises that the federal government should fund directly or guarantee investments in a backbone grid as part of the economic stimulus package.
The center’s nationwide backbone grid proposal launches from false or at least suspect premises. Price differentials of 1 to 3 cents for peak electricity are no more a sign of inefficiency than are different prices for bananas in Costa Rica and Boston. They are a function of real differences in where and when electricity is delivered, magnified in the case of electricity by a regulatory pricing system that masks the cost of producing and delivering power.
In contradiction to its inefficiency proposition, the center concedes in its report, -The cheapest way to meet highly variable demand is to generate baseload power in big, expensive plants on cheap fuel, and to take care of the peaks with smaller, cheaper plants running on expensive fuel.
While this may be a second-best solution from the perspective of a perfect transmission system, likely it is more efficient than a backbone transmission system built to deliver baseload power everywhere at all times.
The center apparently assumes there is sufficient existing baseload capacity to fulfill its objective of meeting all demand without resort to high-operating cost generation.
This assumption is suspect because baseload is designed to operate near nameplate capacity at all times to meet demand that is nearly constant.
Even if increased deliverability from existing baseload units were achievable, would that be sound policy when the baseload in question may be low-cost, but otherwise undesirable–high in emissions of pollutants and greenhouse gases, which is likely when the baseload is an older, coal-fired unit with minimal pollution controls?
Contrary to the center’s assertion, a nationwide backbone grid does not reduce the environmental impacts associated with electricity if it simply expands the markets accessible to dirty baseload units.
Beyond the questionable assumptions about availability and environmental impacts, another question exists: Is expanding the deliverability of baseload generation through a costly backbone grid more efficient than continuing a stacked dispatch of base-load, midmerit and peaking unit?
If the objective is to reduce demand for high-operating-cost peaking capacity (thereby reducing price spreads)–flattening -fickle peaks and valleys in the center’s parlance–then, isn’t the better question: Are there more effective and economical ways to reduce demand volatility?
Yes, there are. They are referred to as the smart grid or smart grid technologies, elements or variations of which have been available and in use in many countries including the U.S. for decades.
The U.S. Department of Energy (DOE) Electric Advisory Committee (EAC) defines the smart grid as -a broad range of solutions that optimize the energy value chain.
Foremost among these optimizing solutions are technologies that allow remote and dynamic control of power flows, together with advanced metering and communication systems that can help level variability in demand by informing system operators and consumers when load and the cost of satisfying load are peaking and enabling them to reduce or temporally shift generation and consumption.
Notably, in a December 2008 report, -Smart Grid: Enabler of the New Energy Economy, the EAC points to research of the Galvin Electricity Initiative demonstrating that widespread deployment of these metering and communication technologies -could add $5 billion to $7 billion per year back into the U.S. economy by 2015, and $15 billion to $20 billion per year by 2020.
Smart grid also comprises technologies that enhance operator control of the transmission grid, such as static volt-ampere reactive (VAR) compensators that provide high-speed voltage support and substantially increase the existing grid’s efficiency and reliability.
Nationwide backbone grid advocates also ignore the grid-reliability implications of a reticulated transmission system that is interconnected over large areas.
Dr. Vannevar Bush, one of the greatest electrical engineers of the 20th century, warned 40 years ago that controlling for contingencies becomes increasingly difficult as a reticulated grid extends over larger areas, increasing the likelihood of uncontrolled outages (blackouts) over that larger area.
The nation needs a better grid. Diverting private or public investment from the smart grid to a nationwide backbone grid, however, should not be justified by opposition to peaking or midmerit generation or by a desire to flatten -fickle peaks and valleys in demand and thereby converge delivered prices for electricity across the continent.
Instead, investments in transmission and distribution systems should strategically support specific national objectives.
These include improving the ability of operators to monitor and remotely control power flows, connecting to the grid clean, noncarbon-emitting generation and better integrating efficient resources that enhance reliability and security such as distributed generation and interactive storage capacity for residential and small commercial consumers, which according to the same Galvin research could save up to $10 billion per year by 2020.
Dan Watkiss is a partner with Bracewell & Giuliani in Washington, D.C., representing power companies, exploration and production and midmarket companies, natural gas pipelines, power and liquefied natural gas project developers and lenders, as well as government agencies and regulators. You may reach him at Dan.Watkiss@bgllp.com.