Kathleen Davis, Senior Editor
This year, the TechAdvantage Conference & Expo coincided with the opening of Mardi Gras in a wet and rainy February down New Orleans way. During my three days in The Big Easy, I ran into five Mardi Gras parades (four entirely by accident), one exceptionally good session on the smart grid and co-ops, and a slew of familiar faces from Siemens, American Superconductor, Cooper Power Systems and the National Rural Electric Cooperative Association’s (NRECA) own MultiSpeak initiative.
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Sponsored by the NRECA and coinciding with the association’s annual meeting, TechAdvantage strives to help co-ops reduce costs, enhance reliability and increase service quality by giving attendees a look at the latest energy industry challenges and advancements, as well as providing a forum to discuss what those challenges and advancements mean to electric cooperatives. According to the NRECA, TechAdvantage attracts more than 270 exhibiting companies that manufacture, produce and supply products and services to the electric utility industry.
In his printed opening statement to the conference, NRECA CEO Glenn English said, “Our calling as electric cooperatives is rooted in history but carried out each day as we keep out member’s power flowing at rates they can afford. Cooperatives now have an additional mission: to shape America’s energy future.”
During the second general session Saturday morning, the theme to TechAdvantage–the shaping of that future–became evident: No more talk of simply measuring the grid. It was time to manage it.
Lester Lave, professor of economics and engineering at Carnegie Mellon Electricity Industry Center, noted in that session that the economy and future of power will require stamina, that there will be a definite list of items to check through in order to “keep both your job and the respect of your neighbors.”
Lave suggested three items. First, educate your management, board and customers about upcoming challenges. Don’t keep them in the dark. Instead, include them in the overall game. Second, emphasize the value of your product, not its price. Too often, as industry insiders, we have the habit of focusing on trying to keep the price down, on trying to keep customers happy with the cost per kilowatt-hour. But, in a speech that ran counter to English’s opening statement, Lave stated that price is not what we should hold up for inspection. Instead, the amazing qualities of electricity should be heralded, without them being attached to price scrutiny, because, logically, that price isn’t going down.
“The sun will rise tomorrow, and the price of electricity will go up,” Lave noted. “But, you’re getting this marvelous substance for a price so low, it’s unbelievable.
“If you keep focusing on the price, you’re gonna lose. Stop talking about keeping the prices low.”
Lave pointed out that 20 cents per kWh isn’t unheard of–that was dealt with in the 1950s, when adjusted for inflation. The economy won’t collapse, he said. We’re just really used to cheap energy.
Lave suggested investing heavily in energy efficiency as the quickest way for the industry to move forward because only utilities love transmission and people hate it.
Lave noted that siting transmission has become increasingly difficult. While the Energy Act of 2005 established national transmission corridors in an attempt to streamline siting processes, little has been achieved. What has been permitted since those corridors were established is about the distance it takes to drive from any big city to its nearest suburb.
“Two-thirds of the state of Pennsylvania is designated as part of a national transmission corridor, but we’ve only OK’d 21 miles,” Lave said. “There are real difficulties with siting. Lots of uncertainties.”
So, with rising costs and continuing siting problems, Lave returned to his third point, energy efficiency, which he labeled “the cheapest new generation we have.” He suggested we, as a country, need more energy efficiency programs to stave off having to build more new generation. He noted, as an example, that California spent $600 million to $700 million on energy efficiency programs and, in turn, it has a consumption rate 40 percent below the national average.
He challenged the attendees of TechAdvantage to increase efficiency so that the country will not need to build new generation facilities or transmission lines before 2020. To do so, he suggested a return to his first point, educating people–management, customers and industry insiders. He told the crowd in a point that echoed English’s note that attendees at TechAdvantage were shaping the future of power, “in a decade, you will not be in the same business. You’ll be an energy services provider, not a kilowatt hour provider.”
Q4 T&D Market Index Reflects Broad Economic Slowdown
Denali Intelligence, a market research firm for sourcing professionals, recently released its 2008 fourth quarter (Q4) T&D Market Index. The Denali Intelligence T&D Market Index is based on detailed analysis of 11 critical spend categories that represent core purchases for most T&D organizations, including:
- Line material
- Steel structures
- Street lighting
- Wire and cable
- Wood products
- Construction services (underground and overhead)
- Engineering services
- Vegetation management
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Because most of these categories have experienced significant volatility over the past two to three years, the T&D Market Index is based on a weighted composite developed from an analysis of more than 30 utility T&D spend proà¯¬les. Denali Intelligence analyzes the key cost drivers–commodities like steel and copper, labor and other cost factors–to develop the historical and forecasted price trends associated with this index.
The index offers a snapshot to explain budget variances for purchased materials and services during the past 12 months and gives projections for the coming year.
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Reflecting the broad economic slowdown, the Index decreased 7.7 percent in the fourth quarter of 2008 but ended up 8.2 percent on the year. Leading the downward pull were underlying commodities, including a 51 percent decrease in crude oil, and sharp decreases across all base metals. Diesel fuel prices fell 27 percent in Q4 but remained up 34 percent for the year. Metals and energy prices retreated on eroding demand, both domestic and international. A slow U.S. economy and production cuts in China erased 2008 first-half gains in metal markets.
The overall U.S. unemployment rate reached 7.2 percent during December, up markedly from 5.5 percent a year ago. From December 2007 to December 2008, the unemployment rate increased 1.7 percent, equating to an additional 3.2 million unemployed workers in the United States.
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As the financial crisis rapidly unfolded in early October, fear of a long and harsh recession sped demand and price drops, and the new market reality has increased corporate focus around cost restraint. During December, the ISM Purchasing Managers Index (PMI) hit the lowest level ever recorded.
Looking to 2009, Denali Intelligence expects the T&D Market Index to reflect an overall flattening or decrease of materials prices and a slight rise in services prices. This is a result of potential increased demand for heavy construction loaded labor, which depends on projects included in the government’s stimulus package.
- Recessionary forces are expected to intensify, with U.S. economic forecasts predicting recovery to begin mid- to late 2010 at the earliest.
- The Energy Information Administration expects 2009 global crude oil demand to contract 0.6 percent after dropping 0.3 percent last year.
- The U.S. unemployment rate is forecasted to increase to 7.5 percent to 8.5 percent in 2009.
- As a result of the financial crisis, the Federal Reserve cut the federal funds rate to 0 percent to 0.25 percent on Dec. 16, 2008. This rate is predicted to continue through 2009, with the government expected to take additional measures, such as Treasury-bill purchases.
- Reflective of recessionary and slowing T&D project loads, the Denali Intelligence T&D Market Index expects a 4 percent decrease in 2009.
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Denali Intelligence provides subscription-based, category-specific market intelligence for utilities sourcing professionals. While the free, abbreviated version of the T&D Market Index offers topline insight regarding 12-month T&D price trends and forecasts, Denali Intelligence subscribers receive detailed trends and forecasts for each of the 11 critical spend categories, as well as analysis of supply market risks and trends specià¯¬c to the T&D organization.
Contact Denali Intelligence for more information on the full version of the T&D Market Index, or other reports at 888-824-8866 or firstname.lastname@example.org.
Smart Grid’s Impact on Customer Adoption and Market Participants
Peter Weigand, Chairman, Skipping Stone
Undoubtedly, all things smart grid will dramatically change the landscape of the electric industry. While all this is needed, it begs two related questions, what about customer adoption and the impact on market participants?
One of the key drivers of smart grid is switching out customer meters. Conventional wisdom says customers benefit by being able to take advantage of price signals and demand response (DR) programs, as well as rebate and incentive programs. History tells us that customers might not jump at the chance to avail themselves of these great benefits. There is a huge risk that if you build it they will not come.
This risk of customer adoption is especially true for industrial and commercial customers who have locations in several utilities across multiple market operators or ISOs. In a perfect world, all utilities and market operators would work off the same set of business rules, data requirements and enabling technologies. The reality is this will never happen.
Ponder the lessons learned from retail restructuring. Those markets that opened did so at different times with difficult and different rules to navigate, technology glitches and marked confusion and frustration by all concerned. The enabling technologies needed to manage and simplify the process didn’t come along until after many consumers, utilities and regulators turned into skeptics. As a result, the anticipated customer adoption and subsequent benefits have yet to reach the grand expectations put forth when these programs were conceived. Is smart grid heading in the same direction?
From a customer perspective, it comes down to “show me the money.” The next question is how much work is it to get the money? Consumers of all sizes have demonstrated repeatedly that how hard they are willing to work directly relates to how much money is at stake. Even when the amount is substantial, if getting at it is hard, adoption rates drop dramatically. This is where the nonutility market participants can serve to drive adoption rates.
By offering simplified product and service bundles and managing the markets’ complexities for customers’ benefit, market participants are critical to getting customers to participate in price signal and DR programs. In short, it’s the energy merchants, DR aggregators and retail energy marketers who will more likely than customers, do the bulk of the work required to get the full demand-side benefit out of the smart grid.
Market participants and customers struggle with two dilemmas when attempting to automate price signals. First is to justify the cost of automating a facility to enable price signal response. The second is availability of software that works across multiple market operators and utilities that can initiate, verify and settle these types of transactions from behind the customer meter to the market operator and back. As a result, customers, retail marketers and DR aggregators typically don’t play in the price signal market; they implement just enough to participate in DR capacity programs.
Just as smart grid solutions are targeted to utilities, a correlating push for market solutions that enable customers and market participants by solving the two dilemmas above needs to be put in place. Software vendors are plentiful, however, finding those that have perfected the market operator requirements and offer behind-the-meter automation is like finding a needle in a haystack.
AREVA provides the leading market operator solution, providing bidding, scheduling and settlement to every U.S. market operator except NYISO. The field of solution providers that sell behind the meter- automation hardware and software is crowded. AREVA recently teamed with Verisae to provide a set of solutions that provides automated transactions, verification and settlement from the market operator to behind the meter and back. This enables customers and market participants to manage not only price signal and DR opportunities; and, it also works for the entire portfolio.
Verisae has solved the cost- justification issue for automating customer facilities by embedding controls and automation into a hosted suite of energy, facility, carbon and related solutions that provide customers an investment return even without the benefit of the price signal or DR equation.
Virtual Grid Management
Verisae and AREVA have labeled the solution set “virtual grid management,” which is defined as physical and contractual supply and demand asset management across multiple distribution utilities, markets and customer contracts.
Solutions such as virtual grid management will push smart grid customer adoption rates by enabling market participants to simplify the complex and show customers the money.
More information on Skipping Stone may be found online at www.skippingstone.com.
EYE ON EUROPE
POWERGRID Europe Opens With An Introduction By The IET: The Institution of Engineering and Technology (IET) will open POWERGRID Europe 2009 with an end-to-end discussion of the T&D industry at this collaborative turning point. The IET session on Tuesday afternoon, May 26 will provide delegates with an overview of the evolving ideology of smart grids, reflecting on their future implications by reviewing current projects being carried out and the barriers that the future holds. For a concise, intelligent and revealing overview of the industry, plan to sit in on the IET’s opening plenary session for POWERGRID Europe 2009: 14:00-17:30, May 26.
NEARLY 400 Cities Commit To Go Beyond The 20 Percent EU Energy Objectives: In a solemn ceremony in the Hemicycle of the European Parliament, more that 350 cities across Europe have committed, by signing the Covenant of Mayors, to go beyond the EU’s energy objective of reducing 20 percent CO2 emissions by 2020.
Coreso Officially Inaugurated: Coreso, the first regional technical coordination centre to be shared by several electricity transmission system operators (TSOs), started its activities on Feb. 16 and was officially inaugurated Wednesday, Feb. 18.
ENTSO-E appoints Secretary General: The European Network of Transmission System Operators (TSOs) for Electricity, appointed Konstantin Staschus secretary general at a meeting of its Assembly on Feb. 5, 2009, in Brussels. Staschus’ appointment is for an initial four-year term.