Navigant Research Blog

Will Coal Plant Retirements and Fracking Threaten Electric Reliability?

— December 17, 2014

The implications of the rapid retirement of much of the U.S. coal generation fleet are just coming to light, and transmission operators and generation utilities are actively discussing and planning on contingencies that could cause a real threat to reliability and availability in many regions across the nation.  (The issues around retiring and decommissioning coal plants were discussed in Navigant Research’s research brief, Coal Plant Decommissioning.)  Compounding the threat of coal generation plant retirements is a short-term shortage of coal in many regions of the nation.

The U.S. Environmental Protection Agency (EPA) announced its proposed Clean Power Plan (CPP) rule in June 2014.  It’s expected that the final rule will be announced in June 2015.  The CPP targets CO2 emissions by existing fossil-fueled electric generation and sets targeted reductions for each state.  The plan, as currently proposed, mandates 30% reductions in carbon emissions by 2030 from 2005 levels.

The proposed plan also gives each state flexibility to develop its own approach as to how it will meet the targets, including retiring problematic coal and other fossil fuel generation, adding renewables, such as wind or solar generation, or increasing levels of demand response and energy efficiency programs, which the recent EPA mandates may accelerate.

Time to Plan

Most people do not understand the issues that will arise in the Midwest and the southeastern United States as a result of coal generation plant retirements.  The North American Electric Reliability Corporation (NERC) discusses the implications at length in a recent paper on the impact of generation plant retirements based on the CPP.  NERC concludes the paper by suggesting that states immediately start operational and planning scenario studies, addressing resource adequacy, transmission adequacy, dynamic stability, and  economic and reliability impacts.  This must be done to demonstrate reliability and to ensure that plans of action are technically achievable within the stated time requirements.  “States that largely rely on fossil-fuel resources might need to make significant changes to their power systems to meet the EPA’s target for carbon reductions while maintaining system reliability,” the NERC authors conclude.

Supplies Down

In the near term, another related reliability threat is looming: the availability of coal to fuel the generation plants operating today.  Having formed a new trade group called the Western Coal Traffic League, Midwestern utilities are frustrated because their normal coal supplies from western U.S. coal producers have kept utilities from rebuilding stockpiles burned during last year’s cold winter. Compounding the effect, record harvests, economic growth, and growing oil shipments from the country’s booming oil fracking industry in in the upper Midwest are constraining the rail system.

The effective implementation of the CPP, along with tight supplies of coal, will make for an interesting winter in many parts of the United States.

 

CPower Reemerges as a Demand Response Player

— December 15, 2014

In October, I wrote about the announcement that Comverge and Constellation would combine their commercial and industrial demand response (DR) businesses into a standalone entity.  The question was: What would the new company be called?  Would they take one of the existing names?  Combine the two names?  Come up with something new?  Instead, they brought back a familiar brand: CPower, the name of the DR provider that Constellation bought 4 years ago.

But this is not your mother’s CPower, according to Chris Cantone,  the company’s senior vice president of sales and marketing.  The C in CPower carries multiple meanings aside from the lingering brand recognition: the combination of Comverge and Constellation, customer engagement, and curtailment services.  “The market has been excited about the announcement, and our channel partners have been waiting for an independent DR provider,” Cantone told me in a phone interview.  The company is still in a little bit of stealth mode as the behind-the-scenes business combination unfurls, but expect a media splash in the near future.

Divide and Succeed

What value does this new structure bring to the parties involved? Cantone says that the future of DR will entail greater technical requirements, which were hard to fulfill under a larger organization like Constellation.  CPower can be more strategic and proactive on its own, while maintaining a preferred provider relationship with Constellation for its customers.  From Comverge’s perspective, there was a lack of synergy between its utility-focused residential business and its market-focused commercial and industrial business, so it made sense to split them up and allow them to build to their own strengths.

So was Constellation’s purchase of the original CPower 4 years ago a mistake?  No, asserts Cantone.  It was an invaluable experience for the old CPower DR experts to get immersed in the energy markets and learn how DR fits into the bigger picture on the wholesale side with generation and the retail side with customers’ energy procurement strategies.   Additionally, the 2011 deal was the move that set in motion the trend of larger energy entities investing in the DR realm, as Johnson Controls bought Energy Connect, Siemens bought Site Controls, Schneider bought Energy Pool (in Europe), and NRG bought Energy Curtailment Specialists.  Will those combinations survive?  Cantone thinks they will have to deal with the same issues that Constellation did, and we will have to see who can find internal solutions and who sets the DR free.

The Real Threat

Regarding business strategy, the initial intent is to focus on the existing markets in the United States, like PJM, ERCOT, NYISO, ISO-NE, and California.  An expansion into utility programs could be the next growth step, followed by selective entry into the burgeoning international arena.

I contacted executives at EnerNOC to get their take on what looks to be their strongest competition, but they declined to comment .  In the meantime, EnerNOC and CPower may find common ground to combat the potential disruption from the court drama over FERC 745 to remove DR from the wholesale markets, which could affect them more than any amount of friendly competition could.

 

Warily, Utilities Go Digital

— December 10, 2014

Utility customers are changing their behavior rapidly, increasingly viewing the utility much in the same manner they would their bank, cellular provider, or – even worse – preferred online retailer.  J.D. Power affirmed this in July with the publication of its 2014 Electric Utility Residential Customer Satisfaction Study.  Consumer engagement technologies are also detailed in Navigant Research’s white paper, Smart Grid: 10 Trends to Watch in 2015 and Beyond.  These other types of providers, the banks and the cellular providers, have at least one thing in common: they’ve completely rearranged their strategy and operating model around a growing digital environment.  But utilities by and large are behind in developing effective and user-friendly digital presences, and I would argue that this is largely due to not having approached digitization as a firmwide strategy.

What is digitization?  It’s a broad topic, including everything from advanced gathering and analysis of data to social media.  The slowest movers have been government and public service organizations, such as utilities, simply because they’ve had more or less inelastic demand and monopoly status.  But now deregulation and growing expectations are forcing utilities to improve their public image and provide services in a more competitive manner by enhancing historically low/declining customer satisfaction.  These changes include the ability to easily monitor all activity and make services changes online, incorporate services such as prepay and prosumer options, and develop specific and targeted web/mobile-based marketing campaigns.

Resistance in the C-Suite

A couple of barriers are keeping utilities from becoming better digital organizations.  Probably the greatest barrier has been the resistance of utility executives.  It’s no longer possible to assign an intern to maintain a Facebook page and call that a digital strategy – digitization needs to involve all parts of the firm, and will probably change the business model altogether.  Utilities are not only characteristically slow adopters of change, but also traditionally siloed both functionally and informationally.

At the heart of a digital strategy is the information that is gathered to guide it.  The utility must consolidate comprehensive internal and external information from distributed sources like smart meters, customer information systems, intelligent electronic devices located on the grid, social media, and weather reports, just to name a few.   If this information is located within different parts of the utility and structured differently than other types of data, it can be nearly impossible to analyze in one place, and utilities will only see a half-formed image of demand patterns and customer preferences.

Beyond the Web Site

Once this information is in place, however, the utility still faces a second and even greater challenge of determining if and how to restructure its offerings in order to provide services in a different manner.  This can trigger investments in reorganization efforts, such as human capital investment, cross-functional collaboration, IT purchases, and outsourcing.

It comes as no surprise that many utilities are reluctant to consider these sorts of reorganizations, as they already operate with relatively low margins and typically have restricted investment budgets.  In those cases, managed services can ease the cost of digitization through highly focused products and outsourcing.

Managed services companies can assist utilities in developing firmwide digital strategies and provide resources that allow them to do so at a lower cost (with less risk of faulty investing) than integrating internally.  Until recently, the majority of these companies’ services have been adopted for very specific programs and needs, but more competitors are ramping up to offer enterprise service models where customer-facing digitization only scratches the surface.   In our report, Smart Grid as a Service, Navigant Research provides an in-depth assessment of the utility IT services market globally.  It will be worth watching how this market forms as more utilities ease, or are shoved, into the full transition to digital.

 

New Relay Technology Is Transforming the Grid

— December 9, 2014

A major transformation is occurring in the electric transmission industry, as new digital technologies, high-speed communications, and big data analytics are being deployed to improve transmission grid reliability and resiliency.  This transformation starts at the basic level of protective relays – technology that has been utilized on the transmission grid for years.  These devices are beginning to evolve from mechanical and solid-state relays to next-generation digital relays that perform all of the standard system protection functions, they but also have new digital capabilities for phasor measurement units (PMUs), data collection, and synchrophasor analysis that are largely untapped in today’s transmission utility market.

My conversations with major vendors, such as Schweitzer Engineering Labs (SEL), Alstom Grid, ABB, and General Electric (GE), as well as major utilities, indicate that the new technologies will change the way transmission operators detect and respond to transmission system disturbances and outages.  Now that network operators have the ability to detect sub-second disturbances in phase angle and voltage (which lead to outages and other reliability issues), with data coming in 30 to 60 times per second, a new major market for smart grid data analytics, visualization tools for the operations center, and communications is opening up.  Recent information on the nine U.S. Department of Energy smart grid demonstration projects in the United States, funded by stimulus grants, suggests that utilities are in the early stages of deploying these technologies, and that next-generation synchrophasor analytics, high-speed fiber communications systems, and high-speed sub-second automation solutions are in the early stages of adoption, at best.

Current Locations of PMUs on North American Power Grid 

(Source: North American SynchroPhasor Initiative)

In mid-October, I attended the 46th Western Protective Relay Conference (WPRC) in Spokane, Washington.  Along the Spokane River, salmon were rising in the afternoon to a late season fly hatch.  I’ll have to admit that I had not expected a conference featuring three days of technical papers that included some true power engineering discussions of second derivatives, Fourier transforms, phasor analysis, and phase angle diagrams, plus a couple of presentations on the use of comparative synchrophasor analysis for management of the transmission grid.  The 500-plus attendees included a mixture of vendors, experienced transmission planners and engineers, and a large number of new transmission engineers and trainees that were attending to learn from the experts from across the industry.

As advanced digital protective relays are deployed across the grid, consumers will benefit from improved reliability and grid resiliency.  Transmission utilities will also benefit, as they look to these lower-cost systems to add additional synchrophasor coverage and capabilities at a much lower cost.

 

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