Industry in transition: Not your father’s Oldsmobile

Do you remember that commercial? It dates back to 1988, a seminal year in the power industry. Engineers were discussing whether the transmission system could handle the competitive electricity supply concepts being introduced by some policymakers and their supply-side academic supporters. “The system just wasn’t built to accommodate that,” was the engineers’ consensus.

That was a key (and long-running) episode in the battle for the backbone of the electric power industry. Would it continue along the “big iron” centralized model (bigger powerplants, longer and higher-capacity transmission lines, monopoly utility service territories, regulated rate of return, etc)? Or would it evolve towards a more distributed, competitive, and transactional model?

Fast forward to today. Tesla, an electric vehicle and battery storage company, is one of the darling stocks of Wall Street. Arch Coal, America’s second largest coal company is a penny stock. Telsa is “cool,” coal is not.

If you consider the totality of regulation governing electricity in California (itself the ninth largest economy on the planet), it’s clear government is driving the industry to a distributed, carbon-free model. In markets where wind energy penetration is high, an increasing number of fossil plants—even large supercritical coal units—are being paid for their agility rather than for capacity or energy.

The same companies providing stationary and mobile platforms for phone, email, Internet, social media, etc, are driving a new portfolio of home energy management devices. Established solar PV suppliers are combining their offerings with storage, leasing systems, and shared savings in the incentives and rates with residential and commercial customers. They seek to get in between utilities and their customers. 

Industrial cogeneration plants are adding systems to capitalize on the market for competitive frequency regulation services to the grid operators. Wind plant operators are adding storage facilities, in part to solve the grid problems created by their intermittent capacity.

At many industry meetings today, storage and microgrids are on the agenda and a subject of continuing discussion during coffee breaks. Tesla, it seems, is visiting every utility C-suite which will allow them in. One of the most prominent EPC firms in the power industry, Black and Veatch, has installed a microgrid to serve the innovation pavilion at its Kansas City headquarters. The Pentagon is driving the microgrid market because its military bases worldwide must be autonomous and resilient.

In an era of abnormally low electricity load growth and anemic projections for the next several decades, where is a utility going to find new revenue? Choose your answer from among the following:

A. Large base-load coal and nuclear plants.
B. Transmission line construction.
C. The largely regulated distribution side of its business

Doubtful anyone picked A. The opportunity for B has largely been exhausted, but was good when FERC provided return-on-equity incentives for certain transmission line projects nearly 10 years ago. Distribution assets look to be the next big opportunity.

More than two years ago, Edison Electric Institute issued a report, Disruptive Challenges: Financial Implications and Strategic Responses to a Changing Retail Electric Business, which, judging from how often it was referenced and discussed, instilled fear in the hearts of electric- utility executives.

The basic premise was technological advances and incentives (especially in solar PV, demand- side management, and distributed energy resources) at the distribution end, as well as “behind the meter,” were driving utility customers towards onsite generation and net metering, leaving fewer traditional customers over which to spread the cost of grid upkeep. The promise of affordable distributed storage only aggravates the threats, or magnifies the opportunities, captured in that report. 

At the same time, the centralized assets continue to do more with less, with advanced control and automation systems, wireless sensing, remote M&D facilities, optimization and analytics algorithms, and other digital technologies a huge part of that effort.

Jason Makansi, president, Pearl Street Inc, a highly regarded consultant, believes the industry may be near a tipping point at which the distributed/transactional/no-carbon energy model begins to outrun the centralized paradigm. This is why CCJ ONsite is now running articles on energy storage, what happens to fossil plants in regions with considerable renewable resources, etc.

Going forward, we’ll keep you current on microgrids, grid-scale storage, distributed resources, powerplant agility, control-system modifications for more flexible unit operation, etc—in addition to our regular coverage of gas and steam turbines, HRSGs, and other plant equipment.

CCJ ONsite’s mission is to keep gas-turbine owner/operators informed and to serve as a connector among users. Many of the coming options are competitive to your facilities, some complementary. Even if you aren’t considering them seriously, you can be certain your company executives are. The goal is for all of us to be in the water when the wave makes it to shore, even if we got here transporting our surfboards on the roof of a Cutlass Supreme.

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