August 16, 2010
Ken Silverstein
EnergyBiz Insider
Editor-in-Chief
Keeping those air conditioners flowing is a summer necessity. But getting the most out of them has become national priority. The long-term goal is to equip utilities and consumers with the technologies they need to make better energy decisions.
While private entities are the most integral part of the mix, the Federal Energy Regulatory Commission is also emerging as a vital facilitator. When it comes to establishing smart grids, the national energy regulator's role is to set the agenda and to become a meeting place so that the stakeholders can advance their ideas. As such, FERC has said that improving reliability, increasing the use of green energy and enticing investors are among its highest objectives.
"In the end, the goal provides overall benefits to educate consumers," says FERC Commissioner John Norris, in a telephone interview. "That improves efficiency and increases reliability. It produces an ultimate costs savings and gives customers choices. I do think regulators at the state and federal levels need to continually ask questions about costs and benefits -- and whether we are moving forward at an appropriate pace so that our decisions are prudent."
While seemingly obscure, FERC's position in American society has never been greater than it is now. For years, the country had neglected the expansion of its high-voltage transmission network that the agency is responsible for regulating -- a fact that became crystal clear to citizens across North America during the 2003 summer blackout.
After that event, Congress set out to make the grid more dependable and to encourage more investment in it. Among the steps that have been taken over the years are giving federal regulators more siting authority while allowing them to grant investors more certainties and higher returns. FERC, for example, has the power to step in and mandate construction if state regulators fail to act within a year.
The regulatory changes could not come fast enough. Transmission investment has declined in real terms -- adjusted for inflation -- from 1975 to 1998. While there have been increases since 1998, FERC says that the level is still less than what was invested in 1975. Over the same time period, however, the demand for electricity has doubled. That's resulted in a significant decrease in transmission capacity, requiring new lines get built.
"The investment community wants to know the smart grid will work," says Commissioner Norris. To move things along, FERC has proposed giving early adopters favorable treatment. Pacific Gas and Electric, for instance, is now able to recover some of the $50 million costs associated with its transmissions rates in a smart grid project aimed at increasing reliability and the integrating renewable resources.
National Health
The demands of modern grid and a digitized society are pushing technology developers to create new efficiencies that will minimize blackouts and that will make room for more wind and solar electrons. With the appropriate tools, system operators can know in advance when lines are congested and thereby reroute the flow of electricity. The added efficiencies mean that alternative energy sources get bid into the system and especially during peak periods.
Without a doubt, it's a not a risk-free endeavor. Commissioner Norris, however, says that unlike the promises made during the era of deregulation and in the middle 1990s, the assertions made from the architects of the intelligent utility are based on technology and not free markets.
The skepticism is not targeted at those utilities that are adding software to determine if their transformers are overloaded and whether the flow of power needs to be redirected. Rather, it is aimed at the installation of "smart" meters that alert consumers when it is most cost effective to begin conserving energy and whether customers will even engage.
"It will add cost to the system and consumers will have to pay for it," says Commissioner Norris, referring to the entire smart grid enterprise. "The ongoing question will continue: What is the value of these systems. This is still in its infancy and we are not able yet to accurately project the cost savings."
Others are emphasizing that a trustworthy network could save at least $100 billion a year by avoiding periods of lost productivity. Smaller investments made today in both the wires and the meters will therefore reap much larger dividends down the road.
No question, the effort to increase reliability and to encourage investment in transmission is a work in progress. But it has become a top policy goal that the current White House says is central to the development of green energy and the reduction of emissions. To that end, miles more of high-voltage transmission lines are necessary to accommodate an expected increase in generation demand of 1.5 percent over the next decade.
The North American Electric Reliability Corp. expects 260,000 additional megawatts of renewable power to be added to the mix during this time. Of that, wind will make up 229,000 megawatts, or 88 percent. Solar, it adds, will comprise 20,000 megawatts.
If critical lines are able to get permitted and then to subsequently get the investment they need, a smarter grid is expected to form. The resulting improvements would then enable green energy producers more access to crowded networks and thereby give consumers more choices. While any renewable portfolio standards or tax laws are set legislatively, it is the role of federal energy regulators to create the rules by which all parties play.
"Green energy needs adequate access to open and competitive markets so that they be part of the supply source," says Commissioner Norris. "More sophisticated information and a smart grid are at the core of integrating renewables."
Today's electrical system has served to catapult the country forward. But the demands of a 21st century economy necessitate even greater efficiency, reliability and flexibility. FERC is creating the platform to deliver the changes that it says will result in a healthier economy and environment.
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