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DC power makes a comeback in this vision of neighborhood grids and fuel cells on wheels.
Fortnightly Magazine - October 15 2000

for the local grid and the long-distance transmission lines.

"We see the residential household converting its appliances and electric consumption to DC power" to better accommodate fuel cells, says Yeager. In fact, Yeager envisions entire neighborhoods converted to DC, with a substation transformer separating the local DC grid from the long-distance power transmission lines, the only part of the grid using AC power. That change, says Yeager, would solve the power quality issue, since DC power flow would not suffer from the same problems with frequency modulation and so on.

Another engineer with "out there" ideas is Mark Lively, who appears in this issue, also writing on distributed generation. He shows up regularly at workshops at the Federal Energy Regulatory Commission to push his pet idea—that the way to make sense of electricity markets and encourage distributed generation is to set prices not according to bids and offers, but by reference to the physical operation of the electric transmission grid, as carried out by—you guessed it—the engineers.

I had lunch with Mark in late August, when he gladly took a couple of hours off to teach me his theory. As Lively explains it, the control area operators (using computers for the most part) are balancing supply and load on the electric grid every three or four seconds, striving to keep ACE (area control error) as close as possible to zero. According to Lively, it is here, in the control center, where price is revealed—and not in those so-called "spot markets" run by the power exchanges and the independent system operators. Instead, Lively defines a true spot market as where you trade only that volume of commodity that is available in current inventory. Any other market, he argues, is really a futures market.

Of course, to buy into Lively's theory, you have to concede the notion of an inventory of electricity. That inventory turns over, just like inventories in sugar beets or bushels of wheat, but over a much shorter interval.

Lively offered this example. Suppose, he told me, that you are trading bushels of wheat on the Chicago Board of Trade, and a summer drought strikes. What happens? Traders will anticipate a smaller harvest, I answered, and will bid up the price of wheat several months out on the futures market.

"Right," said Lively, "but now consider electricity. You have a hot summer day and the power price at the PX starts to climb in the early afternoon. But not the day-ahead price, which depends on tomorrow's temperature."

"Of course," I answered, "electricity and wheat are not the same."

"Wrong," said Lively. "Electricity and wheat are no different," he explained, "except for the difference in the length of time required to turn over the inventory."

He continued: "There is a real inventory of electricity, stored momentarily in spinning turbines, in the form of kinetic energy. And it is this inventory that engineers work with as they balance the grid, from moment to moment, in the control area. This balancing process is the real spot market for electricity. It is possible to calculate