Bank of America's recent request to FERC to be allowed to trade power was yet one more reminder that a whole new class of companies are quietly positioning themselves to dominate what's left of...
The Energy Tech Chronicles: Will Bust Turn to Boom?
no longer based on the lowest cost electricity available from the grid, but the most effective means for avoiding a loss of power.
U.S. Electric Grid: The Dirty Little Secret
The dirty little secret of the U.S. electric market is that the real problem is not adding generation capacity, but rather needed transmission and distribution assets. As Energy Secretary Abraham has noted, it was transmission problems, not a shortage of generation, that led to blackouts in California and high prices in New York.
The impact of the transmission problem shows up in retail prices. In 1998, the average retail price in California was 9 cents, compared to 4.9 cents in neighboring Oregon. The inability (due to political constraints) to add transmission and distribution has been aggravated by deregulation. Deregulation has led to a feeling of financial uncertainty that has caused utilities dramatically to decrease spending on the grid. This situation has given rise to opportunities in the areas of both transmission technologies and distributed generation.
The U.S. electric grid is a tremendous engineering accomplishment. The grid, however, is aging, and investment in it has declined an estimated $115 million a year for over 20 years. The Electric Power Research Institute (EPRI) estimates that, nationwide, 2200 miles of transmission line are candidates for replacement. Adding new transmission and distributions lines is neither easy nor inexpensive. In addition to political problems over siting, transmission line costs can run an average of $1.5 million to $80 million per mile, with approximately 70 percent of this cost caused by excavation, construction, permitting, and other infrastructure costs, according to Salomon Smith Barney.
Grid Problems: Why Not Try the DG Solution?
There is, however, another approach to addressing the problems associated with the grid: distributed generation (DG). Distributed generation refers to generating electricity on-site, as opposed to centralized generation in which electricity is generated by power plants. Distributed solutions might include an industrial user installing its own gas turbine to produce electricity at a key plant. Distributed generation technologies include reciprocating engines (Caterpillar and Cummings are the market leaders), microturbines (Capstone, Ingersoll Rand, Elliott), fuel cells (Fuel Cell Energy, Proton Energy, H Power, Plug Power), wind (Vestas), and solar power (Astro Power, Evergreen Solar). The attractiveness of DG is four-fold: 1) it avoids the significant investment required in adding transmission and distribution capability; 2) it provides immediate solutions to electricity supply constraints; 3) distributed power typically is more reliable than the grid; and 4) distributed power can produce electricity less expensively than the grid.
As its definition makes clear, DG avoids transmission issues, because electricity is not transmitted, it is produced and used on-site. As the CEO of NiSource has said, "We've got to build in Chicago, New York, Philadelphia, Boston, Atlanta, and guess what? Nobody will allow you to build a 250 MW combined-cycle, gas-fired power plant in downtown Chicago or New York or any other place. So what can we turn to? Distributed generation is the answer. This means we put generation on rooftops and in basements." And thus, neither power plants or transmission lines need