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Energy Technology: Winner Take All
A review of which technologies and companies stand to win and lose as a result of the 2003 blackout.
Mishap, human error, and malice regularly crash the electric system. We have lurched from the Western economic power crisis of 1999-2000 to the Eastern reliability power crisis of 2003. Neither more studies nor more blackouts have changed what's been built-an excessive quantity of large generation plants dependent on relatively few major transmission lines. On its current course, the grid's inevitable destination is disaster.
Recent congressional testimony blames the root cause of the blackout on everything from deregulation to inadequate central authority over the grid. While there is an underlying truth to all these casual factors, this line of thinking misses the underlying problem.
The Rocky Mountain Institute's 1981 study explains why the power grid, our nation's most complex and critical infrastructure, remains profoundly vulnerable: the grid's centralized system architecture makes it inherently prone to precisely the sort of instability we've witnessed during the past few years. America relies on aerial arteries and precise electronic signals to keep huge machines rotating in exact synchrony across half a continent. And continued growth of the grid, combined with the liberalization of the country's wholesale power market, has placed even more strain on the system. When more and bigger power lines link more and bigger power plants, the grid becomes less stable in new ways and over wider areas. Restructured electric markets challenge this constrained system with transmission transactions of a frequency and complexity for which the grid was not designed.
The electric industry once again finds itself at a crossroads, confronting it with three basic choices: the supply-side path, the distributed path, or the status quo. This article does not debate the competing claims for solutions to the reliability crisis, but rather observes who wins and loses if we pursue any of these paths.
Who Wins and Loses If We Do Nothing?
In this scenario, we expect that the distributed generation companies with proven technologies will benefit significantly. Shipments of diesel generation sets and conventional gas turbines doubled to 5,000 MW/yr. after the California power crisis. Companies like Caterpillar, Cummins, and Briggs & Stratton would experience substantial growth. Similarly, providers of on-site power storage and power conditioning equipment such as American Power Conversion, Beacon Power and Active Power would also see expanding sales, as reliability-sensitive customers invest in a private solutions to meet their needs. Providers of innovative technologies-including companies like American Superconductor and Composite Technology Corp.-that enhance the capacity of existing transmission also will win, since new transmission would be difficult to site, making it imperative to upgrade existing lines.
The other obvious winners in this scenario are strategically located generators-especially those with peakers or rapidly dispatchable gas-fired units-that can continue to collect rents from underserved load pockets and from periodic price spikes occasioned by chronic transmission con-straints. On the other hand, we do not expect the innovative distributed generation companies to fare as well. Customers seeking business interruption insurance want proven solutions. They are not willing to fund technology development.
The big loser