Barriers to Entry:
on market structure, but certain steps can boost grid security and reliability under any regulatory regime. First, incentives must be realigned to reflect the true physics of grid operation. It's a simple case of "follow the money." Unfortunately, two decades of electricity policy reform measures have focused on inducing investment in generation to reduce or avoid the need for grid expansion. Judged by today's massive capacity glut, these policies succeeded, but the coincidence of large surpluses with a wave of reliability problems points to the need for a more balanced approach.
The real challenge facing today's grid operators is not how to attract supply, but how to keep the grid energized-that is, humming at near-constant voltage and frequency, continuously, at all locations. Meeting this challenge, all in the face of uncertainties caused by changing weather, shifting economic activity, and competitive supply market conditions is further complicated by uncertainty over market roles in today's hybrid, part-regulated, part-competitive market environment.
The power flowing through alternating current systems actually is a twin product. Real power is the industry's primary tradable commodity, while reactive power is the invisible force that ensures steady voltage. If the former (measured in megawatts) is our economy's lifeblood, then the latter (measured in megaVARs [volt-amperes reactive]) is the invisible but indispensable force that keeps the grid's blood pressure in check. If both forces are not kept in close balance, the system collapses. Unfortunately, markets and regulatory policies have focused overwhelmingly on megawatts because, as Willie Sutton said, "That's where the money is!" MegaVARs are not the subject of well-developed markets; until recently, reactive power received virtually no attention from policy-makers.
Reactive power issues now demand more regulatory attention because of our society's growing reliance on power generated by distant sources. Decades ago, cities were served by plants in or near their downtowns. Today, for air quality, land use, economic and other reasons, they are increasingly fed by large generators located tens or even hundreds of miles away. This trend is unlikely to reverse. New plants are now very hard to site in and near cities; old, inefficient, and dirty plants are under growing pressure to retire; and cheap natural gas supplies suitable for urban generation are receding into memory.
But physics will not be denied. While real power contracts span hundreds of miles, reactive power cannot "travel" well; due to line inductance, it is attenuated over distance. Reliable networks need local dynamic voltage support that is well distributed relative to loads. Imbalances can lead to catastrophe. Outages at large generators in Detroit, Toledo, and Cleveland, the Blackout Task Force found, left the grid bordering Lake Erie highly susceptible to collapse. Its report blamed many earlier grid failures on voltage problems; the recent outage in Greece was a textbook case of stability-induced voltage collapse.
Investment in Voltage Support
Among its recommendations, the blackout report presents one intriguing solution: Future power supply contracts should require generators to boost reactive power output if needed for reliability purposes-provided they are "paid for any lost revenues associated with a reduction of real power sales attributable to