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A Year After the Blackout:
Fortnightly Magazine - September 2004

a required increase in the production of reactive power." If kept whole for such "lost opportunities," generators should become willing partners in ensuring wide-area reliability.

The engineering and physics of this recommendation make sense. Market-based compensation for VARs counters the incentive to make profitable sales that jeopardize reliability. It would reduce the need for cumbersome, market-unfriendly transmission loading relief procedures. But it neglects a simple precept-the best tool for the job. There's no reason to limit market-based payment for VARs to generators. With regional generation markets saturated and even depressed, investors won't back costly new generating facilities simply to meet local voltage criteria. In many cases, specialized dynamic VAR solutions offer a much faster, cheaper, and more cost-effective solution. Compact, mobile, and responsive on a sub-cycle scale, these devices can be deployed in a matter of months, inside existing substations, and relocated as system needs change.

If it makes sense to pay generators for the power they don't produce to support reliability, how much more sensible would it be to reward dynamic VAR generators for the value of increased power flows they enable-flows that could not occur but for their presence on the system? Dynamic reactive power support could become a highly attractive merchant power opportunity, yielding short paybacks while increasing grid reliability and deliverability. Several permutations can be envisioned. Unregulated generators could boost their grid deliverability by adding on-site supplemental dynamic VAR support, or the same equipment could be more valuable if sited remotely. Stand-alone merchant dynamic VAR projects could create valuable new power flow opportunities without any associated generation supply.

The blackout highlighted the growing threat of dynamic voltage problems. Technical solutions to this problem are readily available, but creative regulatory approaches are needed. A market-based framework for dynamic VARs could lead to rapid improvements in local grid reliability, enhanced trading opportunities, fuller utilization of existing grid and generation assets, and fast paybacks for investors, all with minimal environmental impact. Here is a case where the timeworn precept, "follow the money," offers a winning solution for the entire array of power system stakeholders.


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