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Reconsidering Resource Adequacy, Part 2

Capacity planning for the smart grid.

Fortnightly Magazine - May 2010

The one-day-in-10-years criterion for capacity planning is coming under scrutiny. Making the most of the smart grid and demand management requires a less conservative approach. Markets and prices rather than administrative rules will ensure resource adequacy in a more efficient way.

Resource adequacy planning in the United States has rested upon a very conservative criterion (“one day in 10 years;” perhaps an order of magnitude more conservative than can be justified by marginal benefits) that also has been applied conservatively, as explained in Part I of this article ( see April 2010 Fortnightly ). Why has electric resource planning been so conservative? If there was a rationale for this practice in the past, is the rationale still applicable today, and for the future? How must resource adequacy practices be adapted for the coming smart grid?

Why So Conservative?

The 1-in-10 criterion, and conservative approaches to its application, apparently became widely accepted decades ago when electricity demand in the United States grew at a fairly steady rate and continuously required generating capacity additions. Under such circumstances, if utility resource planning was conservative and targeted high reserve margins, the excess capacity was never excess for long. In addition, the power plants built to meet incremental needs in the past required years to build, and with rapidly growing demand, the risk and potential cost of not beginning construction in time was substantial. Under these circumstances, the costs and risks favored targeting large reserve margins and building needed capacity well in advance.

Resource adequacy might have been, and remains, very conservative for additional, very human, reasons. A much higher frequency of distribution system outages has been tolerated by planners and regulators, perhaps because of the inevitability of the acts of nature or component failures that are the proximate causes of such outages. While the frequency of distribution system outages can be reduced through more aggressive vegetation management and other practices, these outages generally aren’t under the control of utility planners or regulatory authorities. In contrast, outages due to inadequate resources seem more preventable—a few more megawatts would have reduced or eliminated the need for firm curtailment—and thus suggest a failure by the utility or RTO to cause enough capacity to be built in a timely manner, or by regulatory authorities to issue permits or approve cost-recovery mechanisms for new construction.

Providing a very high level of resource adequacy also might reflect greater concern on the part of utility planners over reliability, for which they are responsible, than its cost, which is passed on to consumers. Having abundant resources arranged well in advance also makes both planning and operation of the system easier.

Changing Circumstances

The historical conditions that contributed to acceptance of highly conservative approaches to resource planning are changing. Growth in electricity demand has become more variable and

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