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Reconsidering Resource Adequacy, Part 2

Capacity planning for the smart grid.

Fortnightly Magazine - May 2010

generally slowed, both in absolute terms and relative to economic growth ( see Figure 1 ). At present, peak demand growth and the need for capacity additions in the near term are more uncertain due to the downturn in the economy that began in 2008, rising electricity prices over the past several years, and recent accelerated efforts to achieve greater energy efficiency. State and federal energy policies have encouraged energy efficiency and demand response for many years, and programs have been strengthened in recent years, with many states implementing enabling legislation and setting specific targets for reductions in energy use. Increasing concerns about climate change and other environmental impacts of energy production have heightened interest in efficiency and renewable sources of energy.

These changes are contributing to slower growth in peak loads. On the PJM system, for example, weather-normalized peak load was nearly flat from 2005 to 2008, before declining sharply in 2009 due to the recession. 1 The risk that capacity reserves built at this time might be unneeded, and might remain unneeded for years, is much higher than at any time over the past decades.

In addition, there’s greater flexibility today in capacity planning, due to the availability of incremental capacity resources with shorter lead times than the large fossil fuel plants that were the primary means for meeting incremental capacity needs in the past; these resources include demand response, incremental upgrades to increase the capacity or extend the life of existing plants, and deferred retirements, among other sources. For example, a summary of the incremental capacity additions from the first six PJM reliability pricing model (RPM) capacity auctions shows that short lead-time resources accounted for 82 percent of the 27,641 MW of incremental resources in these auctions ( see Figure 2 ). The combination of declining peak load growth and the availability of short lead-time resources reduces the need for, and value of, building large reserve margins and of acquiring them well in advance.

The Coming Smart Grid

Part I of this article showed that traditional approaches and attitudes toward resource adequacy planning have been extremely conservative, and an adjustment to these approaches would have been justified and in the consumers’ interest. However, the changes happening today, looking forward to the second decade of the 21st century, provide additional reasons to reconsider the industry’s long-standing approaches to resource adequacy.

Very broad-based efforts are underway and accelerating to implement the complex of substantial changes to the electricity industry included under the heading of smart grid. The smart grid will involve upgraded control and communications as well as advanced metering infrastructure (AMI), which will allow real-time communications to and from customers and their smart end-use devices. Many pilot studies have been completed successfully, and utilities across the nation are proposing to install millions of advanced meters in the next few years. While some of the elements of the smart grid are years away, many are being implemented now, and some forecasts anticipate enormous investments in the smart grid over the next several years.

These changes will accommodate substantial increases in demand