The Texas 'Wind' Emergency, the Smart Grid and the Dumb Grid

On February 6, 2008, a drop in wind generation by about 1400 MW over ten minutes, coupled with an increase in demand of 4412 MW due to colder weather, and lower-than scheduled production from other power suppliers, led ERCOT, the Texas grid operator to cut 1100 MW of power to interruptible customers for about 90 minutes.

Misconceptions

All these facts come from a Reuters article misleadingly titled "Loss of wind causes Texas power grid emergency." I was dismayed a few weeks ago when this misleading reporting led the generally insightful Master Resource Report to conclude "This is a clear example of why solutions to storage and transmission are going to become increasingly critical as sources such as wind and solar become increasing parts of the generation mix. This doesn't invalidate renewable power; it just means that the country has plenty of work to do and that there are plenty of investment opportunities besides just wind turbines and solar cells." [link to pdf]

It may be surprising to readers that I find anything objectionable in a call for more storage or transmission, although I'm a stronger proponent of transmission, which I consider more cost effective, even if there are far fewer barriers to adding storage.

However, the lesson of the 2008 Texas emergency is that while we need more transmission, and, eventually, storage, there are other, cheaper and easier steps we can take to integrate wind and solar to considerably higher levels of penetration.

Not A "Wind" Emergency

The first thing to note about the incident is that the increase in electric demand was more than three times as large as the decrease in supply from wind. Presumably, ERCOT had been dealing with such fluctuations in demand since long before wind came onto the system. Part of the problem was that other power suppliers (presumably natural gas and coal, usually considered "reliable") were not delivering what they had promised. Hence, the drop in wind production was probably only 20% of the overall problem, not 100%, as the headline led readers to believe.

Hero: The Smart Grid

The next conclusion we can draw is that Demand Response [DR], in the form of interruptible service to large customers, prevented power outages. Demand response an early form of the Smart Grid which is already working today. It allows the grid operator to cut power consumption by other users who have previously agreed to such cuts in return for lower electricity rates or cash payments. According to a 2005 study of DR programs from the American Council for an Energy Efficient Economy, the median cost of DR programs studied was $29 per kWh, and the average cost was $86 which compares quite favorably to the $500 or more per kW cost of a peaking gas turbine. Demand Response was the hero of February 6, 2008, even if wind was not the villain.

Before we look for investments in energy storage or even transmission, we should be looking to even more cost effective resources for the integration of variable energy sources, such as Demand Response and other variations of the Smart Grid. Both EnerNOC (ENOC) and Comverge (COMV) provide demand response services to utilities, and this is also one use for Smart Grid technology from such companies as Echelon (ELON), RuggedCom (RUGGF.PK), Telvent (TLVT), and Itron (ITRI).

Villain: The Dumb Grid

During the discussion at a January 21 seminar sponsored by the National Renewable Energy Laboratory and the National Oceanic and Atmospheric Administration, featuring speakers from wind forecasting companies 3Tier, WindLogics, and AWS Truewind, the speakers mentioned that the weather forecasters had been telling the system operator of the incoming cold front and likely drop in wind production, but that the system operators chose to make no preparations before the fact. Had they done so, they could have ramped up standby generation before the cold front hit, and would not have needed to call on the interruptible power resources.

Given that much of the heating in Texas is electric, system operators must have known that a cold front would raise demand. Why would system operators choose not to heed forecasters' warnings? There may be many reasons, but in the end, they all probably come back to incentives.

Preparing for a predicted increase in demand would have been the intelligent response, but regulated utilities have very little incentive to use their resources intelligently. After all, a regulated utility makes most of its profits based on an authorized return on capital based on the investments it can justify to the regulator as necessary to keep the system up and running. If the utility is, for whatever reason, unable to use those resources effectively, it becomes easier to argue that more resources are needed, which will lead to more profit for utility shareholders, and a less stressful job for system operators..

In other words, regulated utilities have an incentive to use as little brainpower (for which they do not earn a return on capital) and as much capital investment as possible. They have an incentive to be dumb. Given such incentives, is it any surprise that they ignore warnings, and then blame the problem on the variability of wind?

DISCLOSURE: Tom Konrad owns ENOC, COMV, ELON, RUGGF, and ITRI

Comments

[William Taylor:]

Tom, why no mention of (BCON) Beacon Power? Isn't "smart grid" their speciality? Please comment. Thanks!

Mar 24 09:10 AM

[Joseph Ramelli:]

Great article. Very insightful. Thanks.

Mar 24 09:14 AM

[Butch:]

Your conclusion is based on a fallacy. The utilities in Texas do not determine what units are running and when to start them and have them available for spinning reserve. That is the job of the system operator, which in the case of Texas is the ERCOT System Operator. This entity does not own the assets and is not compensated in the way described. For those interested in a more detailed and accurate discussion, it can be found in the report prepared by NREL and ORNL www.nrel.gov/wind/syst...

Mar 24 10:01 AM

[jack kreg:]

Butch, thank you for putting some useful information into otherwise poorly utilized space. It really helps to findout how little knowledge is contained in Konrads articles.

Mar 24 12:09 PM

[Gedankonomist:]

"...the country has plenty of work to do and that there are plenty of investment opportunities besides just wind turbines and solar cells."

Translation: the government needs to subsidize wind and solar power more with your tax money, instead of allowing the market to decide.

Mar 24 03:52 PM

[Howard_T:]

It doesn't matter how smart your grid is if the supply to that grid does not have excess capacity to meet sudden increases in demand and is unreliable. Wind and solar will not be the answer in the near- or mid-term. Please don't tell me that we can do this as long as 'the government subsidizes it'. The best answer for providing environmentally clean, abundant, and reasonably priced energy lies in nuclear power. It has been proven safe, and as long as the nimbys and tree huggers are not allowed hearings of more than reasonable objections to the siting of plants and treatment of waste, it can be less expensive than most current methods of generation. Obama's campaign promise was that nuclear power would not be off the table, but his actions since election seem to indicate otherwise. Too bad that reason has to fall to partisan politics.

Mar 24 04:42 PM

[Jade Queen:]

Thanks for the article and the comments. I can see how a company obliged by contract to make more things than can be sold would bid to get shut down by an act of Wind. Large companies that get this right will be less likely to go under than companies that do not. Contracts routinely have Acts of God clauses that move deadlines if events beyond the control of the parties occur. I wonder how the process works when one bids for the right to be shut down. Winning could mean life or death. Tom Konrad is right that the way the headlines read mischaracterized whether there was some unplanned harm or risk. If the companies who gave up power had to compete for the right, then the proper characterization would have explained that the companies got what they saw as a benefit, not a harm, and they were prepared. The link provided by Butch confirmed that no entities were shut down against their will or in a way that had not been requested. It therefore was not an emergency, in the sense that stopping a surgery would have been. I do not understand a mindset that would object to contractual arrangements like this. Variables change. Why would we lobby for costly greater capacity when consensual arrangements could make that unnecessary, especially now, given the credit situation? In fact, the credit situation could make increased capacity obsolete before it's built, one of my definitions of boondoggle.

Mar 24 06:18 PM

[Huck7:]

The DUMB Article:

Your article is completely off base and lacks any common sense about how a grid works. The fact is ERCOT now has over 8,000 MW of generation that literally comes and goes with the wind. That can easily be 10% to 15% of ERCOT's supply at any given moment... or not.

Put another way, the wind generation is like having four (or more) nukes that may or may not be in service at any given moment. Now the dispatcher not only has to watch his load which is primarily driven by weather, but a significant portion of his supply is based on wind, which is much more difficult to predict than temperature.

The truth is a dispatcher must keep online larger quantities of "spinning reserves" (yes, that means good ol reliable gas fired generation) in order to facilitate such a large amount of wind generation. So are we really saving that much by having all this wind generation? Definitely not, especially when you consider the extra risk to the grid and the cost of transmisson.

You may have a better chance of understanding the following analogy: If ERCOT were a sailboat the skipper would have to keep a nice dependable motor running just in case wind died down. Or more likely several little motors running to keep the boat moving ahead at the proper speed.

Oh, and the transmission you mention.... last I checked the best wind for generation was in West Texas, hundreds of miles from any significant load area. The cost is well into the BILLIONS and continues to climb.

Mar 25 12:04 AM

[Tom Konrad:]

Good point Butch... I apologize for my mistake. I'll have to come up with some other theory as to why ERCOT chooses not to use all available information (i.e. weather forecasts) in their dispatch decisions... but I still suspect that it's because they have no financial incentive to do so.


On Mar 24 10:01 AM Butch wrote:

> Your conclusion is based on a fallacy. The utilities in Texas do
> not determine what units are running and when to start them and have
> them available for spinning reserve. That is the job of the system
> operator, which in the case of Texas is the ERCOT System Operator.
> This entity does not own the assets and is not compensated in the
> way described. For those interested in a more detailed and accurate
> discussion, it can be found in the report prepared by NREL and ORNL
> www.nrel.gov/wind/syst...

Mar 25 12:08 AM

[Tom Konrad:]

William-
I didn't mention BCON because they provide frequency regulation, which would not have helped much in this case. And I consider them an energy storage company, not a smarrt grid company.


On Mar 24 09:10 AM William Taylor wrote:

> Tom, why no mention of (seekingalpha.com/symbo...) Beacon
> Power? Isn't "smart grid" their speciality? Please comment. Thanks!

Mar 25 12:14 AM

[TinyTim:]

Demand Response [DR], in the form of interruptible service to large customers has been around for 50 years and has nothing to do with a Smart Grid. Also, a Smart Grid will never be a substitute for Intelligent Operation.

I suspect your thesis that regulation has caused over-capitalization was true in years past. The slowdown in capital expenditures in the last 20 years, particularly in transmission, is finally catching up, aggravated by the remoteness of new alternative energy sources. Gas and oil peaking plants near urban load centers have minimized the need for transmission. Transmission cost is part of the remote generation package and always was historically included. After all, why build it if the power from a nuke or dam can't get to the grid? What changed because it's solar or wind?

The fact that wind is the most variable generation resource must be factored into both the operation and the financials in the form of DR rate structures. Utilities have been tuning demand forecasting for years with very predictable supplies, aided by DR, with excellent results. Alternative energy will force a new discipline- forecasting variable supply.

The only question regarding the Smart Grid aka Smart Meters, is whether residential and commercial customers will be amenable to automatic DR and what the cost -benefits will be for utilities. Some utilities have offered residential DR rates in the past and the necessary control equipment was available.

Mar 26 10:55 PM

[johndowd:]

Sir: How do you propose that we deal with Ohms Law? There is a limit to grid transmission buildout.

Why didn't the folks in TX heed the weatherman? I guess for the same reason that they shouldn't rely on "wind-power" The weather is very unreliable and unpredictable save disaster sized events. Windmill operators still have no idea what their offline idling capacity is when asked to estimate same by grid authorities.

I guess we really need someone who can control the weather to take over this "subsidized" into existence form of power generation. Calling Al Gore!

Mar 27 11:29 AM

[Dirk McCoy:]

Electricity has been transmitted thousands of miles, at low loss- a few percent. We've connected the world with undersea fiberoptic cables, we can do the same with electricity.

Here's a presentation with more info:

www.terrawatts.com/sta...

Apr 14 12:48 AM

[frflyer:]

Gedankonomist

Now look who's spreading disinformation. The subsidies for renwable energy pale in comparison with subsidies for oil gas and coal.

heatisonline.org/c...

"subsidy programmes from 1918 are still in place"
"I'm not aware of any oil and gas subsidy that has ever been phased out," said Koplow, the leading expert on U.S. energy subsidies"

"in a time of skyrocketing oil prices and profits, why did the George W. Bush administration in 2005 authorise an additional 32.9 billion dollars in new subsidies over a five-year period?"

"Koplow's 2007 report to the Organisation for Economic Cooperation and Development puts the annual U.S. subsidy at an average of 39 billion dollars a year, when the costs of guarding oil lanes in the Persian/Arab Gulf, and the Alaska Pipeline are included. This does not include any costs from the Iraq war"

"Estimating U.S. oil and gas subsidies is very challenging. Subsidies rarely involve cash payments. Instead scores of U.S. government agencies and departments create hundreds of programmes to support the U.S. energy sector. And there is no requirement for the federal government to keep track of all this."

"Energy subsidies are often simply hidden from public scrutiny. It's only recently been revealed that 40 companies granted leases between 1996 and 2000 for drilling in the Gulf of Mexico do not have to pay royalties for the publicly-owned resource. This is worth nearly a billion dollars a year in lost revenue to the federal government, according to a 2008 study by Friends of the Earth (FOE), a U.S. environmental NGO, and may ultimately total 50 billion dollars."

"These production subsidies do nothing to lower the price of petrol at the pump for U.S. consumers. It simply boosts companies' bottom line, Pica said."

"This massive government intervention distorts energy markets, making it very difficult for alternative energy sources to compete without similarly massive subsidies. "And it promotes America's addiction to oil," Larsen added."

and from Encyclopedia of Earth
eoearth.org/articl...

"The Strategic Petroleum Reserve, a
federal government entity designed to supplement
regular oil supplies in the event of disruptions due to
military conflict or natural disaster, costs taxpayers an
additional $5.7 billion per year."

And the externalized costs of fossil fuels are also huge.

"When you consider that researchers have
conclusively linked auto pollution to increased health
problems and mortality, the CTA report?s estimate of
$29.3 to $542.4 billion for the annual uncompensated
health costs associated with auto emissions may not
adequately reflect the value of lost or diminished human life. "

"Other costs associated with localized air pollution
attributable to gasoline-powered automobiles include
decreased agricultural yields ($2.1 to $4.2 billion),
reduced visibility ($6.1 to $44.5 billion), and damage
to buildings and materials ($1.2 to $9.6 billion). Global
warming ($3 to $27.5 billion), water pollution ($8.4 to
$36.8 billion), noise pollution ($6 to $12 billion)"

"According to estimates by
the Union of Concerned Scientists (UCS), federal
corporate income tax credits and deductions result in
an effective income tax rate of 11 percent for the oil
industry as compared to a non-oil industry average of
18 percent"

"The average effective tax rate on integrated
oil operations has fallen from 21.5 percent in
the early 1980s to only 8.7 percent in the 1990s (both
figures are significantly below the statutory rate of 35%."

"The U.S. government provided net subsidies of between $5.2 and $11.9 billion to the oil sector during 1995, excluding the cost of defending Persian Gulf oil supplies. We estimate defense of oil supplies to be worth an additional $10.5 to $23.3 billion, demonstrating the magnitude of this specific subsidy element. Thus, our estimate for net federal subsidies to oil, including defense, is $15.7 to $35.2 billion for 1995. Because of the sensitivity of our totals to the defense subsidy, we present our results both with and without this item."

Two wars in two decades with huge costs in lives and money

And of course oil accounts for at least $300 billon of our trade deficit.

Nuclear energy has been subsidized for 50 years and a total of $500 billion.

So much for subsidies being an argument against renewable energy. There couldn't be a worse argument.

Please excuse me pasting this from another comment of mine, but the same baseless arguments keep popping up.

May 12 02:33 PM

[frflyer:]

Howard _T

You have it exactly backwards. Wind and solar can be built right now, 2-3 times as fast as new nuclear plants. We don't have time to wait for nuclear. I'm not ruling nuclear out, but it is a mid term solution at best, and definitely not short term, as it will take at least a decade to build new plants. In the meantime, we can build hundreds of gigawatts of wind and solar. This includes solar thermal and PV solar.
Wind and solar thermal projects can be completed in 3-5 years including the planning stage. With heat storage, solar thermal will provide steady dispatchable power day and night.

In ten years, new nuclear electric prices will not be able to compete with any form of solar or wind.
Costs of building nuke plants are skyrocketing. Estimates for power from new nuclear are 12-17 cents/kWh. Wind is already cheaper. Solar thermal is 12-17 cents now and will be 4-8 cents in ten years and under 10 cents in about 4 years. PV will also be in the single digits by then.

Wind energy lowers electricity prices to consumers over time because of it's price reliability. Solar and wind both promise non volatile energy prices as they don't rely on fuels that have wild price swings.

www.eurotrib.com/story...


Tiny Tim

"Demand Response [DR], in the form of interruptible service to large customers has been around for 50 years and has nothing to do with a Smart Grid"

Only the first half of this statement is true. Demand Response has a lot to do with a Smart Grid. It may have been around for 50 years, but not in the form it will take now.


johndowd
"shouldn't rely on "wind-power"

ABSURD!

Spain has 12% wind power, Denmark has 20% wind power. Read the article at the link above.
And here we are with maybe 1% from wind, with people like you arguing that it can't work.
The usual uninformed talking points don't cut it.

We subsidized the internet and high speed information highway over the past 35 years with about $400 billion.
We subsidized the building of the railroads, biotech, electrification of the country and agriculture. But as long as it's not the renewable energy that you have an irrational opposition to, it's alright to subsidize everything else.

May 12 03:10 PM