From In Business Magazine
January/February 2001, Page 20
smarter power
BRINGING OUR ELECTRICITY GRID INTO THE 21st CENTURY
California’s energy crisis provides opportunity for “distributed generation” technologies to revolutionize the nation’s electrical grid, benefiting businesses, consumers and the environment.
Peter Asmus
THE electricity crisis threatening California and the West today, and the rest of the nation tomorrow, is a profound wake-up call. It’s time for executives in business and government to come to grips with the gap between the needs of the New Economy and the environment on one side and the level of electricity service our outdated and stressed energy infrastructure provides on the other. Savvy CEOs should realize that the right response to this crisis is investing in new technologies that have the ability to transform our grid while at same time provide added benefits for doing business.
The electrical industry’s problem is not deregulation per se, but the monolithic technologies that the current regulatory system encourages: Large, central station power plants fueled by natural gas. The recent run-up in electricity prices and heating bills is caused by the fact that 90 percent of all new power plants are designed to run on natural gas, which was the cheapest electricity supply source. But now its price has hit record levels unimaginable just one year ago, and electricity generators powered by gas are far more expensive than when they were originally proposed.
Obviously, relying on one fuel for heating and electricity is folly — especially when it’s a fossil fuel that releases carbon dioxide, a suspected prime ingredient of global climate change, when combusted. Let’s face up to the facts. Our electricity grid is an artifact that dates back to the beginning of the last century.
SERVICE RELIABILITY
The good news, however, is that the tools and technologies are in place for an energy revolution that could mimic the scale evident in the telecommunications and computer industries. Wind power, solar photovoltaics (PV) and fuel cells are the equivalents to wireless cell phones and portable laptops that replaced traditional grid-connected phones and huge mainframe computers. Frequently referred to as “distributed generation,” these small sources of electricity diversify our fuel mix and can be distributed throughout a region. Connected to the grid or operating as distinct, stand-alone systems, they can generate premium grade clean electricity on-site without any air pollution. Today, such technologies are helping to bring our electricity grid into the 21st century through installation in “microgrids,” such as the Pleasanton Power Park in California.
Still under construction, the East Bay City of Pleasanton’s “premium power” park may be the wave of the future for California. Internet-related businesses require a power supply that is reliable 99.9999 percent of the time. The run-of-the-mill electricity grid typically offers a 99.9 percent reliability figure. In California these days, power generators are barely meeting this latter and lesser standard of service. By incorporating solar PV and other distributed generation sources right at the campus site, the Pleasanton Power Park is able to provide what is now known in the industry as “six nines” of premium electrical service reliability.
Service reliability is of concern to computer industry manufacturers because the costs of a power outage can be enormous. Even a few minutes of down time can ruin a day’s worth of manufactured products. For example, Hewlett Packard estimates that just a 20-minute outage at a circuit fabrication plant would leave a $30 million debt due to a loss of an entire day’s production. A mid-June 2000 power outage is estimated to have cost $100 million in lost Silicon Valley business. In addition, the Silicon Valley Manufacturing Group estimated that 100,000 workers at its member companies had been idled by the most recent blackouts in early 2001. If New Economy executives learned anything from the evolution of their own industry, they would recognize that the best way to insure reliability and reduce long-term costs is to incorporate these smaller and more efficient clean energy generation technologies into their own energy management systems.
Last year, the U.S. Department of Energy (DOE) underscored the benefit of installing the latest generation of solar PV panels, which at today’s electricity prices are suddenly cost-effective. In an October, 2000 study published by DOE’s National Renewable Energy Lab, seven major outages were analyzed from the perspective of the solar conditions that existed at the exact times of the power losses. Not surprisingly, in all but one of the outages, conditions for optimal solar electricity generation were above 90 percent. This makes inherent sense — it is typically sunny days that lead to heat waves that stress our electricity delivery infrastructure.
Why not rely on the same sun that helped create the crisis to solve the power supply problem? Interestingly, conditions were close to perfect (99 percent) for generating solar electricity on the mid-June day in 2000 when 100,000 customers in San Francisco lost power and Silicon Valley took a $100 million bath. When power outages cost Silicon Valley firms millions of dollars per minute of downtime, relying upon solar PV during sunny peak periods of demand is almost too logical.
COST COMPETITIVE
Integrated with sophisticated computerized management and energy storage systems, solar PV and other distributed generation sources offer reliability insurance during these times of frequent threats of rolling blackouts and supply interruptions. This is especially true during summer price spikes when reliability is most at risk. Because of the benefits of providing greater reliability and the rising cost of generating electricity from natural gas — at least three times the cost of just a year ago — distributed generation technologies are now looking increasingly cost competitive.
While California’s natural gas plants produce power at costs ranging from nine to 60 cents/kilowatt-hour (kWh), wind turbines consistently generate electricity at four to six cents/kWh. In addition, wind turbine costs are projected to drop to three cents/kWh within the next five years. Such low costs underscore why wind power is the world’s fastest growing power source.
When the California Energy Commission issued an emergency appeal for new nonfossil power plants to come on-line by next summer, one wind power company came forward with proposals to add over 400 MW, more than any other power generation technology. The short-lead time for wind power — in this case four to five months — compares to the three years it takes to site and build a natural gas plant. Although wind turbines only generate electricity a third of the year, they tend to produce energy in California when consumers most need it — during summer peak price spikes.
At 15 to 40 cents/kWh, solar is still expensive; however, its costs keep falling. The Sacramento Municipal Utility District (SMUD) claims to have the lowest cost PV systems in the country because it purchased the panels in bulk and took advantage of municipal financing. Under ideal conditions, SMUD estimates the cost of generating electricity from its solar panels at around 10 to 12 cents/kWh if the capital cost is stretched out over a 30-year period of operation.
Although solar and wind technologies are weather-dependent and therefore often require back-ups or battery storage, fuel cells, on the other hand, can run on a variety of fuels — natural gas, propane, methane, landfill gas and hydrogen — and can operate around the clock. Relying upon an electrochemical process to convert chemical energy into electricity and hot water, fuel cells generate electricity at a cost of approximately 10 to 12 cents/kWh, even when fueled with natural gas at today’s record prices.
Wall Street, which has been beating up on the stocks of the ailing California utilities Pacific Gas & Electric and Southern California Edison, has loved fuel cell company stocks. Some $17 billion of the $20 billion invested in alternative energy technologies over the past year have been earmarked for fuel cell companies, whose stocks have jumped by as much as 1,000 percent. These bright spots in a bear market are linked to predictions that fuel cells will provide as much as 20 percent of the nation’s commercial and industrial sector with electricity within a decade.
These cost estimates do not capture all of the benefits that new distributed generation technologies provide to owners of the systems and our beleaguered grid. Many of today’s solar PV installations are integrated into the building shell from the start, and therefore displace other building costs. They also offer insulation value, which cuts down on the amount of natural gas and electricity needed for heating and cooling. Distributed generation sources also avoid the 15 percent loss of power that occurs when electricity is transmitted from the power plant across the grid — losses that add up to millions of dollars at today’s prices.
Smart New Economy companies should recognize these trends and take a leadership role by incorporating non-polluting energy sources right on their own premises. The answer to the current crisis in energy is to transform our archaic electricity grid into a catalyst for integrating increasing amounts of renewable resources into our fuel mix. California businesses can offer the rest of the world a model of a smart power generation and delivery system that serves both the New Economy and the environment.
Peter Asmus is author of Reaping The Wind, a new book published by Island Press, and is a senior associate with the AHC Group of Saratoga, New York, a consulting firm offering strategic advice on environmental matters to many of the nation’s leading corporations. He can be reached at pthfind@ns.net.
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