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Demand Response Might Put Fossil Fuels Out of Business

Fossil fuels are nearly obsolete.  They will not last forever, and they are the primary cause of anthropogenic climate change and environmental degradation worldwide.  Even if we never run out of fossil fuel, the consequences of an ever more volatile climate are not only ghastly, but too expensive for any society to manage.  Eventually, providing reliable power by burning hydrocarbons will simply cost too much money, time, and material damage.  Research confirms that a mix of renewable resources, energy storage, distributed generation and demand side management will support an inexpensive and reliable electric grid.  Most importantly, if these technologies are integrated correctly, fossil fuel power can be eliminated entirely.

The 1890 Electric Grid

Developed nations all over the world take pride in the technological advancements of the twentieth and twenty-first centuries, as they should, but, the United States is functioning in 2014 with essentially the same power delivery system developed in the 1890’s.  The electricity we depend on every day travels along a transmission system based on nineteenth century technology.  Most components of the US grid are at least several decades old.  Historically, energy infrastructure has been maintained to preserve the status quo instead of improved to keep pace with technology.  While the designers of the early grid could not have anticipated today’s mammoth energy demand or the detrimental impact of fossil fuel, there is no excuse for the system to have stagnated and decayed for over a century.

The traditional electricity transmission model is simple.  Energy is generated at power stations, and then transmitted via a network of wires to the end user.  Power generators constantly work to produce enough electricity to meet the aggregate demand of customers.  Operators at generation stations are able to control the output of electricity to keep the supply steady which helps stabilize prices under normal conditions.

This structure usually works fine with our system of primarily fossil-fuel powered generators.  As long as there is a constant supply of coal, oil, or natural gas to feed generators, there will be power.  The main flaw of fossil fuels, as we are all aware, is pollution, and the king of carbon pollution is coal.  Coal is the most common fuel used to power electric generators, and coal combustion is considered by most scientists to be one of, if not the, largest source of greenhouse gases and other toxic air pollution.  Clearly, the correlation is not a coincidence.

Electricity generation burns more carbon and releases more greenhouse gases than any other industry according to the Environmental Protection Agency.  The most recent data indicates it is responsible for a full third of the planet’s greenhouse gas pollution.  The process of extracting and transporting these resources poses an additional myriad of pollution hazards.  Oil spills, coal ash, chemical spills, and gas leaks are only some of the deadly consequences of the world’s fossil fuel addiction.

Renewable Energy Generation

Luckily, clean and renewable energy sources, such as wind and solar power, are gaining support as alternative electric generation options because they are essentially limitless and pollution-free (once built and installed).  In addition, renewable energy is pretty cheap; actually, it is free.  Unlike coal and oil, sunlight and wind cost nothing.  Our electric bills always include charges for generation, which means we are paying for the very fossil fuels that pollute the air and hurt our health.  Most renewable energy eliminates the need to purchase any fuel, and the cost of generating and distributing it is constantly dropping.  In some countries it is already competitive with other fuels, and in the next twenty years it will cost less for Americans than coal, or even natural gas, does today.

Of course, renewable resources are notorious for their intermittent energy output.  When conditions are good, electricity production can exceed demand.  On the other hand, generation falls when low winds fail to turn a windmill or when clouds obstruct sunlight from reaching solar panels.  Battery storage innovation is now advanced enough to fill those gaps.  Lithium ion batteries are currently the most popular, and can harness and store excess electricity output.   When energy production drops due to low sunlight or no wind, the batteries release enough energy to keep power stable.  In other words, extra power is absorbed and saved for later use instead of being wasted.  Energy storage systems can allow utilities to meet peak demands without the need for activating peak power plants, which are expensive to run (not to mention sources of more pollution).  Even energy stored in electric vehicle (EV) batteries can be connected to the power grid.  Batteries also work well for small distributed renewable energy systems designed to power single homes or buildings.

Utilities are clearly preparing for a renewable grid, but the price tag to truly modernize the necessary infrastructure is, unfortunately a hefty one.  The Edison Electric Institute (EEI) predicts its member utilities will spend $60.6 billion on transmission system upgrades through 2024.  Updates specifically designed to integrate renewable energy represent $26.2 billion, or 43 percent of total investment over the next ten years.

Utilities obviously realize the importance of planning for a reliable and renewable grid or they would not be prepared to spend such an exorbitant amount of money on renewable energy integration.  Companies don’t spend billions of dollars on investments not absolutely vital in order for them to thrive.

Even after these grid upgrades, demand for electricity will sometimes exceed supply as it always has.  Thankfully, demand response will always be available to help prevent grid failure and blackouts.

Demand Response = 100% Renewable Energy?

Electric grid reliability is most commonly threatened during times of high use and demand exceeding available supply.  Demand response (DR) events are triggered to relieve stress on the power grid and reduce demand, thereby creating a balance between demand and available supply.

The definition of demand response as offered by the US Department of Energy (DOE) is “[change] in electric usage by end use customers from their normal consumption patterns in response to changes in the price of electricity over time, or to incentive payments designed to induce lower electricity use at times of high wholesale market prices or when system reliability is jeopardized.”  In other words, DR is a change in consumption patterns by end-users of electricity in response to a specific situation – a supply shortage causing the possibility of blackouts or voltage fluctuations is an example of a situation in need of demand response.  The most important DR events ameliorate threats of failure and damage to the power grid without using peaking power plants.  Providing payments to large energy users for reducing electricity use to take stress off the system is actually cheaper than putting more generation on the grid.

Demand response is a solution to the common problem of a power grid stressed to capacity, and it works well when today’s fossil fuel power plants reach their generating limit.  Using DR as a “bridge” to renewable energy as our primary electricity source seems like a no-brainer.  Studies find that renewable energy can now be integrated into our electric grid in large amounts with little sacrifice in reliability.  A 2013 model presented by Synapse Energy Economics even estimates that carbon combustion generation could be almost eliminated between 2030 and 2050.

A 2013 paper from The Journal of Power Sources explains that a power grid operating on solar, wind, and water resources can provide reliable energy 99.9% of the time.  They also explain that “99.9% of hours . . . is lower in cost than today’s total cost of electricity.”  If that model is accurate, in about 20 years renewable energy will be cheaper than fossil fuel power is today.  Once that happens, it will make the most economic and environmental sense for fossil fuels to be eliminated.

The Price of a Renewable Grid

It is true that renewable energy generation fluctuates along with wind, sun, or water conditions, and this can impact prices in electric markets.  Electricity supply and demand fluctuations have always been impacting consumers, however.  Demand response has proven in the past to be a fully sustainable method to control these oscillations and keep prices stable.  There is excellent reason to believe it will perform the same function once power comes from 100% renewable resources.

As stated in a 2007 study:

“[E]ven modest amounts of demand response can lead to significant reductions in wholesale prices at times of capacity constraints.”

This study, published in Energy Law Journal, explains the often overlooked importance of demand response to the wholesale price of electricity.  Using demand response programs to rectify generation gaps with renewable energy would not be much different than how it is deployed now: when the electric grid is stressed to capacity (and wholesale prices are generally high).  Studies confirm that DR is crucial to stabilizing electricity prices in wholesale markets.  The authors quote the Federal Energy Regulatory Commission (FERC) directly saying,

A working demand response program puts downward pressure on price, because suppliers have additional incentives to keep bids close to their marginal production costs and high supply bids are more likely to reduce the bidder’s energy sales.

Grid operators are currently able to forecast electricity shortages hours, and even days in advance.  Because renewable energy is often tied to weather conditions, it should be no more difficult to forecast stress on a renewable grid.  The amount of supply that will be available from battery storage can also be calculated once a measurable installation is in place.  A grid that is reliable 99.9% of the time might fall short of demand only 9-72 hours over the course of four years, according to the model published in the Journal of Power Sources.  Demand response could easily be deployed for these hours, and blackouts would be averted with little inconvenience to most consumers.  End users who do reduce electricity will be compensated just as they presently are through many DR programs.

The 2050 Electric Utility

We can’t expect electric utilities in 2050 to operate in the same fashion they do today.  Energy industry practices are already outdated, and there is a big shift in energy distribution and generation on the way.

In order for utilities to remain profitable as our grid transforms they need to adapt, and fast.  Transmission systems and fuel sources are not the only elements of our power system out of date; utilities’ business models can use an update as well.  The biggest change for utilities by 2050 will be the emergence of distributed energy resources (DERs).

DERs (small-scale electric generation sources located at the site of the consumer) are a competitive threat to the traditional utility model because consumers will soon have a choice between buying power through the grid, or investing in onsite generation and producing their own power.  Decades ago, solar panels were an enormously expensive novelty, but the cost has plummeted to the point that they can be found in common retail outlets today.  By 2050, the wants and needs of consumers must dominate the utility business.  As consumers gain diverse and low cost choices in renewable and distributed generation resources, utilities will need to integrate DERs, and carefully blend the needs of customers with their own, in order to stay relevant.

Not surprisingly, most utilities are resisting any type of shift in the top-down, utility controlled (and often monopolistic) business model.  As consumers increasingly shift to off-grid power, old-fashioned utilities will need to raise rates to keep their revenue.  Higher utility prices will influence more and more consumers to choose distributed generation and abandon the power grid.  Electric companies need to plan for the future and change with the industry to survive.

Some members of the power industry are already embracing the coming shift in generation and transmission.  David Crane, CEO of NRG Energy – one of the nation’s largest power generators recently said, “[i]n the future I see an at-home, disaggregated system, with the home like a brain, with supply and demand of electricity being generated in that home.”

Morgan Stanley published a report in early March 2014 that predicts a realization of Crane’s vision of homes powering themselves with solar panels and batteries.  The financial firm points to the already enormous distributed solar market, and electric car company Tesla’s innovative battery production concept as indicators that consumers may soon choose to abandon the electric grid altogether.  Tesla’s “gigafactory” will drive down costs of energy storage exponentially once it is built and in operation.  Morgan Stanley states in the report that Tesla’s proposed battery production can not only make off-grid energy cost-competitive with utilities, but it will likely evolve to be more inexpensive over time.  Prices have far to fall before Tesla’s batteries are cheaper than utility power, but it seems to be a matter of when, not if, renewable and battery configurations are the power systems of choice for homes and businesses across the country.

Until we reach the future Crane envisions, we will need to carefully handle our energy system to be reliable, and as clean as possible.  It is a wonderful thing that our country’s electric grid is about to get a major overhaul.  It will benefit the entire country with cleaner air, low cost energy, jobs in the growing clean energy field, and perhaps most importantly, an electric grid finally brought up to date after over 100 years.

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  • Kevin

    I agree with the theory about renewable energy but there isn’t enough land to provide enough windmills or solar arrays to provide the level of power we continue to demand. We need other sources of power that are consistant and don’t harm the earth. I know people are afraid of nuclear but if we stick to the science and get past the hysteria, nuclear provides a clean efficient source. We do have ways to handle the waste if people allow the national depository to be constructed but that will never happen. So we better start thinking about giving up our smart phones, computers, etc since data centers take tremendous amounts of power to store things in the “CLOUD”

  • Jessica Kennedy

    Thanks for your input Kevin!
    We are, in fact, a ways from having enough solar panels and windmills to meet our energy demand. The land area required to house these resources is actually not as large as you’d think though. Renewable energy can change the entire structure of a power grid where we have a few large generators that send power out to thousands of customers at a time.
    Rooftop solar panels, and other onsite renewable sources (like one wind turbine or a small geothermal system) are highlighting the potential of distributed generation (when a small-scale generation system provides electricity onsite). Distributed resources can store excess generation or connect to the grid and sell it back.
    Big solar or wind turbine plants do take up a lot of space, but the US does have a lot of space to spare. The 2000 Census estimated that just under 95 percent of the US was open rural space. We shouldn’t, by any means, seek to use it all – but clearly there is room for renewable energy development. There are a few estimates about how much space would be requred to power the entire grid with renewables; it varies by energy source and technology, but most estimates (such as that by the NREL http://www.denverpost.com/business/ci_23787484/nrel-determines-land-area-needed-solar-power ) don’t nearly come close to occupying all of our open space.
    Solar arrays and wind farms will also get more efficient as technology progresses as well, meaning less space will be needed to achieve the same amount of generation. I’m not
    Nuclear may be a viable option in the short term, but the hazards of nuclear waste make it unlikely to survive into the future as wind, solar, and hydro all become cheaper and more efficient.
    As you said, our electric demand is growing exponentially too. We need a grid that can support that, and integrating new energy sources will help us to update the infrastructure of the US grid – which is in terrible shape. More nuclear plants are likely to connect to the same aging system of wooden poles and wires.

    Nuclear power might help bridge the gap – but I think a healthier option for all would be to just adjust our demand to the supply of electricity available rather than construct new power plants with such hazardous pollution.

    As they say – when there’s a fuel spill at a solar plant, it’s just called a nice day!