Reliability is one of the biggest responsibilities shouldered by the regulators and grid operators that manage our power system. Advanced energy technologies and innovative operational techniques have the potential to increase reliability while lowering costs and increasing customer participation at the same time. However, current practices do not allow these solutions to compete head-to-head with incumbent technologies to provide reliability services. Instead, grid operators tend to address reliability challenges by offering financial incentives to beef up traditional transmission and generation assets. By not allowing advanced energy technologies to compete for reliability services, the Federal Energy Regulatory Commission (FERC), which oversees wholesale power markets, is missing an opportunity to drive down costs through competition while increasing reliability at the same time.
The United States faces many unique reliability challenges. FERC and state regulators maintain reliability for a complex, geographically diverse grid. Nevertheless, the United States experiences more power outages per year than any other developed nation. According to the Department of Energy (DOE), these power outages cost Americans $150 billion annually., And while there is fluctuation year-to-year, the trend is clear – the problem is getting worse. The total number of outages nationwide has increased 65% since 2008. A recent study found that the duration of power outages is increasing, primarily due to increasingly severe weather and aging infrastructructure. Over half of the 7,300 power plants operating in the United States were built in the 1960s and 1970s. A significant number of the nation’s 45,000 electric transformers have surpassed their 40-year expected useful lives.
At the same time, spending on transmission and distribution (T&D) has been on the rise. According to the Edison Electric Institute (EEI), whose members are utilities providing electricity for 220 million Americans in all 50 states, transmission investments rose 110% from 2008 to an estimated $19 billion in 2015. Spending on the distribution grid is even larger, with EEI estimating a total cost of over $26 billion in 2015. Despite these high and steadily rising T&D investment levels, there has not been a corresponding improvement in reliability. Though no one has a way to keep overhead wires from coming down in a bad storm, there is clearly room for improvement on reliability - and advanced energy technologies can help.
Addressing Resource Adequacy and Operating Reliability
Grid operators face two primary reliability challenges: resource adequacy (the availability of sufficient resources to meet demand at all times) and operating reliability (the ability of the electricity system to withstand disturbances ranging from storms to mechanical failures to voltage disturbances). Advanced energy technologies can help grid operators with both issues, either in conjunction with traditional T&D upgrades or in place of them.
First, distributed energy resources enhance resource adequacy and, when used in conjunction with operational techniques, improve operating reliability. Distributed energy resources include distributed generation, such as residential and commercial solar and wind power, combined heat and power (CHP), industrial waste energy recovery, energy storage, and fuel cells, all of which deliver reliable primary and/or backup power onsite, avoiding transmission costs and bypassing distribution bottlenecks. Demand response and energy efficiency can also improve operating reliability, by reducing the overall and peak load that has to be met.
Many of these distributed energy resources can be sited strategically to alleviate specific local resource adequacy issues or improve operating reliability on certain sections of the grid, while also contributing to resource adequacy on the bulk power system: The more generation can be sited where it’s needed, the less there’s need for more central power plants and transmission to get the power to users. In fact, facilities like hospitals, where reliable power is mission critical, often deploy distributed energy such as CHP to ensure reliability while also reducing costs. Energy storage improves the operational reliability of the grid by providing frequency regulation, voltage support, and reactive power.
Second, advanced grid technologies can help integrate variable renewable generation, facilitating high levels of deployment of these non-emitting sources while enhancing their contribution to operating reliability and resource adequacy. For example, Solana Generating Station, a 288 MW concentrating solar facility in Arizona, uses on-site thermal storage to supply power 24 hours a day. Technologies such as demand response, energy storage, advanced metering infrastructure, distribution automation, microgrids, and smart grid management technologies can not only make renewable energy but provide protection against resource shortfalls at times of peak demand and all sorts of operating issues that threaten grid reliability.
Barriers to competition in reliability services
While advanced energy can contribute to grid reliability, existing wholesale market rules and traditional reliability planning tend to favor incumbent technologies. FERC, which oversees the reliability of the entire transmission grid and some parts of the distribution network, delegates its responsibility to maintain reliability in part to Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs), which implement reliability standards and procedures approved by FERC.
FERC itself is aware that there are cost-effective alternatives to transmission investments and that “more investment in transmission is not necessarily better in all cases.” Rather, “some transmission issues can be addressed using alternatives to transmission investments, such as generation or demand-side resources, while other issues can only be addressed with transmission investment.” FERC also knows that transmission spending is on the rise in every region of the country. Yet when RTOs/ISOs address reliability issues, the default solution is to provide supplemental payments to incumbent transmission or generation operators rather than pursue these cost-effective alternatives. Under FERC Order No. 1000, RTOs are required to consider non-transmission alternatives (NTAs), including demand-side resources, before spending money on transmission upgrades.
However, this requirement has failed to open a market for advanced transmission technologies and NTAs to provide reliability services. This is due to a number of factors, including a lack of transparency in the RTO planning process, a lack of stakeholder participation, and outdated valuation and analysis of NTA contributions to reliability.
Looking to FERC
Advanced energy can provide cost-effective reliability solutions in conjunction with or in place of traditional T&D investments. In recent comments submitted to FERC, AEE suggested that RTOs/ISOs, with FERC guidance and approval, should allow advanced energy technologies to compete on equal terms with incumbent transmission and generation operators to provide solutions. Open competition would be in line with the intent of the NTA requirement in Order No. 1000; it would drive costs down and bolster the reliability of the grid. Current reliability practices at RTOs/ISOs are not doing enough to encourage alternatives to T&D spending as a way to ensure reliability. FERC should take the opportunity to create a competitive market for reliability solutions - and watch advanced energy rise to the challenge of always-on power for American consumers and businesses.
Keep up-to-date on updates to this and other energy policies. Subscribe to AEE's weekly newsletter below.