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The Smart Grid: 5 issues that will define what it looks like, and when it will be achieved

Gale is President and CEO of GF Energy LLC, and he was discussing what the power industry would look like in 10 years. In such a time of change, Gale spent much of his time posing questions rather than answering them. The major topics he tackled were:

1. The price of electricity.
2. Centralized vs. decentralized generation.
3. Transmission and how to pay for it.
4. Technological innovation.
5. The effect of carbon pricing on generation choices.

The first thing Gale noted, however, was the inconsistencies in the marketplace.

“We have Ontario closing coal-fired plants and on the other side of the lake (in the U.S.) companies announcing plans to build a new fleet of coal-fired plants,” he points out. “We have advanced metering in some markets, although none of those markets are using advanced metering to the extent it could be used. At the same time, we’ve got plenty of other markets that don’t even have plans to put in advanced meters.”

Gale also pointed to a divergence in the adoption of renewables and differences of opinion regarding the implementation of nuclear power.

“We have tremendous differences from one part of North America to another, dramatic inconsistencies and no rights or wrongs to be alleged with any of it, but we really don’t have a strong consensus on where we’re going and how we’re going to get there,” he notes.

Price is king
Probably the biggest challenge that Gale sees in store for the North American market is the inability to charge customers what electricity is worth.

“We have in place everywhere in North America an extraordinarily artificial, inefficient and non-complying system of charging people for electricity,” comments Gale. “We don’t do it in ways that incentivize change, we don’t do it in ways to incentivize customers to change behaviour. We still have enormous subsidies. We have a poorly thought through system of legacy electricity pricing that nearly no political jurisdiction in North America is ready to tinker with, let alone revolutionize. And until we get to the point where we can have dynamic pricing — which advanced metering and new technologies allow — will people pay what it really costs.”

Gale offered the example of France where, for example, they can charge 10 times the base rate during peak periods.

“It truly, dramatically changes customer behaviour,” insists Gale. “Can you imagine that happening anywhere in the US on a regular basis? California is beginning to play with that but nobody has real experience in it yet.”

Centralized vs. decentralized generation
Gale believes that new baseload generation capacity will have to be built in North America in the next 10 years, but also believes we are moving to a more dispersed generating pattern.

“In 10 years we are not all going to be off the grid but are we going to be moving down that value chain? I think that’s a definite possibility,” says Gale. In many places, with concerns about dirty coal, Gale sees the future issue being a “renewables vs. natural gas” debate. “If we don’t meet our objectives for renewable power, we are no doubt going to have to build more gas plants. If we don’t meet the renewable standard requirements, if we don’t achieve the goals that have been laid out, we’re going to have to turn back, as we have done before, to natural gas to solve problems. That’s not necessarily a negative, but it’s not necessarily in anybody’s cards today, and it isn’t the way we have looked at the system going forward.” 

If we look specifically at base load, however, even that isn’t clearly delineated. 

“The biggest question is nuclear,” says Gale. “How much are we actually going to build? The two major vendors (operating in the U.S.) have both been sent back by regulators to do significant safety upgrades that will delay those plants by another 2-4 years, so we’ll see new plants but the delay factor there is huge and cost factor and escalation in costs is amazing.”

Gale also notes that new coal plants are likely to be built, but wonders how much of it will be built, and how much of the existing coal fleet will stay in place.

“And then we have markets like California, where there is no intention at all to build any new baseload,” Gale comments. In that market, as in some others, there is a sense that between renewables and demand response (DR), new base load will become unnecessary.

Transmission gaps
An effective smart grid will be dependent on an intelligent infrastructure, and right now the transmission infrastructure doesn’t measure up. For Gale, the issue is the cost.

“Who is going to pay for all the remote connections to wind and solar? This is an issue that is not resolved anywhere, and to the extent that we’ve moved down the road of building more wind and solar, and other remote technologies — geothermal, for example — the costs of transmission are huge relative to the amount of power that comes from it. These issues need to be taken care of,” says Gale. 

There is also the question of who will control the access and pricing of transmission. Should it be the system operators? And is this just a stage in the development of the new electricity culture, or is it permanent? How will capacity payments work?

Technology shift
Gale tackled both the technological hurdles and potential benefits new technologies could create for the grid. His first point was a matter of limitations — for instance, how much wind can we actually build?

“Wind has great potential but there are limits to the number of megawatts we can build, geographically, as well as the transmission capacity to bring it in,” Gale notes. He also questioned how much of the new generation of solar technologies would be deployed, and whether that deployment would probably be on buildings or in solar farm applications.

Gale also questioned how far we will come in the next 10 years with hybrid vehicle technology. For instance, will we all be using plug-in cars, and if so, how would that affect the grid?

But the biggest technology issue, in Gale’s mind, is that of storage.

“What does (the development of really effective storage techniques) do to long-term planning for supply and demand, time of day charges — all of the things the system is built around today” In other words, effective storage media could radically change the way in which we use and manage power.

Cap and trade’s impact
Gale doesn’t see the U.S being affected by cap and trade until 2015 or 2017.

“Not that it’s not a real issue, but the practical reality is that we have not figured out how to do (cap and trade),” Gale explains. “Will the allowances protect the old dirty coal-powered plants — it looks like in the U.S. they will, and that is to me an unbelievable misjustice when you take a look at what you’re trying to achieve and what you allow to happen to satisfy a region that still has a lot of dirty coal.”

Gale wondered out loud if what this might really mean is a division between places that are green and go out of their way to be very purist about it and other places that are still burning coal.

Money, revisited
Ultimately, Gale came back to the issue of costs.

“Everything we’re looking at – wind, solar, storage, nuclear, coal – are going to cost a lot more money, and I don’t think that many regulators are ready to let those costs be passed through to customers,” he reiterates. “Are we going to see utilities and regulators have the courage to do dynamic pricing to use advanced technology to let prices float up in time and have windows of time where the prices are going to be high and cost people enough money to incentivize people to have DR technology in buildings and homes? Is that really where we are going?”

In the end, the most important part of this is price.

“The pricing signals, methods, and approaches that we use don’t work,” says Gale. “The pricing of electricity is not done in a scientific or intelligent way, electricity is still too cheap — built on faulty, archaic pricing systems. If we don’t price electricity right, we are not going to get the power and advantages of technologies that make sense, and that’s everything from renewables to smart grid to DR to nuclear – we have to do things in a more intelligent way, and that means much higher prices for electricity but also the much more efficient use of it.”

Looking at the technology available today, and what is going on the world, Gale feels “we are undoubtedly in the foothills of a revolution. We are moving in a way that makes tremendous changes inevitable.”

However, some changes will come faster than others. Renewables will continue to grow but dynamic pricing and control will likely take some time to happen, Gale suggests.

Reduction targets may also be ambitious.

“Are we going to be able to do some of the things we talk about — reduce consumption by 30%? I don’t know. Storage? DR? I think they represent the reality of where we are. We have huge potential along these value lines,” says Gale.

Ten years out, however, Gale certainly sees a smarter grid system, in which electricity can be managed effectively in real time, and renewables will be even more ubiquitous. At the same time, we will still need fossil fuels — both gas and coal — for base load.