Tuesday, March 30, 2004

High Tech Power Grid
Aside from providing a sharp non-US perspective on things, the Economist puts out a good series of periodic reports on various industries and issues. Their latest Technology Quarterly includes an article on "The Energy Internet", describing the potential shape of the power grid of the future.

Before the Enron collapse and the botched California electricity deregulation, the hot buzzword was "distributed power", in which we would gradually shift away from large central power plants and high-voltage lines, and toward a new model relying on small generators, either owned by end-users or sitting very close to them. These generators would use a variety of technologies, including microturbines, wind turbines, diesel generators, and eventually fuel cells. Ultimately, these small devices would not only meet the immediate needs of their owners, but would sell power back into the grid. The result could eventually resemble the internet, with power flowing in and out from a myriad of small nodes.

Along with summarizing the current state of the power grid, the Economist article provides an update on the development of distributed power. Advances have continued, including the development of "microgrids" and new storage options, but we are apparently still some years away from anything resembling an energy internet, however desirable it might be for reducing the risk of blackouts and the volatility of markets.

But although the author correctly identifies politics and regulations as factors retarding progress in this trend, he does not mention the ambivalence of many utilities about losing control over who is allowed to put power into the grid. These companies should consider distributed power in light of their experience in the 1980s and 90s with cogeneration.

Starting in the late 1970s, large industrial facilities began installing their own medium-size power generation, typically using aircraft-derived gas turbines that efficiently provide both electricity and steam for industrial processes. Utilities often resisted buying the cogenerators' excess power, until they were forced to do so by state and federal regulators. But rather than being the threat they feared, cogeneration turned out to be a blessing for utilities, allowing them to defer major investments in new power plants that would likely have earned low returns in the market conditions that prevailed prior to 2000.

In fairness, the cogeneration story may not be 100% positive. The steady stream of cogeneration projects may have lulled utilities and regulators in California into believing that capacity investment could be deferred indefinitely, thus contributing to their problems during deregulation. Despite this, I think the story shows that distributed power could result in unexpected benefits for utilities, and that further analysis is warranted. Perhaps someday the inserts in our monthly utility bills will encourage us to generate our own electricity, rather than buying theirs.

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