Kemp: Integrated Approach Needed to U.S. Electricity Policy

North America's peak electricity demand is forecast to increase by just 1 percent a year for the next decade, the slowest rate of growth on record.

Energy efficiency and conservation programmes, as well as time-of-use pricing, have weakened the link between economic growth and electricity demand, and in some areas the correlation is no longer positive.

But the electric industry is facing the biggest transformation in more than half a century as a result of federal and state regulations designed to cut greenhouse emissions, which threatens to strain supplies even as demand peaks.

The North American Electric Reliability Corporation (NERC), the industry body charged by the U.S. Congress with helping to maintain a secure power system, identified three major challenges to reliability over the next 10 years in its 2014 Long-Term Reliability Assessment (LTRA) published earlier this month.

First, the margin of spare capacity is trending downward in many parts of the U.S. and Canada even as demand stagnates because environmental regulations will force the closure of so many coal-fired power plants over the next few years.

Second, the shift from steady conventional generation (coal, gas, oil and nuclear) to more variable energy resources (wind and solar) challenges traditional methods of reliability planning and will require more flexibility in both generation and demand.

Third, the increasing share of generation from natural gas is tying the gas and electricity systems together in ways that make both more vulnerable to extreme weather events such as this year's polar vortex.

Gas-fired power from both ultra-efficient combined-cycle power plants and fast-reacting open-cycle turbines is emerging as the cornerstone of the future electric industry.

Gas has unique characteristics that make it an ideal fuel choice. Gas-fired plants produce half the emissions of coal, and gas is both abundant and cheap in North America thanks to the shale revolution.

At the same time, gas-fired generation can be despatched precisely and varied quickly in response to unanticipated events on the grid, making it the perfect complement to variable wind and solar.

As a result, gas is set to increase its share of total U.S. power generation from 29 percent in 2013 to 33 or 34 percent between 2020 and 2030, according to the Environmental Protection Agency, and could reach 49 percent by 2040 according to one private consultant.

But the increasingly tight coupling between the gas and electricity sectors could make both of them more vulnerable.

During January's polar vortex, when temperatures plunged far below freezing across the eastern United States and Canada, dozens of gas-fired units were unable to generate because they could not get enough fuel from the pipeline network which itself saw unprecedented demand from households and businesses.

In several parts of the United States, electric grid operators were forced to declare a state of emergency and appeal for conservation as capacity margins fell critically low.

NERC worries that such emergencies could occur more frequently in future as integration of an increasing share of renewables onto the network makes generation less predictable and the system becomes more reliant on a single fuel (gas) to meet the remaining demand.

Integrated Planning
The problem is that different regulators focus on different aspects of reliability, affordability and sustainability, which can lead to inconsistent requirements and increase the risk of failure.

The Environmental Protection Agency and state environment regulators tend to focus on reducing emissions and do not have expertise in reliability issues.

NERC and the Federal Energy Regulatory Commission (FERC) focus on reliability but have no mandate to make decisions about appropriate policies on climate change.

State public utility commissions (PUCs) focus on local reliability and prices without considering the cross-border impact on the wider power system.

The industry needs someone to take an overview employing integrated system analysis to explore the interaction between reliability, affordability and sustainability; fuel supplies; transportation and distribution.

Fortunately, the U.S. Department of Energy is trying to develop a whole-system approach through its new Quadrennial Energy Review (QER) process.

The QER is modelled on the Quadrennial Defense Review (QDR) which the Pentagon has been publishing roughly every four years since 1997 to ensure a strategy-driven approach to the defence budgeting process.

The QDR has admittedly had mixed success in promoting a unified approach to defence spending given there are so many competing interest groups involved in the procurement process (including the different armed services, congressional appropriations committees and defence contractors).

The QER will almost certainly run into some of the same problems of competing interests and jurisdictions. But it is a worthwhile effort to promote a more integrated approach to planning across the federal government that prioritises "affordable, clean and secure" energy supplies.

The first QER exercise is focused on transmission, storage and distribution issues, including the power grid, gas pipelines, coal transportation and the distribution and storage of oil and refined products ("Quadrennial Energy Review: Scope, Goals, Vision, Approach, Outreach" May 2014).

Transmission, storage and distribution systems are critical to energy security but are ageing and will require major upgrades in the years ahead.

The first QER is supposed to be delivered to the president by the end of January 2015 ("Presidential Memorandum Establishing a Quadrennial Energy Review" Jan 2014).

The QER and Department of Energy do not have the authority to enforce a consistent approach across all the disparate federal agencies involved in regulating the energy sector, let alone the states.

But they can promote dialogue and develop a strong analytical base to inform and promote better decision-making.

The aim is to make the QER a common point of reference and resource for federal agencies and lawmakers in Congress to drive a more integrated approach.

If it works, it could play a part in helping keep the lights on and power bills down while the electricity industry is radically transformed to make it cleaner and greener.

(By John Kemp, Editing by David Evans)