June 27, 2006

Lab's 'virtual' markets unleash natural forces

"Absolutely BPL has a role in the power grid of the future," Rob Pratt told us recently.

          His title at the Pacific Northwest National Laboratory (PNNL) is principal investigator.

          But that doesn't begin to suggest his role in Gridwise -- a collection of efforts and projects to find, test and promote the technologies and policies that will tackle the problems faced by grid-owning utilities today -- and in coming decades.

          Gridwise includes:

• Dept of Energy (DOE) funding and projects in the Office of Electricity;
• The PNNL's advanced work in the field, and
• A consortium of utilities and technology firms called the Gridwise Alliance.

          Each of those efforts has its own website and associated personalities.

          DOE recently created a new industry architecture council where volunteers are designing the framework of tomorrow's grid, noted Pratt.

          These efforts are all formally linked under the Gridwise name.

          Pratt runs the "Energy Systems Transformation Initiative" at PNNL "focusing on simulation and analysis of the combined engineering and economic networks comprising the current and future energy grid," said the PNNL website.

          That doesn't include any work with BPL -- but the ability to have two-way communications throughout the grid would bolster much of what Gridwise is trying to accomplish.

          "We attempt to stay out of the debate about what's the right media for the right types of communications within this information-rich power grid," he explained.

          "But clearly we recognize the potential of BPL to be one of the primary conveyors of information."

          So what's Pratt doing?

          Gridwise is building a "vision" for the power grid of the future that starts with demand-side energy controls and market signals -- even where the market doesn't exist.

          The latter is accomplished by giving technology the ability to make choices based on calculations of the value of things compared to variables in the environment.

            Information is key

Gridwise is "organized around the central notion that information technology (IT) and information itself will profoundly transform the operation function of the power grid in the future."

          It's the same wave of IT that "swept" the entertainment world and "the way we conduct everyday business."

          IT technology allowed the creation of "just-in-time manufacturing," where "information is used to control the flow of commodities" minimizing the need for inventory and infrastructure.

          "Those are sort of the key notions of what Gridwise is about," Pratt reported.

          Thus information not only makes the existing power grid work better but more effectively with "distributed resources of all types."

          He's talking about gear from "distributed generation [and] storage to demand response at customer premises."

          Gridwise is trying to create a system where loads and resources of third parties and at the customer's premises become an integral a part of the grid as the big iron and steel assets of today.

No more load chasing?

The grid can't store power very well.

          "Historically we've been chasing the load" by ramping power plants up and down continuously, he said.

          When supply drops unexpectedly "the system collapses almost instantaneously."

          The "simple and profound" advantage of IT is the predicted end to load chasing, Pratt added.

          "With prices, with incentives, with communications at customers we can begin to & influence load and guide it and meet it half way with supply.

          "In the process we can make our power plants run more efficiently."

          How?

          By ending the practice of running them at partial load and ending regulation services that ramp them up and down to match small fluctuations in the load, Pratt explained.

          That's a lot cheaper than building big new power plants and "big iron," he added.

New central power stations and transmission lines will no doubt be needed for the foreseeable future, he quickly added, but IT can displace some of that investment.

          IOUs can still get paid 

Pratt is aware that investing in and owning such plants, transmission lines and associated infrastructure is how IOU shareholders make money.

          The simplified formula is that ratepayers pay for the electricity and shareholders profit from investments in infrastructure.

          IOU executives often explain that to Pratt after one of his presentations, he admitted.

          "We feel your pain and will we're going to help you solve that problem," Pratt assures them.

          We expect they needn't worry.

          First off, projections of added infrastructure needed over the next 20 years "just to meet load growth & under business-as-usual" is about half a billion dollars.

          Rand Corp convinced Gridwise that 10% of that could be saved with IT "and make the system more reliable and more resilient."

          But Pratt wants IOUs to earn a rate of return on capital investments in smart grid technology, he told us.

          And Gridwise wants to team-up with IOUs to make that happen.

QUOTE OF THE WEEK:  [Whether IOUs can make a return on investment in 'smart grid' technology] is the most significant barrier to making all this happen.  If we can do that, then clearly investments in utility-oriented networks like broadband over power lines (BPL) will become equivalent to power plants in terms of investments for utilities to make on behalf of ratepayers.

Rob Pratt, Pacific Northwest National Lab's principal investigator for Gridwise 

How can Gridwise make that happen?

          The problem is getting states to create a framework for those investments to happen -- and Gridwise is tackling that state-by-state.

          The federal government can only do so much, Pratt noted, and the Energy Policy Act of 2005 (EPAct) included "some nice first steps.

          Gridwise "made a lot of very detailed comments on that legislation, most of which didn't survive."

          Much more could be done to strengthen the electric policy in the US "to encourage states to adopt rulemakings that first allows -- and better yet supports -- this kind of information revolution on the power grid."

          That means going to all 50 states and challenging rulemaking or creating precedent-setting rulemakings -- "a monumental task."

          Gridwise can't go to all 50 at once, thus some target states will be picked and the process begun.

          Where markets exist&

Pratt's got two regulatory models for states to use -- one for states that have adopted open markets for utilities and another for the rest.

          The first one is easier to manage since the market signals should be in play and determining price signals is thus simplified.

          Pratt's model would take market-based price signals one step further -- by adjusting them with added information such as the benefit to a particular neighborhood of replacing a congested substation, he explained.

          An investment there would make more of an impact than in another neighborhood, for example.

          In states without utility markets -- PNNL is in Richland, Wash, for example -- regulations need to be crafted that focus on consumer incentives and avoid the concept of markets to appeal to the local mindset.

          Gridwise is pursuing both approaches and will leave it to "evolution" to decide whether states will adopt power markets.

          Many readers including those of BPL Today's sister publication Restructuring Today -- the only daily trade journal solely covering the creation of those markets -- know utility markets exist in very few states in the US.

Making virtual markets

Where markets don't exist -- Pratt uses technology to create virtual markets to tap into the natural market forces and communicating virtual price signals to very real consumers, he explained.

          Thus the technology communicates price signals between appliances, meters, furnaces and the consumers to unleash market forces.

          "Transparency of value -- revealing values to parties is essential.

          "If we craft markets that provide people financial incentives to do the right thing at the right time, it's our proposition that they have the will."

          Gridwise is helping develop technology "to support that will and to automate the process of responding to those price signals.

          "If you reveal [price signals], communicate them and then have the software applications that take advantage of those incentives then everyone can be a winner."

          SCADA systems and lots of fiber connect utilities to their substations but below that communication is sketchy at best.

          "The last mile problem is really the big ticket issue" and it goes way beyond AMR, reported Pratt, calling that technology "a great first step."

          Once a consumer's use can be measured in real time, the utility can give customers "feedback" at the meter and into the premises.

          When consumers can cut their loads at peak times they can really save some money, Pratt noted.

          What's next?

          Getting state-level rules is a "monumental task," noted Pratt.

          Gridwise plans to continue using utilities, important vendors and research institutions such as PNNL to create model projects that show "deferment of capital investments is very tangible & and showing that in fact the ratepayers benefit."

          He wants to show states that the Gridwise approach "is not simply a transfer of one type of investments for another and a zero-sum-game for ratepayers.

          "That will make the PUC's sit up and take notice," predicted Pratt (http://gridwise.pnl.gov).

          Our conversation with Pratt covered more ground than we can report in this issue and our coverage will likely continue in subsequent issues of BPL Today.