The Coming Crisis in Electricity Generation
For more than 100 years electricity generation and distribution systems have evolved to become one of the most reliable services imaginable - one which has been the foundation of the industrial expansion and prosperity of the developed world. Our society is totally dependent upon this and even relatively short and localized interruptions in the power supply (for example during the Sandy superstorm) cause major disruptions to everyday life.
The reliability of the system depends upon a rather delicate balance of supply and demand that varies throughout the day and throughout the year.
Huge thermal base-load steam turbine generation plants that can reliably provide the same power output 7x24x365 are the foundation of the system in most parts of the world. Historically these have been fueled by coal which generates "dirty" (in some cases toxic) ash and a lot of CO2. More recently single cycle and combined cycle natural gas plants have played an increasingly important role. These plants are cleaner and much more efficient than coal plants in that they transform more of the energy generated by combustion into electricity. The disadvantage of these plants is that natural gas has historically been much more expensive than coal.
In regions where there are large rivers that drop hundreds of meters in a relatively short distance it is possible to build hydro facilities. These were the earliest source of large scale electrical generation and are still used extensively. Unfortunately, most of the best hydro locations in the world have already been developed.
Starting in the 1950's nuclear plants were added to the mix and generate a significant percentage of electricity in many countries (the highest being 75% of electrical output in France).
These base-load plants are designed to run all the time at a relatively constant output receiving a fixed price for the electricity generated. That is how they run most efficiently and a constant and predictable revenue stream underlies the calculations used to get the building of these plants financed and the operating costs paid. In most cases the payback on these facilities is achieved only after many years of operation.
When electrical demand starts to peak in the late afternoon and evening peaking plants come into play. These are typically single cycle natural gas turbine plants that can come on-line in a matter of 15-20 minutes or less. Because they run only during peak demand times the expectation is that the electricity they generate will command a higher average price. It is also assumed that they will be able to generate revenue most days although that varies with time of year and the weather. For example, very hot summer days and very cold winter days will result in higher peak demand than moderate days in spring and fall.
This complex balance of base-load and peaking power plants has been in place for decades and has resulted in a very reliable electricity supply. The most common source of power outages are storms that bring very strong winds, knocking down trees and branches that take down overhead electrical lines.
Over the past decade that balance has been disrupted by the introduction of renewable energy sources such as solar and wind. These are both unreliable in the sense that it is not possible to match supply with demand, and highly variable due to passing of clouds in the case of solar or frontal weather systems for wind. As an example, on Christmas day, 2012 Texas set a new wind generation record of 8.638 GW (26% of total supply) for a few hours. The very next day across the whole of Texas there was essentially no wind generated electricity available for 6 consecutive hours.
In most jurisdictions renewables are given priority access to supply the electricity grid regardless of whether or not there is demand. In order to balance supply and demand thermal generating stations have to cut back output, electricity is exported to neighbouring jurisdictions (typically at very low prices) or hydro stations "spill water" by redirecting the flow from penstocks to spillways.
As long as renewables made up a relatively small portion of total generation capacity the physical problems could be handled. But the economic issues are now coming to the fore as the development of renewables continues.
With base-load and peaking thermal plants now sitting idle (as spinning reserves) for more and more of the time the economics of running these plants has been significantly eroded. Many of these plants are marginally profitable or are actually losing money. There is no realistic hope that this trend will do anything but accelerate in coming years. As a result it is becoming increasingly difficult to get financing for the construction of new thermal generation plants.
In the United States the situation is particularly dire. The MACT regulations issued by the EPA in December, 2011 will result in the closure of many older coal-fired plants (estimates run as high as 34 GW of capacity or more). Plans to replace this capacity are both vague and uncertain. For example, Georgia Power's announcement that 2 GW of coal-fired capacity would be shuttered by 2015 was justified by the addition of 2 nuclear powered plants in 2017 - plants which may well run into significant construction delays. What happens between 2015 and 2017 (or later)?
Texas already has inadequate electrical generation reserves as highlighted in a strongly worded letter from the North American Electric Reliability Corporation. In an effort to get utilities to build new base-load generation facilities the Texas regulator (ERCOT) is raising the maximum peak price for electricity to $9,000/MW-Hour. The hope is that if you let a base-load plant charge 170x the average annualized price for the few hours that it is not idle then construction of the plant still makes sense. Call me a skeptic but I have to say "that dog don't hunt."
In Europe various studies referenced in Paul-Frederik Bach's excellent blog postings outline similar issues.
Beyond supply and reserve issues the economic disruption caused by renewables is producing some very strange consequences; in "green" Germany coal-fired plants are being used in preference to cleaner, more efficient gas-fired plants due to costs; in Ontario they are spilling water at "green and renewable" hydro dams in order to make room for "green and renewable" wind generation; the Danes end up using Swedish nuclear-generated electricity when the winds are calm even though they banned nuclear power generation; in Texas they are selling wind energy at negative prices almost 10% of the time because Production Tax Credits provide a profit.
Declining reserve capacity and uncertainty regarding the economics of new thermal plants will destabilize the electric grid. Rolling blackouts and/or regional grid failures will occur on a more frequent basis. These are the unavoidable consequences of continued aggressive development of renewable generation.
There are public policy initiatives that could make the transition to renewables less risky and disruptive but these would take time to implement. However, I personally don't see any public support or political will to try and slow down the introduction of renewables in order to proactively protect the integrity of the electrical system, particularly in North America and Europe. Instead, I fear that we will have to experience repeated significant failures in the system before the scale of the problem is fully appreciated.
Sometimes it seems like we just have to learn things the hard way!
Davis Swan is president of Debarel Systems Ltd.