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Mon January 28, 2013
A Decade Of Deregulation
New Hampshire is about to start re-thinking its 10 year energy plan. But to understand the future of energy, it’s important to understand the energy past, and how we got to our current energy mix.
In the first of a week-long series looking at where we are and will be getting our electricity, here is this look at today's grid.
You flick a switch, and the lights come on, the microwave starts, the computer boots up.
But apart from knowing that yes, there are some power plants around burning various things to generate juice, how does this all happen?
Some Grid Basics
Dennis Mullen has something to do with it. He’s the systems operations manager at the electric systems control center that Public Service of New Hampshire operates. Mullen is basically in charge of an air traffic control center, but for electricity.
The control room itself is an unmarked, bunker-like building nestled somewhere in New Hampshire; exactly where is not public information. A lot of people would lose power if it were knocked out.
It pretty much looks exactly like you’re imagining it: one whole wall is a computer display of an engineer’s diagram of transmission lines. There are four workstations, each with a semi-circle of six monitors, where dispatchers control the flow of power.
In New Hampshire, about a third of the state’s power comes from nuclear, a third from natural gas, hydro, oil and coal get about 11 to 13 percent a piece, and 4 and a half is from other renewables.
Mullen says power will flow by the laws of physics. “So we won’t necessarily route the power, it goes to the load. And it’s like water flowing downhill, to the lowest point.”
The water metaphor is an apt one. Probably the easiest way to imagine our electrical grid is as a series of canals, of varying sizes, flowing into pools. The pools are cities, towns and industrial consumers; the canals are the power lines. The job of Mullen and his team is basically to open and close the proper floodgates and sluiceways, and make sure there isn’t so much juice flowing that it’s overwhelming any of the lines. And they do it twenty-four, seven, three sixty-five.
It’s impossible to know where any one electron goes, but in general, it will flow along the path of least resistance, filling the pools closest to the opening of its channel before flowing to more distant load.
At about 3:30 on a January afternoon, the icon for a power plant starts to flash: Schiller Station in Portsmouth is coming online and asking to be patched into the grid.
“It’s a coal fired unit, that happens to be coming on as we’re coming into the evening,” Mullen explains, “and by the time you get this recorded and cut and pasted, the market sensitive information that we’ve just discussed is passed.” Mullen laughs.
The Free Market of Energy
How is a power plant turning on market sensitive information?
To understand that, you first have to understand that grids across the country are engaged in an experiment in deregulation. Prior to 2001, New Hampshire utilities built power lines, supplied electricity and simply passed along the cost to consumers. But that all changed a little more than a decade ago as most New England states chose to deregulate, meaning utilities had to sell their power plants, and just be in charge of operating power lines.
“That’s driven massive change,” says Gordon Van Welie is the executive director of the New England Independent System Operator, or ISO, a not-for profit established to ensure that there’s always enough electricity for what’s needed. “We’ve gone from having to operate and dispatch just 300 assets a decade ago to thousands of assets today. So the world has literally exploded in terms of complexity.”
Basically, opening the market to competition has meant more players have gotten into the electricity game.
It has also made the market lot more sensitive to fluctuations in the price of fuel. That has flipped some of the basic assumptions about how power is produced – like coal power plants are for “base-load” and natural gas is turned on and off.
According the Welie “the concept of baseload, intermediate, and peak is really sort of an old-world theme. But that paradigm has shifted as well, so now you’re having what would have been regarded as intermediate units, the gas fired generators, becoming base-load.”
This is the story that’s playing out in slow motion all over New England: Gas is so cheap, it’s getting hard for oil and coal plants to compete. Some oil and coal plants run so infrequently it’s hard for them to stay in business. Last year such plants account for less than 4 percent of the New England energy mix, while natural gas exceeded 50 percent.
In the deregulated market, electricity is sold by so-called merchant plants who submit their prices – blind to what other generators are bidding – and the ISO selects the lowest bids to generate the power needed.
Which is why everything that goes on in that control bunker, somewhere in New Hampshire, is on a strictly need-to-know basis. And when I ask to take a picture, Mullen tells me no dice.
“It’s like the stock market,” he explains, “if a generator knew that a particularly transmission asset was out of service, it would influence their bid. They would know a path was blocked or not from Maine to New Hampshire. The guys from New Hampshire would jack up their price, or Connecticut, Mass, because they know the power’s not going to get out of Maine today.”
Over-Reliance on Natural Gas?
Those who pushed for deregulation more than a decade ago, say without that competition, utilities wouldn’t have the same profit motive to quickly build new plants, and shift generation away from more expensive fuels.
“Remember, people do have competitive options, now,” says State Senator Jeb Bradley was a champion of deregulation.
He says thanks to deregulation consumers can switch from their utility to a supplier that is taking better advantage of low fuel prices.
“Deregulation has worked, people do have options, and they have opportunities to save, but like everything else you have to avail yourself of those opportunities.”
But letting the market decide everything has its downsides, says Gary Long, President of Public Service of New Hampshire, which is the one utility that was exempted from deregulation.
“The market has a short term focus, in other words it’s focused on what are the economics today and the next day,” says Long, “So if you’re building a plant that’s going to last forty, fifty years and the market only tells you what you can expect in the next day or the next year at best, it makes for a very difficult decisional process for people who make investments in power plants.”
According to Long the market says “today gas is cheap, let’s build gas plants.” He and others in the energy world are already concerned that the New England region is becoming too reliant on natural gas. And the outlook isn’t getting any better. 52 percent of the proposed new power plants for the region are gas plants.
That also troubles ISO New England’s Van Welie, because “the gas generators are relying on a just in time fuel supply. In the old world you could always count on a generator to have a local fuel supply – pile of coal, tank of oil or something like that. So that all works, while we had some surplus capacity on the gas transmission pipelines coming into the region.”
There are five gas pipelines feeding New England. And on hot summer days, when ACs are cranking, they are all pretty much full.
Which bring us to the big question: how long can natural gas prices stay low?
Some worry that it will be just long enough to force coal and oil burning plants to shutter, and build up lots of gas pipelines before bouncing back up again. That’s why Gary Long says PSNH doesn’t want to shut down its old coal plants, like Merrimack and Schiller stations.
“I tell people publicly that I actually think New Hampshire and PSNH is actually the best situated energy company in all of New England,” he says. Long says PSNH has no plans to shut down its coal burning plants, even 15 years out.
For those who are concerned about climate change, this begs the question: what could or should be done to wean the power supply off of carbon.
That’s what we will look at tomorrow: what to do about CO2?