Invest in grid flexibility: “Today’s grid limitations are mostly practical and solvable,” but “there’s no longer any time to waste”

Today’s electrical grids are often burdened with an excess of inflexible baseload plants, operating under rules that encourage their continued use and within markets that fail to properly price flexibility.

Transitioning from today’s grids to more nimble, responsive grids with high levels of variable renewable energy (VRE) will require new policies from lawmakers and new technologies from innovators.  In general, grids need resources that can more nimbly scale up and down in response to fluctuations in VRE.  This will mean fewer baseload thermal plants that take a while to power up.  Profit-centered utilities want to try to run big plants often enough to create a decent rate of return for investors,  Utilities don’t want to subsidize a bunch of underutilized fossil fuel plants just to back up VRE.

An alternate scenario with a shift to a much higher source of variable renewable energy and smaller “mid-merit” plants that stay running more of the time are more attractive investments, which a recent IEA study showed required 40 percent less investment than the former. In other words, writes Hogan, “a more flexible mix of dispatchable resources, capable of shifting operations up and down in sync with the less controllable shifts in variable renewable production, will have far higher asset utilisation rates and require far less redundancy (and therefore far less investment) than a less flexible mix of thermal resources.”

The transition to a high-VRE grid can be done more cheaply if there’s a shift to more flexible generation resources. So how can grid regulators and operators encourage that shift?  For vertically integrated utilities, it’s just a matter of smart central planning. For areas with wholesale energy markets, it means making the value of flexibility more visible in markets, to create incentives for investment in flexible resources. That might mean removing price caps in energy markets. It might mean tweaking capacity markets to better value “ancillary services” (e.g., speed and responsiveness). It might mean creating other, parallel forward markets for balancing or time-shifting services. Either way, the value of flexibility should be explicitly compensated.1

Hogan adds (in a separate paper) that regulators should also push to allow as many participants as possible in energy and ancillary-services markets, and patrol vigilantly for undue concentration of market power; the more competition, the better, even in the restrictive confines of a vertically integrated utility area.

Making demand dispatchable with better demand management

When it is made dispatchable, demand response is cheaper and more nimble than virtually any supply-side option. In their efforts to increase grid flexibility, it’s important that regulators and markets treat demand-side resources as equal to supply-side resources. Vertically integrated utilities should allow demand-response aggregators to compete with power plants for investment. In restructured areas, demand response should be allowed to participate in energy, capacity, or services markets alongside supply options.

More storage

The ability to spread out VRE makes it more valuable and viable for utilities.  Storage can make money on energy-only markets through simple arbitrage, buying VRE when it’s cheap and selling it back to the grid when it’s more valuable. But regulators ought to structure capacity and services markets so that storage can participate in those, as well.   At the very least, regulators should structure rules and markets to encourage investment in storage.

More flexible operating rules for grids and operation over larger areas

Invest in more agile, modern dispatch, such as we are now seeing in Europe.  Most grids schedule plant dispatch (which plants will produce energy, and how much) in hourly increments. It is possible to shift to faster, sub-hourly increments to increase flexibility, as some grids are now in the process of doing.

Utilize the dramatic improvements in weather forecasting.  Weather forecasting can be radically improved with existing technology, making the level of VRE (and thus net load) much more predictable, not only a day ahead but even on an hourly or minute-by-minute basis. Better weather forecasts means grid operators need less redundant backup.

Vary price of energy based on where it is produced, reflecting geographical differences in demand and grid congestion — can be expanded and improved.

More accurately value services beyond energy.

Spread out service areas to smooth swings.  As VRE is drawn from a larger and larger area, supply becomes steadier, fluctuations become less sharp, and prediction becomes more tractable.  Though more transmission lines are needed from high wind, solar, and geothermal areas, grid integration can be expanded without new infrastructure. Rather than physical grids themselves being expanded, areas of grid control (“balancing areas”) can be expanded. Many of the benefits of geographical integration can be achieved by connecting balancing areas together under a single planning authority.  In the US ISOs now govern grid regions spanning multiple states, but ISO regions could cooperate better among themselves.

In circumstances where balancing regions cannot be consolidated under a single authority — say, in areas spanning multiple vertically integrated monopoly utilities — there are still ways to achieve the same effects, by setting up structured exchanges of grid services between and among separate balancing authorities.

The benefits of consolidating balancing regions, says Hogan, include “better use of existing transmission infrastructure, less supply variability, less demand volatility, real-time access to more operating and contingency reserves, less need for backup generation capacity, more use of renewables, and more liquidity and less price volatility in the market due to more competition.”

For the most part, today’s limitations are practical and solvable with simple, ready changes in grid rules and markets that can unlock additional wind and solar power, if regulators and grid operators seize the opportunities.  Grid flexibility not only enables greater VRE, it also lowers costs by preventing over-investment in fixed, inflexible resources, saving customers money in the long run.

A smarter, nimbler, more responsive grid would be necessary even if wind and solar were not needed for social and environmental reasons.

Given the imperatives of climate change, however, there’s no longer any time to waste.

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