RE Magazine | December 2014 Cover Story, “State of Change,” Part 2 of 3
By Alice Clamp
RE Magazine polled experts within NRECA and the co-op community for their choices on the top trends impacting electric co-ops. What follows is a description of key technology and business developments that all co-op leaders should have on their radar screens. These technologies are grouped into three macro trends. Below is the second macro trend.
A rapidly expanding renewables market, major increases in the supply of natural gas, and impending new federal emissions regulations on coal and natural gas generation are radically changing the power generation market. Key facets of this significant industry trend include:
Meeting consumer demand for renewables while managing incursions from third-party service providers
Integrating fast-start natural-gas-fired systems to better manage renewable generation
Properly managing the increased use of natural gas, particularly when delivery pipelines may not be adequate to meet demand
Developing thermal-energy storage programs that make full use of renewable resources
Trend: Renewables and Distributed Generation – Packaging Solar Services for Consumers
Third-party providers are aggressively pursuing utility customers to purchase low-cost or leased renewable and distributed generation (DG) systems. This development could disrupt the historically close co-op/member relationship and impact the co-op’s ability to provide safe, affordable, reliable services.
Rooftop photovoltaic (PV) systems are proliferating nationwide, and many of them are units installed by and leased from third-party solar companies. In fact, these vendors have accounted for the greatest growth in residential PV installations over the past few years, according to numbers from the Energy Information Administration. Consumers are attracted to these companies because they can offer entry into the solar market with low or no upfront costs.
That’s easy for third parties to do, says Andrew Cotter, an NRECA program manager. “They don’t have to manage the grid and pay for infrastructure costs as utilities do.”
But that doesn’t mean co-ops don’t have options that are more reliable, simpler to use, and cost-competitive. “No matter how inexpensive PV panels may be, it’s always cheaper to install a 500-kilowatt or 1-megawatt system,” Cotter says. “A community solar system is a direct counterpoint to distributed PV generation.”
With a community solar project, a co-op builds a utility-scale PV farm and recuperates costs by leasing out individual panels (or even portions of panels) to members. The SUNDA (Solar Utility Network Deployment Acceleration) project is a $4.8 million Department of Energy-sponsored venture in which NRECA and 14 electric co-ops are working to standardize utility-scale solar design. The result will be a template that co-ops can use to implement solar projects. “We want to simplify the process and encourage group purchasing so co-ops can get discounts,” Cotter says.
The near-term concern for electric cooperatives, he notes, is third-party PV companies chipping off energy sales and positioning their products and messaging between the co-op and the consumer. But longer term, the concerns are more strategic, Cotter says. Over the next three to five years, as smart appliances, home energy management systems, and cost-competitive PV continue to come online, cost-effective energy storage systems will also come to market. These systems will greatly enhance the value of energy efficiency and distributed generation services, and as a result, third parties could look to minimize the utility or cut it out altogether by offering complete home energy services.
Co-ops still have a distinct advantage here, though, Cotter says. Third-party solar companies may offer a package of rooftop PV, battery back-up, and smart appliances. But the utilities own the grid and can deploy and manage these technologies in a more coordinated and optimized manner. For instance, instead of individual homes with batteries, a utility can build microgrids that offer many of the same advantages of a residential distributed energy system but at a lower cost, for more people, and optimized for system-wide efficiency and resiliency. “It pays to be part of a network,” Cotter says. “Everyone can be a winner.”
Ultimately, if a co-op has compelling services and a consumer-centric business model, it will be able to successfully compete with third-party solar companies. “Consumers want choices,” he says. “They want cheaper PV prices, and they want systems that are easy to install and use.”
Trend: Fast-Start Engines – When the Wind Doesn’t Blow, Cutting-Edge Generators Fill the Gap
The continued shift of electricity supply from traditional utility sources to intermittent renewable sources is creating a market for new, dynamic generation equipment with unprecedented ramp-up capacity to respond to the volatility of renewable energy output.
As more and more wind-based resources are connected to the grid, utilities are looking for ways to integrate this energy into their operations. Wind energy is intermittent, often cycling on and off several times over a 24-hour period. Because of that variability, co-ops need resources that can quickly start to provide power when the wind drops off and stop just as quickly when the wind picks up again. That resource is usually a natural gas-fired unit, says Mike Casper, NRECA senior manager, generation & fuels. To “smooth” the flow of wind energy, manufacturers are dramatically pushing the technology of fast-start natural-gas generators, Casper says.
What’s fast? Ten years ago, a natural gas-fired combustion turbine unit was considered to have fast-start capability, says Wayne Penrod, executive manager of environmental policy at Sunflower Electric Power Corporation, a Kansas-based generation and transmission cooperative (G&T). But today, there are faster options, he says, including variations on the jet engine—an aero-derivative combustion turbine—and the reciprocating internal combustion engine (RICE).
For the past 12 years, Sunflower Electric Power and its sister G&T, Mid-Kansas Electric Company, have been adding wind energy to their combined power-supply portfolio, Penrod says. Today, wind accounts for 14 percent of their mix. “Wind has a substantial impact on our system. And there are a lot of other wind resources connected to our system that flow to utilities in the region.”
The only gas-fired unit at the right spot on the two G&Ts’ systems did not satisfy the required ramping-up and ramping-down needs when the wind blew or died down. So, Mid-Kansas Electric began exploring fast-start technology options. In that evaluation, five criteria were assessed, Penrod says. Three were most important: a full-load capability of less than five minutes, multiple cycles in a 24-hour period, and good efficiency throughout the load range. Only the RICE option satisfied all five criteria.
This decision doesn’t represent a cookie-cutter solution though, says Mike Thompson, Sunflower Electric Power’s manager of generation engineering. “Our size, our incremental load growth, and our wind resource were drivers. Another utility could come up with the same solution for different reasons.”
Trend: Growing Natural Gas – Can the Gas and Electric Industry Get in Sync?
New extraction technologies promise to keep natural-gas supply strong. But with a growing reliance on natural gas for electric generation, the need will increase for better harmonization between the electric and natural gas markets and an expanded pipeline system.
Right now, natural gas is the star of the power generation show. It’s in plentiful supply, thanks to the shale-gas boom; it’s relatively inexpensive; and it’s the fossil fuel of choice for addressing proposed carbon-emission regulations. For these reasons, electric utilities—including co-ops—are becoming more dependent on natural gas for generation. Energy Information Administration (EIA) numbers show the use of natural gas for power generation rose from about 20 percent of the energy mix in 2010 to 27 percent in 2013. EIA says that number could rise to 33 percent by 2040.
Until recently, however, natural gas was used mainly as a “gap filler” to fuel the units that provided peak power during times of high demand and high prices, says Paul McCurley, NRECA’s senior manager of power supply. “But partly because of recent new environmental regulations, and especially the EPA’s [U.S. Environmental Protection Agency’s] proposed ‘Clean Power Plan,’ natural gas is becoming more common in the intermediate and even the base-load generating sectors.”
Increased use of natural gas for electricity generation, however, has a few catches. One is price volatility, both during high demand periods and over time. Expected future gas prices have changed significantly over the last two decades, and EIA predicts a rise in natural gas production costs in its 2014 Annual Energy Outlook.
A greater challenge is the mismatch between the electricity generating market and the natural-gas pipeline market, McCurley says.
“The electric system was built primarily to serve a region and depended mostly on coal and nuclear to produce electricity, with gas playing a much smaller role,” he notes. “The market is served by many different generators and operated to produce and deliver electricity nearly instantaneously when customers need it. Fuel availability and reliability for generation is critical.”
Changing generation needs have highlighted some physical and market issues with gas pipelines that are not quite compatible with the way electric generation is scheduled and operated, McCurley continues.
“Until the last decade, electricity generation was well down on the list of major gas pipeline customers. Pipelines were built primarily to serve the residential heating market, which clearly is a winter-focused market when electric generation demand for gas was traditionally low,” he says.
Now, more natural gas is being used during the winter peaking season when it’s also needed for heating. “So there’s a clash,” McCurley says.
There’s also the issue of location, both for generators and pipelines. The most convenient place to build a natural gas-fired plant today is at an existing site, such as a retired coal-fired plant, McCurley says. “Those sites are also where most of the existing electric transmission system infrastructure is connected,” he adds.” “But those sites aren’t served by a natural gas pipeline, and may or may not even be near a pipeline.”
The Federal Energy Regulatory Commission (FERC) is working to make natural-gas systems more compatible with the electric sector’s requirements. NRECA has provided input to FERC on aligning the business practices of the two systems and the changing needs for electric generation.
“Much has been done in this regard, but much remains to be done,” McCurley says. “With the current regulatory uncertainty, there are many unanswered questions over just how much natural gas the electric industry will need in the next decade or two, and where it will need it. This makes it more challenging to find solutions that work for both industries.”
Trend: Thermal Storage – Harnessing Water Heaters
Advancements in smart technology are enabling better measurement and control of end-use devices like large electric water heaters. This will lead to increased implementation of thermal storage and other demand-side management programs by co-ops.
Some 53 million households across the country have electric water heaters. Taken together, they’re capable of storing about 400 gigawatts of energy. About 250 co-ops in 34 states are tapping into this capacity with load-management programs that can control hundreds of thousands of large-capacity electric water heaters (55 gallons or more). Such programs allow co-ops to significantly reduce load during peaks and save consumers money by deferring energy use to off-peak times.
“As deployments of smart technologies continue, more and more co-ops will begin looking at these types of programs to manage load,” says Gary Connett, Great River Energy’s director of member services & marketing.
Thermal storage, he adds, also has potential to provide a range of grid-management services, including frequency regulation, load following, and spinning reserve.
Great River Energy, a generation and transmission co-op (G&T) in Minnesota, controls about 70,000 large electric water heaters on its member systems, Connett says. These water heaters, which are 80-gallon units or larger, are charged between 11 p.m. and 7 a.m., when energy prices are low. The G&T has also done innovative things with their program, including frequency-regulation tests and a pilot in which 10 water heaters were charged using wind energy.
It’s still early days for the use of electric water heaters to support grid reliability, and many challenges remain, Connett says. One potential stumbling block is a pending U.S. Department of Energy rule that would require water heaters larger than 55 gallons to use a heat pump to reach approximately 200 percent efficiency. The rule, which NRECA is fighting, would effectively end the manufacture of large-capacity electric water heaters.
Trend: Carbon Capture and Use – Putting CO2 to Good Use
Carbon capture and storage will continue to languish as a means of meeting carbon dioxide-emissions requirements, but new and expanded utilization of carbon dioxide will emerge. Advances in biologic and chemical/catalytic carbon uses will increase, and expansion of utility-scale test centers will lead to new technologies.
In the world of electricity generation, carbon dioxide is the villain—a costly liability blamed for a variety of evils, including global climate change. But industry experts know carbon dioxide isn’t all bad. Properly harnessed, it has a wealth of potentially beneficial uses.
“There’s a growing awareness in the industry to use the carbon dioxide that coal-fired plants emit for value-added products,” says Mike Casper, NRECA’s senior manager, generation and fuels. “Finding a cost-effective way to capture and utilize carbon dioxide is considered the holy grail to realize full value out of the cooperative coal fleet.”
One current use for power-plant carbon dioxide is in enhanced oil recovery, where it is injected into wells to force more oil out of the ground. Demand for CO2 for enhanced recovery is expected to triple between now and 2050.
Potential uses for captured carbon dioxide are varied, ranging from feedstock for algae used to produce ethanol and biocrude to a source for creating graphene, a pure-carbon compound that is extremely strong and highly conductive and has nearly limitless potential applications as a building material. Casper says the need to meet federal emissions requirements and a desire to find beneficial (and profitable) uses for captured CO2 will drive the industry to devise new and even more unconventional technologies.
To help co-ops move in this direction, NRECA has proposed the establishment of an integrated test center to validate commercial-scale carbon-capture techniques and new carbon dioxide-based products. The state of Wyoming, where the facility would be located, has already pledged $15 million for the project. An additional $5 million is needed from other sources.
“Success in the carbon-capture and-use sphere will create a double financial benefit for power generators,” Casper says. “On one hand, it will help them meet onerous new federal emissions standards. On the other, it will create a new revenue stream by giving them a marketable material—carbon dioxide—that they can sell.”
Trend: Energy Efficiency – Emissions reductions through end-use efficiency?
Energy efficiency measures across the power-production and -distribution chain will gain ground as an acceptable means of reducing emissions, but end-use efficiency will continue to be a priority of government policies.
Electric co-ops have long promoted energy efficiency measures as a way for consumers to save money. These efforts will continue and broaden as a wide array of factors puts upward pressure on members’ electric bills.
One co-op with a range of energy efficiency programs is Hoosier Energy, a G&T based in Indiana. “We sponsor a number of programs on behalf of our distribution co-ops, providing rebate incentives that they can pass on to their consumers,” says Wes McFarland, the co-op’s manager of marketing. Among the programs: heat pumps, central air-conditioning systems, dual-fuel heating systems, heat pump water heaters, and geothermal systems.
But new federal initiatives aimed at curbing greenhouse gas emissions are effectively extending the mission of efficiency measures.
The Environmental Protection Agency (EPA) has declared that energy efficiency is among the “practical and affordable strategies” for lowering “carbon pollution from the power sector.” And the U.S. Department of Energy is proposing new power-use standards for a host of appliances, from refrigerators and dishwashers to furnaces and water heaters.
“We support energy efficiency,” says Keith Dennis, NRECA senior principal for end-use solutions & standards, “but we don’t think EPA regulation is the right place for it.”
Trend: Beneficial Electrification – A Switch from Fossil-Fuel to Electric-Powered Devices
The emergence of electric technologies that can replace other end-use energy technologies (i.e., propane, gasoline, and diesel) will cause beneficial use of electricity to gain acceptance as a contributor to energy markets and emissions reduction.
In towns across the country, the sound of gasoline-powered lawn mowers may fill the air on a summer’s evening. Consumers have long preferred these machines over their electric-powered counterparts, but environmental and cost concerns appear to be changing that preference. A broader switch from fossil-fueled devices to electric-driven ones is gaining momentum, spurred by proposed federal regulations aimed at reducing carbon-dioxide emissions, says Keith Dennis, NRECA senior principal for end-use solutions & standards. “It is worth considering as a greenhouse gas reduction strategy.”
NRECA is working with the environmental community to identify opportunities for this so-called beneficial electrification. These opportunities include electric water heaters, heat pumps, agricultural equipment, and electric vehicles.
Delaware Electric Cooperative in Greenwood, Del., which has approximately 2,000 irrigation units in its service territory, recently began offering grants to farm customers who converted from diesel-powered to electric systems. But the hefty fee for running a three-phase line to support electric irrigation—up to $60,000 per mile—was hard for some farmers to overcome. So, in 2012, the co-op expanded its grant program to include installation of variable-frequency drives (VFDs), which can convert single-phase power to three-phase power.
“VFDs are up to 96 percent efficient,” says Bill Andrew, the co-op’s CEO. “By installing a VFD, farmers can lower their energy consumption and save money.” A diesel-powered irrigation generator costs approximately $15,000, while a VFD system costs approximately $10,000.
Read about the other macro trends:
“Experts Identify Top Technology and Business Trends”
Part 1: Increasing ability to monitor and control energy use
Part 3: The changing co-op/member relationship
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