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MOON SHINE: SOLAR POWER ON THE MOON

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VOLUME 11 // ISSUE 2MARCH 14 // APRIL 14energybizmag.com

AN ENERGY CENTRAL PUBLICATION

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Features

20 CHANGING FINANCE Utility power sales are flat or falling. Distributed generation

and microgrids threaten a utility business model that has excelled for a century. EnergyBiz recently held its annual conversation with a panel of utility chief financial officers to discuss how they gauge the challenges ahead and how they are preparing to thrive amid change. Read why they relish their assignments.

26 INTEGRATING ENERGY SYSTEMS The power grid is getting increasingly complex and knit-

ting it all together presents unprecedented difficulties. A leader at the U.S. National Renewable Energy Laboratory in Colorado writes about exciting breakthroughs ahead in better integrating America’s energy resources.

32 CHINESE INVEST IN UK NUCLEAR While the nuclear renaissance in America is on hold

primarily because of financing challenges, the Brits have turned to China to bankroll development in its future nuclear fleet. What do we need to know about the deal, and what lessons should we draw?

Departments

OUR TAKE

4 Going Global

BUSINESS EDGE

6 Tesla’s Power Play

10 E.On Deals with Tough Realities

13 Shore Up Energy Security

14 Gas Surging

16 Wind for Prosperity

TECHNOLOGY FRONTIER

34 Enhanced Outage Restoration

35 Moon Shine

INTRODUCING

38 Duke Energy’s New Boss

LEGAL ARENA

42 Protecting Consumers

44 Texas Mulls Capacity Market

FINAL TAKE

47 Reflections on a Post-CEO Life

MARCH/APRIL 2014

With advanced metering for electricity generating unprecedented amounts of data, Darby and Fred can solve just about any challenge that comes along. From helping utilities conserve resources and predict usage to recognizing and reducing theft, their work is essential to Itron’s commitment to our customers.

According to Darby and Fred, there is no end to what data can do. We’re limited only by our own imagination. We fi nd that pretty exciting, and it’s the perfect way to envision a more resourceful world.

itron.com/resourceful

– Darby McKee, Analytics Manager

“The most important questions are the ones we haven’t asked yet.”


Martin Rosenberg, [email protected]

Going GlobalTIME TO LOOK BEYOND OUR SHORES

ONE OF OUR MAJOR RESPONSIBILITIES to our readers is to scour the leading media outlets to find and bring attention to news accounts that, in our judgment, will have profound repercussions. Two

news accounts in recent months demanded our follow up.The British government announced in the fall that it would allow Chinese

enterprises to buy stakes in proposed UK nuclear plants to help build 12 new nuclear plants in the next 16 years.

A long-awaited nuclear renaissance in America has gone into a deep freeze as a result of our happy discovery of abundant reserves of shale gas deposits. This has made it impossible for utilities to finance new nuclear development to combat climate change.

In a New York Times account of the China deal, a British analyst, Antony Froggatt, observed that the inability of giant EDF to fund the British nuclear units “highlights the complexities of modern nuclear power projects.”

Perhaps there is a path forward for American utilities to finance nuclear power development without waiting for natural gas prices to soar? Perhaps that path runs through China?

Froggatt agreed to provide us with his reflections on the Chinese nuclear transactions in Britain. His story appears on p. 32.

On the wind energy front, Vestas announced this fall that it would bring re-furbished wind turbines to poor regions of the world, starting in Kenya. Morten Albaek, Vestas vice president and chief marketing officer, told the New York Times that he plans to raise $200 million to serve 1 million people in the next three years.

Vestas decided to develop a business plan that would work in poor regions of the world. It lessens the company’s vulnerability to the

yo-yoing support in Congress for tax credits for wind investments.I contacted Albaek and he agreed to write about his

company’s efforts to bring power to regions of the world long desperate to receive it. His piece appears on p. 12.

Lastly, a visionary at a major Japanese construction company has a long-term vision of creating solar power on the moon — for

use on Earth. Tetsuji Yoshida writes about his dream on p. 35.Our annual leadership roundtable with chief financial of-

ficers, also in this issue starting on p. 16, focuses on business challenges ahead. Will their companies become more global?

The British-Chinese alliance, the Vestas initiative and daring long-range planning in Japan show that there is lot of intriguing, important and profitable work to get done — if one only looks beyond our shores.

» OUR TAKE

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» OUR TAKE


» BUSINESS EDGE

TESLA PLANS TO MARRY UP its battery storage technology with SolarCity’s solar

technology to help energy users deal with mounting worries about potential grid failures. In addition, the unique alliance, unveiled toward the end of last year, would help energy users trim rising demand charges imposed by utilities.

To better understand the effort, EnergyBiz recently interviewed JB Straubel, Tesla co-founder and chief technology officer. His comments, edited for style and length, follow.

ENERGYBIZ Tesla is getting involved with SolarCity to provide them with a more robust solution to use in meeting their customers’ needs. How does Tesla view the relationship?

STRAUBEL For several years, Tesla has been working on getting into the stationary energy storage business by developing and refining storage products. The work derives from our engineering, core competency and expertise with automobile technology.

ENERGYBIZ Is this box similar to what you use to recharge vehicles?

STRAUBEL It leverages some of the battery archi-tectures, so the vehicle batteries are probably the closest analogy.

ENERGYBIZ How will this work?

STRAUBEL The economies of scale and design leverage from car battery development and related technology and bring grid applications for station-ary storage to an incredibly competitive cost point. We see a huge opportunity to further enable renewable energy and efficient demand management for buildings and houses.

With SolarCity, we see an opportu-nity to partner with a great company to help us with sales and distribution for some of these products. They have an excellent un-derstanding of the customers’ needs, the products’ needs and the installation complexities.

ENERGYBIZ Energy customers of utilities, even if they turn increasingly to renewables, are subject to rising demand charges. How does your product help them with that?

STRAUBEL The product offers utilities’ commer-cial customers a way to manage their own demand charges more proactively and save money doing it. The demand charge is a portion of the electric bill that, historically, has not been easy to address with renewables. That’s what we are going after.

Tesla’s Power Play

AIMING FOR A FULLY RENEWABLE GRID // BY MARTIN ROSENBERG

JB Straubel

energybiz.com ENERGYBIZ 7

» BUSINESS EDGE

ENERGYBIZ So how would a commercial customer profit from this? Would they have to have a couple of Teslas in the parking lot? How might it work?

STRAUBEL The vehicle isn’t needed for this. It’s a very special thing. It’s a stationary product that connects with the building. Utility customers profit from it based on a direct reduction in their utility bills. Control software inside the product lets it charge and discharge at the right time of day so users get a lower demand charge on their electric bills.

ENERGYBIZ You work with Pacific Gas & Electric, Nstar and Connecticut Light and Power. Why did you pick those three?

STRAUBEL I can speak about PG&E. PG&E has a forward-looking policy about adopting new technolo-gies, especially storage technologies. The company has been helpful in structuring some incentives and funding to assist with it. Both Tesla and SolarCity have a strong presence here in the PG&E territory, so it’s a good first pilot market for us.

ENERGYBIZ Is Tesla evolving into more than a car or trans-portation company? Is it becoming an energy company? Or has it always been that?

STRAUBEL Being an automotive company is our home base and it’s where our core competency is.

Robots at the Tesla factory rivet and weld a car. Photos courtesy of Tesla


» BUSINESS EDGE

But we always have had a deep expertise in energy technologies. It was part of our founding focus. We are pushing into different product bases and probably will continue to do that. It’s still early for stationary storage. It’s a small part of our business, but we see a huge potential. It’s something that both Elon Musk and I are excited about and quite committed to.

ENERGYBIZ How is your battery storage technology perhaps ahead of the curve compared with others?

STRAUBEL Energy density is one reason our technology is ahead. We can store a lot of energy in a compact space. That’s helpful if you have limited square footage in a building or limited land area. Everyone wants everything to be smaller. Smaller is always more cost-efficient.

A second reason is overall energy storage per dol-lar, a world-class capability of ours, which is driven by our focus on building cost-efficient batteries for cars. We use the same batteries in the various stationary applications. We deliver a product and performance at a lower cost than anyone else.

ENERGYBIZ How much has Tesla committed to R&D in dollars and people?

STRAUBEL The engineers working on this number in the hundreds. We pour most of our profit into internal growth in R&D. We are investing in the future of new technologies, including improved battery chemis-try, better ways to manufacture batteries, improved automation and improved quality. We are growing our ability to build more batteries. We are investing a huge amount of money and effort to learn how to expand the production base and to produce more in North America. We’re driving our supply chain to be more local and tighter so logistics cost less and, ultimately, we can make a product for a lower cost.

ENERGYBIZ How much do you spend each year on battery technology?

STRAUBEL As part of our financials and public reporting, I can’t break out R&D spending like that. I believe that battery technology is our most significant area of R&D for cars and for some of the stationary products.

ENERGYBIZ To what extent should utilities see the new stationary products as a threat? To what extent should they be looking to collaborate with you on SolarCity?

STRAUBEL Stationary products can represent an opportunity. This is about making the electric grid more robust and function even better, especially as more renewables are added to it. We see a future in which renewables become cost-competitive with fossil fuel and traditional generation everywhere. But there is a limit. You can’t make renew-ables 100 percent of your energy mix without storage. That’s intuitive.

Our long-term goal is to invent ways to solve stor-age problems to facilitate a 100 percent renewable grid. That shouldn’t threaten utilities. It’s the logical and future evolu-tion of the grid. Utilities have a key part in this. Our role is to invent and improve the products that make a 100 percent renewable grid possible.

ENERGYBIZ How far are we from being capable of relying on a 100 percent renewable grid?

STRAUBEL We are surprisingly close to reaching an economic point that would make reliance on a 100 percent renewable grid compelling or, at least, cheaper. It will take a long time to change out the infrastructure, replacing, upgrading and retiring old assets. The first thing that will happen is the cost will cross the economic threshold where it is cheap-er to install renewables and storage than to install new fossil-fuel generation. That’s already happening in island grids and in island nations. That’s where 100 percent renewable grids will happen first. We are a few tens of years away from seeing a major shift and the adoption of storage sufficient to drive renewables higher.

Our role is to invent and improve the products that make a 100 percent renewable grid possible.


» BUSINESS EDGE

ENERGYBIZ There is a lot of urgency and concern across the country right now on what I would call “power security” to defend against cyberthreats and to cope with increasingly disruptive weather. How will the grid become more robust and sustainable? Will distributed storage play a role?

STRAUBEL Distributed storage helps dramatically with sustainability. With distributed storage, the grid starts to look more like an Internet operation that needn’t rely so much on huge, mega-transmission pipelines to support it. The entire grid would still be in place. I’m not proposing we get rid of the grid, but with distributed storage, the grid becomes less criti-cal. Distributed storage enables the grid to reroute power within itself. An attack on a grid with distrib-uted generation and storage would have less effect, whether the attack is manmade, an act of God or the result of a weather event that has a global or wide-spread effect on the grid. An attack could take down the part of the grid with physical damage, but not much more than that would be affected.

ENERGYBIZ Tesla and and SolarCity are focused on commercial customers. What about industrial customers and, ultimately, consumers? Will they be in your sights fairly soon?

STRAUBEL We are working on both industrial cus-tomers and consumers. We are working directly with some industrial-scale customers. We are also work-ing on residential products for single homes. Some of that involves SolarCity’s residential work. We will be expanding that in the next year.

ENERGYBIZ So what we are talking about is going to be ubiquitous. It’s not just for commercial application, but it’s going to be used in all points wherever electric power is used?

STRAUBEL Yes, absolutely. A neat thing about batter-ies as an energy storage technology is that they are so scalable. They really shine when you want something that scales from the single-family house to the factory. At the utility scale, many existing technologies compete for deployments at substations. It gets a lot harder to find cost-efficient technologies that are ready to deploy and that scale down to something small.

ENERGYBIZ To what extent is your work and the broadening of your business model going to accelerate the evolution and acceptance of electric vehicles?

STRAUBEL Stationary and mobile storage have a nice synergy involving economies of scale. The more batteries that are manufactured, the lower the unit cost. We help to drive down the cost of batteries for electric vehicles by making more stationary storage, and vice versa.

So that definitely has a positive benefit. Some customers link the two and install stationary storage at their homes or places of business and have electric cars. There are some additional benefits from having backup power to charge your car. You have the ability to manage when you are pulling energy from the grid.

ENERGYBIZ Are most of the stationary batteries used for this made in the United States?

STRAUBEL We make the battery packs, modules, electronics and enclosures ourselves in the United States. Several partner companies build the cells, and some build them overseas. But the majority of the value-add is built by Tesla in North America, and we are pretty committed to that. We are looking at bring-ing the cell manufacturing to North America sometime in the future, too.

ENERGYBIZ Stationary storage seems like a game-chang-ing approach to technology and business.

STRAUBEL It isn’t as sexy or glamorous as the car business. But it’s something with a big energy-related impact — maybe as much as the cars. I agree. It’s going to be a game changer.


» BUSINESS EDGE

GERMAN UTILITIES ARE RETHINKING their business models as a result of soaring renew-

able generation and other radical shifts in the energy universe. EnergyBiz caught up with Leonhard Birnbaum, a member of the board of management at E.On SE, at Platts Global Energy Outlook Forum in New York. He discussed German issues and what American utilities can learn from Europe. Here are his comments, edited for style and length.

ENERGYBIZ How is E.On changing its business model in Europe as distributed generation becomes more significant?

BIRNBAUM If you have your main operations in Europe, you have to adapt to the changes in the busi-ness environment that are happening in Europe. You

will see more decentralized generation and renew-ables generation.

ENERGYBIZ Is it kind of like a microgrid?

BIRNBAUM Yes. In the end, it takes demand away from the public grid and the levies, and taxes and grid fees can be allocated to a lower volume afterward.

ENERGYBIZ So how do you make money in an environment of selling less power?

BIRNBAUM In our European business, we have to de-fend ourselves and we have to change our business strategy to adapt. We need to actually get closer to the customer. We need to actually offer solutions. You

E.On Deals with Tough RealitiesWHAT CAN AMERICA LEARN? // BY LEONHARD BIRNBAUM


» BUSINESS EDGE

might as well produce them yourself, deliver them yourself and manage them. You don’t invest any more because we’re not the cheapest provider of capital. You manage, operate and run the portfolio in such an environment. And this is what we have to do in Europe. At the same time, we have to build up options to have another leg, and then a second and a third leg of our business to stand on. This is why, in addition to actually improving our European situation, we are expanding into Turkey and Brazil, and why we have a sizable business in Russia. We have also moved to the United States where we have now five operations.We have close to 3 gigawatts of wind power in the United States, plus some PV. If the world is changing, you need to be part of it.

ENERGYBIZ Even though Germany has heavily subsidized solar and other renewables, you’re turning back to coal.

BIRNBAUM You can achieve the same CO2 reduction targets with very different approaches. What has happened in Europe is that we have built renewables so aggres-sively that we have achieved the targets that we have set on the emissions trading scheme. Cheap coal coming from the United States, that is being displaced by shale gas, is actually pushing into the market. Indeed, CO2 emis-sions are rising in Europe. And coal is probably at an all-time high production because gas is com-pletely out of the money in Europe. In central Europe, coal is replacing gas everywhere.

ENERGYBIZ Your company and German utilities in general face flat to declining power sales. What advice do you have for U.S utilities in a similar bind? How should they respond?

BIRNBAUM If you just look at what is happening in your market, you’re going to miss what’s going to happen. Germany has paid down the learning curve for renewables. And now everybody in the world can have very cheap and competitive renew-

ables. First, you have to look outside and you have to really understand what is happening in other markets. And second, whatever you believe, it’s going to happen more drastically and aggressively. If you believe we will see some renewables, but not too much, this is what we thought in 2008. If you believe there will be no aggressive dynamic evolv-ing, this is what we believed in 2005. We have already made the mistakes. My advice would be to not make the same mistakes we’ve made. Be more forward looking.

ENERGYBIZ Describe your power situation today.

BIRNBAUM Peak demand in Germany is between 80 and 85 gigawatts. We have an installed onshore wind base of 35 gigawatts and rising and PV of 35 gigawatts and rising. In 2020, we will have 100 gigawatts of renewables. That means that there will be many hours in which renewables will just push anybody out of the market. Once they are in, they compete with the marginal cost of zero against all other stations, which means that by necessity utilization of all conventional generation is going to go down dramatically. Since the only costs they have are the capital costs, which are socialized through subsidies, you can’t win against renewables with conventional generation. That means either you get capacity payments or you’re doomed.

ENERGYBIZ What is the future of nuclear power in Germany?

BIRNBAUM Nuclear in Germany is over. There is no way back. It will not be reversed. It’s just a question of the compensation we receive for the shutdown of the stations.

ENERGYBIZ You are not building central coal-fired gener-ating plants?

BIRNBAUM The stations that are coming online are the ones that were started before the current explo-sion of renewables and decentralized power.

ENERGYBIZ There is no longer any interest in carbon capture and sequestration?

BIRNBAUM If you don’t build new large stations,

If you just look at what is happening in your market, you’re going to miss what’s going to happen.


» BUSINESS EDGE

CCS is a secondary issue. We have economic and technical challenges for us to solve there.

ENERGYBIZ What mistakes did Germany make in its energy policies?

BIRNBAUM In retrospect, I would say that we needed more market forces and tougher competi-tion. We actually installed a subsidy mechanism that paid everybody enough, no matter how efficient or inefficient they were. That meant it was easy to make money. We should have been much more competi-tive and put much more pressure on our solar manu-facturer to do research and development and come up with new technologies. Then it would have been more difficult for the Chinese to get in. In hindsight, markets are better than politically set prices.

ENERGYBIZ Was too much focus placed on heavily subsi-dizing solar?

BIRNBAUM The question is only relevant if society has an issue with it. In Germany, society really wanted that to happen. And politics actually reflected what the society desired. There’s a very strong support for renewables and the introduction of more renewables. The discussion on the costs really only came up in the last one or two years when the costs really exploded.

You can’t say it’s a mistake. It’s a mistake if we cannot keep our industrial base. As long as Germany can keep its industrial base and doesn’t kill it with too-high energy prices, then that’s absolutely legitimate.

ENERGYBIZ So what’s your prediction about the future of energy in Germany? Germany’s industrial base is not threatened?

BIRNBAUM I don’t know. I sincerely hope we can defend it. It’s the basis of our wealth, and is also very important for Europe. But the jury is still out since with very cheap gas, the United States is already competi-tive. Cheap gas providing a lid on power prices, a ceil-ing, makes for a very challenging situation for Europe.

ENERGYBIZ Is E.ON going to be around in 25 years? And how will it look then as compared with now?

BIRNBAUM Absolutely we’re going to be around.

ENERGYBIZ How will you look different?

BIRNBAUM We will be much closer to the cus-tomers in a world in which we have a much more decentralized and fragmented structure. The monolithic-based structure of the past is not going to be there anymore. We will be in a much more

partnership-like association that’s going to look completely different from today. Today, we have a value chain. At the end is the customer. In the future, we will have a cus-tomer who is in generation via renewables and basically is sitting in the middle of everything we’re doing. We will be the partner of the customer who is actually active all along the value chain. That’s going to be a transformational step. There will be some businesses that will still deliver commodity trading on a global scale. The world’s going to look very different. This is why we are working so hard on the cultural transformation. Any utility that doesn’t do that is going to be in for a surprise.


» BUSINESS EDGE

ENERGY INFRASTRUCTURE IS THE TARGET of more than half of the cyberattacks that have hit

the United States, warns U.S. Energy Secretary Ernest Moniz. He said that more must be done to secure America’s grid from both severe weather disruptions and cyberassaults. In addition, other power security issues are top priority for the secretary and the Obama adminis-tration. Moniz responded to questions about energy security at Platts Global Energy Outlook Forum in New York last month. Energy security is the focus of the upcoming EnergyBiz Secure Power Forum in Washing-ton, D.C., March 3–4 (www.energybizforum.com).

ENERGYBIZ Many energy leaders believe the United States will experience a major cyberattack that brings down the power grid. Do you agree?

MONIZ There’s no question. There is certainly not an “if” when it comes to cyberattacks. I am not willing to concede on bringing the grid down. But that’s the race that we are in to try to shore up our defenses. We know it’s tough. It’s a moving target. We have a lot of work to do.

ENERGYBIZ What about the threats posed to grid reliability by increasingly severe weather?

MONIZ We were giving a larger focus to the resilience of infrastructure. What we want to do is relook at the spectrum of threats to the energy infrastructure. It is extreme weather. It’s cyber. It’s physical attacks on infrastructure. In the future it could be EMP, electromagnetic pulses. We also believe there’s an additional risk from the inter-dependence of different infrastructures. A good example was during Hurricane Sandy when there were unanticipated consequences caused by the strong interaction between the electricity grid and the transportation fuel supply. The Northeast was not short on fuel. It was short on the ability to get it out of storage, distribute it and deliver it. On the cybersecurity front, the Obama administration has been favorably disposed to having a cyber bill in Congress. That has not happened at this stage. Under the Federal Emergency Management Agency, there is a whole set of emergency support func-tions throughout the govern-ment with different leads. The problem with energy is what’s called ESF12, which means energy infrastructure. Cybersecurity is part of that. We have a working group with utility CEOs looking at cyber-security. We’ve even taken the steps of giving some tempo-rary security clearances to a subset of cyber CEOs.

ENERGYBIZ What is your bottom line concern?

MONIZ Over half of the cyberattacks in the last sev-eral years in the United States have been on energy infrastructure.

AMEREN SOLAR

Ameren Missouri is building a 5.7 megawatt solar center next to an electrical substation. The installation will use 19,000 solar panels.

The utility hopes the effort will help it determine the size of future solar projects, according to a report in the St. Louis Post-Dispatch.

Shore Up Energy SecurityNEED TO BUTTRESS CYBER DEFENSES // BY MARTIN ROSENBERG


» BUSINESS EDGE

WE’VE MADE SIGNIFICANT PROGRESS on the gas-electric coordination front, and

remaining challenges present opportunities for both industries.

With the release of the Phase III gas study this past December, the Midcontinent Independent System Op-erator marked the culmination of more than two years of research and collaboration on growing interdepen-dency between the gas and electric industries.

When MISO commissioned its first natural gas infrastructure analysis in 2011, growth in shale gas production had already begun to dramatically alter the natural gas supply landscape in the United States; at the same time, the power industry was contemplating the retirement or retrofit of numer-ous coal-fired generators by 2015 to comply with federal emissions regulations. In the MISO North and Central regions — historically reliant upon coal

Gas SurgingINTEGRATING WITH POWER // BY JOHN LAWHORN


» BUSINESS EDGE

resources to meet energy needs — an estimated three-quarters of the coal fleet stood to be impacted by the pro-posed regulations.

Our projections for increased reliance upon natural gas generators for power produc-tion led to a series of high-level investigations, performed by Greg Peters of EnVision Energy, into the ability of natural gas infrastructure in the Midwest to serve growing de-mand from power burn. These analyses identified future fuel delivery concerns for gas-fired generators in portions of the footprint, especially for meeting increased demand during cold winter days. The results gar-nered valuable feedback from the natural gas industry and spurred an ongoing conversa-tion with our stakeholders.

This past year we revisited the subject of gas deliver-ability and found that previous Midwestern pipeline constraints had largely been alleviated by changing flow patterns and infrastructure buildout. Despite this positive outlook for access to a natural gas supply through-out most of the footprint, there are concerns that remain.

First, the long-term forecast for abundant natural gas supply does not address the short-term generation reserve shortfall in the North and Central MISO regions. While we are working with the Organization of MISO States to help clarify the forward resource adequacy picture, we ultimately need commitments for new generation resources.

Second, projected natural gas imports from the North-

east in the next few years and existing, localized constraints on Midwestern natural gas pipelines will require new or expanded gas infrastructure. The changing role of power plants from marginal customer to more frequent user of the gas transpor-tation system may require an innovative approach to the question of who pays for new pipelines.

We are working to tackle these issues with our stakeholders and members of the natural gas indus-try through the Electric and Natural Gas Coordina-tion Task Force. This group has served as a forum for cross-industry education over the past few years and as a vehicle for progress on gas-electric chal-lenges in the MISO footprint. While our industries have come a long way from initial misunderstand-ings over each other’s terminology, we still have a lot of work to do.

Strong stakeholder leadership and active participation across sectors is helping to ensure the success of a number of Task Force initiatives. A field trial with ANR Pipeline to establish regular communications between MISO operators and natural gas pipeline operators is underway. We’re also developing an online platform to consolidate natural gas pipeline outage alerts across our footprint, linked to a gas-electric database and overhead display in the MISO control room. These efforts are aimed at enhancing system awareness; others are focused on reducing uncertainty around fuel supply and its impact on resource deliverability.

While we continue to foster gas-electric co-ordination, we’re also investigating new industry developments. Our examination of proposed carbon regulations and their potential to impact resource adequacy throughout the footprint is now available. These challenges and others to come will continue to present opportunities for us to provide greater benefit to our members and ensure the safe, ef-ficient and reliable delivery of the highest value energy to consumers.

We’re also investigating new industry developments.

SOUTHERN COMPANY RELIABILITY

Southern Company said it has completed smart grid development efforts tied to a $165 million Department of Energy grant in 2009.

The four-year grant was to integrate smart grid with transmission and distribution to make the grid more secure.

John Lawhorn is the senior director of policy and economic studies at MISO.


» BUSINESS EDGE

AS AN EXECUTIVE IN WIND ENERGY, I speak every day about the benefits of this

resource. But on a recent trip to Kenya, I realized how, in a different context, it can be difficult — maybe even impossible — to appreciate the potential of the wind. There, in the arid north, the wind can whip up damaging dust storms. It can harm crops. It can interrupt education in schoolrooms that have no panes in their windows.

Through a new initiative called Wind for Prosperity, Vestas Wind Systems — with a global coalition of partners including Abu Dhabi-based Masdar, the not-for-profit Carbon War Room, Frontier Investment Management and Econet Wire-less — seeks to change the perception of the wind and harness its power to transform lives. This unique and transformative project is, later this year, expected to begin installing wind turbines in unelectrified and underelectrified communities in Kenya. The goal is to extend, steadily and systematically, an Earth-friendly source of electricity to many of the 1.3 billion people who live in energy poverty.

So what makes Wind for Prosperity unique?First, its business model. Let’s be clear. Wind for

Prosperity will be a for-profit venture that involves investments, not charitable donations. For decades, governments and companies in wealthy nations have been pouring money into philanthropic solutions, but too many of these efforts have done little more than create heartwarming PR storylines and nice pictures for corporate-social-responsibility reports.

The reality is that we can do a better job of help-ing those less fortunate through a model that is

designed to pay multiple dividends — financial and environmental, social as well as educational. Earn-ings from the first target countries — after Kenya,

likely candidates include Nicaragua, Pakistan, Tanzania, Vietnam and Zim-babwe — can be reinvested in spread-ing wind power to additional unelec-trified and underelectrified countries and communities. The seed we are now planting for Wind for Prosperity will produce fruit that self-seeds for the future, sustaining the initiative and helping it to spread and grow.

Second, the potent combination of data and deployable tools. Vestas has

the world’s largest wind database. We are pairing this repository of information about wind patterns with data about human geography — where people are most in need and suffering from the greatest en-ergy poverty. Together, this duo of databases will en-able us to strategically pinpoint the places where we can make the biggest difference with our turbines.

As the basis for Wind for Prosperity’s hybrid sys-tem, we have chosen the V27 and the V47, two time-tested turbine models with large fleets that will be increasingly ready for refurbishment in coming years. These turbines will generate electricity that is at least two-thirds cheaper — and significantly cleaner — than the dirty diesel generators that are often the only other power source in off-grid towns and villages. The V27 and the V47 are extremely reliable turbines and simple enough that Wind for Prosperity will be able to train relatively unskilled workers for new main-tenance and operations jobs.

Finally, the opportunity to tell a new story about wind power. Much of the narrative about wind —

Wind for ProsperityBRINGING ENERGY TO THE DEVELOPING WORLD // BY MORTEN ALBAEK


A villager in Kenya living in a community slated to receive the first turbines. Photo courtesy of Vestas Wind Systems

» BUSINESS EDGE

and indeed, other renewable energy sources — has been shaded heavily green and too technological. The benefits to the fragile Earth are impor-tant, as are the enormous technical advances we have achieved to get to this point. But we have also underem-phasized the story of potential human transformation. Electri-

fication has been shown to improve health, bolster education, boost agriculture and elevate economic prospects. We have failed to tell the tale of how people’s lives can possibly be improved and indeed saved through our technologies. And we have neglected to show how economically competitive wind can be, if deployed smartly and strategically.

In ancient Greek and Roman myth, there were multiple gods of wind, governing the breezes from various directions. Interestingly, most of these gods were seen as harmful, roaring, intimidating figures. Homer writes about the violent clashing of Euros, the god of the east wind, and Notos, that of the south,

while he describes Zephyros, the western god and typically the gentlest of all the winds, as “stormy” and occasionally raging.

Today, through Wind for Prosperity, we have the chance to write a new story, not using myth but science and skill. It will be one in which the wind is a blessing. It will be one in which the wind is a force for good, and business is a force for good as well. It will be one in which, with the help of technology, the wind becomes a powerful bringer of life and prosperity.

Gatherings// Business Edge

April 1–3 Intelligent Energy Utrecht, Netherlands

April 9–10

Utility Analytics Summit Raleigh, N.C.

For more information about these and other events, please visit www.energycentral.com/events.

We have the chance to write a new story.

Morten Albaek is group senior vice president and chief market-ing officer of Vestas Wind Systems.


Enhancements include:Continuous product quality measure- -ment on the reactorWorld-class product transfer systems -State-of-the-art metal detection and -rejection systemAdditional tape inspection to improve -continuous product quality assessmentMajority of the equipment will now be in -a climate-controlled environmentNew digital control system -Pellet sorting capability -

Quality materials matterCleanliness is extremely important in the production of highly reliable HV cables. Dow E&T strongly contends that quality materials matter in the construction of quality cables. With thousands of miles of new and upgraded transmission lines anticipated over the next several years, underground (UG) projects alone are expected to reach $236 million by 2015*. That’s a huge investment across the value chain that must be protected through the use of reliable, long-life cables.

DOW ENDURANCE™ SC (super-clean) HV compounds help ensure the kind of quality that cable manufacturers and utilities can count on for years of durable and reliable UG cable function without the fear of contaminants that can lead to premature cable failure.

The case for undergroundRenewable generation sources, shifts in generation fuel sources from coal to gas and aging infrastructure all influence transmission development that requires HV cable. Although overhead lines (OHL) will be used for many projects, the need for HV UG cable will continue to grow. The siting of OHL is challenging in certain regions due to rights of way, topographic obstacles or desired community aesthetics. In addition, UG cable installation results in:

Increased protection against external -factors such as weather, vandalism, etc., resulting in greater reliability Lower visual impact (better aesthetics) -that increases value of surrounding area versus overhead linesSmaller right of way and faster approval -of applications for installationLower emission of electromagnetic noise -Lower short- and long-term maintenance -costs than overhead linesLower power loss -

And ultimately, underground transmission leads to faster deployment of more power and happier customers.

For more information about Dow E&T HV solutions for North America, call your Dow Representative or visit www.dowhvpower.com.

*Source: North American Transmission Line and Substation Market Forecast 2009 through 2020®™Trademark of The Dow Chemical Company

High Voltage Cable Solutions for North America

Dow Electrical & Telecommunications (Dow E&T), a business unit of The Dow Chemical Company, has more than 70 years of experience in the power industry. Its global team of specialists provides sup-port to cable makers and utilities through both technical expertise and a world-class portfolio of insulation, jacketing and semiconductive materials for low, me-dium, high and extra-high voltage power cables. Sophisticated R&D, manufacturing, engineering and in-house testing/valida-tion round out Dow E&T’s overall offering and capabilities for the industry.

Investing now and for the futureWhen it comes to high-voltage (HV) solu-tions for North America, Dow E&T has nearly two decades of experience and is the only global producer of world-class HV compounds that can be sourced locally in North America. Understanding that utilities continue to invest in new and rehabilitated infrastructure, Dow E&T is making investments in its facility in Seadrift, Texas, to ensure continued supply of quality compounds made with modern equipment, process control systems and packaging, as well as logistics practices designed to meet or exceed industry standards for product cleanliness and per-

formance.

Photo courtesy of SouthwireDOW ElEctrical & tElEcOmmunicatiOns | www.dow.com

For more information, go to www.dowhvpower.com. Visit us at IEEE PES T&D Booth #6055.

OVER 7 MILLION fEEt Of HV undERgROund cablE.* zerO failuREs. nOw tHat’s pEacE Of mind.sometimes it’s what you don’t see that matters. Our greatest value in helping you keep the power on lies beneath the surface.

dow Electrical & telecommunications has been providing sc (super-clean) insulation, jacketing, conventional and super-smooth semiconductive compounds for high voltage (HV) cable construction to the north american power industry for 15 years. and, we remain the only global producer of world-class HV compounds that can be sourced locally in north america.

underground HV cable made from quality materials – proudly produced in the usa. Quality you can count on for long-lasting, reliable service in your new and refurbished power transmission infrastructure.

ask us about our products and technical expertise for your next project. we help deliver peace of mind – for you and your customers.

*data refers to cable installed in north america as reported by the manufacturer

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UTILITY EXECUTIVES TALK ABOUT IT EVERYWHERE. The old business models that

governed their business are breaking down. Net income for investor-owned utilities in 2012 skidded back to 2008 levels. Indeed, net income fell more than 30 percent to $21 billion in 2012, compared with the previous year, according to the latest figures of the Edison Electric Institute. Threats abound. With that backdrop, EnergyBiz recently sat down with chief financial officers of utilities to discuss the problems ahead.

ENERGYBIZ Revenues across the utility sector are flat to declining. How serious is the problem?

DAVIS Oncor is a transmission and distribution company in Texas. Our growth has been scaled back considerably as a result of 2008. But recovery has been pretty consistent. Our transmission and distribution investment opportunities have continued to be good.

HOGLUND Top-line growth for us has been negative the last few years. With relatively modest unit volume growth and declining commodity prices, revenues have flattened over the last four or five years. That is good

for customers. Our focus is really on unit volume growth, because that is what defines the investment opportunity for us. Our current forecast for unit volume growth going forward in the electric business is above 1 percent. On the gas side it is approaching 4 percent per year.

SHAY Load growth in our service territory has been modest and our near-term annual forecast has been flat to 1 percent. We are forecasting 1 percent annually. For some time we have been seeing a lot of positive indicators in terms of unemployment rates and housing starts.

TRAUSCHKE In our state, we have less than 5 percent unemployment and 1 to 1.5 percent load growth. We just were mandated by the courts to install significant environmental controls on a lot of coal units. We are concerned about the customer impact of that.

DEWHURST You’ve always had to solve the problem of how an individual company grows in a very low-growth environment. The fundamental challenge has always been how do you turn very little volume growth into revenue growth and, ultimately, earnings growth.

PARTICIPANTS

David Davis Oncor

Moray Dewhurst NextEra Energy

Patrick Goodman MidAmerican Energy Holdings Company

Robert Hoglund Con Edison

Jim Lobdell PGE

Jim Shay Great Plains Energy

Sean Trauschke OGE Energy

Refocusing the Utility Business Model

BY MARTIN ROSENBERG

FinanceChanging


GOODMAN In Wyoming, for example, we see pretty decent growth still on the industrial and commercial side. At Pacific Power, we see slower growth as forestry products still try to come back. MidAmerican Energy Company, our Iowa utility, has decent growth.

LOBDELL We are seeing 1 percent growth. It is lower than what we’ve experienced before. We are seeing a change in the Oregon economy, which is moving from a forest products base to high tech. We are seeing data centers and manufacturing start to pick up in our area. That’s driving load growth.

ENERGYBIZ To what extent do you see this as a game- changing moment with a major paradigm shift in the industry?

DEWHURST One of the obvious challenges that the whole industry has to wrestle with, and it’s both an opportunity and a threat, is distributed generation. It does fundamentally

challenge the old model. If you have a rate structure that’s not fundamentally aligned with your cost structure, that creates a mismatch. What we are going to see over the next few years is the working out of that mismatch. The sooner that we have the conversation with our respective regulators and policymakers about

the consequences of that mismatch, the better.

SHAY It’s a rapidly evolving situation. What we all wrestle with, with respect to distributed generation, is how do we stay involved? How do we stay close to our customers? Then, how do we manage all of the customer fairness issues around access to the system when customers use it?

ENERGYBIZ Do state regulators understand these issues and are they prepared to embrace new policies as a result?

GOODMAN They will understand it, if they don’t already. It’s a matter of getting the tariffs right and addressing cross-subsidization.

LOBDELL The regulators are at least starting to have the conversation. The Oregon regulators are spending time looking at it. With microgrids, like Moray, I see the threat and the opportunity.

DEWHURST We have to recognize that these issues represent a challenge for regulators too. There is tremendous opportunity as technology is enabling us to do more different things with our overall system than we’ve ever been able to do before. The real challenge is how do you integrate these new resources and capabilities into an

Our transmission and distribution investment opportunities have continued to be good. —David Davis

There is tremendous opportunity as technology is enabling us to do more different things. —Moray Dewhurst

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existing, integrated system that, frankly, delivers great value and great service, and has done so for a long time? We have to recognize that regulators have political pressures on them. We all want to move forward with what technology will allow us to do. But we want to do it in an efficient fashion that keeps rates low for customers, and improves reliability. That’s not a simple process.

ENERGYBIZ How do extreme weather events factor into the changes you wrestle with?

HOGLUND We had thrust upon us a weather event — Superstorm Sandy — that raised questions about our current standards of planning. New York regulators are interested in seeing change and seeing the potential for new technology. But I would also acknowledge that the changes we face represent a very complex business problem. There are significant implications to unwinding the many cross-subsidizations in our rates. We’ve got a lot of investment in existing technology in things like customer information systems that will need to be overhauled, which will add more costs to the bill. This is not going to be a very simple transition for the utilities or for the customers. We are encouraging our regulators to have patience in that process to let us work that through.

DEWHURST Customer expectations have changed since the last major hurricanes hit Florida in 2004–2005. We are fully capable of meeting much more aggressive customer expectations. But to do so over a huge system like ours takes time. It ultimately comes down to the question of what reliability do customers really want? How much are they prepared to pay for reliability?

ENERGYBIZ As CFOs, have you been able to quantify the price of bringing in greater reliability?

TRAUSCHKE It’s very difficult to quantify the value contribution for that reliability. Expectations are increasing. The more infrastructure that you deploy, whether it’s technology or just hard assets, the more exposure you have. You start thinking about how do you design your system even better.

DAVIS We spent around $800 million for an advanced meter system. It’s not an intelligent grid. But we are surprised by some of the information that we are getting back from that investment in technology. The system is now giving us indications where we have power quality issues. About

80 percent of those, after investigating, did require some remediation prior to there being a problem. Right now, when we have an outage, we find out about it and take care of it before customers have called 25 percent of the time. That is a significant improvement. You want the regulator and the customer to both realize the value that they are getting.

GOODMAN We have been discussing top-line growth, distributed generation and value. All these things are tied together. What we are all trying to do is maintain a profitable organization within the constraints that we have. You do that, in part, by looking at your cost control. Getting more efficient is something that we have to continue to work at.

DEWHURST We really focus hard on outliers. We have a series of metrics relating to the small proportion of customers who have multiple outages or multiple momentaries. We try to focus on the pieces of the system that are the weakest. If you do the same thing everywhere across the entire system, you will succeed only in driving up rates and leaving your customer satisfaction unchanged.

SHAY A lot of our customers want to get more involved in renewable projects. There are lots of non-utility service providers in that area. Customers want to engage with the regulated electric utility that’s providing all of their power. So trying to maintain some flexibility in that area is important. In addition, as high-tech manufacturing comes back, there will be greater need for higher levels of power reliability. To support that will require investment.

Getting more efficient is something that we have to continue to work at. –Patrick Goodman


ENERGYBIZ What will be the financial impact on utilities as we shift toward greater reliance on energy-efficient lighting?

LOBDELL The right way to think about lighting is in the context of what your customers are trying to accomplish. We’ve had aggressive demand-side management programs for the last five years. In commercial office space, which is two-thirds of our demand, there has been a constant investment in improving facilities that include changing lighting. We are long past the time where the bulk of our lighting usage is from incandescent bulbs. That’s going to change demand growth and contribute to a continuing slide in unit volume growth. Interestingly, LEED-certified platinum buildings are, on a per square foot basis, using about the same amount of electricity as the non-LEED-certified old, outdated buildings. There are probably a lot of reasons for that. For one thing, you can get more people on a floor in a new building.

ENERGYBIZ Capital expenditures for the utility sector are trending down.

DEWHURST I don’t think the fundamental role of capital has changed in this industry. I don’t think that it’s likely to change, at least for a while. Capital, to a large extent, is how we get things done. The real challenge is how do we deploy capital smartly? Physical capital can’t be the only thing. The more we can

introduce human capital and intelligence into the way we approach this business, then the better off we are all going to be and the quicker we can do the kinds of things we all want to do for our customers without having a significant rate impact.

LOBDELL We all spend a lot of dollars on generation. In Oregon, our generation choices are narrowing. We can’t do nuclear. Coal is now off the table. So we are narrowing it down to doing additional natural gas. We have a renewable portfolio standard, so we are going to be spending dollars there. We are also looking at the T&D side. You’ve got smart meters at one end and you’ve got smarter plants at the other. But what we need is more technology in-between, or automated switching that increases reliability.

SHAY Another area we all have to think about is investments in technology and cybersecurity and hardening the system.

LOBDELL From a cybersecurity perspective, we are getting ourselves more connected with federal agencies to understand what some of the threats are out there so that we will know how to respond or areas that we need to harden our system. We’ve been putting a tremendous amount of effort into building networks and training our employees. The cyber threat worries me the most.

DAVIS Intelligent networks and automation exposes you to greater cyber risks. There is considerably more time,

The changes we face represent a very complex business problem. –Robert Hoglund

The cyber threat worries me the most. –Jim Lobdell


energy and dollars invested in cybersecurity than there has been in the past.

ENERGYBIZ Is there an analogy between industry cooperation with nuclear power issues and cooperation on cybersecurity?

DEWHURST There is an aspect that is similar. In the nuclear business, we all depend upon each other. As a result, over the years, we have developed wonderful mechanisms for sharing and for holding each other accountable, quite frankly. The thing that’s different about this industry with respect to cybersecurity is that we are all integrated. We are all tied together. We are now seeing the emergence of the same mental framework — how do we all support each other and how do we all challenge each other in the area of cybersecurity?

DAVIS From a technology standpoint, the thing we want to do is collaborate. The thing we don’t want to focus on is that there has to be broad consensus before we can take actions that need to be expedited to defend our systems. Does national coordination allow you to react locally fast enough? That’s the concern.

ENERGYBIZ Looking past the MidAmerican Energy Holdings deal to acquire NV Energy, Patrick, are more mergers coming in this industry?

GOODMAN That’s a question that’s been asked for the last 20 years. It’s natural that it would happen over time. Whether prices and political issues and values can come together to make deals happen — it’s really hard to predict.

DEWHURST It’s always been situation-specific. It probably always will be, at least for the foreseeable future. You have to get the stars to align and get the deal to come together.

HOGLUND Our business commitment to investors over the last 15 years has been that we are willing to look, but it’s a difficult path to sled. I agree with Moray and Pat. I don’t see anything in the environment that suggests that it’s different today than it was five, 10 or 15 years ago. We will continue to see consolidation over a long period of time. I don’t expect that pace to change a lot.

ENERGYBIZ What role will new financial strategies like master limited partnerships play for utilities going forward?

TRAUSCHKE There has to be qualifying income as far as the utility going to participate in the MLP business. We have to think about new ways to raise capital. With our midstream business I did not feel it was big enough to stand on its own. We weren’t getting value for it in the marketplace. You are at that strategic crossroad where you either sell the business or you grow the business. If you are going to grow it, you need to figure out how you are going to do it in an attractive fashion. Where that puts us today is at OGE, we now have another source of capital.

ENERGYBIZ How is increased intelligence about utility operations and customers being used to build up your financial side?

SHAY CFOs are uniquely positioned to be involved in that effort. There is a lot of investment to upgrade the capabilities of some of these older systems to be able to get access to that data. There is a lot of focus on trying to get the right tools in place. Financial folks will be quite helpful in that area in terms of trying to identify the best ways to mine, analyze and use the data.

HOGLUND It’s intuitively appealing that you apply sophisticated data systems to a capital-intensive industry and you get more out of your assets. We’ve had this ongoing discussion with the New York regulator about whether or not you can actually justify the cost of putting

There is a lot of focus on trying to get the right tools in place. –Jim Shay


in smart meters relative to what that does for improvement and performance. It’s a little different for us, in a very urban context where operating savings are relatively small. What are the benefits of having better information about outages and managing through storms? Those are hard things to quantify. If you’ve got a skeptical regulator who says, “Demonstrate beyond a shadow of a doubt the value of the IT proposition,” it’s hard.

ENERGYBIZ Con Ed is doing work in predictive maintenance, and that has value.

HOGLUND You are right. There are things that we have done. Because we have a large underground system relative to the rest of the country, we look at reliability performance in underground networks. That does give us a better sense of where to spend money.

DEWHURST We were fortunate in that the core operating economics for the smart meter initiative were very clear. We have a remote connect and disconnect capability, so we don’t have to roll a truck to disconnect or reconnect a meter. We’ve now got a flood of data coming at us. It’s really exciting to watch the way we are learning new capabilities, performing predictive maintenance and

being able to pre-position assets relative to impending weather events.

GOODMAN We are able to pull a lot of resources together and use best practices within our own organization. That’s a big advantage for us in terms of getting more efficient. We look at fundamental costs and service levels.

ENERGYBIZ What do people least understand about your responsibilities today as a utility CFO?

GOODMAN We went through a tremendous crisis in 2008 and 2009. Probably if you look across the room, our revenues might have dropped, at max, 3 percent or so. Other companies in other industries might have lost 30, 40, 50 percent of their revenue. So on a relative basis, the utility industry is incredibly stable. We provide an essential service that’s absolutely needed. When there are storms and we go out and fix things, our linemen are viewed as heroes. Being a CFO in our business isn’t too bad. You do have a lot of political and regulatory challenges. Raising capital on the debt side — I don’t have that issue on the equity side — that’s enjoyable. Talking to debt analysts and potential debt investors and describing the proposition that we offer has always been fun.

DEWHURST There are now many dimensions of change and things to wrestle with. It’s a wonderful time to be an executive in this industry. This industry today requires more different capabilities than most industries require of the CFOs. We have political and regulatory pieces to deal with.

TRAUSCHKE We are making long-term investments. It’s important that we do that in the right way. We’ve put the smart meters in. Customers are using our product more efficiently. But that’s really the challenge in our business. How are we going to do things better, faster and cheaper to deliver service?

SHAY It’s critical infrastructure. We are one of the more important companies in our communities.

HOGLUND We work in an industry that has a very long timeline. It forces a different time scale perspective which I think makes the job uniquely interesting.

DAVIS There are television shows asking what the world would look like with a lack of electricity in the event of a cyberattack. The value of the industry is recognized broadly.

How are we going to do things better, faster and cheaper to deliver service? –Sean Trauschke


IT’S 2015, AND IT’S NOT your grandparents’ energy system anymore.

Instead of a one-way delivery of electricity powered by fossil fuels generating steam to turn turbines at the local utility, the new era is about integrating energy — from coal and wind, natural gas and solar, biofuels and geothermal, lithium ion batteries and hydrogen fuel cells. Even the electric battery in your car inside the garage can be a source of power for your neighbors. It’s also about the data needed to direct the smart homes and energy management systems that will soon be found on your phone.

Building a smarter, more resilient energy system poses both challenges and opportunity. As President Obama said in January while directing his administration to conduct a Quadrennial Energy Review, America’s aging energy infrastructure must keep pace not only with the changes in energy supply, but also with emerging threats such as cyberattacks and climate change.

The goal is imminently achievable because America

leads the world not only in energy resources but also in energy innovation. Investments in research, development and deployment have helped prompt sharp annual increases in the amount of renewable electricity that we generate from wind and solar, even as prices plummet. Thanks to advances in energy efficiency, our energy system

is cleaner, cheaper, and more reliable. New technologies are opening doors to distributed energy. Coal can be burned 24 hours a day, but solar and wind produce electricity only when the sun is shining and the wind is blowing. To incorporate wind and solar into the grid requires storage and new technology. Already, research labs and

universities, utilities and startups are developing a new generation of inverters, storage devices, net meters and other smart instruments.

A focus on energy systems integration is imperative to America’s response to its aging infrastructure, climate change, security and changes in energy supply. That response

Integrating Energy SystemsFederal Lab Lends a Big AssistBY BRYAN HANNEGAN

Bryan Hannegan, right. Photo courtesy of the National Renewable Energy Laboratory


should be multipronged, combining protections, smarter technologies and energy efficiency. And it should accelerate.

We can’t yet anticipate the infinite number of combinations of technologies, data and devices that will interact in an integrated energy system. But at the Department of Energy’s 182,500-square-foot Energy Systems Integration Facility on the campus of the National Renewable Energy Laboratory in Golden, Colo., researchers are overcoming challenges related to the interconnection of distributed energy systems such as wind, solar, and geothermal into the grid. ESIF offers utility executives and other decision makers a place to research new technologies in a virtual environment before they’re loaded onto the actual grid.

ESIF provides a set of resources under one roof to investigate how to get the grid ready to upload and download energy for vehicles, how to optimize storage devices, how to seamlessly load a high penetration of renewables onto the grid and how to control strategies for power electronics. In public-private partnerships, vendors and operators can try out new ideas, new technologies and architectures in a place that is friendly to that exploration.

Energy systems integration is much broader than just building a smarter grid. It’s a comprehensive strategy that brings together various forms of energy carriers such as electricity, thermal and fuel with other infrastructures such as water and transportation, and integrates optimal solutions into the energy landscape of generation, delivery

and use. It’s about tapping into the combined strength of these systems and squeezing more efficiency out of every electron and every device, converting waste heat to power, and boosting performance while reducing costs, all while minimizing environmental effects. It’s about storing enough solar thermal power to get households through those warm evenings when the sun is down but the air conditioner is still needed. And it’s about balancing loads, using solar or wind power during those hours when it makes the most fiscal sense, signaling the best time to start the dishwasher, even drawing power from electric cars as they sit in garages overnight (and replacing that power at a more opportune time).

The Department of Energy has a long-term energy goal of providing 80 percent of electricity with clean energy sources by 2035. A commitment to Energy Systems Integration can bring us to that goal. We at NREL are proud to play an important part. Our newest building, ESIF, is the nation’s first research facility that can conduct integrated megawatt-scale research, development and testing of the components and strategies needed to build our energy future — to safely integrate clean energy technologies seamlessly into the electrical infrastructure at the speed and scale required to meet national goals. Bryan Hannegan is associate lab director for Energy Systems Integration at the U.S. National Renewable Energy Laboratory in Golden, Colo.


OPTIMIZING ENERGY EFFICIENCY… THE HIDDEN RESOURCE

By: Nicholas Abi-Samra, Senior Vice President, DNV GL (Formerly DNV KEMA)

Energy efficiency (EE) is a hidden “resource.” Many risks to the power sector that may drive up costs to consumers, or add regulatory risk to utilities, could be mitigated by EE. It has the unique potential to simultaneously contribute to long-term energy security, economic growth, and even improved public health and well-being. On the electric grid, EE can extend the life of equipment, decrease stress on energy infrastructure and lead to fewer disruptions to energy supply systems and reduce greenhouse gas emissions.

In the US, some utilities have aggressive EE programs, primarily on end-use customer efficiency, as a strategy to diversify their portfolio, lower costs, and meet customer demand. Globally, according the International Energy Agency (IEA), in 2011 investments in the EE market were about US$300 billion.

THOUGHT LEADERSHIP • SPONSORED BY DNV GL

Thought Leadership 020314.indd 1 2/3/2014 12:47:38 PM


Figure 1: Estimates of 2011 expenditures on energy efficiency programs

Losses in Transmission and Distribution SystemsGenerically speaking, losses in the power delivery system can be divided into two components: technical and non-technical. Technical losses occur naturally and consist mainly of power dissipation in electricity system components. Non-technical losses (also known as commercial losses) are caused by actions external to the power system and consist primarily of electricity theft, non-payment by customers, and errors in accounting and record keeping. In this article, we will discuss the former type of losses, i.e., technical losses. Figure 2 shows how the technical losses in the power delivery system are incurred at every stage of the power delivery system. Typically about 5% of the energy produced by central generation plants is lost to feed auxiliaries. If the plant has to deal with environmental controls, then the losses can be expected to double. Transmission system losses are designed to be low loss, yet we can still see about 2-5% loss in these. The distribution system is where most of the losses are incurred, and they vary in percentage based on the voltage and design, as well as other factors. Losses in transformers are the lowest in percentage, but their aggregate losses are a considerable portion of the power delivery system.

Source: DNV GL

Figure 2: Estimates of losses in the power delivery system

End-to-End (E2E) Energy Efficiency Conservatively we can be losing up to 7-10% of all the electricity we produce just in the power delivery system, i.e., in the transmission and distribution systems (not counting losses in power plants). To quantify this, in the US, the energy saved by a meager 20% reduction in such losses can basically power 7-10 million homes. Therefore, the power industry should embrace end-to-end EE across the electricity value chain.

Achieving E2E Energy Efficiency… Real World ExamplesThe most logical way to achieve E2E gains is to follow a structured approach to reducing system energy losses that can supplement existing internal efforts, such as preventive asset management, renewable resources integration, and demand side efficiency management. Depending on the utility, the integrated approach needs to address the sectors which come under the specific utility service: transmission, distribution, and end use.

Transmission SystemsTransmission system losses can be reduced by carefully examining the system operating condition, as well as the equipment sizing and condition. Opportunities can be explored to reduce energy losses in the overall transmission system, in addition to those in specific lines and substations via operational changes and targeted system upgrades. These could include coordinated voltage control across the system to reduce VAR flow, and other means of power flow control. Adding reactive compensation (in strategic locations) beyond what is strictly needed to meet the applicable reliability requirement has the potential to reduce losses.

Distribution SystemsPower distribution systems are the final link between the power supply and the customer. Given that a distribution line could feed indirectly thousands of homes and businesses, it is not very hard to imagine that the cost of achieving the same net reductions in kilowatt-hours of energy could be more efficiently achieved at the distribution line level, rather than at the thousands of homes and businesses that the line is feeding. Some of the measures to reduce technical losses on distribution systems include: voltage reduction/ voltage optimization, reactive power compensation optimization, feeder voltage profile flattening, phase balancing, feeder reconfiguration, and strategically distributed energy resources (including storage). Also, past experience has shown that on average a 2% energy savings, 3% demand reduction, and 7% reactive power reductions can be achieved through voltage optimization, even without using data from advanced metering infrastructure (AMI). If AMI data is used to determine the minimum service voltages, up to 2% more energy savings can be achieved.


Global levels of investment and subsidy in selected areas of the energy system, 2011Source: IEA

700

600

500

400

300

200

100

0

USD

bill

ion

Upstream oiland gas +

Coal, oil and gas electricity

generation++generation+++

Renewableelectricity

Energy efficiency*

Renewableenergy

subsidies+

Fossil fuelsubsidies+

* Estimated range of USD 147 billion to USD 300 billionNote: Investment figures include public and private investment and do not exclude subsidies.Sources: +IEA, 2012a; ++SNEF, 2013; +++IEA, 2012b.

Central Generating Plants

4-6% Loss

Generating Step Up Transformer 1-2% Loss

Transmission Systems

2-5% Loss

Substation Step DownTransformer1-3% Loss

Distribution Systems

26kV-69kV2-4% Loss

13kV-4kV3-15% Loss

120V & 240V6-20% Loss



Wind and Solar Power Generation Improving operational efficiency on wind and solar power plants can help to: increase capacity factor, decrease operations and maintenance costs, lower auxiliary power demands, and improve availability and reliability. These benefits translate into increased power delivery to the grid and enhanced return on wind and solar energy investments. Evaluating the operating data and maintenance records and practices can identify under-performing assets and determine associated corrective actions, as well as opportunities to reduce costs, optimize performance, or improve availability. Audits of operating data frequently identify under-performing turbines whose parameters have changed or have been incorrectly set. On solar energy facilities, soiling of the modules results in performance degradations. Optimization of the module cleaning program requires balancing the costs of cleaning against the performance degradation rate and consideration of seasonal variations in the resource, soiling rate, and water availability. Benefits of E2E Energy EfficiencyThe business case for E2E energy efficiency gains is fairly simple: using less energy means paying less for energy at the consumer level.

Though a detailed derivation of the monetary benefits is not included in this article, some figures are provided to show the magnitude of the savings by looking at the difference between the amounts of electric energy generated and the amount actually sold at the retail level. Table 1 shows the annual line losses for a number of US utilities, extracted from the US Energy Information Administration (EIA) forms. If one totals all these numbers for the all the US utilities, one would get a number close to $25 billion generated for the US economy.

But limiting the benefits to dollar savings only gives a partial credit to E2E. Some of the other benefits of E2E energy efficiency programs include:

■ Reduction in emissions: The US Environmental Protection Agency (EPA) has proposed a number of environmental rules that have significant implications for the operation of existing and new power plants. While there are technologies, both available and in development, to mitigate CO2 emissions from power plants, the easiest way to remove emissions from the atmosphere is not to produce them. E2E energy efficiency directly implies lower emissions in generation to deliver the same amount of consumed energy at the end user. Table 2 shows the approximate impacts of 10% in line losses on the cost of generation at a sampling of US utilities.

■ Fuel conservation and diversity: Another way to look at the savings of EE programs is on the reduction of the fuel at the central generation plants, and thus the variable cost of generation. Fuel conservation is a strong selling point for efficiency.

■ Lowering of congestion: Congestion charges represent a significant cost of inefficiency in the T&D system. Congestion occurs when scheduled flows of electricity are restricted by physical equipment capacity constraints (bottlenecks) or by operational constraints designed to preserve grid reliability. In some areas of the US, such congestion has reached the point where they not only cost consumers hundreds of millions of dollars, they also threaten the integrity of the power system. A more efficient T&D system can provide a less congestion-prone system. It’s important to recognize that EE and grid reliability are interrelated.

Barriers to E2EThe paradigm for regulated electric utilities is making money while managing risk. This can conceivably guide utilities toward or away from investing in EE and for that matter, demand response, and distributed energy resources (DER). Traditional ratemaking approaches have strongly linked a utility’s financial health to the volume of electricity via the ratemaking


OWNERSHIP

TOTALREVENUE(1,000 $)

TOTAL ENERGY(MWh)

TOTALLOSSES(MWh)

TOTAL LOSSES

(1,000 $)

Investor Owned 3,300,900 28,196,328 1,678,592 196,510

Municipal 1,158,300 11,744,716 433,856 42,788

Investor Owned 832,572 6,646,586 686,570 86,002

Investor Owned 4,616,744 38,000,000 3,420,582 415,578

Investor Owned 5,081,876 26,469,864 1,222,078 234,623

Investor Owned 5,280,010 71,211,346 4,576,616 339,336

Investor Owned 7,086,304 102,799,444 7,226,054 498,116

Investor Owned 930,440 11,641,054 670,946 53,627

Investor Owned 1,531,168 22,891,934 2,304,956 154,171

Investor Owned 11,879,320 86,000,000 2,337,044 322,820

State 1,005,514 17,917,784 1,071,729 60,144

Investor Owned 2,421,086 29,898,912 1,280,431 103,684

Investor Owned 931,601 8,858,520 1,062,516 111,739

Investor Owned 3,374,990 22,000,000 891,644 136,786

Investor Owned 2,374,844 19,177,478 1,192,900 147,723

Source: DNV GL

Table 1: Sampling of the value of line losses for a number of US utilities for 2012



structure—somewhat a disincentive to investment in a means to reduce sales. The ratemaking structure and process establishes the rates that generate the revenues that can be used to recover “just” and “reasonable” costs incurred to deliver energy resources to serve customers. Amongst these costs are the line losses costs. As an example, California utilities report loss factors to the California Public Utilities Commission and expect to be compensated for the losses. Loss factors represent the energy consumed during the process of moving the power from generation to load used to scale end use demand or retail sales to produce net energy for load. The utilities submit loss factors from each of several locations on the T&D grid in the rate cases. Customers are provided service at different points on the distribution system, which will correspond to different losses. Loss factors can vary by season and time of day due to ambient conditions such as temperature, wind, and rain. In general, losses are higher in the summer than in the winter. Compensating utilities for line losses may be the biggest (detractor for not pursuing more measures to reduce T&D efficiency measures.)

Another disincentive to EE has to do with the rates. Rates change with each major “rate case.” Between rate cases, utilities have a financial incentive to increase retail electricity sales and to maximize the electricity “throughput” across wires. This incentive exists because there is often a significant incremental profit margin on incremental sales. In jurisdictions where prices are capped for an extended time, the utility might be particularly anxious to grow sales to add revenue to cover cost increases that might occur during the freeze—another disincentive for EE programs.

Summary & RecommendationsEE measures can increase resilience against a variety of risks. Unlike most other utility resource investments, EE positively influences an impressive array of aspects of society as demonstrated in this article. A narrow focus only on the dollar

value that EE brings to utility consumers is often too limiting. EE measures on the end-use side should continue, and can even be improved. However, the delivery chain of electric energy can be made more efficient. A kilowatt-hour of energy savings is the same regardless of where it is achieved, but it may be most cost effective upstream rather than at the end-use side. Investments in end-to-end measures can often assist with other objectives—for example, systems used to implement voltage conservation measures. Therefore, these can be even more valuable to utilities facing the demanding challenge of maximizing revenue while serving customer needs, maintaining assets, and ensuring reliable operation.

Given the many benefits of E2E energy efficiency, the utilities need a detailed and integrated road map for reducing losses or maximizing the throughput of energy use from the generation to end use.

Coupled with the aforementioned, the industry must set in motion actions to promote investments in EE through utility ratemaking. Achieving this would require alignment of utility incentives with the delivery of cost-effective EE programs; treatment of EE as a part of a balanced portfolio, and as a mechanism for an equitable return on investment for these programs. EE is a hidden resource, but we can bring it to the surface across the energy delivery system in a methodical and pragmatic fashion. We can do it together!

Learn more about DNV GL’s Energy Advisory expertise at www.dnvgl.com/energy or contact us at [email protected].


Table 2: Example of Reduction in Greenhouse Gases for a 10% reduction in losses

REGION

ENERGY SUPPLY MIX EQ. COST OF ELECTRICITY CONSUMPTION LOSS SAVINGS EMISSION REDUCTION

Nuclear Coal Natural Gas Oil Other $/MWh MWh MWh MWh $ CO2

TonsSO2Tons

NOXTons

Northwest 60% 12% 27% $47 22,352,159 7,294,847 729,485 $34,426,379 494,932 2,601 1,267

Midwest 22% 49% 21% 7% $56 35,610,695 3,588,703 358,870 $19,993,347 220,204 1,049 541

Midwest 52% 42% 6% $77 22,155,927 1,807,521 180,752 $13,874,743 134,967 558 314

Northwest 1% 32% 16% 51% $36 21,626,537 1,639,297 163,930 $5,851,251 67,017 311 163

Southwest 27% 36% 8% 8% 21% $85 29,171,321 2,087,886 208,789 $17,655,679 97,944 535 248

Southeast 15% 4% 73% 1% 7% $93 102,749,430 7,094,393 709,439 $66,081,428 300,954 229 489

Source: DNV GL



IN OCTOBER, THE BRITISH GOVERNMENT and Electricité de France, which is primarily state

owned, announced an agreement on commercial terms for constructing two 1.6 gigawatt European pressurized water reactors at Hinkley Point in the southwest of the United Kingdom at a cost of $26 billion. The announcement must have come as a relief to both sides as it is more than three years since the British government announced that Hinkley would be one of the sites under consideration for new nuclear, two years since EDF submitted an application to build and one year since the licence was awarded to EDF’s subsidiary NNB Generation. In 2009, the chief executive of EDF in the UK said the reactors would be built in time to help cook the nation’s Christmas turkeys in 2017; the latest startup date is 2023. The announcement also confirmed the engagement of China General Nuclear Corp. and China National Nuclear Corp., which are expected to take between them a 30 to 40 percent equity stake. This is seen as an important opportunity for the Chinese

partners to gain experience in Western licensing processes, and it is hoped the first of many nuclear power projects involving Chinese partners.

However, the deal is yet to be finalized. Given the level of state support, primarily an electricity price guarantee for 35 years, as well as £10 billion in debt financing guarantees, it must be approved by the European Commission, which launched an in-depth investigation in December. The UK government and EDF have stated they expect approval will be granted within the next few months, although, given the European Commission’s view that “it is a complex measure of an unprecedented nature and scale,” a longer review resulting in a rejection of parts of the proposal is a distinct possibility.

Although the initial press and political reaction to the deal was largely positive, there have been increasing public concerns about the cost, in particular the length of the electricity price guarantee. Liberum Capital said in a statement, “This looks likely to be an outstanding deal for EDF and its partners,” and

Chinese Invest in UK Nuclear Implications for AmericaBY ANTHONY FROGGATT


“we are flabbergasted that the UK government has committed future generations of consumers to the costs that will flow from this deal.” Others were more measured in their language but equally unconvinced of the venture’s competitiveness, with Deutsch Bank assessing the deal as “an expensive source of energy by historic standards, and [it] implies a cost of carbon reduction well in excess of the current traded price of the UK targeted 2020 carbon floor.”

Despite this, the UK government hopes that this is the first of a number of new nuclear projects in which greater engagement of the Chinese partners is expected, as well as new projects by an international consortium known as Horizon Nuclear, headed by Hitachi and NuGen, a consortium of French (GDF Suez), Spanish (Iberdrola) and Japanese (Toshiba) companies. Two more reactors have already been proposed by EDF. The UK is attempting to secure large-scale investment from a wide variety of international partners; however, these deals will be dependent on the reaction from the European Union and the extent to which the market and the public have an appetite for supporting more large-scale nuclear projects. In total, the UK government wants to see some 16 gigawatts of new capacity on line, as most of the existing reactors have closed or are coming to the end of their operating lives.

Although the British Prime Minister stated that the deal “will kick start the British nuclear industry,” this seems difficult to justify with the major players being French or Chinese. Such a relaxed approach to foreign ownership is in marked contrast to other countries. For example, in the United States the majority ownership or control of a nuclear power plant by a foreign entity is forbidden,

which was why the licensing process for Calvert Cliffs 3 unit was terminated in 2012. However, support is not unconditional, and an influential parliamentary committee has recently raised concerns about the process by which critical national infrastructure is owned by foreign companies in general. Since the nuclear announcement, questions have been raised as to the extent to which the National Security Council was adequately involved in these investment decisions. However, the UK government remains active in trying to get Chinese investment into the nuclear sector and infrastructure projects in general. Since the Hinkley announcement, the British Prime Minister, on a visit to Beijing, called for more cooperation and investment. “No country in the world is more open to Chinese investment than the UK,” he said.

The over-riding importance of this deal is dependent on whether it is a one-off or a template for future nuclear projects in the UK and abroad. Through this deal the nuclear sector has shown that it has powerful supporters and that it can pull together complex international deals. Should it proceed to scheduling and budgeting, others may choose to follow this path. In particular, the deal has engaged Chinese partners in a European reactor project for the first time. Furthermore, the UK deal has proposed a new mechanism for nuclear power in Europe, to offer a guaranteed electricity price within a liberalized market. If approved by the European Commission’s competition department, it could provide an important new mechanism to reduce the financial risks associated with nuclear’s large upfront construction costs. However, the extremely high price guarantee proposed in Hinkley, which at £92.5 or $152 a megawatt-hour is more than double the current market rates and unlikely to be repeated in many other countries. Therefore, the replicability of the deal, as has historically often been the case, will be determined by whether the industry is able to build reactors at a significantly lower cost than than the proposed costs for Hinkley.

Economics has always been important, and that is especially true at the moment with technology development in other areas squeezing nuclear. There are expectations from many that the United States shale gas experience will be repeated, and that it will lead to lower energy prices in other parts of the world. As has been shown, lower power prices resulting from shale gas can affect the operation of nuclear power, with four reactors closed in 2013 in the United States largely for economic reasons. Furthermore, the falling prices for renewable energy, particularly onshore wind and in many regions solar PV, are resulting in electricity production costs that are lower than for nuclear. Therefore, even when the decarbonization of the power sector is a policy priority, nuclear would miss out.

If the Hinkley project is ultimately approved by the European Commission, it will be an important milestone because it will be the first new construction start in the UK since 1987. Significant reductions in the costs will be needed for it to be more than a one-off project. The challenge is can the necessary cost reductions be achieved in further projects or is ultimately the reactor design too complex and expensive to ever compete with either other non-European nuclear designs or other low-carbon options, like renewables energy, that are already cheaper or have rapidly falling costs.

Antony Froggatt is senior research fellow of Energy, Environment and Resource Governance at Chatham House in London.


» TECHNOLOGY FRONTIER

RARELY HAVE OUR CUSTOMERS needed us more than they did on April 27, 2011, when two

waves of storms moved across west central Alabama, southeast Mississippi and northwest Georgia. More than 60 tornadoes over a 14-hour period resulted in the tragic loss of more than 250 lives. By 9 p.m., the state of Alabama had more than 412,000 customers without power. Ultimately, 41 of its 67 counties would be declared federal disaster areas. When he visited Tuscaloosa, Ala., President Barack Obama said he had “never seen devastation like this.”

In its previous 100 years, Southern Company had experienced catastrophic storms, but this time the damage was especially severe and widespread. In many areas, the devastation — including 890 miles of downed wire and 3,000 damaged transformers — meant the electrical system had to be completely rebuilt. More than 300 substations lost power, and some 7,500 power poles and 440 transmission struc-tures were destroyed.

Within a week, service had been restored to all Southern Company customers capable of receiving power. This was due to the commitment of our employees and utility partners. Although much of the success could be attributed to utilizing technology in our restoration plan, reliable infrastructure and redundancy, the company also benefitted from strong partnerships with organizations across the system.

Storm centers were open and monitoring the storms before they struck our service territory. The centers were able to benefit from the company’s rich legacy of geographic information system work and an enterprise agreement with the Environmental Systems Research Institute (ESRI), which enabled Southern Company to deploy a robust and mature GIS network of transmis-sion and distribution infrastructure and applications.

GIS solutions, including time-based outage analytics, facility inventory and location-awareness models, were all available on desktop, Web and mobile environments. Engineers and managers were familiar with the technology and IT employees were embedded with crews, creating a responsive environment for

developing and deploying immediate system solutions. In addition, our strong relationship with ESRI ensured that its expert team provided on-site guidance.

Applications were integrated in new ways to expe-dite the repair of damaged infrastructure. GIS experts created a customized dataset for GPS units, which en-abled engineers to rapidly navigate to critical switching locations. Connecting the data from mapping, aerial photo-graphs and GIS resulted in an expand-ed and interoperable system, which is used across the industry today.

Technology-laden staging areas and material distribution facilities supported more than 10,000 res-toration personnel from 20 states. The staging areas were fully stocked with wire, fixtures, insulators, utility poles and other necessary materials. Map specialists and IT develop-ers were stationed at all locations and provided more than 5,000 map sheets, GPS updates, GIS analytics and Web-based outage mapping, which assisted storm center managers in safely and effectively directing crew deployments.

For more than 20 years, Southern Company has been adding new technologies to its electri-cal network. Smart meters, GIS, real-time systems and aerial imagery have fostered the evolution of an integrated system with a dynamic blend of IT and business-unit partners.

Southern Company and its operating companies have a long history of preparing to perform well under difficult circumstances. Our employee teams, with the support of IT systems, leverage technology to achieve business goals and solve a range of chal-lenges. Ultimately, this approach contributes to our success by enabling real-time storm assessments that help us more efficiently utilize the thousands of company and mutual-assistance workers restoring service to our communities.

Enhanced Outage RestorationIMPROVING SYSTEM INTELLIGENCE // BY KENNY COLEMAN

Kenny Coleman is senior vice president and chief information officer at Southern Company.



THE LUNAR RING PROJECT is one of the Construction in Space R&D projects Shimizu

initiated in 1987. It may sound like a bold step to include outer space as one of our business arenas. However, we consider space as not beyond the

horizon but rather an extension of common social infrastructure that we have been striving to contribute to, as our original corporate philosophy dictates.

Lunar Ring’s gigawatt of solar in-stalled along the moon’s 400-kilome-ter-long equator would continuously generate electrical energy that is sent directly to receiving stations on the

Earth in the form of either microwave or laser beams from the transmission facility on the moon’s surface. Ground receiving stations would convert the micro-wave energy into electric power. Floating receiving sta-tions on the seas would convert the laser beams into electric power and produce hydrogen from seawater.

The amount of energy generated would be enough to cover the entirety of human consumption.

It is not easy to construct gigawatt-sized solar plants on the moon. It may be a story that only belongs in our dreams. But we have mapped out our Lunar Ring concept in detail, as if each one of us is working on the lunar construction site itself.

We made the assump-tion that the entire human energy consumption in year 2030 will equal about 17 billion tons of oil and that the transmission efficiency from the moon’s surface to an electrical outlet at home would be 4 percent based on the current technology. We considered the global population growth and higher level of economic ac-tivity that should increase the energy demand, while

Moon ShineSOLAR POWER PLANTS ON THE MOON // BY TETSUJI YOSHIDA

HYDROGEN FUEL

Researchers are looking at using solar power to split water and create hydrogen, which can be stored for future use, according to UPI.

The University of North Carolina project would allow the energy of the sun to be used when the sun is not shining.

Photo courtesy of CSP Japan



future technological efficiencies would also ease the load.

The moon is not a human-made satellite. We cannot control its position or orbit like other man-made satel-lites. At the same time, the moon has its own advan-tages. The relationship between the Earth and the moon has been stationary for a long time. We do not have to worry about controlling the moon’s orbit, future malfunctioning, or space debris after its life, which is far longer than ours. Furthermore, the moon’s surface is abundant with natural resources. Silica, metals and other inorganic matters are readily available, along with the water that is expected to be found on the moon. Since the cost to ship material more than 384,400 ki-lometers from the Earth to the moon is prohibitive, local procurement is the only viable option.

Lunar Ring’s facilities on the moon consist of vast solar panels, superconductive electrical grids on the equator, and transmission facilities of microwave and laser beams aimed at the Earth. The construction material for solar panels, superconductive cables, and

power transmission antenna will be made with moon regolith. We have already performed a production experiment with water, concrete, masonry units and glass fibers using Lunar Soil Simulant — simulated moon sand — and verified the material strength. Our next step is to gather resource distribution information that includes the far side of the moon. Refinery and production plant technology development is our next important technical challenge.

There are plans for desert gigawatt solar projects. Deserts are unevenly located on Earth, just like fossil fuel resources. Desert solar energy may create another geopoliti-cal conflict. On the other hand, the Lunar Ring will directly and fairly provide electric energy to each demand point on Earth without creating energy conflicts between regions. We hope our Lunar Ring will con-tribute to the long-term stability and higher quality of life on Earth by securing the basis of life with a supply of water and food and by freeing up fossil fuel resources for other applications, like pharmaceuti-cal and chemical products.

The biggest hurdle for the Lunar Ring is to maintain the beautiful view of the moon from Earth. The equator solar belt made with current technology on the moon may be visible from the Earth. Non-reflective and transparent solar panel technology is very important in order to mitigate opposition.

CARBON CAPTURE

Mitsubishi Heavy Industries and Southern Company Services have completed early work on a demonstration test for capturing and storing carbon dioxide.

Gatherings// Technology Frontier

April 7-11 Hydrogen + Fuel Cells + Batteries

Hanover, Germany

April 9-10 Globalcon Atlantic City, N.J.


Photo courtesy of CSP Japan

Tetsuji Yoshida is president and CEO of CSP Japan, a subsidiary of Shimizu Corp.

{P OWERFU L AN SWERS}

THINK SMARTER ABOUTHOW TO POWER TOMORROW.

TODAY.

Technology that can help energy keep up with 21st-century innovation. Utility companies are looking for ways to reduce grid congestion and vulnerabilities. The innovative minds at Verizon have teamed up with some of the smartest companies around to create solutions that modernize the grid with real-time visibility. It starts with grid modernization. With high-speed, low-latency two-way communications via the Verizon Wireless network, utilities are collecting, delivering and managing data to help reduce costs and emissions, while helping to improve service. The result is a reliable grid that can sustain the growth of tomorrow.Because the world’s biggest challenges deserve even bigger solutions.

verizonenterprise.com/energy

4G LTE is available in more than 500 markets in the U.S. Network details & coverage maps at vzw.com. © 2014 Verizon Wireless.

VPR20034_Energy_EngeryBiz_March_V1a_chi.indd 1 2/5/14 3:31 PM


» INTRODUCING

THIS LAST SUMMER, LYNN GOOD TOOK over the leadership of Duke Energy from

longtime leader and industry heavyweight Jim Rogers. We recently talked to her about the chal-lenges and opportunities ahead for America’s largest electric utility, which serves 7 million customers. Her comments, edited for length and style, follow.

ENERGYBIZ On the Duke website, it states, “The 21st Century electric utility is a technology company disguised as a utility.” What does that mean?

GOOD This has been an industry that has had to evolve and introduce new technologies for a number of years. Think about the nuclear industry that was built in the ’70s and ’80s. That was a technology innovation. Smart grid was a technology innovation. Advanced coal was a technology innovation. Renewables.The utility business has had to evolve technology

to meet the demands of customers, environmental requirements and other things that have pushed us into different technologies.

ENERGYBIZ Your predecessor, Jim Rogers, has said the utility business model is seriously threated by flat sales and competitive threats, along with the burdens of high capital expenditures. What is your view?

GOOD The utility industry is facing challenges much like any business that faces challenges from time to time. The low load growth, as you men-tioned, is probably front and center. The low load growth is a result of not only a challenged U.S. economy, but also technologies and energy efficien-cies and new building codes and standards that are requiring or really dictating lesser load growths for the utilities. As we have migrated through a variety of other challenges over the decades, we will find a way to migrate through this challenge as well. I’m

probably less concerned by high capital require-ments because that is an ordinary course for us. Duke has spent over $9 billion over the last four or five years modernizing generation. We do not see a need to continue spending at that pace over the next several years.

ENERGYBIZ So you see the regulated utility business model as being a viable business model going forward?

GOOD I wouldn’t think about it as simply as you are describing it. The utility business will continue to evolve and change over time to address these challenges. I’m not going to predict for you how it will evolve and change, because I think it will be jurisdictional. Each state will address it. There will be changes at the fed-eral level as well. It is an evolution that will occur as the industry requirements continue to change.

ENERGYBIZ Duke has about 58,000 megawatts of diverse generation. There is a lot of pressure now on moving toward gas generation. Do you think you will be able to maintain that diversity?

GOOD We have added about 3,400 megawatts of gas since 2011 and we have retired aging coal plants that were not economical to remediate for air stan-dards. As you look at the economics of low gas prices and the low construction costs of gas generators, it’s a very competitive option. We continue to maintain an option to build nuclear as a resource that could replace retiring nuclear. Our first nuclear unit is scheduled to re-tire in 2030. That gives us some time to work through the economics and also look at load growth and at where carbon policy is headed. We want to maintain di-versity, if we can. But that diversity has to be balanced with economics. We have time to continue to study and think through those decisions.

Duke Energy’s New Boss LYNN GOOD WILL STEER AMERICA’S LARGEST UTILITY // BY MARTIN ROSENBERG


Photo courtesy of Duke Energy

» INTRODUCING

ENERGYBIZ There’s a new interest in microgrids and dis-tributed generation as a way of achieving power reliability in the face of possible cyberattacks or increasingly bad weather events. Is there an opportunity for Duke to pursue that as a new business?

GOOD Our entrance into renewables has been more utility-scale. We have constructed and oper-ate about 2,000 megawatts of wind and solar. We have continued to look at a commercial offering of distributed generation and have not made a decision to pursue that. It’s an evolving area to be studied and watched outside of our jurisdiction. We haven’t made a decision to go forward. Within our jurisdic-tions, we also are looking at this as a possibility. But we have not undertaken any significant investment in microgrids or distributed generation at this point.

ENERGYBIZ What’s your view of the future of the trans-mission business for Duke? You have 36,000 miles of high voltage transmission. Are you planning robust capital expenditure there? Or is that going to start winding down?

GOOD Our transmission is primarily within our jurisdictions. We do operate in markets in MISO and PJM. But in the Carolinas and Florida, it’s within our jurisdictions. We continue to look at investment in transmission that makes sense for customers to maintain reliability and to support resilience in the event of storms and other activities. We have a small commercial transmission business where we are looking at opportunities to build in the Midwest through a joint venture with the American Trans-mission Company. Transmission will represent an investment opportunity going forward as we continue to look for ways to move renewables in the United States from their location to load centers.

ENERGYBIZ You were chief financial officer for four years?

GOOD I was.

ENERGYBIZ There are many CFOs in the industry who have become chief executives. What perspective as a former CFO do you bring to this job in terms of new ways of dealing with the financial pressures that the company faces?

» INTRODUCING


GOOD That’s an interesting question. The financial aspects of the business have some particular chal-lenges because of regulation and other areas. The job of CFO prepares you not only in the financial consid-erations but also strategy.

ENERGYBIZ When you were CFO, what kept you awake at night? What was your main worry?

GOOD I’m not sure I was losing sleep as a CFO. I focused on the strategic challenges facing load growth and technology. How do you fit a financial plan and financial objectives and targets within that? They con-tinue to be areas of focus as a CEO because those are the trends that have the greatest impact on the strate-gies. You think about the company over five or 10 years.

ENERGYBIZ You were with Arthur Andersen from ’81 to 2002. Then you were with Deloitte. What kind of skill sets as a former partner and associate with major consulting firms do you bring to this job?

GOOD Consulting firms have a client service focus, with the ability to work on a variety of issues, and a sense of urgency and adding value. It is important to focus on development of talent. The entire business is people. Ensuring that you have the right people moti-vated in the right way and delivering the right products is really what underpins the success of a firm.

ENERGYBIZ Duke has just gone through a major merger. It is now the largest utility with $100 billion in assets. Will you continue to look for possible future merger deals?

GOOD I wouldn’t say that M&A is job one from a strategy standpoint. But consolidation will continue to occur. Companies are looking for ways to grow and to leverage cost structures to address capital require-ments. At Duke, if those opportunities present them-selves and make sense to us, we would consider them. It’s extraordinarily difficult to do these transactions.

ENERGYBIZ Jim Rogers was an outspoken industry leader. To what extent will you be like him? To what extent can we expect you to be different from him?

GOOD Jim has been in the industry for 25 years and has had an extraordinary career and journey.

I’m starting in year one of my tenure. I will be more internally focused for a year or two than you would have seen Jim at the end of his career. I will look for my way to make my mark on the company and the industry over time. I will focus initially on just driving the results of Duke.

ENERGYBIZ If “The Colbert Report” calls you in two years and asks you to be on their program, just like Jim Rogers, what would you say?

GOOD Probably, I’m out.

ENERGYBIZ There are a few female executives in this in-dustry, but the number seems to be growing. Do you expect to see more women CEOs at electric utilities? How might that change the industry?

GOOD That’s an interesting question. I would ex-pect there to be more women over time. But I’m not sure that I necessarily see that as something that’s going to change the way the industry responds to challenges. I think male and female, we are blessed in this industry with strong leaders. I would expect that to continue.

ENERGYBIZ What do you like most about the job of CEO?

GOOD That’s hard to say. It’s been a really busy time. It’s been very encouraging to spend time with the employees of Duke. We have an extraordinary team. I’ve had a chance to spend time with customers, our regulators and key legislators.

ENERGYBIZ Being CEO of the largest electric utility in this country, what leadership role do you expect to play in the industry? What kind of issues do you hope to embrace and champion?

GOOD It will be important for me to be at the table at the national level and also in our state jurisdic-tions as we grapple with challenges that include the environment, new technologies and new regulatory models. It’s too early to say how I’m going to put my mark on this industry. But I believe Duke will be at the table to contribute and influence policy in a way that makes sense for our customers.


» INTRODUCING


of a PUC does not have a consumer viewpoint that is as well-developed as the utility viewpoint, the PUC will be hard-pressed to reach a fair resolution.

Luckily, most jurisdictions have a consumer voice. State legislatures and executive branches have long recognized that consumer representation before PUCs is an essen-tial part of the process, and have created official state agencies or divisions within existing state agencies, such as offices of attorneys general, that represent utility consumers, or a subset of utility con-sumers. The first, the Maryland Office of People’s Counsel, was created in 1924,

around the time that many PUCs were created. Many more were created in the late 1960s and early 1970s in a time of rapidly rising utility rates, when there was a widespread belief that the consumer viewpoint was not being heard by PUCs. It was in this era that the National Association of State Utility Consumer Ad-vocates, or NASUCA, was formed in 1979. The utility consumer advocate agen-cies from 16 states formed NASUCA to provide for a more cohesive consumer voice at the federal level, to create an organization within which to exchange ideas and develop strate-gies, and to encourage greater consumer participa-tion in the regulatory process. Since 1979, NASUCA has grown to 42 full members, and has affiliate members throughout the United States, the Carib-bean, and Canadian provinces. The association has

» LEGAL ARENA

Never before have energy customers had so many options.

Protecting Consumers REFOCUSED FOR CHANGING TIMES // BY LEWIS MILLS

THE PRESSURES AND OPPORTUNITIES facing the utility industry today are unusual and

significant. There are risks, and when there is elevated risk in an enterprise, there is an elevated chance that the risk will turn into an actual cost increase or earnings decrease. There are opportunities as well, and when a regulated company has opportunities, there is a chance that the benefits accruing from those opportunities will not be fairly appor-tioned between shareholders and customers or that the regulated company will not take advantage of the opportunities. The opportunities are exciting; never before have energy customers had so many options — many of them here now and many more just over the horizon. To ensure that these detriments are not unfairly passed on to consumers and that these benefits are available to customers as quickly and as smoothly as possible requires an engaged and effective consumer advocate.

State public utility commissions, by and large, are committed to doing the right thing for the consumers that the PUCs are charged with protecting, and for the utilities under their jurisdictions. But state PUC decisions can only be as good as the record on which they are based. Many important PUC decisions are made after contested case proceedings and litigated evidentiary hearings. These cases are structured as contested cases on the theory that the adversarial process is a good way to develop a complete record. In regulatory proceedings, the adversarial nature is rarely as clearly defined as it is in criminal proceed-ings. But it is just as important in regulatory proceed-ings as it is in criminal proceedings that proponents of both sides of an issue have an equal opportunity to present their case. Like computer programmers used to say: “Garbage in, garbage out.” If the record in front


» LEGAL ARENA

allowed member agencies to be more effective in their own jurisdictions, and has helped to present the consumer viewpoint on regional and federal issues.

The need for effective advocacy on behalf of util-ity customers has never been clearer. Some states appear to be on the brink of major changes in the business model or the price structure, or both in the case of electric utilities. At the same time that utilities are facing flat or negative load growth, many are also facing significant capital expenditure needs to address new environmental compliance require-ments and transmission expansion, and to address a backlog of more mundane infrastructure replace-ments. To further complicate the picture, the in-creased capital needs and stagnant revenues come at a time — perhaps the first time in the history of the electric industry in this country — when large numbers of customers have plausible alternatives to simply buying commodity energy from a monopoly provider. These alternatives (energy efficiency, microgrids, distributed generation like rooftop solar,

and rapidly evolving energy storage options), made pos-sible by new technologies, are not only creating downward pressure on revenues for some utilities while creating earnings opportunities for others, but also setting up complex issues of inter- and intra-class subsidies.

In times of change there are pitfalls, but there are also enormous opportunities. It is absolutely critical that consum-ers are effectively represented in all of the arenas where these changes will play out so that customers are not only unharmed, but can quickly receive the benefits that these changes promise.

JAPAN NUCLEAR

Japan will not rush its review of the future of nuclear power, according to Toshimitsu Motegi, the nation’s Minister of Economy, Trade and Industry.

Japan is finishing work on a new energy policy, the first since the 2011 Fukushima nuclear accident, according to The Associated Press.

Lewis Mills is Missouri Public Counsel and president of the National Association of State Utility Consumer Advocates.


» LEGAL ARENA

Texas Mulls Capacity MarketPROPOSAL CLOSELY WATCHED // BY DARRELL DELAMAIDE

A CAPACITY MARKET MAY BE THE GREATEST thing since sliced bread, but it’s not an easy sell.

Even PJM Interconnection, the world’s largest com-petitive electricity market, which is very happy with its shift to a capacity market, found that the hardest part was to get regulators and stakeholders to buy into the concept. “The biggest hurdle was getting the regulatory approvals,” Terry Boston, PJM CEO, said. “But just get-ting stakeholder agreement was also an obstacle.”

However, the system has functioned well in reduc-ing the rate of economic retirements, Boston said, and now that cheaper shale gas and new EPA regulations are having an effect, it is contributing to a highly ef-

ficient capacity. “It has attracted 28,000 megawatts of new capacity, largely combined-cycle,” he said.

As the Electric Reliability Council of Texas mulls adoption of a capacity market model, the pros and cons of such a shift are being carefully scrutinized.

PJM has consulted with ERCOT on the advisabil-ity of implementing such a system, and the current situation in Texas where underinvestment in capacity has threatened shortages is an argument in favor of adopting it, Boston said. “You couldn’t have a better time,” especially in view of cheaper fuels and tougher emission restrictions. The reaction among policymak-ers in Texas has been “fairly positive,” he said.

» LEGAL ARENA

Current Utility Analytics Institute utility members include: Black Hills Corporation, Bluebonnet, Canadian Electricity Association, Centerpoint Energy, Cleco, Duke Energy, Exelon Companies ComEd, BGE, Peco, KCP&L, Nebraska Public Power District, Northeast Utilities, OG&E, Pepco Holdings, Inc., SDGE, Sempra Energy Utility, Southern California Gas Company, Southern Company, Snohomish PUD, SRP, UGI Utilities, Inc. and We Energies. Solution provider members include: ABB, Accenture, Software AG, Black & Veatch, Copperleaf, Detectent, HP, Intel, Itron, KX Systems, Landis+Gyr, Lockheed Martin, Onzo, Oracle Utilities, SAS, and Teradata.

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» LEGAL ARENA

“If you construct it properly, it is better than the alternative,” Adam James, an energy expert at GTM Research, said. In a capacity market, James explained, a reverse auction several years in advance has power plants bidding their total cost of operation (capital costs plus operating costs) and obligating themselves to have a certain capacity available. The last unit ac-cepted in the bid sets the clearing price.

An energy-only market like ERCOT gives a very short-term price signal, which can lead to potential capac-ity shortages such as that faced by Texas under cur-rent forecasting. A medium-term price signal provides some breathing room for capital investment in new capacity.

The risk on the other side is that forecasts for elec-tricity demand that

overshoot actual demand can result in thousands of megawatts of excess capacity being priced into the rates consumers pay.

Proponents of the capacity markets argue that the premium above energy-only pricing is still less than what consumers pay when shortages are met by much higher-priced energy or blackouts. “When you do a cost comparison, you have to include the high marginal power prices when there is a capacity short-age,” James said.

Boston said that PJM’s experience has been that their all-in cost was lower. “Prices are much lower when you have adequate capacity,” he said.

An important component in a well-designed capac-ity market is a demand response flexibility — custom-ers also play a role in the market, James said.

For instance, Boston explained, in the PJM mar-ket a chemical company may reduce or shut down operations during peak hours in order get a capacity payment, reducing its overall energy costs.

A capacity market can also help development of al-ternative energy sources, James notes. Wind or solar

may have zero fuel costs down the road, but have high capital investment before generating any electricity.

“Capacity payments would give them another rev-enue stream,” he said, which could be vital given the decline in government support.

Although two out of three members of the Public Utility Commission of Texas in October indicated their support for a mandatory capacity reserve margin, essentially creating a capacity market, Commissioner Kenneth Anderson opposed it.

In a November presentation submitted to the Texas legislature, Anderson argued, “A mandatory capac-ity reserve margin will result in billions of unneces-sary, unavoidable and largely un-hedgeable costs to customers, without guaranteeing rolling blackouts will not occur.”

GTM Research’s James agrees that some caveats are in order. “If you don’t design it properly, it can become a life-support system for unused capacity,” he said. Western Australia, where mistaken forecasts ran up excessive capacity costs, is an examplde of how a capacity market can backfire.

But measures such as demand response flexibility can mitigate these risks. “Essentially, the capacity market model treats ancillary services market functions as one of the attributes of the resource,” James said.

Although getting a capacity market up and running is the main challenge, PJM is still tinkering with its model to make improvements. “There is a little more volatility than we would like,” Boston said.

Also, the operator’s focus has been on peak loads in the summer, and some products are only avail-able then. This winter’s wave of cold weather has increased PJM’s focus on that season as well.

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CARBON UP

Carbon dioxide emissions increased 2 percent last year after declining for several years, according to The Associated Press.

U.S. carbon emissions in 2013, however, remained 10 percent below 2005 levels.

If you don’t design it properly, it can become a life-support system for unused capacity.


» FINAL TAKE

Reflections on a Post-CEO Life BE SAFE // BY MICHAEL MORRIS

ALLOW ME TO SHARE some comments on life before and after leading one of America’s

great companies. I came to the energy business in a roundabout way. I started by preparing environmen-tal impact statements for large energy projects such

as interstate pipelines, major power plants and extra-high- voltage transmission lines. That led to a 10-year career in the natural gas business with one of the major inter-state pipelines regulated by FERC. Moving from the environmental department to marketing to general man-agement, I saw an industry respond to deregulation caused by Order 360, which freed local distribution companies from their long-term fixed quantity. Order 636 continued the process and customers saw

savings based on the freedom to shop for transport-ers that might discount their rates.

In 1988, I came to the electric industry totally convinced that it, too, would be deregulated within months. Much to my surprise and joy it took decades and I enjoyed that time by having the honor to lead three significant electric utilities in Michigan, New England and, ultimately, at American Electric Power.

» LEGAL ARENA

In 1988, I came to the electric industry totally convinced that it, too, would be deregulated within months.


» FINAL TAKE

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» ADVERTISER INDEX

Understanding the significance of this industry and those companies to their service territories is a compelling experi-ence as you realize the importance of the energy industry. Life advances when electric power is readily available. Hu-man capacity is free to advance learning, to advance medicine, to advance under-standing and to al-low all to reach their peak in life, whatever

it may be. Serving those opportunities is humbling to say the least.

Watching the current changes in this important and irreplaceable energy industry structure is painful because it has worked so well for so long. Those changes may make for a better industry, but they also may lead to major challenges created by unintended consequences.

I know that my successors in this industry will find the means to continue to serve their custom-ers in a cost-effective and reliable way. So I leave this industry awestruck by how significant it is and humbled by the chance to lead three great compa-nies and join the rest through the Edison Electric Institute, knowing that the lights will stay on no mat-ter the challenge.

Serving on the board of for-profit and not-for-profit organizations fills the many hours left by retirement. People often ask, “How can you serve on so many boards?” I simply say, “I used to work 80 hours a week or so and now I work about one-fourth as much.” Serving on the board of regents for both my undergraduate and law school alma maters is quite

satisfying, and I hope I can add benefit and pay back in a small way. In Michigan I’m serving on a board created by Gov. Rick Snyder to assist the lowest-performing 5 percent of schools to better serve their students and parents.

In Ohio, I’m helping Gov. John R. Kasich’s educa-tion department by joining a small group of edu-cational experts who are trying to close the gap between what business needs and what the K-12 system is producing. My input focuses on the social skills one needs to join the workforce as well as the ability to perform in a corporate structure. Both of these undertakings are worthwhile, as they hopefully will lead to better lives for those young people as they mature and join the workforce.

I close by simply saying that mine has been a life’s journey with unexpected blessings in a number of unexpected ways. Meeting some incredible people along the way from presidents to a newly hired meter reader has been rewarding.

Finally, remember to live in the moment and do the best you can for our industry. It is special. It is rewarding. Above all else, be safe.

Remember to live in the moment and do the best you can for our industry.

Michael Morris is former chairman, president and chief executive of AEP.

» FINAL TAKE

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