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As the past year has shown, transforming the U.S. electricity system into one that is climate-friendly, reliable and affordable while attracting the investments needed is proving an enormous challenge.
Nine major natural disasters in the United States last year were followed by an extremely cold week in Texas this February. As hundreds of lives and hundreds of billions of dollars were lost, regional energy systems shut down and made the disasters worse. Two energy industry experts outlined a number of fixes – some fairly easy, most not – at the most recent episode of Global Energy Dialogues, produced by Stanford University’s Precourt Institute for Energy.
“I know the passion is there on decarbonization and 100 percent clean energy,” said Doug Kimmelman, senior partner at Energy Capital Partners and a member of the Precourt Institute’s advisory board. “But, I like to say that we need to solve for four things side by side.”
Those four things, Kimmelman said, are decarbonization, reliability, cost and providing a return for investors on the hundreds of billions of dollars needed to transform the U.S. power sector.
While accomplishing those goals simultaneously is an enormous challenge, there are signs of hope. Advances in energy storage technologies, microgrids, optimization software, renewable hydrogen and greater investor interest in energy all bode well, said Mike Morgan, chief executive officer of Triangle Peak Partners, an energy investment firm, and a co-chair of the Precourt advisory board.
“Those are sources of optimism. and that's a real difference from the past,” said Morgan, “but it's still a very heavy lift.”
While the February 2021 polar vortex froze many Midwest and Southern states, the impact was worst by far in Texas. While Texas has such extreme cold temperatures about once a decade since the 1980’s, the length of this winter storm was much longer. Dallas and Houston were below freezing for 30 percent to 40 longer than previously seen, and Austin was below freezing for a week, previously unheard of.
More went wrong than went right for the state’s energy system during the freeze, noted one of the two discussion moderators, Sally Benson, a professor of energy resources engineering and former co-director of the Precourt Institute. Morgan and Kimmelman agreed, as did Benson’s fellow moderator, Yi Cui, professor of materials science engineering and current director of the institute.
The group explored possible remedies. Wind turbines, almost all of which froze up at the storm’s peak, must be weatherized. In addition, said Morgan, Texas did not run simulation and drills for the power system in the event of such extreme winter weather, because utility executives and regulators there focus on the much more common summer heatwaves and hurricanes.
“One of the simple policy fixes is to do drills and do simulations,” said Morgan, “so I think that's an easy prescriptive element coming out of this.”
Another straight-forward fix would be to put critical parts of the natural gas infrastructure on the power system’s critical load list, Morgan and Kimmelman said. During the storm, the state grid operator shut off power to many homes and businesses to manage the huge imbalance of supply and demand. As part of that, many parts of the gas production infrastructure lost power. Without fuel, some gas-fired power plants had to shut down, making a terrible situation worse.
Other fixes may not be as easy. Electricity markets in most states and regions pay power producers to keep some generators on standby in case supply and demand unexpectedly become unbalanced. Texas pays only for megawatts of power sold into the market and put on the grid. For this reason, its excess generating capacity has declined since deregulation 20 years ago.
“Who the heck is going to spend $250 million to $500 million to build a power plant when they’re only going to get paid 15 hours of the year?,” asked Kimmelman. “You know you won’t make enough of a return on energy sales alone.”
The problem with weatherizing Texas’ huge fleet of turbines, standby payments and other fixes – like requiring power suppliers to have stronger finances – is that consumers in Texas will have to pay more than they have been.
“Are consumers willing to pay more to insure against the once every 10-year event?” asked Kimmelman.
They may be. After benefitting from low prices for years, many residents received $5,000 electricity bills that they cannot afford to pay.
U.S. grid transformation
In California, where power producers get paid for standby generation and mandates have resulted in large amounts of renewable power, consumers have been paying some of the highest electricity rates in the world. Nevertheless, heatwaves and wildfires last year and in 2019 have resulted in controlled blackouts becoming, some fear, a regular feature of summer in many parts of the state.
Probably one of the biggest challenges is storing energy at large scale, and not just for a multi-day emergency. As the country increases the amount of intermittent wind and solar power it relies on, it needs the ability to affordably store electricity generated during the day for nighttime use, and to store summer power for winter use. Grid-scale energy storage technologies are advancing, but they are not yet near ready, said Morgan.
Nevertheless, Kimmelman and Morgan think that the United States can achieve the goal of a sustainable, reliable and affordable grid, and the necessary capital needed for that.
“Mike and I ten years ago would have been far less optimistic than we are now,” said Kimmelman.
Morgan, for example, extolled the potential of an emerging model in which homes have solar panels and batteries, and neighborhoods form microgrids that make the most of their collective energy resources. In addition to solar and batteries, such resources include flexibility about when electric cars need to be charged and clothes need to be washed, as well as a willingness to sell power into the bigger grid when the price is right. Software is being developed that automatically optimizes these resources for homes and microgrids.
Though such technologies are still early in commercialization, distributed batteries with such software collectively created a virtual power plant to supply power to Southern California last August as the region was on the verge of rolling blackouts, Morgan said.
“We are seeing innovation on how to better utilize software to get more out of what we already have,” he added.
Morgan and Kimmelman agreed that investor interest in energy, and especially in sustainable energy technologies, is picking up.
“We're cautiously optimistic that the investor desire is starting to align with the societal desire,” said Kimmelman.
Added Morgan: “It's not only the equity markets. The debt markets are very willing to fund things like wind and solar.”
At the next Global Energy Dialogues session on May 19, Ashok Belani, executive vice president of Schlumberger New Energy, and Bruce Niemeyer, vice president of strategy and sustainability for Chevron Corp. will discuss the innovations, business models and policies required for global energy transformation. Sessions are free and open to the public. Please visit the Global Energy Dialogues website to register for future virtual sessions and watch past ones.
The Global Energy Dialogues are funded by the Stanford Global Energy Forum.