Blog Series – Part 3: DOE’s Grid Resiliency Pricing Rule

Blog Series – Part 3: DOE’s Grid Resiliency Pricing Rule

Identifying Alternative Solutions for Grid Resiliency 

In this third blog in a series examining the Department of Energy (DOE)’s Notice of Proposed Rulemaking (NOPR), we will look at other market solutions to enhance grid resiliency. The NOPR argues electric generation resources with an abundant (specifically 90-day) fuel supply on-site are undervalued in terms of their value to the grid. However, since the fundamental logic behind the NOPR is that the United States should actively engage in increasing the resiliency of the electric grid, it is important to consider all possible solutions. Several recent studies, including the DOE’s own study on grid resiliency, conclude the grid is strong and is already meeting these criteria.

System operators adopt Capacity Performance Reforms to drive resiliency

The NOPR identifies poor performance during the Polar Vortex and Hurricane Sandy as major drivers of the need for improved grid resiliency. This argument is flawed in two ways:

  1. It is unclear whether the proposed solution of valuing on-site fuel supplies would solve the problems identified, and
  2. PJM  Interconnection, the regional transmission organization  most impacted by these two environmental events, has already taken steps to address grid reliability.

A report by the North American Electric Reliability Corporation (NERC) points out that during the Polar Vortex, excess coal supplies on-site at generating facilities froze and were unusable. Additionally, frozen equipment and sensors impacted the ability of natural gas generators to stay open. More recently, during Hurricane Harvey, Houston-area coal reserves were saturated with flood water and unable to be used. Fuel supply on-site, while a valuable inventory, does not alone address reliability and resiliency of the grid. For that matter, solar and wind generation facilities have unlimited supplies in inventory.

Following the difficulties faced during the Polar Vortex, PJM proposed capacity performance auctions. Under this model, the grid operator would take bids from generators, demand response resources, and energy efficiency resources in exchange for commitments that those groups will pledge to provide electricity at peak demand regardless of extreme weather conditions or other emergencies. This would include performance bonus payments for reliable resources and more strict penalties for poor performing capacity resources. Other northeastern system operators like NYISO and ISO New England have similar programs in place.

Distributed Energy Resources (DERs) add diversity to the fuel

Distributed Energy Resources (DERs) are a set of alternative electricity solutions such as solar, wind, combined hear power (CHP), energy storage, and microgrids. DERs have been cited by Energy Secretary Rick Perry as cause for concern related to future grid reliability due to the intermittent nature of renewable generating sources. However, when used effectively, DERs can provide greater grid support by increasing the diversity of fuel sources providing electricity to the grid. Multiple locations scattered across a service area can create redundancies in the case of one generation site failing. This can be especially valuable when renewable energy resources are paired with storage to create microgrids. Microgrids, which can be sited around hospitals, military installations, and other critical infrastructure, can operate independently of the larger electric grid in emergencies. Some utilities have already begun to pilot community-based microgrids to increase grid reliability and resiliency.

Smart grid technologies and physical infrastructure help utilities prevent, locate, and fix outages

There are several smart grid technologies that, if implemented, can improve grid reliability and resiliency. Advanced metering and distributed automation systems allow for the rapid or automatic outage detection, isolation, and restoration of critical services. These systems use data analytics to predict and detect outages faster and allow crews to identify impacted areas to respond quicker. Utilities across the country have begun the process of building new communications networks to support these new smart grid technologies.

Additionally, improving grid resiliency requires upgrades in physical infrastructure. Often, when extreme weather events occur, it is damage to physical infrastructure that causes the greatest delays in restoring service. An unfortunate example of this is the situation in Puerto Rico following Hurricane Maria. Six weeks after the storm, most of the island remains without power due to downed power lines and poles. Infrastructure upgrades like underground power lines, improved materials, and seawalls in low-laying areas can help prevent future catastrophic failures in the event of extreme heat, cold, wind, and flooding.

Demand response reduces the load needed by generators

Demand response or demand-side management technologies shift the focus from generating enough electricity for supply to controlling the amount of demand needed. By reducing consumption, less electricity is required from the generation fleet. Customer devices connected through the Internet-of-Things (IoT) automatically lower usage to balance the load at times when the grid is operating at high-stress. Returning to PJM as an example, during periods when the reliability of the grid is threatened, PJM compensates end-use customers for voluntarily reducing their load.

Various methods exist to improve the resiliency and reliability of the electric grid

There should be no denying that improving the resiliency and reliability of the electric grid is a worthwhile goal to pursue. However, it is fair to question whether the proposals laid out in the DOE’s NOPR represent the most effective methods to achieving that goal. There are a series of market mechanisms and technologies that can increase grid resilience, while moving the grid forward to a dynamic, diversified, and digital system. It remains to be seen how FERC will respond to the NOPR and what, if any, new policies will be developed. As we have seen, there are multiple options available and even if a new rule is implemented, it should not be the only solution pursued to enhance the grid.

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