Write a 1000 to 1500-word paper on what you envision as the power system of the

Question

Write a 1000 to 1500-word paper on what you envision as the power system of the future. Select the energy resource(s) that will power your system and explain why you chose them. Your paper should discuss the changes to the current systems used and why these changes will make your system better than the current system. Though options are unlimited, you must justify your decisions. Reference at least three sources in addition to your text and format according to APA standards, 6th edition, including title and reference pages.

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Q.

Write a 1000 to 1500-word paper on what you envision as the power system of the future. Select the energy resource(s) that will power your system and explain why you chose them. Your paper should discuss the changes to the current systems used and why these changes will make your system better than the current system. Though options are unlimited, you must justify your decisions. Reference at least three sources in addition to your text and format according to APA standards, 6th edition, including title and reference pages.

Answer –

Power System of the future

While the “utility of the future” can be largely captured by the dynamic between regulation, technology innovation, and business model evolution, the “power system of the future” is driven by a more complex set of features. The regulatory-utility dynamic is still a dominant component, but the full complex and dynamic system responds to a broader set of cross-cutting trends. This section explores 10 such trends as a background to the subsequent discussion of potential futures.

1. Renewable Energy Cost Reductions

2. Innovations in Data, Intelligence, and System Optimization

3. Energy Security, Reliability, and Resilience Goals

4. Evolving Customer Engagement

5. A Tale of Two Electricity Demand Forecasts

6. Increased Interactions with Other Sectors

7. Local and Global Environmental Concerns over Air Emissions

8. Energy Access Imperatives

9. Increasingly Diverse Participation in Power Markets

10. Revenue and Investment Challenges

11. Summary: Understanding the Costs and Risks of Inaction

Cost reductions in renewable energy (RE) are driving rapid deployment and are encouraging both power system interdependence and independence. Bulk power system interdependence (e.g., coordination across larger balancing areas to drive down RE integration costs) is growing in many jurisdictions. At the same time, the cost of RE is falling for small customers, and customer-sited systems increasingly offer greater choice and resiliency. Figure 2 illustrates the recent dramatic reductions in photovoltaic module costs.

The result is two countervailing trends: one toward greater cohesion and one toward greater decentralization. Some (Barclays 2014; RMI 2014; UBS 2014) have postulated an increasing shift toward “defection” from the traditional utility/customer relationship. Others (EPRI 2014; Kind 2013) articulate the critical role of the centralized generation, transmission and distribution system. Still others (Ruth and Kroposki 2014) articulate an increasing intelligent, heterogonous “system of systems.” Is there a way to reconcile these trends? Will the power system evolve to a coordinated ensemble of assets through which many business/customer relationships exist? The sections below investigate some emerging technology and market options that could support both trends, including aggregation and coordination of many semi-independent customer systems to support the cohesive operation of the bulk power system.

2. Innovations in Data, Intelligence, and System Optimization

The power grid does not just transmit electricity. Now that sensors and information technology are increasingly permeating power systems, resulting in the ubiquity of market and operational data, there is an enormous opportunity to realize further optimizations of power systems. Large quantities of distributed energy resources could dramatically increase the complexity of network operation, but, appropriately managed, could help to meet reliability needs and relieve congestion in real-time.

There is an increasing interdependence of information technology and energy technology, with smarter grids opening pathways to greater functionality (e.g., situational awareness) and active management of more diverse sets of resources providing a range of services that can be monetized in energy markets. Granular data on power system performance and big data analytics can reveal investment needs for grid enhancement and inform the locational value of distributed energy resources such as distributed generation and storage (Denholm et al. 2014). The forces of data and intelligence are also sharpening the focus on cyber security, open access to data, and consumer privacy protections. These trends infuse much of the current thinking about power systems of the future (ISGAN 2013; IBM 2012; Sungard 2013; Oracle 2013).

In many settings, imports of coal, oil, and natural gas are raising energy security concerns, exacerbating current account balances, and driving increased interest in efficiency and locally developed RE. In other cases, abundant supply and use, particularly of natural gas, offer increased opportunity for low-cost utilization, addressing some environmental policy goals including local air quality, but have also raised questions regarding longer term pathways toward lower carbon intensity, price volatility, and geopolitical considerations. The economic potential of RE—and the ability of RE to mitigate energy security concerns—varies widely by country, determined primarily by abundance of resource and distance from load. Some countries have abundant solar and wind resources located close to load (e.g., India and Mexico), others have abundant wind and solar far from load (e.g., the U.S. and China).

Grid resilience has increased in importance as extreme weather events occur more frequently. Instead of reinforcing existing systems, which are dominated by a hub-and-spoke structure and use of redundancies to maintain reliability, resilience planning considers mechanisms to increase how flexible the system is, so that critical portions of the system can come back online both quickly and independently, in the event of an outage. Resilience to disasters is increasingly among the top priorities for power system decision makers. Natural disaster induced outages and increased data and intelligence raise issues and opportunities related to the security, reliability, and resilience of the power system. Solutions that are more resilient and support critical infrastructure, safety, and public health in case of emergencies are increasingly sought.

These differences, layered atop the existing energy mix and increasingly interdependent energy infrastructures, are redefining the 21st century conception of reliability.

Customer engagement is changing power system dynamics in two ways. First, customer preferences are more directly driving investment trends, for example through energy efficient appliances, distributed generation, electric vehicles, and smarter homes. Customers are increasingly valuing services that use energy (e.g., heating, cooling, lighting, refrigeration, electronics, communications, entertainment) over energy itself. Secondly, technology innovations are enabling a step change in how customers participate in energy supply and demand. Historically, largely inelastic demand led to sharp system peaks, so power system planning, regulation, and market design treated demand as a fixed target, with utilities and grid operators building a dispatchable supply stack to meet it. Direct consumer participation holds the potential to alter these planning practices and surrounding market designs. At a time when renewable electricity is increasing variability on the supply-side, intelligent demand will be an increasingly important dispatchable resource (IEA-RETD 2014).

Customer engagement in power markets has already been shown to be technically feasible across residential, commercial, and industrial sectors (PJM 2013). As this engagement also becomes more economically feasible and socially routine, the rest of the power sector faces the challenge of keeping up and embracing the need to co-optimize electricity supply and demand dynamically.

With some exceptions, the global energy landscape has bifurcated into areas of rapid growth and areas of flat or decreasing demand. Many emerging economies are exhibiting strong growth, industrialization, and rapid urbanization (World Bank 2014). With relatively smaller asset bases, these settings provide interesting opportunities for innovation and technology leap-frogging.

Meanwhile, the U.S., EU, and Japan, among others, are marked by slow demand growth (EIA 2013; Eurostat 2014; Statistics Japan 2014). Compounding slow economic growth, these power systems are increasingly marked by growing energy efficiency programs, and could also see decreases in peak demand due to the rise in distributed generation and demand response. This could impact use patterns for existing infrastructure, raising regulatory questions about cost recovery of current investments.

In a sense, these two bifurcated states represent the dominant contours that may prevail over power system evolution in the next generation. These unique trajectories will strongly shape planning strategies and opportunities for power system transformation.

Globally, power systems increasingly compete for scarce water and land resources, sharpening debates about the sector’s evolution but also encouraging improved accounting approaches. Parallel evolutionary processes taking place in the built environment (from super-efficient appliances to home-based thermal storage to campus microgrid projects) also need to be accounted for in power system planning. Electrification of transport, while still at relatively low levels, has the potential to significantly impact power system needs and opportunities (Green et al. 2011; Mwasilu et al. 2014). As production of shale gas increases globally, gas generators may compete with other critical sectors (e.g., home heating, chemical) for these domestic resources, leaving policymakers to contemplate interventions to distribute resources in alignment with national objectives. And finally, industrial consumers—already facing competitive pressure in the global economy to cut costs—are increasingly turning to RE to reduce net energy costs. Each of these touch-points with other sectors is shifting the landscape of power system evolution.

Poor air quality stemming from fossil fuel emissions contributes to acute public health problems at the local level (Chen et al. 2013; EPA 2011). At a global level, fossil fuel use contributes significantly to climate change (IPCC 2014). The local and global costs of fossil fuel pollution occur largely outside the power sector, are more difficult to account for, and thus historically have not been explicitly included in planning processes. But in the 21st century both concerns are contributing to changes in power system policy and planning.

In many countries, this emerges in the form of policy mandates to grow clean energy sources. China, for example, created an explicit ‘carbon intensity’ target to reduce carbon emissions per unit of GDP, and a portfolio of technology-specific capacity targets (NPC 2011). In Europe, environmental energy policy takes the form of a continental emissions trading scheme layered on top of a patchwork of national policy targets. In Mexico, a series of RE targets are coupled with a comprehensive energy reform that aims to restructure the power sector.

Beyond emissions reduction measures, planning practices in settings with established grids are increasingly focused on mitigating the impact of more frequent extreme weather events (see Section 2.3), both by physically hardening existing infrastructure and upgrades to more intelligent systems which utilize distributed resources and islandable microgrids (Abbey et al. 2014).

As part of global agreements to speed economic development and opportunity, there is growing momentum to accelerate energy access to all people. Expanding finance and technology options are providing tailwinds for these energy access goals, but significant investment challenges remain the norm. This report will summarize current approaches to accelerate energy access, ranging from expansion of centralized systems, to more bottom-up electrification approaches. Thereafter, it will explore the emerging opportunities, especially those centering on identifying sustainable models for accelerating energy access, and ensuring a level of ‘backwards-compatibility’ so that choices made today can be integrated across a wide range of potential futures.

Around the world, participation in power market ecosystems is diversifying. In emerging economies, where many power sectors have been state-owned, there is a push to boost investment by opening the sector to more independent power producers (e.g. Mexico, South Africa). In more mature power sectors, this trend is taking the shape of greater direct consumer power market participation, from generation to demand response. These diversification trends, driven by a need to respond to legacy challenges, will add a layer of complexity to power systems of the future.

Finally, the evolution toward power systems of the future is being shaped by finance and investment. Typically, this pressure is felt by existing power sector stakeholders across the value chain: supply, transmission, delivery, and demand. Specifically, at high RE penetration, supply-related revenue challenges can emerge—at the bulk-power/wholesale level—as abundant wind and solar energy enters the market at essentially zero marginal cost, and reduces utilization of existing conventional thermal (coal, gas, and nuclear) generators.2 This scenario is now occurring in various countries in Western Europe (Citi 2013), as well as in the MISO system in the U.S (MISO 2014) and the southern states of India (e.g., Tamil Nadu and Karnataka) (CEA-GOI 2013). For example, in December of 2014 the German utility E.On—one of the largest utilities in the world—announced it would spin off its thermal coal and nuclear units into a separate company in light of declining thermal revenues. In parts of China, similar dynamics would be observed, but the firm commitments to a minimum annual allotment of run-time for coal plants instead causes wind curtailment instead of coal capacity factor reductions. Overall, socializing the cost of existing infrastructure is an increasing challenge as disruptive technologies permeate markets.

At the level of customer retail, both distributed photovoltaic (PV) and energy efficiency (either static or dynamic) reduce retail electricity consumption, raising revenue concerns for some electric utilities and impacting perceptions of investment risk and creditworthiness. This scenario is occurring in Germany, Spain, Italy, and various U.S. states, such as California, Arizona, and Colorado.

Delivery of energy—network expansion typically financed by utility revenues—is also facing similar pressure. As falling revenues squeeze typical investors, the need for additional network investment at both the distribution and transmission levels is rising (Hogan 2013).

Many trends are anticipated to persist. For instance, the cost of distributed energy resources (DERs) will likely continue to decline, and greater use of data will lower customer acquisition costs for DER solutions. The question for this trend, therefore, is not if DER will deploy at a greater scale, but rather how much will deploy, how soon, and at what cost (including the cost of stranded assets).

Whether the 10 trends outlined above are ‘headwinds’ or ‘tailwinds’ will depend on the orientation set by decision makers for their power systems. Inaction may result in power system drift and missed opportunities. If stakeholders attempt with limited success to keep current business models viable, various undesirable outcomes could result. Utilities could face disincentives to procure smart grid or energy efficient products. The power sector could become marked by insufficient investment, stranded capital assets, fuel vulnerability, and infrastructure lock-in. And the distribution of the customer base could also become more distorted, with high credit customers increasingly defecting and low-credit customers facing increasingly high rates.

All of these potential costs and risks reinforce the need for deliberate and proactive collaboration to encourage desired futures. The next section reviews emerging models to position power sectors for success and to harness the momentum of the trends outlined above.

Pathways to Power Systems of the Future

This section suggests five illustrative pathways for power systems of the future. There is significant room for natural diversity across jurisdictions, not only in terms of current status but the transformations that might take place. These models are not designed to be prescriptive or comprehensive. Rather, these pathways have already begun to emerge, and each illustrates how proactive steps can be taken to productively harness the “winds of change” to generate positive transformation.

Rather than centering discussion on potential utility business models and associated regulatory frameworks, as has been captured in much of the literature, we discuss proposals for power system ecosystems as a whole, which are complex and dynamic systems comprised of multiple layers, including regulatory and business models. For simplicity, three key characteristics of each pathway are described: design, policy and regulation, and finance.

Design: The underlying technologies and designs of power systems are central to power system transformation. At the same time, these characteristics are also path-dependent on legacy institutions and policy goals, for example the extent of existing power market liberalization is a key variable. Institutional fluency with managing distributed energy resources is another. Future pathways are guided by a desire to reap the potential benefits of technological advancements, and the extent of a particular jurisdiction’s ability to do so. The resulting mix and distribution of benefits realized will be highly context -specific. Spanning most pathways is the potential for a sizable influx of market and consumer data. The extent to which that data is available to and utilized by various market players will heavily influence outcomes, particularly with respect to expanding consumer participation, sector investability, and efficient system operation.

Policy and Regulation: Policy provides guidance—and where necessary, authorization—for the regulatory frameworks which governs these pathways. Technological innovation is for the first time in history making it possible to realize cost-effective, reliable, and clean power systems. Seeking to realize this future, regulation can seek to incorporate technological innovation, as well as competition to promote such innovation. The extent to which regulation is structured to decrease barriers to market entry, or avoids the selection of “winning” technologies and products, is a key variable influencing outcomes. Policies will likely also provide guidance on what levels of vertical market power are acceptable throughout various stages of transformation, and inform the regulator on the balancing act of privacy concerns versus open-access to data. Policies can also provide support for public-private partnership research, development, demonstration, and deployment activities, in order to encourage financing for high-risk, high-reward technology research.

Finance: The investability of the power sector, as well as the health and composition of participating investor classes, will influence the rate and extent of power system transformation. Investability hinges on policy, regulatory, and political stability, the financial health of natural monopolies in the sector, and robust capital markets. The profile of participating investor classes is influenced by many variables, including the yield environment, permissible investment vehicles (often based on local tax structures), and available government and development agency support schema.

In the subsequent sections, pathways toward power systems of the future are discussed. Figure 5 places these five pathways in the framework of extent and speed of change, as introduced in Section 3.

Figure - Illustrative Pathways of Power Systems of the Future, Organized by Extent and Speed of Change

The five illustrative pathways reviewed in this section are:

• Bottom-of-the-Pyramid (BOP) Coordination Pathways: Accelerating energy access has been a chronic challenge for decades. New technology configurations and business models are opening up opportunities for innovative approaches to energy access, especially when linked to broader social development goals. In this context, two pathways emerge:

o          Adaptive Bottom-up Coordinated Grid Expansion

Figure - organizes each pathway by its starting point, each of which represents typical types of existing power sector environments: vertical integration, restructured markets, and low energy access environments.

Figure- Applicability of Pathways based on Present Status of Power Sector Organization

These illustrative starting points are depicted next to 'adjacent pathways' that

represent potential trajectories for power system transformation. For example, vertically integrated power systems can be guided toward Next Generation Performance-based Regulation, or toward Clean Restructuring. Similarly, in markets where restructuring has already taken place, the "Unleashing the DSO" pathway may be of interest. This is not to suggest however that

the adjacent pathways are the only options, or that they are mutually exclusive. Combinations of different pathways will likely arise. For example, decision makers could

conceivably pursue power system change of a more transformative nature, for example

combining "Clean Restructuring" elements with a strong focus on smarter distribution grids, as described in the "Unleashing the DSO" pathway. While power system evolution is 'path dependent,' often limiting the scope of feasible change, the pace of technological change is opening up new opportunities for such innovative policy design.

Table 1. Existing Solutions for Electricity Access17

Solutions

Technology

End Uses

Fragmented

Solar home systems

Lighting, Heating, Communications, Refrigeration

Energy Services

Solar lanterns

Lighting

Community-scale

Cooking, Heating, Other commercial and

Community-

cooking and heating

industrial uses

technologies

scale Energy

Services

Mini-grid based

Lighting, Communications, Refrigeration, Other

systems

commercial and industrial uses

Top-down Grid

Transmission and

Lighting, Communications, Refrigeration, Other

distribution

Expansion

commercial and industrial uses

infrastructure

Fragmented Energy Services

Fragmented energy services offer substantial user autonomy and are marketed to households through products such as improved cooking technologies and device-based electrification systems. Clean cooking technologies have received significant international focus as well as national support in several developing countries through programs that facilitate access to finance and provide institutional support (GVEP International 2009). Device-based electrification systems, on the other hand, are more diverse in design depending upon location. In order to deliver long-term value, both these solutions require some level of context-specific customization to end user needs and preferences as well as to their social and economic conditions. Relying on incremental changes in technology designs and transformative innovations in energy delivery approaches (Navigant 2006), fragmented energy services are fundamentally evolutionary in nature.

Community-scale Energy Services

Community-scale solutions are slightly more centralized than fragmented energy services,18 being designed to community-level requirements of size, technical capability, reliability, and affordability. Given the sometimes slow pace of top-down grid expansion (see next section), as well as plummeting costs of renewable energy technologies, mini -grid-based solutions for community-wide electrification have begun to achieve traction in several developing countries, particularly in remote communities (UNF 2014)19. Furthermore, at the community-scale of

Top-down Grid Expansion

Top-down grid expansion is an integral component of social and economic development in emerging economies. As the historically dominant model for enhancing electricity access to remote locations, it is a centralized approach that at times has been slow in achieving broad coverage (GVEP International 2011). The large scale of investments for grid expansion and poor rate of return from low- income customers often diminishes the commercial viability, thus requiring some level of state support. Even where grid connections have been established, reliability of service is often low, resulting in demand for back-up energy services. Effective top-down grid expansion, despite being incremental in pace, requires realignment of incumbent regulatory structures and transactional relationships among stakeholders to encourage private participation and affordability. As such, top-down grid expansion is reconstructive in nature.

Mainly device-based electrification systems like battery charged solar PV packs etc.

In describing these emerging pathways, we focus on illustrating how facilitation of favorable regulatory and financial environment by policymakers may lead to accelerated entrepreneurship and more coherent BOP solutions.

Conclusion: Policy and Regulatory Priorities

Cost reductions, innovations in data, evolving energy goals and customer engagement these are just a few of the trends that are rapidly shaping power systems. Policymakers and regulators can choose to let these external forces determine how power systems unfold, or they can promote policies and build regulatory and finance frameworks that drive the transformation toward a desired vision.

This report articulates competing visions of the power system, and suggests five pathways of policy and other actions that can help realize these visions. To modernize the power sector most effectively, it is essential for policymakers to engage stakeholders early and often, so that the power system accommodates a broad set of interests to best energy customers and society.

To summarize, the five pathways toward a modern power system described in this report are:

Next-generation Performance-based Regulation

This pathway aims to gradually reorient the vertically-integrated utility model toward the achievement of a broader set of public policy outcomes. Key principles of this adaptive pathway include:

Clean Restructuring Pathway

This pathway aims to take conventional power market restructuring model and enhance it with the lessons learned of the past 20 years. Key principles from this reconstructive pathway include:

Unleashing the DSO Pathway

This pathway aims to empower the distribution system operator to coordinate a cohesive ecosystem of retail and wholesale markets. Key principles of this evolutionary pathway include:

Bottom-of-the-Pyramid Pathways

These pathways require enhanced planning in order to integrate existing energy access solutions. Two possible pathways emerge: adaptive Bottom-up Coordinated Grid Expansion and evolutionary Bundled Community Energy Planning. Each pathway creates customized, context-specific, energy solutions. Key principles include:

With these organizing principles in mind, power sector decision makers will be better positioned to proactively guide a transition to 21st century power systems. The forces acting on today’s systems need not be perceived as headwinds. Organizing the policy and regulatory landscape to harness these trends to achieve accessible, reliable, and low-carbon energy futures can transform these forces into tailwinds. As the old saying goes, “When you can’t change the direction of the wind—adjust your sails.”

References

Abbey, C.; Cornforth, D.; Hatziargyriou, N.; Hirose, K.; Kwasinski, A.; Kyriakides, E.; Platt, G.; Reyes, L.; Suryanarayanan, S. (2014). “Powering Through the Storm: Microgrids Operation for More Efficient Disaster Recovery.” IEEE Power and Energy Magazine (12:3); pp. 67-76, May-June 2014.

Aggarwal, S.; Burgess, E. (2014), “Performance-Based Models to Address Utility Challenges,”

The Electricity Journal (27:6); pp. 48-60.

Artha. (2008). EGG-Energy – Artha Case Study. Zurich, Switzerland: Artha. Accessed December 2014: http://www.arthaplatform.com/casestudies/46/egg-energy-engineering/

Barclays. (2014). The Solar Vortex: Credit Implications of Electric Grid Defection. London, UK: Barclays Credit Research.

Solutions

Technology

End Uses

Fragmented

Solar home systems

Lighting, Heating, Communications, Refrigeration

Energy Services

Solar lanterns

Lighting

Community-scale

Cooking, Heating, Other commercial and

Community-

cooking and heating

industrial uses

technologies

scale Energy

Services

Mini-grid based

Lighting, Communications, Refrigeration, Other

systems

commercial and industrial uses

Top-down Grid

Transmission and

Lighting, Communications, Refrigeration, Other

distribution

Expansion

commercial and industrial uses

infrastructure

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