By Daniel J. Foley, CEO, ACCIONA Energy North America
I hear a lot of talk about a great desire to include renewable energy into the national energy mix, if it weren't for the issue of intermittency. Sure, we can control the costs to build a wind farm or a solar plant, but the fuel supply is truly in the hands of Mother Nature whenever she decides to make the wind blow or the sun shine. As the CEO of a renewable energy company with more than 500 MW of wind and solar installed in North America, I know we only build renewable energy projects in areas with the best wind or solar capabilities within a given market. But still, it is not possible to know exactly when Mother Nature will smile on us. Unfortunately, this challenging characteristic of renewable energy has become the foremost excuse for utilities to restrict or block the addition of renewable energy resources to our energy mix. I would argue that intermittency itself is not the immediate issue for utilities, but rather how they are looking at the larger energy pool in total. Instead of focusing on intermittency roadblocks, utilities need to consolidate into more modern and broader markets that diversify management of the intermittency issue and ensure competitive access to the power grid.
The nation's power grid is actually a mesh of smaller grids owned and controlled by several large and small regulatory bodies. Some portions have been organized into markets that are controlled by relatively large independent market operators, but a patchwork quilt of many smaller utilities controls other portions. Each entity, large or small, is required to control its grid boundaries by matching its generation resources to consumer demand for electricity at all times, day or night. Consumption of electricity is also somewhat intermittent, changing minute by minute, influenced by random events and Mother Nature. It is generally much more challenging for a small utility to continually balance generation with consumption, minute by minute, hour by hour, season by season, than for a larger market operator. The intermittency of renewable energies like wind or solar introduce new challenges that are much greater for smaller utilities to manage.
Think of intermittency as a big rock being thrown into a small pond if you are a small utility. That same intermittency becomes a little pebble being thrown into a big lake or even the ocean if you are a broad independent market leveraging the advantages of consolidated grid operating benefits.
To realize efficiencies, some portions of our nation's mesh of power grids have consolidated and organized into broader market operating. These markets tend to span large geographic areas with centralized operating centers and highly integrated operating protocols. The result is that intermittency is diversified and managed across a larger market with a broader set of tools. The wind might not blow in one corner of the region, but maybe the sun is shining in the other corner. Diversifying the region tends to reduce the effect of (or cancel out) intermittency, allowing a larger portion of power to come from renewables instead of coal, gas or oil.
While clearly this makes a lot of sense in regards to integrating renewable energy, it makes even more sense in terms of driving down the cost of electricity. In 1999, a dozen or so utilities operating their respective grids formed the Midwest Independent System Operator and began to slowly consolidate key operating functions leading up to the launch of the Midwest ISO market in 2005 (other key centralized operating functions have been added or enhanced between 2005 and 2011 and the market continues to improve.) As the Midwest ISO market has evolved, it has demonstrated increasing efficiency and cost savings. According to MISO's 2010 Value Proposition Report, it realized adjusted total net benefits of between $648-$874 million dollars for their members as a result of the efficiencies realized by consolidation. Interestingly, $34 to $42 million of those savings are directly related to wind integration.
This is not just specific to Midwest ISO. Other markets that have organized in the U.S. and other countries issue annual reports that demonstrate that consolidation realizes greater day-to-day grid management efficiencies, reductions in overall seasonal and daily reserve requirements, and greater grid growth management efficiencies, resulting in annual savings of hundreds of millions, if not billions, of dollars.
Amid a national discussion of federal and local budget deficits, it's time we revisited the value proposition for the greater consolidation among grid operators as we discuss growth of renewables within the contexts of a cleaner environment and energy independence. There are federal power agencies conducting studies to increase their individual utilization of renewables, but not much talk of consolidating control into independent markets. Consolidation will help establish a modern foundation for a more diverse national energy portfolio, has the potential to save hundreds of millions, if not billions, of dollars over a broad regional area, and will more dramatically open up our grid to a cleaner energy future.
Daniel J. Foley is the CEO of ACCIONA Energy North America where he oversees the operation of more than 700MW of wind and solar energy in the US and Canada and the development of more than 1,000MW of wind and solar energy.