Whether you receive surface water from the Central Arizona Project or groundwater from wells, the energy it takes to lift and move water plays a significant role in the total cost of irrigation. Given the water-power-agriculture nexus, this article provides an update on the significant changes affecting the power industry. Ed Gerak, Arizona Power Authority executive director and Arizona Farm Bureau member, highlights 10 things he sees transforming the electric industry in 2018.
1. Transformer Oil — Fracking: In the quest for more petroleum or to increase the longevity of existing wells using new technology, hydraulic fracking has created a glut of natural gas. This abundant supply has stabilized the futures pricing on a previously volatile commodity. This increase has come at an opportune time, as environmental initiatives have continued to increase the cost of operating coal plants and expedited some plant retirements.
Transmission pipeline capabilities have not yet caught up to the increased supply, but look for more pipelines to be built in the future. There is also increasing interest in converting natural gas as a petroleum replacement.
Fracking has increased petroleum production, making the United States a net exporter of petroleum and helping us become more energy secure. With U.S. petroleum exports more than doubling since 2010, we may see prices inch up, but long-term price stability for electricity and gasoline look favorable.
2. Load Shedding — Energy Efficiency: The ripple effect of the “Great Recession” didn’t spare the energy industry. As we have slowly clawed back from the economic abyss, what used to be a pre-programmed 3 percent increase in demand has been relatively flat over the past 10 years. In fact, total energy consumption was 4 percent less in 2016 than in 2007. Besides the economy, new technologies (CFL/LED lighting, smart thermostats, etc.) and the increased awareness of sustainability have helped lead to this reduction. The power producers are grappling with reduced revenue and are trying to rationalize investments in new generation facilities.
3. Generation: While aggressive environmental regulations and tax incentives have spurred the development of wind and solar projects and driven up the costs of coal plants, the abundance of natural gas has had more impact on power generation changes than anything legislation has done.
While coal used to be 50-plus percent of the total energy generation in the United States, it has dropped to barely more than 30 percent. In 2016, natural gas accounted for almost 34 percent of total energy production. While natural gas pricing has crept up in 2017, long-term prices continue to look favorable. It looks as if King Coal may be dethroned.
4. Invertors — Renewable Energy, Duck Curve: The electrical industry is not immune to the law of unintended consequences. The push for clean(er) energy and carbon reduction has led to increased solar and wind generation, but with these new sources come new problems.
Renewables are intermittent, which means they only generate when the sun shines or the wind blows. This translates to roughly 50 percent of the time for solar and 18 percent for wind. People tend to want/need power 100 percent of the time. Utilities run baseload plants to provide energy in an attempt to cover the 24-hour demand.
Balancing areas (local or regional power territories) typically operated with 15 percent spinning reserves. They use generators that can go live to support increased load or unplanned outages. Unfortunately, renewables have increased the need for spinning reserves due to their uncertainty.
This means there is excess energy on the grid during the day, and there is a dramatic decrease in supply just as the sun goes down and the demand ramps up. This has been coined the Duck Curve, which is due to the shape of the load duration curve during a typical day. The biggest hurdle facing the California Independent System Operator (CAISO) is this drop of generation as the demand increases. Estimates are that the shift is 13,000 megawatts or more of capacity over three hours.
Arizona has benefitted from this recently because companies have been selling negatively priced energy to help balance the grid. Due to investor tax credits, the solar companies can still make a profit, even at this price point, due to the subsidies these companies receive. Arizona has been home to a lot of this energy recently, but as new technologies are developed, we may lose this benefit.
5. Regulation Rollback: President Donald Trump, having years of experience with government regulations, appears to have a profound distaste for them. He has found a willing participant in rolling back regulations in the Environmental Protection Agency’s Scott Pruitt. They seem to be undoing or replacing most of the environmental regulations the Obama administration pushed through. This will help reduce or avoid the increased costs that accompany regulation compliance.
One former EPA chief estimates it may take 20 to 30 years to regain the “advances” that the Obama administration put through. To me, it sounds like a good start.
6. Taxes: With the decrease in corporate taxes in 2018, multiple public utility commissions have already taken action on investor-owned utilities regarding recent or pending rate increases. Some have reversed previous rulings and reduced or eliminated previous rate hikes. No news yet on what the Arizona Corporation Commission will do to the recent Arizona Public Service rate adjustment from August 2017.
7. Regulation, Ramping and Reserves: Regulation, ramping and reserves are the three R’s that help maintain the grid at a frequency of 60 hertz, match supply with demand, and make sure there is enough in reserves in case of an outage or dramatic demand spike. With the evolving generation sources (renewables), the electric industry is looking for ways to maintain grid stability with intermittent resources.
8. Markets: As renewables have changed the way the grid is operated for practical or financial reasons, multiple concerns have been raised over baseload plants (coal and nuclear). To combat the compounding effect of reserves, independent system operators and regional transmission organizations (“markets”) have been developed to leverage economies of scale and reduce the need for individual plant reserves.
With these increased levels of administration, there has been a correlating increase in power costs. Arizona is not in an ISO/RTO and has maintained a cheaper rate than its neighbors who have an ISO/RTO. However, multiple people feel it is inevitable that Arizona will eventually be pulled into a market in the near future.
9. Transmission: As markets continue to expand nationally and creep into Arizona, generation capacity will shrink and transmission will be used more and may become congested. At a recent American Public Power Association conference, one of the speakers anticipates transmission costs will increase 9 to 10 percent year over year.
10. Battery — Storage: The panacea for the electric industry is energy storage. This comes in a multitude of forms (pump storage, compressed gas, molten salt, etc.), but most of the focus is based on lithium-ion batteries. Tesla has been working on a home battery pack in addition to its focus on electric vehicles.
Electric vehicles can serve as the sync for the grid, absorbing excess energy when available and providing peaking energy if necessary. Coupled with smart technology and residential- or commercial-scale batteries, energy storage would transform our industry.
While storing energy will solve a multitude of issues, it will also create questions, like what will the energy rate(s) be in the future? It may change the industry pricing model to something similar to your phone’s data plan.
It may drastically reduce the expansion of new generation — any type of power-producing generators. Existing power generators may be able to run more fully, sending electricity to storage when not needed. This will reduce the need for additional power plants (coal, natural gas, solar, wind, etc.) by more fully using what already exists. Thanks to technology, with new solutions come new problems, and vice-versa.
The Arizona Farm Bureau provided this article. Please visit www.azfb.org.