September 4, 2008
Below are a few letters we received on topics that appeared in the past few weeks. They capture the essence of how many readers say they feel.
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Geothermal Energy's Potential - August 22, 2008
Your article on the role that geothermal power will play in our nation's energy future was timely and greatly appreciated. Unfortunately, however, it promulgated some common misconceptions that require rectification.
First, it conflated the ground source heat pump with conventional geothermal power. These are two distinct and very different processes. The former takes advantage of the nearly constant year-round temperature of the ground at several meters depth in the immediate vicinity of a building as a source/sink to enhance the heating and cooling of that building. The latter brings naturally occurring water present in hot, permeable geologic formations at shallow and medium depths to the surface to provide heat for power generation and district heating.
Second, the MIT report cited in the article discusses enhanced, or engineered, geothermal systems, or EGS. Whereas conventional geothermal systems utilize naturally occurring permeable rock/water systems, the hot rock EGS utilizes is dry and has little or no permeability, and can also be at great depth. As the article correctly points out, in EGS it is necessary to fracture the hot rock formation to create a sort of underground heat exchanger, and then introduce water via injection wells.
The chief advantage of EGS over conventional geothermal is that EGS is ubiquitous, and is not limited to the relatively small handful of locales where water, permeability and heat occur together, as is the case with conventional geothermal. The EGS energy potential is enormous; the MIT study places it at over 13 x 1024 Joules thermal in the lower 48 states alone. However, the rock formations involved are hard and crystalline, hot, and sometimes very deep, thereby forming a set of challenging, but by no means insurmountable, technical hurdles that must be overcome by research and development in order to full y utilize this resource.
In all, I would like to thank you for bringing greater visibility to the potential of geothermal power.
Mark Antkowiak, MS
Sr. Engineer, Systems Integration
National Renewable Energy Laboratory
I read this Insider feature with interest, but it is a pity that you didn't bolster it with some commentary about what is happening in Australia, which I think can claim to be a world leader in seeking to exploit "hot rocks" at this stage.
We have some 30 companies spending about $900 million on work programs to delineate deep geothermal resources across Australia at present. Current thinking is that geothermal could supply as much as five percent of Australia's electricity requirements by 2020 with an investment of about $10 billion.
This would produce power from 5 kilometers (3 miles) "down under" through about 2,200 MW of capacity.
Most of the activity is focused on South Australia where 23 companies have invested more than $600 million in geothermal exploration. The leading one, Geodynamics, is working towards a $1.6 billion, 500MW development to be in operation by about 2015.
Sub-surface heat flow tests in an arc across central South Australia and in to neighboring Queensland -- mostly from high concentrations of radioactive, heat-producing elements -- are especially high by world standards. South Australia is also rich in uranium and its Olympic Dam site holds the world's biggest uranium deposit.
The Australian federal government's Geoscience Australia agency has estimated that one percent of the country's deep geothermal resource could meet current national power consumption for 26,000 years.
The rub with geothermal is the upfront cost of drilling -- in Geodynamics case, the 500MW power station will require 90 deep wells and they come at a cost of about $12 million per well. The deposits in central South Australia's Cooper Basin area -- a prominent national petroleum province for the pas t 30 years -- are also remote from the transmission grid serving the south-eastern seaboard, home to 85 percent of the load, and need about $600 million invested in a high voltage link. However, government policies to promote renewable energy and to introduce a charge on carbon -- 85 percent of Australia electricity is coal-fired -- are expected to help support geothermal development.
Current estimates of wholesale power prices from these geothermal operations range between $66 and $91 per megawatt hour -- which is expected to be the lowest cost of any large-scale renewable energy form (other than hydro) available in Australia.
All amounts are stated in US dollars.
Keith Orchison
Former Managing Director
Electricity Supply Association of Australia (1991-2003)
Examining Texas - August 25, 2008
This is an excellent article that attempts to capture both sides of the on-going debate between advocates for electric monopolies and advocates for competition. However some of the statements at the end of this article that favor a return to regulation are based on a very limited view about why it makes sense to dismantle electric monopolies and encourage vigorous competition.
First, the rationale for competition extends far beyond the relatively simple idea that competitive retail providers can purchase electricity at wholesale and repackaging it for retail sale. The regulatory process itself imposes sizable "deadweight costs" on society that include the time and expense required to examine, contest and rule upon each and every proposal that changes terms of service, without regard to the significance of those changes. Even worse and far more corrosive in the long run, regulation creates disincentives for innovation because it works in a way that punishes failure rather than rewarding risk-taking. Regulation by its nature tends to limit customer choice and imposes one-size-fits-all solutions in the name of equity that are often not equitable at all.
Second, under regulation the existing monopolies have very powerful incentives to oppose new, disruptive technologies that upset their existing business models that produce steady, predictable earnings with little risk. To use the well-worn cell phone example, AT&T had portable phones available years before they were introduced, but they were enormous and very costly. Had the AT&T monopoly not been broken up, it's doubtful we'd be enjoying the array of choices in services, phones and payment plans we have today. Instead, we'd be carrying around bricks. Few of us are old enough to remember that the power industry used to be a hotbed of innovation not unlike today's semiconductor and biotechnology industries. By the late 1970s, regulated utilities and their regulators became risk averse to the point where innovation largely dried up. The institutional biases that stem from regulation bear a significant share of responsibility for this state of affairs.
Third, while the "protections" offered by regulation are designed to achieve certain social goals, they conflict with and are equally effective at defeating other important policy goals. For example, the imperative to keep prices low renders customer-side investments unattractive, even when these investments might be more cost-effective than building transmission, distribution and central station generation. In Nevada, PPAs between individual customers and upstart firms that build and own rooftop solar systems came under fire from the staff of the Public Service Commission, and more likely because it would diminish the staff's influence than because the PPAs were a bad idea to begin with. The customers in this case were sophisticated business people who did not need regulatory protection from predatory business practices. Similarly, most flat rate electricity tariffs discourage investments in on-site storage, on-site distributed generati on, HVAC plant upgrades and updates, and other capital improvements that are desperately needed and are also likely more cost-effective than new power plant construction.
Finally, regulators go to great lengths to to suppress electricity price variability in the name of protecting customers even as they attempt to convince customers that conservation is a virtue. The two concepts are totally and utterly incompatible. If a resource like electricity is scarce enough to require conservation, especially during peak demand periods, or if government policy deems that it should be treated as a scarce resource, then it should be priced accordingly. No rational individual or business will take the time and trouble to conserve if the cost of conservation exceeds the cost of consumption, or if the value of electricity exceeds its cost. Consumers are very rational in this respect, and we need look no further than their behavior in response to $4/gallon prices for gasoline to make the point.
I'm not suggesting that competition is perfect and regulation has been a disaster. Your article correctly points out that competition has its challenges and the path to competition in many states has not been smooth. However it's for me to imagine how central planning and strict government control over the power industry is going to flexible enough and responsive enough to produce the kinds of rapid technology and institutional changes we need in order cope with rapidly rising energy prices and mandates for CO2 reduction over the next few decades.
Jack Ellis
Resero Consulting
This article reminds me of the joke about the surgeon who reports that the operation was a success, but that the patient died.
The "competitive" market has resulted in the power producers failing to make the necessary large investments in baseload generation that uses low-cost fuel; rather, huge amounts of gas-fired generation (which is cheap to build) has been put into service, because that's what bring s the highest short-term profit. The fact that gas-fired generation is vulnerable to huge swings in fuel cost is of no concern to the generation owners, as long as all their "competitors" are stuck with the same fuel costs. What's missing here is that no one is concerned about the retail customer. The competitive market is a "success", yet the consumers are stuck with unnecessarily-high electricity costs.
What good is it to have dozens of "competitive" suppliers available, if all their rates are artificially high?
Competitive markets are very successful at producing desired results in most areas of the economy. In the electric utility sector, however, we need to recognize/admit that the large long-term investments in baseload generation (necessary to keep energy costs low) cannot be supported in "competitive" markets which focus only on short-term profits for the generation owners.
Technically, the problem is that in the electricity generation business there are two costs of providing service: capacity and energy. Short-term, deregulated, markets ignore capacity, and only give energy price signals. The lack of compensation for capacity means that if there is no assurance that customers are attached to you for the long term (as they were in the good old days) then it is difficult to justify making the large investments in coal- or nuclear-fueled generation facilities, even though they will likely provide huge savings over the long term. As a result, only when energy costs climb to painfully high levels for extended periods (as being experienced in Texas) is it possible to contemplate investments in baseload generation. Essentially, the customer is being held hostage until the price of electricity gets high enough to bribe the generation owners to add the proper proportion of baseload generation to the generation mix. The lamentable part is that this pain of high energy costs is totally unnecessary, as the traditional regulated utility model does not rel y on energy cost signals to activate investment in economical generation.
Richard Gonzalez, PE
Chief Engineer, Transmission Planning
Excel Engineering, Inc.
The "inertia" of residential consumers is largely attributable to the perception that there exists very little price difference offered by REP's. I have switched twice for lower prices hoping that my consumer vote will become part of a larger movement, but movements take time to evolve. Unfortunately the monthly summer bills are now over $450 for a 2500+sq. ft. house, so price is the main characteristic of "service" that many residential consumers use to shop around. I'm hoping for better in Texas...
David Carroll
Nice article.
One thing that needs to be pointed out is this: The Brattle Group's findings that rates have increased at the same rate in structured as well as non structured areas needs to be put in context, and it is a VERY important distinction. In regulated areas, the risk that led to the rise in prices was shared by everyone equally (i.e. everyones electricity bill went up by the exact same percentage). The the deregulated areas, the risk was borne by the individual consumers (i.e. for everyone that paid below the average, there was someone who paid equally above the average). Sometimes this difference is as large as $0.05 to $0.10 difference! And what defines the difference between the so-called genius that purchases an $0.11 rate versus a $0.22 rate?
For residential users, in Texas, for example, the difference between a higher rate and a lower rate is based on each consumers individual risk calculation. The real issue is: Do consumers actually have the time, knowledge, or ability to make effective commodity risk decisions over the long term? In Texas, given that the commodity is natural gas, a clear understanding of the fundamentals is essential (i.e. weather patterns, natural gas storage levels, price of oil, rig counts & geopolitics to name a few). And if that were easy, then I wouldn't have a full time business advising commercial and industrial clients.
Furthermore, in a commodity market, the ability to effectively hedge is paramount to a successful buying strategy, however, in the Texas residential model, hedging is not possible without a penalty! Feel free to call me for that explanation.
Bottom line: Commodity risk is something that I believe residential consumers are not prepared for, nor given the proper market tools to deal with prices effectively over the long term. Furthermore, given a basic understanding of the difficultly in effective commodity hedging, I have little doubt the majority would choose to let the pros distribute the risk evenly for the essential commodity of electricity.
Perry Ruthven
Managing Director, Houston Region
Priority Power Management
August 20 03 Remembered - August 27, 2008
Your article highlights the actions taken to avoid a repeat of the August 2003 outage and no doubt there have been many operational improvements since that time. As I read through the article, two thoughts came to mind that I wanted to share with you.
First, regardless of how much everyone tries to avoid outages, there will be outages and they will occur because of some root cause. If the root cause is systemic and preventable, then it is very desirable to weed out those causes but if not, the ability to penalize a utility will not be productive. One should not whip a horse for not performing because it being underfed!
On the other hand, I have never understood why utilities cannot load shed in a proactive way to allow the base system to remain intact. As the Power Manager for a large industrial company, we set up load shedding schemes to shed those loads that left the generation intact with enough load to allow us to return as much load to service as possible based on generation co nfiguration following an upset. I wonder why this approach can't be followed by utilities?
Thanks for the good work you do to keep the industry updated.
Jim Lanier
Planning for Power Plants - August 29, 2008
"Winning the hearts and minds of the people is the next step. It would be easiest to wait until brownouts occur and consumers start clamoring."
Besides justifying additional power plants based on: (1) projected demand (2) new job creations (3) increased tax revenues, Electric Utilities must proactively address environmental issues prior public hearings. Power plant projects, most notably coal-fired units, have suffered from a false public perception that such technology will contribute to pollution (e.g. health) and environmental degradation (e.g. global warming). The public and media arena requires electric utilities to consider carbon capture in their siting considerations.
Integrated gasification combined-cycle (IGCC), a commercially demonstrated technology for Carbon (CO2) capture is marketed as turnkey approach via Bechtel and General Electric's long-term alliance. The recent alliance with Schlumberger addresses the outstanding question of what to do with captured CO2. This alliance offers electric utilities with a turn-key approach to implement IGCC technology. GE and Bechtel worked together to offer a packaged approach for IGCC implementation including: Engineering, Procurement, Construction, Equipment, Technology. The Schlumberger Alliance offers a solution to the disposition of captured CO2. Given suitable geological formation and known oil reserves, captured CO2 can be injected to achieve Enhanced Oil Recovery. However, factoring in Carbon Capture and disposal (sequestration - geological burial) increases the cost from 20% to 30 - 40 %.
Developers of proposed coal-fired plants could commit to incorporate demonstrated sequestration tech nology when commercially available. For example, Alliant (developer of 650-megawatt coal plant Sutherland 4, Marshalltown Iowa) proposes to address environmental concerns by designing the plant for future incorporation of carbon sequestration equipment if needed. Electric utilities could adopt this posture provided that the costs of CO2 capture and burial can be recovered.
Dr. Richard W. Goodwin, P.E.
Environmental Engineering Consultant
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