TODAY’S STUDY: THE GRID THAT IS, THE GRID THAT WILL BE

The Future of the Electric Grid
John G. Kassakian, Richard Schmalensee, et.al., December 5, 2011 (Massachusetts Institute of Technology)

Abstract

The U.S. electric grid is a vast physical and human network connecting thousands of electricity generators to millions of consumers—a linked system of public and private enterprises operating within a web of government institutions: federal, regional, state, and municipal.

The grid will face a number of serious challenges over the next two decades, while new technologies also present valuable opportunities for meeting these challenges. A failure to realize these opportunities or meet these challenges could result in degraded reliability, significantly increased costs, and a failure to achieve several public policy goals.

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This report, the fifth in the MIT Energy Initiative’s Future of series, aims to provide a comprehensive, objective portrait of the U.S. electric grid and the identification and analysis of areas in which intelligent policy changes, focused research, and data development and sharing can contribute to meeting the challenges the grid is facing. It reflects a focus on integrating and evaluating existing knowledge rather than performing original research. We hope it will be of value to decision makers in industry and in all levels of government as they guide the grid’s necessary evolution.

One of the most important emerging challenges facing the grid is the need to incorporate more renewable generation in response to policy initiatives at both state and federal levels. Much of this capacity will rely on either solar or wind power and will accordingly produce output that is variable over time and imperfectly predictable, making it harder for system operators to match generation and load at every instant. Utilizing the best resource locations will require many renewable generators to be located far from existing load centers and will thus necessitate expansion of the transmission system, often via unusually long transmission lines. Current planning processes, cost-allocation procedures, and siting regimes will need to be changed to facilitate this expansion. In addition, increased penetration of renewable distributed generation will pose challenges for the design and operation of distribution systems, and may raise costs for many consumers.

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Increased penetration of electric vehicles and other ongoing changes in electricity demand will, if measures are not taken, increase the ratio of peak to average demand and thus further reduce capacity utilization and raise rates. Changes in retail pricing policies, enabled by new metering technology, could help to mitigate this problem. Increased penetration of distributed generation will pose challenges for the design and operation of distribution systems. New regulatory approaches may be required to encourage the adoption of innovative network technologies.

Opportunities for improving the functioning and reliability of the grid arise from technological developments in sensing, communications, control, and power electronics. These technologies can enhance efficiency and reliability, increase capacity utilization, enable more rapid response to remediate contingencies, and increase flexibility in controlling power flows on transmission lines. If properly deployed and accompanied by appropriate policies, they can deal effectively with some of the challenges described above. They can facilitate the integration of large volumes of renewable and distributed generation, provide greater visibility of the instantaneous state of the grid, and make possible the engagement of demand as a resource.

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All these new technologies involve increased data communication, and thus they raise important issues of standardization, cybersecurity, and privacy.

Decision makers in government and industry have taken important actions in recent years to guide the evolution of the U.S. electric power system to address the challenges and opportunities noted above. Yet the diversity of ownership and regulatory structures within the U.S. grid complicates policy-making, and a number of institutional, regulatory, and technical impediments remain that require action.

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Our main recommendations can be briefly summarized as follows:

-To facilitate the integration of remote renewables, the Federal Energy Regulatory Commission should be granted enhanced authority to site major transmission facilities that cross state lines.

-To cope more effectively with increasing cybersecurity threats, a single federal agency should be given responsibility for cybersecurity preparedness, response, and recovery across the entire electric power sector, including both bulk power and distribution systems.

-To improve the grid’s efficiency and lower rates, utilities with advanced metering technology should begin a transition to pricing regimes in which customers pay rates that reflect the time-varying costs of supplying power.

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-To improve utilities’ and their customers’ incentives related to distributed generation and energy conservation, utilities should recover fixed network costs through customer charges that do not vary with the volume of electricity consumption.

-To make effective use of new technologies, the electric power industry should fund increased research and development in several key areas, including computational tools for bulk power system operation, methods for wide-area transmission planning, procedures for response to and recovery from cyberattacks, and models of consumer response to real-time pricing.

-To improve decision making in an increasingly complex and dynamic environment, more detailed data should be compiled and shared, including information on the bulk power system, comprehensive results from “smart grid” demonstration projects, and standardized metrics of utility cost and performance.

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Challenges, Opportunities, and Major Recommendations

FINDING: As a result of the layering of historical policy decisions and the lack of a comprehensive, shared vision of system structure or function, the U.S. electric power system today operates under a fragmented and often inconsistent policy regime.

FINDING: Data are not available to quantitatively and accurately assess the reliability of the U.S. electric grid, particularly its changes over time. However, what data are available indicate the reliability of the U.S. grid is in line with that of other developed countries.

FINDING: Devising and deploying mechanisms to provide incentives for investment in flexible generation and for operating flexibly within the system will become increasingly important as the penetrations of wind and solar generation increase.

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FINDING: Efficiently increasing the penetration of grid-scale renewable generation while maintaining reliability will require modifications to power system design and operation. In addition, processes for planning transmission system expansion, allocating facility costs, and, particularly, siting interstate transmission facilities will need to be reformed.

FINDING: Ongoing changes in the character of electricity demand and the future penetration of electric vehicles will, in the absence of other changes, tend to accelerate the decline in capacity utilization in the electric power system. This, in turn will increase electricity costs.

FINDING: High penetration of distributed generation complicates the design and operation of distribution systems. Net metering provides a subsidy to distributed generation, and utilities have inadequate incentives to make investments necessary to accommodate it.

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FINDING: Because of its aging workforce and the nature of emerging challenges, the electric utility industry faces a near-term shortage of skilled workers, particularly power engineers. While this problem has been widely recognized, it remains to be seen whether e$orts to deal with it will prove adequate.

FINDING: New technologies have the potential to improve the reliability and efficiency of bulk power systems by enhancing operators’ ability to observe and control these systems. Technologies similarly can enhance distributions systems and make demand more responsive to real-time costs, but e$ective use of these technologies will require changes in regulatory policy.

FINDING: Greater reliance on data communications in the grid increases the importance of standardization for interoperability and of cybersecurity and raises serious issues of privacy.

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RECOMMENDATION: New legislation should grant FERC enhanced siting authority for major transmission facilities that cross state boundaries or federal lands (Chapter 4).

RECOMMENDATION: With the cooperation of their regulators, utilities that have committed to AMI systems should begin a transition to dynamic pricing for all customers and publicly share data from their experiences (Chapter 7).

RECOMMENDATION: State regulators and those who supervise government-owned and cooperative utilities should recover #xed network costs primarily through customer charges that may di$er among customers but should not vary with kilowatt-hour consumption (Chapter 8).

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RECOMMENDATION: The federal government should designate a single agency to have responsibility for working with industry and to have the appropriate regulatory authority to enhance cybersecurity preparedness, response, and recovery across the electric power sector, including both bulk power and distribution systems (Chapter 9).

RECOMMENDATION: The electric power industry should fund additional research and demonstration projects to develop: computational tools that will exploit the potential of new hardware to improve monitoring and control of the bulk power system (Chapter 2); methods for wide-area transmission planning (Chapter 4); processes for response to and recovery from cyberattacks (Chapter 9); and understanding of consumer response to alternative pricing/response automation systems (Chapter 7).

RECOMMENDATION: FERC should require that detailed data on the U.S. bulk power system be compiled and made appropriately available (Chapter 4). DOE should work to ensure that comprehensive data from its Smart Grid projects are widely shared (Chapter 6). State regulators and others supervising distribution utilities should require utilities to compile and publish standardized metrics of utility cost, reliability, and other dimensions of performance (Chapter 8).

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CONCLUDING REMARKS

Between now and 2030, the electric grid will confront significant new challenges and inevitably undergo major changes. Despite alarmist rhetoric, there is no crisis here. But we do not advise complacency. The environment in which the grid will operate will change substantially in the next two decades. If the grid is to evolve with minimal disruption despite the challenges ahead and if electricity rates and levels of reliability are to be acceptable, decision makers in government and industry need to continue to focus on meeting the system’s challenges. A range of system-level issues need to be addressed, and new technologies need to be used as appropriate. Regulators should seek to develop policies that better align incentives of participants in electricity markets (including consumers) with policy goals. The industry needs to conduct research in key areas and both collect and share important data.

We are encouraged by recent levels of awareness, concern and, in some key areas, action. But the journey to the electric grid of 2030 has begun, and there will be plenty of surprises along the way. As this study indicates, much can and should be done now to smooth the potentially very bumpy road ahead.