Electricity's New Reality: The Balancing Act

UNEVEN DISTRIBUTION

In a world with increasingly distributed generation, often based on intermittent renewable sources, the challenge of maintaining the balance between supply and demand is complex.

“If everyone in an area starts producing solar power at one time, or if everybody starts consuming energy to charge electric vehicles at one time, you overload the system,” Olson says.

And that forces utilities to try to influence customer behavior.

“If too much solar power comes on in the middle of the afternoon, for example, we can only push so much power through the wire before the voltage gets too high,” he says. “To prevent that, we have to curtail that production, add load or rebuild circuits to handle the increase. But that means sometimes we can’t take full benefit of the generation capability.

“Conversely, if there’s too much load, the voltage will get too low, and the utility has to curtail load to balance the system. We have to build a system that’s more flexible and has ways to accommodate those scenarios.”

Modernizing the distribution grid is part of the solution. Another aspect depends on developing appropriate incentives to adapt behavior and maintain balance.

“In the old paradigm, demand is what it is, and we built infrastructure to meet that demand,” Olson says. “That resulted in infrastructure we don’t use very often. Now we have to figure out ways when we have intermittent renewable supply sources to change the net demand to match.”

The cost to provide electricity fluctuates from day to day, minute to minute, dependent also on localized conditions. In some locations, the real-time cost of energy has even gone negative at times. This is caused when there is an excess supply of uncontrolled energy — such as solar power during midday or wind power at night — and the utility needs to raise demand to balance the system, while due to operating costs or tax incentives, the producers have a marginal operating cost that is negative.

“Traditionally, utilities offered special rates for electric vehicles to charge overnight. There was excess capacity available in the system, so that was the most cost-effective time,” Olson says. “Now, with rooftop solar, maybe that time shifts to daylight hours to take excess energy from solar PV off the grid.”

California utilities plan to implement time-of-use tariffs in 2019 that offer lower rates during daylight hours and higher prices in the evening. This is a reversal of traditional models.

As the marginal cost of producing energy approaches zero — as new technologies are developed that move toward converting sunlight into electricity in real time, for example — the fixed costs of building and maintaining the infrastructure still must be addressed.

“We have to separate the cost of the energy from the cost of the infrastructure,” Olson says.

Historically, utilities have been vertically integrated. They have produced, transmitted and distributed power all the way to the customers, collecting revenue to support all those expenses: fuel for generation, fixed costs for the generation and wires, and variable costs for maintaining the wires, McIntosh says.

“When people start producing their own electricity or paying very little because the bill is based on reduced consumption from the grid, we end up with a subsidization effect,” McIntosh says.

The fixed costs of the infrastructure must be met, but when rates are based on usage, individuals and businesses that can afford to become power producers will contribute less — or even get compensated for selling electricity back to the grid. That leaves the rest of the connected customers to foot more of the bill for keeping the infrastructure in place, and they could see rates go up as a result.

“Many agree that today’s business model is not conducive for the future grid we envision, with distributed generation playing a larger role,” McIntosh says. “As customers increasingly adopt behind-the-meter distributed generation, they often reduce or eliminate financial contributions for maintaining the grid, and those who remain using it without distributed generation pay more. This creates an even greater incentive for them to adopt distributed generation or leave the grid. It’s a cascading effect that can have significant social impacts.”