Archive | September, 2012

Plentiful, Affordable, Reliable, but especially Reliable

29 Sep

Reliability is one of those things we don’t notice until it’s not there.

There was an interesting article published last week in The New York Times by James Glanz entitled, “The Cloud Factories: Power, Pollution and the Internet.” While the story line revolves around the vast amount of energy that modern data centers consume and the pollution associated with it, the story also highlights an issue most folks outside the industry do not  usually think about.

We turn on a light, switch on the stove burner, or jump on the internet and expect it to work. Service is there, 24/7, without fail — usually.

Our energy delivery systems, especially the electric grid, are designed and operated to be highly reliable. The electric grid is designed and operated to ensure system integrity. Ancillary services spread throughout the generation, transmission, and distribution systems keep it up and running nearly without fail. But, when it does fail, it’s a newsworthy event.

One of the tools used to provide this flawless delivery is reserve capability. The power grid is built with excess capacity over and above what the operators expect the maximum demand to be. (called “peak demand”) This backup capacity is used when a primary power source fails, or if demand exceeds the planners estimates of peak demand. It’s an effective “belt and suspenders” approach.

In the U.S., the electric transmission grid and wholesale sale of electricity in interstate commerce (sales that cross state borders) is regulated the Federal Energy Regulatory Commission (“FERC”). FERC, in turn, certified the North American Electric Reliability Corporation (“NERC”) to ensure the electric network’s reliability by developing and enforcing reliability standards and assessing the grid’s adequacy.

NERC divides the U.S power grid into 14 regions and makes reliability assessments three times each year. With the exception of Texas, every region has a positive reserve margin. That is, there is excess capacity in 13 of the 14 regions. Due to its operating and commercial structure, the Electric Reliability Council of Texas, (“ERCOT”) faces some unique challenges. As a result, ERCOT has experienced rolling brownouts and blackouts over parts of Texas during recent peak summer and winter periods.

The point of all this, however, is that the data centers examined in the NY Times article are not as unique as the author seemingly implies. Maintaining a high degree of reliability demands that redundant systems that sit idle a good deal of time be in place. Whether its Google, your bank, a hospital, or the power grid, standby capacity is essential if the system is going to operate without a hitch.

As our legislators and regulators develop new energy policies and make choices about how best to generate, transmit, and deliver plentiful and affordable electricity, reliability issues will be front and center. Studies by both industry and academic institutions have shown that if intermittent renewables (particularly wind and solar) become a significant portion of our electricity generation, it will increase the need for backup generation (especially natural gas) to provide the reserve margin.

Of course, reserve capacity that sits idle most of the time is expensive. The trade off between spending more money on reserve capacity and risking reliability is a judgement call. How much is enough? Just as important is the question of how to create incentives for investors to build such expensive, seldom used, but essential facilities. Certainly, there may be room for efficiency offsets, but as the NY Times article points out, infrastructure is needed to support these operations.

Whether it’s using the cloud for computing or smart grid technology to deliver our electricity, large scale infrastructure remains a necessity.  Just as with reliability, most of us will never notice it except when it’s not there.

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Why not a “Lewis and Clark Project” for Energy?

19 Sep

It amazes me to hear people talk about “drill here, drill now, pay less” or support an “all of the above” energy strategy, yet when asked, “drill where to find what?”, the response is oftentimes a blank stare or a generic, “on federal lands.”

Many people would be surprised to know that regarding our “frontier” regions, those outside of the traditional oil and gas production areas of the Gulf of Mexico, southern offshore California, and onshore continental US, we have precious little actual geological and seismic data to precisely estimate the extent of our resource base.

Although, the U.S. Geological Survey, a scientific bureau within the United States Department of Interior, does a remarkable job assessing domestic energy resources, much of its analysis and assessment is based upon scant, decades old data that possesses a high degree of uncertainty.

The complicated scheme of describing our estimated resource base combines statistical assessment, technological capability, and the economics of production only to baffle the public and confuse government officials tasked to divine an energy strategy.

If we are going to make sound decisions about our energy future, we sorely need credible, scientifically reliable data about the country’s resource base. The data gathering should not only include oil & gas, but also coal, uranium, water, wind, and geothermal resources.

That’s why Governor Romney’s proposal to conduct a comprehensive survey of America’s energy reserves makes so much sense. It should be promoted as a “Lewis and Clark Project” to gather much needed technical information about what lies beneath our onshore and offshore property.

In the closing days of the 18th century, Napoleon Bonaparte began maneuvering to restore France’s territories in North America. By late 1802, Spain transferred its territory west of the Mississippi along with the shipping rights through New Orleans back to France. American access to the port’s warehouses became a critical commercial issue for the United States.

In 1803, President Thomas Jefferson dispatched Secretary of State, James Madison, to join U.S. Minister to France, Robert Livingston, in negotiations to purchase New Orleans along with all or part of Florida.  Their ultimate objective was to secure U.S. rights to access the Mississippi River and the port. They were authorized $10 million for the purchase.

As conditions changed and war with the British appeared likely, Napoleon reconsidered France’s place on the continent.  When Madison arrived in France in April, 1803,  the deal the French presented was for the sale of all of Louisiana – 827,000 squares miles, twice the area of the U.S.  Although taken aback, by April 30th, Madison and Livingston reached an agreement to purchase the Louisiana territory, including New Orleans, for $15 million — well in excess of the initial authorization.

The official announcement of the Louisiana purchase was made in Washington on July 4, 1803. The Senate ratified the treaty sale on October 20th and the U.S. took formal possession of the territory in December, 1803.

What is most fascinating, however, is the fact that in January, 1803, before he even knew how the French would react to Madison’s misson, Jefferson was preparing for the future. In a confidential letter to Congress, dated January 18, 1803, Jefferson requested an appropriation of funds for the exploration of the continent “for the purpose of extending the external commerce of the United States” and to “incidentally advance the geographical knowledge of our own continent.” That letter secured $2,500 from Congress to cover the costs of the venture we now know as the, “Lewis & Clark Expedition.”

Modern parallels can be drawn between the Lewis & Clark Expedition and our current need to survey our energy resources today. As in the early 1800’s, we have a notional understanding of our frontier regions. We are in the early stages of assessing those resources, especially regarding federal offshore properties. Development and production in most of these regions is many years, if not decades, away. However, paraphrasing Mr. Jefferson’s letter to Congress, today we must “advance the geologic knowledge of our own continent.”

A “Lewis and Clark Project” managed by the USGS to evaluate our nation’s energy resources is long over due.  If we are going to address our energy situation and craft a rational energy policy, we need to have reliable information about our options. This includes credible data about our energy resource base: oil, gas, coal, uranium, geothermal, water, and wind. Putting off this important survey program will not only delay our ability to access these resources when we need them, but also drive up the cost because the risks associated with investments made on highly uncertain assessments is greater than those made on high quality assessments. Likewise, revenues to the government generated from bids on federal production leases would likely be higher if bidders had better knowledge about what the lease may contain.

The “Lewis and Clark Project” may also assist in determining where we should not proceed with energy development. For example, a National Marine Sanctuary System with 14 established sanctuaries exists today. Geologic and seismic data collection from “Lewis and Clark” could be coordinated in partnership with ongoing NOAA activities surveying met ocean and benthic environments to identify highly sensitive areas or support protective zones to avoid or mitigate impacts from possible future development activities. Understanding where and how to develop resources is as important as knowing what lies below the surface.

An initiative such as the “Lewis and Clark Project” should be something everyone can agree to support. This country faces tremendous challenges in deciding how to pursue energy development. A rational, well conceived energy policy is long over due. Adding to our knowledge in order to guide sound policy decisions should be a bipartisan priority.

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