Tue, Jun 19, 2018

Diversity of electricity generation in the United States has increased, not decreased

EnergySource by Varun Rai

Energy Markets & Governance United States and Canada

Platte River Power Authority (Photo by American Public Power Association on Unsplash).

Resilience of the electric grid and the role of diversity of fuel sources within it have recently become hotly debated topics. In 2017, the US Department of Energy (DOE) attempted to shore up grid resilience by introducing a Notice of Proposed Rulemaking (NOPR) that would compensate power generators for maintaining ninety-day supply of fuel on site. The response to this proposal was split. On the one hand, proponents argued that system reliability has been undermined by ignoring long-term risks of reduced dependence on baseload sources like coal and nuclear, which can ramp up quickly, provided sufficient fuels are accessible. On the other hand, a chorus of voices from states, grid operators, and industry panned the notion as aggressive regulatory intervention in search of a problem.

While the Federal Energy Regulatory Commission ended up rejecting DOE’s request, the surrounding debate yielded a number of constructive questions for regulators and planners to grapple with. Is diversity across primary energy sources (PESs) something that should be actively considered by analysts and policymakers alike and, if so, what is the relationship to the resilience of the grid? These questions will continue to reverberate in the push and pull of different meanings, preferences, and values attached to diversity and resilience.

In a recent study, Quantifying Diversity of Electricity Generation in the U.S., co-written with Tiffany Wu, we explore the diversity of PESs used for electricity generation in the US. The study found that increasing dispatches of wind and natural gas have impacted system diversity, and that the ways in which the impacts are meaningful vary quite a lot. For example, they vary by state or region, the current suite of PESs, how similar they are to each other, and how many different PESs there are in total.

System diversity is one of the key metrics for measuring long-term resilience, especially since it can be critical in helping mitigate unknown risks. Such risks can come from multiple, often unanticipated corners. For example, according to findings released by researchers at Carnegie Mellon University, volatility and unpredictability in energy markets have increased significantly since 2004, blindsiding nearly all energy-price projection efforts. This largely unanticipated volatility has strained private sector investments, in part because success in forecasting energy prices has been elusive. The resulting tumult in energy markets has produced many bankruptcies, sell offs, mergers and acquisitions, and reorganizations.

Diversity works as a buffer against such uncertainty, but there are different aspects of what comprises “diversity.” Three dimensions stand out as particularly important:

  1. “variety,” i.e., the number of options;
  2. “balance,” i.e., how proportionally reliant a system is on a particular option; and
  3. “disparity,” i.e., how different each option is vis-à-vis other options.

Our analysis offers three high-level takeaways for policymakers considering the role of diversity as it contributes to system reliability:

  1. combinations of disparity, balance, and variety—the core elements of system diversity—vary among states;
  2. changes in the use of natural gas, coal, hydro, and wind have driven the shifts in state-level disparity, balance and variety over that past twenty-five years; and
  3. overall US-level fuel source diversity is increasing, but PES portfolios across the US are changing somewhat idiosyncratically, rather than uniformly.
Varun Rai chart

Figure: State-wise indices emphasized variety, balance, and disparity (left to right) in 1990, 2001, and 2013 (top to bottom).

And it’s not just the current energy portfolio that is changing. Looking ahead, there are two new drivers on the horizon that could impact diversity in a material way. First, the expected explosive growth of solar photovoltaic (PV) systems in the coming decades will likely boost all diversity metrics. Similarly, demand-side resources such as automated demand response and virtual power plants, if and when they scale up, could also significantly impact all aspects of system diversity.

Among the few stable features that characterize our energy system, one of the most notable ones is that today’s winning fuels and technologies create unintended and unknown challenges for tomorrow. And addressing those unknown challenges requires flexibility—which, in turn, is underpinned by diversity. A recent piece, “Energy Innovation vs. Diffusion: Dynamics Matter,” describes this interplay between flexibility and diversity:

“…to address future problems we need to always maintain some flexibility, some experimentation, and a mix of technologies including both those that we have now and those that we don’t have now (i.e., innovation). We need to maintain diversity in our energy system – diversity not just in the mix of technologies that we can deploy today, but also in the mix that we can deploy in future. I believe that this dynamic interaction is quite powerful and underlies the problem-solving potential of societies. As we march full force to decarbonize our energy system, we should not stifle that dynamic potential. Instead we should proactively create space for it. Innovation offers a suite of new technologies and new solutions that keep the solution space vibrant.”

While diversity alone is unlikely to be a sufficient condition for resilience, it appears to be a necessary condition when thinking about resilience in the long run, particularly in the face of deep uncertainty. As Andy Stirling put it profoundly: diversity can be our main response against ignorance. Regulators, the Department of Energy, and other agencies would do well to keep this in mind as they craft new policies to enhance the resilience of our electric grid.

Varun Rai is associate dean for research and associate professor at the LBJ School of Public Affairs, The University of Texas at Austin. You can contact him at [email protected] and follow him on Twitter @raivarun81. To learn more about how diverse the electricity system of your state or regional transmission operator (RTO) is, read the paper: Quantifying Diversify of Electricity Generation in the U.S.