EnergyBiz SepOct2012

NEXT GENERATION NUCLEAR

VOLUME 9 // ISSUE 5 SEPTEMBER 12 // OCTOBER 12 energybizmag.com

PEOPLE // ISSUES // STRATEGY // TECHNOLOGY

PATHWAY TO COAL’S FUTURE

CALIFORNIA FEED-IN TARIFFS

TRIUMPHING FINANCIALLY SDG&E’s

MICHAEL NIGGLI

AN E N E RGY C E NTR AL PU B LIC ATION

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SEPTEMBER/OCTOBER 2012

44

11

16

58

Features

Departments

20 Executive Vision

6

Seven utility executives commanding enterprises collectively worth more than $120 billion reflect on the nature of their jobs and the challenges they must now confront.

28 Responding to Challenge // Leaders of the public power sector worry about the impact of sweeping new federal emissions regulations and other complex new hurdles.

32 Nuclear Aims Small

Utilities and manufacturers are looking to small modular nuclear units to help launch a new generation of nuclear power in America. A new federal program is providing a big assist.

36 The Utility View // Ameren endorses the modular reactor approach.

38 Going Modular // Westinghouse sees a path forward.

NEW INFORMATION STRATEGIES

44 The Strategic Implications of Data

O U R TA K E

Listen Up, Mitt and Barack

8 Letters BUSINESS EDGE

10 Seeking Texas’ Sweet Spot 11 Pathway to Coal’s Future 14 Waning Wind 16 Recruiting Challenges 19 Triumphing Financially T E C H N O LO GY F R O N T I E R

48 Tool for Evaluating Storage 49 Fuel Cells Boost Efficiency 49 Toward an Impregnable Grid 51 Solar Meets Smart Grid INTRODUCING

54 San Diego’s Utility Lab/ A Chat with Michael Niggli METRICS

57 Getting Smarter/Web Winners

Utilities are marching rapidly to a new era of real-time data and analysis.

58 Stimulating Smart Grid

45 Enabling the Business // Southern Company looks

60 California Leads on Feed-in Tariffs

to foster innovation.

Vol. 9, No. 5. Copyright 2012 by Energy Central. All rights reserved. Permission to reprint or quote excerpts granted by written request only.

EnergyBiz (ISSN 1554-0073 ) is published bimonthly by Energy Central, 2821 S. Parker Road, Suite 1105, Aurora, CO 80014. Periodical postage paid at Aurora, Colo., and additional mailing offices. Subscriptions are available by request. POSTMASTER: Send address changes to EnergyBiz, 2821 S. Parker Road, Suite 1105, Aurora, CO 80014. Customer service: (303) 782-5510. For change of address include old address as well as new address with both ZIP codes. Allow four to six weeks for change of address to become effective. Please include current mailing label when writing about your subscription.

2 E N E RGYB I Z September/October 2012

LEGAL ARENA

62 Moving Solar Forward F I N A L TA K E

63 Green Haiti 64 The Inside Story

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Clouds Reign on the Smart Grid Horizon

I

f you’ve been to a smart grid-related conference, summit or association meeting in the last five years, you’ve probably heard the lament that Thomas Edison would recognize the current power system, that he would be familiar with the ins and outs, the very basics. You’ve probably also heard how the situation needs to change, how the power infrastructure must evolve and grow more intelligent.

Edison recognizing our grid may be seen as a negative by the industry, but as the industry gets smarter— as we add infrastructure and digital access and two-way data to places where no data has gone before—our infrastructure would be familiar to other famous game-changers, namely Charles Babbage and Alan Turing, the fathers of computers and their science.

And, unlike the Edison lament, Babbage and Turing’s familiarity would be decidedly positive. It’s evolution. It’s the cloud coming into play. Originally, all computing had a central core. We wandered away from the concept as the personal computer started to dominate.

That original idea of a brilliant central core, however, has returned as we’ve uncovered needs: to share data, to analyze disparate ideas, to communicate in real time. In a trend counterintuitive to the Edison tale, as computing evolved, it has returned to original processes, especially within the cloud concept.

For the power industry, however, the cloud will allow an evolution 4 E N E RGYB I Z September/October 2012

past Edison’s recognition — faster, more secure and with a focus on core competencies.

Interoperability builds a better grid Interoperability has been a power industry buzzword for decades, tracing back to the guy at the substation picking up the phone to call the guy in customer service. Like the power grid and computing, interoperability has evolved. These days, the chat between the substation (now operations technology or OT) and the customer service fellow (now information technology or IT) needs to be instantaneous and detailed, which the best cloud computing options should deliver. The right cloud connects to your current systems, builds digital interactions and allows for integration, access and analysis without the need to build all those things yourself (which can take dollars and manpower you just don’t have right now).

“A utility’s cloud should integrate seamlessly into your existing IT infrastructure,” said Lance Johnson, vertical sales director for Terremark, a Verizon company focusing on the utilities, energy and industrial sector.

Additionally, Terremark is a recognized leader in the areas of Infrastructure as a Service (IaaS), hosting and managed security services.

Johnson continued, “The right cloud service should be compatible with your

existing applications, conform to your policies and compliance needs, and help you move faster, respond quicker, and accelerate innovation.”

It sounds simple, but finding a cloud offering that actually blends a utility’s systems, boosts its options and creates new pathways can be difficult. What does a utility on the hunt for a good cloud look for?

With the needs of the power utility in mind, the perfectly interoperable enterprise cloud includes: connections to systems both into and outside of the cloud itself; virtual platforms that allow for current applications and growth toward a future of more detailed, datacentric options; instant use of your own familiar systems (management, security) within the cloud; and real-time communications options.

All those options and offerings might make a smart grid manager think twice. Suddenly, he’ll need in-depth understanding of the new, computerized details of the power system. But, what the cloud really offers is a chance to return to the backbone of the business. You should be able to leave those digital details to the right cloud company.

Focus on the core While it’s true that some research must be done to find the right cloud offering for your particular part of the smart grid, basically, that cloud should free you to do what you do best: make and move power.

You’re best at creating and delivering energy reliably. You know bus bars, circuit breakers and relays, but data centers aren’t your area of expertise.

The cloud you want — one that can

Thoug hT le ad e rs h i p - sp on sor e d by Ve r i zon W i r e le s s

handle that deluge of data — requires detailed knowledge that could take years to accumulate. You’re about power.

You need a partner that’s about data, a partner that knows how to build and manage data centers, as well as understand and parcel the data coming in from meters, sensors, and synchrophasors.

Ernie Hayden, managing principal focused on energy security issues and a member of the Verizon Global Energy and Utilities Practice, reinforced this idea of reaching outside the utility walls for support. He noted, “Utilities need reliable, competent and secure data collection support. In today’s environment of expanded data needs for utilities where smart grid meter data can exceed 100 petabytes in 10 years, the cloud solution may be a perfect secure and economic opportunity for the utility to direct their data and still be assured of its protection.”

The right cloud can take the data details and responsibilities out of your hands, but that leaves a smart grid manager with one major concern: security. You need a trusted cloud option to avoid a negative cloud computing campaign the way so many utilities wish they could have avoided the negative smart meter backlash of the last few years.

More security in an insecure world Since Terremark offers a leading managed security option and because the company’s Data Breach Investigation Report (DBIR) is well-known industrywide, we returned to Lance Johnson for some details on what makes Terremark’s product — and the best among cloud solutions — aces in security. It seems the best enterprise clouds come from names you can trust and authenticate names you don’t know.

“Trust is a key component of any relationship,” Johnson said. “Utilities must have the confidence in providers to deliver on their promises.” In the case of Terremark, customer trust in its brand is

already solidified after years of work in other areas — Verizon, of course, being a name we all know, along with Cybertrust, the foundation of Terremark’s security.

But security, especially in the smarter grid-cloud we’re imagining, also deals with names we don’t know and that pesky issue of authentication: How do you know the people with access to your cloud are supposed to be floating around in there?

The basics for authentication include name and password, of course.

Terremark’s product goes one better with a technology utilizing cell phones. (It calls you during the password process.)

Beyond those basics, look for a cloud option that allows the deployment of federated identification solutions within the cloud. These items should also be on your cloud security checklist: firewall, intrusion detection and prevention, logging, monitoring, encryption, vulnerability scanning, incident response, third-party audits and root cause analysis (in case there is a security problem), and participation in the self-governing Cloud Security Alliance.

“Cloud computing is a fundamental technology and delivery model that should be incorporated into utilities’ service catalog,” Johnson said. “With business opportunities and models

Thoug hT le ad e rsh i p - s pon sor e d by Ve r i zon W i r e le s s

driving consumption, utilizing clouds will help utilities make the most of the smart grid and the immense quantities of data it generates.”

So, there’s a cloud on the horizon of our future smart grid — one that Babbage and Turing would recognize, but not Edison. Turing could navigate enterprise cloud options like Verizon’s, with his eyes closed—once he’s properly authenticated, of course.

About Verizon Wireless Verizon Wireless operates the largest high-speed wireless network in America.

We work hard to provide customers with the highest level of satisfaction by offering quality products and services.

Headquartered in Basking Ridge, N.J, Verizon Wireless is a joint venture of Verizon Communications (NYSE:VZ) and Vodafone (NYSE and LSE: VOD). More than 85,000 Verizon Wireless people serve over 90 million customers nationwide. Verizon Wireless is committed to helping the local communities where we work.

energybiz.com E N E RGYB I Z 5

» OUR TAKE Listen Up, Mitt and Barack ENERGY INDUSTRY MUST COMMAND THEIR ATTENTION READ OUR COVER STORY — toward the end — and weep.

Some of the most thoughtful executives in the utility industry say they see little chance of a meaningful national energy policy emerging in Washington.

We can agonize about all the institutional failures that have brought us to this juncture. Foremost among them is the poisonous, destructive atmosphere created by those men and women in Washington who fashion themselves political leaders.

Or, possibly, there is a way forward.

What if the leading sectors of our energy economy would come together and issue an invitation to our two presidential candidates to spend one evening this fall debating our energy future?

Prior to that evening, they need to come together on a grand plan.

The elements of such a plan were emerging early in the Obama administration. As with all fundamental advances in our society, it was built around the principle of compromise. The massive and tragic oil spill in the Gulf of the Mexico ended talk of a grand compromise on energy policy.

Today, the dynamics of energy have shifted markedly.

There is an abundant supply of natural gas, courtesy of the revolution in tapping shale-entrapped resources.

That — and the Fukushima nuclear disaster — have slowed a long-awaited nuclear renaissance.

Still, all corners of the energy sector need help.

As several utility executives told us in our roundtable discussion, we need to have clarity on our environmental policy. If we are going to constrain carbon emissions, the path toward achieving that goal needs to be clearly spelled out — and the economic consequences need to be addressed and minimized.

If we are to capitalize on our vast coal resources, we need to have a clear plan for making clean coal technology viable and affordable.

If we are to continue to benefit from an abundance of gas, we must probe fully the question of whether there are environmental consequences to that — and determine how they can best be addressed.

Nuclear power will be needed as part of any balanced energy strategy. Is the answer, as some 6 E N E RGYB I Z September/October 2012

suggest in this issue, a new generation of smaller, modular reactors? Can the industry and government address, finally, the question of long-term solutions to the nuclear waste problem?

Our friend, T. Boone Pickens, has forcefully advocated increased use of natural gas in transport — particularly by our fleet of large, long-haul trucks. The electric vehicle era has dawned, and it may ramp up faster than many expect, according to comments made by Michael Niggli of San Diego Gas & Electric, in our “Introducing” section [p. 54].

My proposal?

What if all parties to the energy debate come together on their own this summer to forge a grand pact?

They then should set up a nationally televised, prime-time energy debate with Mr. Romney and President Obama. To build a huge audience, they could be questioned by a panel that includes prominent ASBPE awarded EnergyBiz its executives from oil, gas, 2012 National Silver Award for coal, automobile and Editorial Excellence, Regular utility companies; an Column, Staff-Written, for two environmentalist; and a editorials, “Rethinking Nuclear Power” [May/June 2011] consumer advocate. and “A Pregnant Moment,” Who knows?

[July/August 2011]. They Perhaps both analyzed the future of nuclear candidates can agree power after the catastrophic on a grand energy Fukushima accident in Japan.

The national competition compact in advance of

by ASBPE, formerly the the election. That would American Society of Business go a long way toward Publication Editors, involved getting both parties to 1,500 business magazines. sit down and agree on an unprecedented blueprint for building our energy future once the election is over.

2012 The positive economic consequences of that may be huge enough to kick-start our smoldering economy.

Martin Rosenberg, Editor-in-Chief editor@energybiz.com

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» LETTERS To contribute to the Letters column, please email your submission to editor@energybiz.com.

Provide your name, address and daytime phone number.

Letters may be edited for style and space.

I write in response to your July/August cover story, “Smart Grid, Smart Cities.”

We all know that the Internet can make complex systems simple through connectivity and smarts, case in point the smartphone in your hand. Smart systems integrate disparate things. An iPhone integrates your financial system with movie and airline tickets, angry birds, funny kitten videos and news, all seamlessly.

Paying new Leaders

º º º º º º

high-rises hospitals Brazil Baghdad desert a gloBal race

sMart Grid, sMart cities

Although at a different BuildinG security scale, the interaction between a smarter grid and cities is no different. Transportation, buildings, parks, water, energy and a myriad of systems are now controlled by smart devices, soon to be connected together in a complex web of systems.

ChAt with googlE’s riCk nEEdhAm

An E n E rgy C E ntr Al Pu b liC Ation

Back in the ’90s people asked what “eCommerce” would be called in 20 years. We now, of course, call it “commerce” as we understand the value of the “electronics.” I thus propose that we’ll know we’ve arrived when we revert to talk about grid and cities (sans “smart”). We have a ways to go yet, which is why GridWeek this year is focusing on this very subject.

Anto Budiardjo Clasma Events Colleyville, Texas 8 E N E RGYB I Z September/October 2012

As a leader in the smart grid sector, the GridWise Alliance sees an optimized electric grid as an integral part of a sustainable energy future. Our economy and society are dependent on a reliable and robust 21st century power grid. The global efforts outlined in the recently published “Smart Grid, Smart Cities” article represent promising advances toward this vision.

In order to meet the goal of an optimized grid, new technologies must be developed and implemented that will allow for increased penetration of renewable energy, better management of peak load distribution and recognition of the needs of the modern consumer. Such technologies are currently being implemented across the country and around the globe.

As these deployments move forward, industry is committed to ensuring the security of these new technologies, and will continue to protect their systems, consumers and society.

Volume 9 // issue 4 July 12 // august 12 energybizmag.com

people // issues // strategy // technology

GettinG focused on custoMers

While great strides have been made in the past 20 years, we must remember that grid modernization is still in the nascent stages.

Continued investment in modernizing and optimizing the grid must be seen as a priority among industry, consumers and state and federal officials. To this end, the GridWise Alliance will continue to advance the cause of an optimized grid.

Lee Cogan Executive Director GridWise Alliance Washington

www.energybizmag.com EDITOR-IN-CHIEF Martin Rosenberg mrosenberg@energycentral.com 913.385.9909 CHIEF COPY EDITORS Meaghan Alfier,

Don Bishop, Martha Collins SENIOR CONTRIBUTORS

Wayne Barber wbarber@energycentral.com 703.651.2166 Barry Cassell bcassell@energycentral.com 804.466.0187 Carl Dombek cdombek@energycentral.com 970.236.6235 Rosy Lum rosy@energycentral.com 347.799.2802 Bill Opalka bopalka@energycentral.com 860.633.0090 Corina Rivera-Linares corina@energycentral.com 301.825.5618 FEATURE WRITERS Thomas Armistead, Steve Barlas,

Russ Choma, Lisa Cohn, Pamela Coyle, Darrell Delamaide, Richard Korman, Paul Korzeniowski, Salvatore Salamone, Gary Sampson, Al Senia, Richard Schlesinger, Gary Stern ACCOUNT EXECUTIVES Jana Koehn, Ken Maness, Todd Hagen, Eric Swanson sales@energycentral.com 800.459.2233 ADVERTISING COORDINATOR Kendra Branch-Brett 303.228.4748 CIRCULATION CUSTOMER SERVICE

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» BUSINESS EDGE

Seeking Texas’ Sweet Spot BALANCING SUPPLY AND DEMAND // BY TRIP DOGGETT ALTHOUGH LOAD GROWTH has been rare in much of the country lately, the demand for electricity in Texas continues to rise. Economic opportunities, along with a variety of rural and urban lifestyle options, continue to attract new residents, businesses and industries.

Since the retail electric market that serves most of the consumers in Texas was restructured more than a decade ago, there has been enough electricity to fuel this vibrant economy, with ample reserves typically available for sweltering summers and sometimes chilly winters.

However, by December 2011, the 10-year outlook in our semiannual “Capacity, Demand and Reserves” report revealed that generation capacity is not growing as quickly as load forecasts. In fact, 7,400 megawatts of future generation projects that had been anticipated in previous reports had been canceled by developers, and another 18,547 megawatts had been suspended. In December, I reported to the Electric Reliability Council of Texas board that projected reserves for 2012 and 2013 had dropped by 5 percent. After a challenging year that included unprecedented cold weather during the winter and extreme heat and drought during the summer, ERCOT was positioned to drop below its 13.75 percent target reserve margin by summer 2012 and to fall well below reserve targets over the next decade.

Fortunately, generators in ERCOT were able to return some mothballed units to the fleet for this summer, improving the reserve margin for the short term.

However, the most recent 10-year outlook continues to project below-target reserves that drop below 10 percent by 2014 and continue to decline after that.

For this reason, resource adequacy remains a top priority for the ERCOT board of directors and the Public Utility Commission of Texas, which oversees ERCOT and the Texas electric market.

10 E N E RGYB I Z September/October 2012

We have taken some initial steps to address the problem, such as changing how we deploy operating reserves so they do not artificially suppress scarcity prices, posting nonbinding forward spot prices to encourage price-responsive load reductions, and adding distributed generation resources to the Emergency Response Service we call upon when grid conditions become critically tight. Additionally, ERCOT staff and market participants are working with PUC Chairman Donna Nelson to develop a shared plan to encourage conservation during peak demand hours.

ERCOT also commissioned an independent report by The Brattle Group to assess the factors that affect investment in electric generation in the ERCOT region and offer suggestions to improve the future outlook. The Brattle Group looked carefully at all the components that affect reliability, from both the supply and demand sides.

The final report confirmed that low prices are a concern for investors seeking to build generation in the ERCOT market and suggested a number of options that could help achieve a range of reliability scenarios. The report also stressed that enhancing price-responsive demand programs could improve reliability over the long term.

In July, ERCOT began a pilot project that we hope will attract a wider variety of demand response contracts by allowing up to 150 megawatts of eligible loads up to 30 minutes — compared with the current 10-minute limit — to go off-line at ERCOT’s direction.

Earlier this year, the PUC increased the systemwide offer cap for wholesale market prices to $4,500 per megawatt-hour from its previous level of $3,000.

The PUC continues to assess the policy changes that are needed to further the success of this competitive electric market.

... priceresponsive demand programs could improve reliability over the long term.

Our long-term challenge is to continue supporting healthy economic growth, providing reliable power at prices that attract suppliers as well as consumers. As we continue to seek the sweet spot where supply and demand achieve that perfect balance, consumers within ERCOT are learning a lot more about how their activities during peak demand periods affect the bottom line.

One thing is certain: the solution to ERCOT’s resource adequacy concerns will require a variety of

mechanisms. These will include the addition of new generation resources, innovative peak conservation campaigns and the implementation of new demand response initiatives. I look forward to continuing the conversation as ERCOT furthers its mission of providing a reliable electric grid that powers the Texas economy.

Trip Doggett is the chief executive officer of the Electric Reliability Council of Texas.

Pathway to Coal’s Future POSSIBLE WINNER BY 2025 // BY JAMES F. WOOD A SERIES OF NEW AND PENDING Environmental Protection Agency regulations have led many to question the future of coal as a fossil source of electricity generation. In October 2011, the EPA finalized the Cross-State Air Pollution Rule with a compliance date of January 1 and replaced the Clean Air Interstate Rule of 2005, which had been remanded to the EPA by the U.S. Court of Appeals for the D.C. Circuit. In December, the same court stayed CSAPR pending a judicial review. This February, the EPA issued its final Mercury and Air Toxics Rule affecting all existing coal-fired generation and any proposed generation subject to the new source performance standards permitting process.

In March, the EPA announced public hearings on its proposed greenhouse gas NSPS regulations for sources of new electric generation. All generation above 25 megawatt hours would be limited to 1,000 pounds of CO² per megawatt-hour of gross generation, a limit approximate to that of an efficient gas-fired combined cycle electric generator. In June, a three-judge panel of the D.C. Circuit Court unanimously held that the EPA’s decision to set limits on greenhouse gas emissions is lawful and the agency’s interpretation of the Clean Air Act is “unambiguously correct.”

Electric generating companies now await the EPA’s final rules on cooling water intake structures; and in April, a coalition of environmental groups sued the EPA to force release of its final rules on coal ash.

Often lost in the discussion about the effects these rules will have on coal generation is the availability of significant quantities of low-priced natural gas, and the Obama Administration’s more than $3 billion investment in the Department of Energy’s large demonstrations clean coal power initiative program.

Big Sandy is a two-unit coal-fired power station located in northeastern Kentucky. Its nameplate generation is 1,097 megawatts, meaning it consumes about one unit train of coal each day. Some of its generation transits the PJM Interconnect and is consumed in New York City. In response to the new regulations, Kentucky Power, a unit of American Electric Power, announced in June 2011 that it intended to retire both units by Dec. 31, 2014, convert the plant from coal to gas and reopen the plant at 640 megawatts by Dec. 31, 2015.

Michael G. Morris, then president, CEO and chairman of AEP said, “The math screams at you to do gas.” Nevertheless, in December 2011, after being criticized by Kentucky politicians and mining interests, AEP submitted an application to the Kentucky Public Service Commission that included a 31 percent rate increase for eastern Kentucky residents who would energybiz.com E N E RGYB I Z 11

» BUSINESS EDGE bear the nearly $1 billion cost of retrofitting the plant to meet the new EPA regulations for an existing coal-fired facility. Ratepayers and others criticized this application, and on May 30, AEP withdrew the application stating more power would be available in the Midwest and mid-Atlantic in 2015-2016 than it had expected, so the company decided to “step back and re-evaluate.”

There are approximately 325 gigawatts of coal-fired capacity serving the U.S. electric system. However, as a percentage of generation, coal has been declining for several years, and recently fell below 40 percent of total generation. Day-ahead on-peak power prices over the last year ranged from about $25 per megawatt-hour to $40 per megawatt-hour, and for 2011 average onpeak spot prices range from $30 per megawatt-hour at the mid-Columbian interchange to $63 per megawatthour at NYPP and ERCOT North. Some of this is electricity demand, but a major reason is plentiful supplies of low-priced natural gas. The day-ahead spot price of gas has generally ranged from $4.50 per million British thermal units to $2 per million Btu. The recent development of safe and effective deep shale fracturing techniques has led to the development of gas supplies likely to overpower the market and depress prices for many years unless significant exportation of this gas becomes a reality.

In February 2009, President Obama signed the American Recovery and Reinvestment Act. Of the funds appropriated by Congress under this act, $3.4 billion was obligated under the Department of Energy’s Clean Coal Power Initiative round 3, a costshared collaboration between the federal government and the private sector that seeks to integrate and demonstrate technologies that show promise for reducing coal emissions even below the levels in current and proposed EPA rules.

This federal investment leverages approximately $10 billion of private sector funding as five advanced coal-fired electric generation facilities and three industrial projects advance from permitting to construction.

Three coal-fired generating facilities include advanced gasification technology in which coal is not burned but converted to synthesis gas; two of those facilities are to co-produce fertilizer as part of the process; all three facilities will capture significant quantities of CO² and sell it in the market for tertiary oil recovery.

All three facilities hold the promise of near zero emissions of criteria pollutants and thus should meet 12 E N E RGYB I Z September/October 2012

or better EPA regulations for coal. A fourth project is to convert the combustion process of an existing coal-fired facility from air to oxygen and in doing so dramatically reduce the still-theoretical high cost of CO² capture. The CO² captured by this project will be stored deep underground in a saline formation.

The emissions profile from this project will be required to meet or better all current EPA regulations. The fifth project involves retrofitting an existing coal-fired plant with a proprietary CO² capture system.

This capture technology requires extremely clean flue gas in order to minimize the energy required for chemical regeneration and the cost of frequently replacing chemical absorbent, so it too holds the possibility of near zero emissions.

Several of the industrial projects and an early Clean Coal Power Initiative round 2 facility currently are under construction. Depending on permitting processes in various jurisdictions, the strength of off-take contracts including electricity and the receptivity of the capital markets for debt and equity, the Department of Energy expects to have real-time environmental performance, capital costs, operating costs and schedule data in the 2015-2017 time frame.

This data will be shared with the private sector and the public and will help inform investment in technologies that will further reduce the cost and improve the emissions performance of coal-fired electric generation. Meanwhile, it seems prudent for the private sector to continue its research into alternate combustion techniques, solvents, sorbents and membrane technologies that have the potential to drastically improve the emissions profile of all fossil generation. In order to reach atmospheric CO² concentrations and climate temperature targets currently under debate, many sources of greenhouse gas emissions other than coal will need to be addressed.

So, though coal looks to be in decline today, it actually may be ahead of the pack in terms of economical solutions and could be the winner by 2020–2025 when electric demand and costs reach parity across many sources.

James F. Wood is deputy assistant secretary of the Office of Clean Coal in the U.S. Department of Energy.

Helping Utilities Make Smart Solar Decisions

2012

Education • Market Intelligence • Solar Strategy

Whether your utility is just beginning to explore solar power or is experienced in integrating solar into your energy portfolio, the Solar Electric Power Association (SEPA) is committed to providing you with the unbiased information on solar technology and integration strategies, plus the one-on-one support you need to help build and manage a successful solar program. For information on the benefits of joining SEPA’s community of utility solar professionals, contact us at utilities@solarelectricpower.org.

www.solarelectricpower.org/membership

» BUSINESS EDGE Waning Wind FACING THE ABYSS // BY WILLIAM OPALKA JAN BLITTERSDORF has seen the ups and downs of the wind industry for 30 years, so the expected slump that will hit the sector when a key subsidy expires for the fourth time in two decades shouldn’t be anything new.

The earliest of the early indicators of industry health, the wind measurement equipment manufacturer NRG Systems, where Blittersdorf is president and CEO, demonstrates the future perhaps better than most.

The picture is not pretty.

As the federal production tax credit is set to expire at year’s end, the wind industry is bracing for a slump from a much higher perch than it has ever seen before. Even if Congress extends the credit this fall, the effects of a recovery wouldn’t be felt until well into next year.

“This time feels different,” Blittersdorf said. “Whenever there was slowdown our customers kept looking at projects and we waited for the next cycle. Now, I’m not sure if we’re at the beginning of the next cycle, or the end.”

One thing new for Blittersdorf was a dwindling order book and the hard decisions it forced on her company. In its 30-year history, NRG Systems never had to cut staff, until this spring, when it let go18 employees, 15 percent of its workers.

Shaky employment prospects and an even shakier long-term outlook for the industry even took a toll on wind’s premier event. The American Wind Energy Association annual conference in Atlanta in June attracted only 11,000. Although the American Wind Energy Association says a drop-off was expected as the industry ventured into the South for the first time, the conference drew about half as many people as its record-setting event in Chicago in 2009.

One similarity between 2009 and 2012, however, was that the industry was in the midst of recordsetting years. In 2009, the produc-tion tax credit had been extended. More than 10 gigawatts of capacity were added.

The wind industry is expected to break all previous records, with upward of 10 gigawatts to 12 gigawatts of capacity being built this year. Developers are rushing to finish projects as wind farms must be 14 E N E RGYB I Z September/October 2012

put into service by Dec. 31 to qualify for the 10-year, 2.2-cents-per-kilowatt-hour production tax credit.

Then plant construction is expected to fall off a cliff.

To put it into context, the last time the PTC lapsed completely, installation fell from 1,700 megawatts in 2001 to 410 megawatts in 2002. Total installed wind capacity will surpass 50 gigawatts this year.

A widely quoted study done by Navigant LIMERICK FALTERS Power was cut at one Consulting in December said 37,000 jobs of two Limerick station out of the 75,000 now attributed to the nuclear reactors after a July explosion, wind industry are at risk if the PTC is affecting power allowed to lapse. Component makers supply throughout the mid-Atlantic region, further up the supply chain reported according to the slowdowns in mid-2012 as their products Reading, Pa., Eagle. are already being used in turbines being The explosion in the transformer cut assembled for delivery later this year. power to the turbine Billions have been invested in the United cooling system.

States in recent years by both domestic manufacturers and foreign companies seeking to cut costs for wind turbines. Five years ago, 25 percent of turbine components were manufactured here, while now, 60 percent of the components are manufactured domestically.

Those jobs are at risk. “One thing that businesses want before they invest is certainty and a long-term PTC gives them that,” said Denise Bode, chief executive of AWEA. Many worry about the future.

Perhaps there is no better example than Vestas, the world’s biggest turbine manufacturer, which in the past five years invested more than $1 billion in Colorado. Vestas issued the most ominous-sounding warning yet, when earlier this year it said its 1,600 manufacturing jobs spread over four plants in Colorado were at risk. Ditlev Engel, Vestas chief executive, told a Danish conference of economic ministers that he expected the U.S. market to drop by 80 percent next year.

The economic impact of such an event during an economic downturn is what state officials everywhere hope will save the PTC. “It’s become an election year hot button, but we’re confident it will be extended after the election. There

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» BUSINESS EDGE are a lot of forces that want to see it extended,” said Chris Worley, regulatory analyst at the Colorado governor’s energy office. “We had estimated 3,000 direct jobs in wind.”

Another wind giant, GE, doesn’t anticipate layoffs as it has expanded its worldwide footprint during the decade it has been in the sector. GE picked up the assets of bankrupt Enron Wind and recently noted the installation of its 20,000th unit.

“This year is a record year for us, with about $7.5 billion in business,” said Vic Abate, who heads GE’s renewable energy unit. “The way we’re thinking about 2013 and beyond is that over the past 24 months, more than half our orders have been from outside the U.S.” Without a PTC, GE is looking to markets like Brazil, and has even deferred Canadian projects until next year to serve U.S. customers rushing to finish projects in 2012.

“This is not the way to run a competitive business.

We would prefer to have a stable PTC,” Abate added.

Wind energy companies are trying to diversify. Like NRG Systems, AWS Truepower grew up with the industry over the past 30 years as one of the first site-

evaluation and wind-forecasting firms. Bruce Bailey, its founder and president, said the business withstood previous slowdowns when the PTC was set to expire or had already lapsed.

“My customers would be evaluating sites knowing they wouldn’t be developed for three or four years, just to maintain their competitive advantage. That doesn’t seem to be happening now,” he said.

To keep employment stable, AWS has branched out, establishing a beachhead in an emerging wind energy giant, India, and also looking to South America.

Companies that serve other segments of the utility industry, unlike a Vestas, which really is a pure play in the wind business, seem to have a better chance of prospering in 2013.

Peter Duprey, CEO of tower manufacturer Broadwind Energy, based in the Midwest, saw the winds shifting last year and is preparing for the downturn.

“We have moved to diversify our product line, even to move a bit into oil and natural gas services,” he said.

And that would be the ultimate irony for a company whose survival was once dependent on the clean energy economy.

Recruiting Challenges FINDING THE NEXT GENERATION OF POWER ENGINEERS // BY GARY M. STERN TWO WORDS REVERBERATED at the Institute of Electrical and Electronics Engineers (IEEE) panel on “Building the Technical Workforce for Our Energy Future” held in mid-June at the Explorers Club in New York: demographics and pipeline.

Because many engineers are nearing retirement and there aren’t enough technical graduates in the United States to fill the expected openings, utilities face a severe recruiting outlook. What must be done to attract more students into power engineering so utilities don’t suffer a brain drain?

The panel consisted of Christopher Root, a Bostonbased senior vice president of National Grid; Patricia Hoffman, assistant secretary of the Department of Energy; and Bob Thomas, professor of electrical engineering at Cornell University.

16 E N E RGYB I Z September/October 2012

Several solutions were discussed including: having government, industry and universities collaborate to address the problem; providing scholarships to stimulate interest in power engineering; and creating one-on-one mentoring programs to influence students to consider careers with utilities.

Moderator Wanda Reder, vice president of Power System Services at S&C Electric Company and past president of IEEE, set the tone early by stating that 52 percent of skilled engineers and technicians may need to be replaced in the next 10 years, according to a 2011 survey of utility employees conducted by the Edison Electric Institute, the American Gas Association, and the Center for Energy Workforce Development. She described the situation as a perfect storm based on the demo-

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» BUSINESS EDGE graphics of an aging engineering workforce combined with the dearth of a pipeline of college graduates in the United States pursuing careers in engineering.

Moreover, utilities face stiff competition from higher-paying industries for the limited number of engineering graduates.

The need for utilities to hire engineering graduates will likely spike in the next few years, Reder suggested. Though power demand stabilized in the last few years because of the economic recession, it is set to rise in the next 10 years because computers and electric gadgets will account for 45 percent of power needs by 2020.

Helping to address the need to train the workforce was $100 million allocated by the Economic Recovery Act that financed 54 projects, noted Hoffman. She cited two innovative programs as examples: simulation training at Con Edison and a multi-curriculum course on new smart grid technologies at Syracuse University.

“Universities and utilities will have to partner, share information and help students gain exposure,” she said.

Workforce demographics are affecting National Grid, a global utility with 3.5 million electric customers in three states, explained Root. In the next five years, 23 percent of its engineers are eligible to retire, 56 percent of its engineers are at least 45 years old and yet 44 percent have less than 10 years of experience. Hence, inexperienced engineers are going to need extensive training to fill the void of the retiring engineers, many with 20 years experience.

Ten years ago, National Grid was looking to hire engineers with master’s degrees but was repeatedly losing out to GE and other multinationals that offered higher salaries. “We made a decision that if we can’t find them, we have to make them,” Root said.

Hence, National Grid developed a master’s program with Worcester Polytechnic Institute consisting of six courses in power engineering, project and risk

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18 E N E RGYB I Z September/October 2012

management and social organization. Since its launching, 114 students have graduated from the program and 60 of them became master’s-level engineers at National Grid.

Rather than waiting until college to spark students’ interest in engineering, Root said motivation must begin in seventh grade, the first year students study science as a separate program. Having engineers talk to seventh graders and explain that they design iPhones, build solar panels and substations and develop the next PlayStation3 can generate interest in the field.

But the engineering brain drain is also a faculty issue at universities. Thomas noted that 40 percent of Cornell’s power engineering faculty can retire in the next few years, so attracting engineers to post-graduate programs is just as important as hiring them in industry.

Scholarships can trigger interest in WIND BENEFITS The economic gain electrical engineering, and IEEE has led tied to Illinois’ 23 the way by creating its Scholarship Plus largest wind farms has been pegged at Initiative. It raised $2.4 million in 2011 $5.8 billion over the that funded 93 Power & Energy Society life of the projects, according to a report scholarships of up to $7,000 per student in the Bloomington, at 53 universities for electrical engineerIll., newspaper, The Pentagraph. ing undergraduates.

Reflecting the gender gap for engineering students in the United States, of these 93 scholarship students, only 21 were women. Though Reder said that 23 percent of scholarships given to women is higher than the national average of females in electrical engineering programs, the fact that so few women are entering engineering is a major stumbling block and a fitting subject for IEEE’s next panel.

To address this perfect storm, Reder said utilities must emphasize workforce development, bringing in new talent, making sure that the pipeline is adequate, and looking toward knowledge transfer in anticipation of significant attrition.

Triumphing Financially FOCUSING ON COLLABORATION // BY DAVID PARKER AN OLD INFRASTRUCTURE SYSTEM will likely provide most U.S. utilities with ample investment opportunities in the next several decades.

These investment opportunities in core regulated operations, combined with more constructive regulatory practices to encourage infrastructure investment, should fuel attractive investor returns. However, despite an attractive longer-term sector outlook, individual company investment returns, similar to past performance, will differ dramatically.

Despite rapidly changing global economic and market dynamics that can significantly impact local economies and political environments, the key to achieving investment goals is to start with a qualitative assessment.

People, not assets, typically drive investment returns. Although the utility industry is capital intensive, prompting many investors to focus first on assetrelated strategies, management and regulators play a critical role in determining the relative success of a potential investment strategy. Gone are the days when utility executives would develop and execute strategies in isolation, hoping that state and federal laws would support recovery of that investment.

Determining the right business strategy, and successfully executing that strategy, typically separates the great management teams from the rest of the pack. Effective leaders rarely get painted into a corner.

Before the first press release is issued or the first shovelful of dirt is turned, great management teams work collaboratively to develop strategies that are well thought out, include multiple contingencies and are effectively communicated to all stakeholders.

Unless state and federal policy and procedures are consistently applied, it’s difficult to successfully execute any strategy. Good regulators, like good management teams, are also effective communicators and collaborators. A key regulatory litmus test is “few or no surprises” for all stakeholders despite rapidly changing economic and political pressures. This objective is typically achieved through consistent communica-

tion with all stakeholders before, during, and after the regulatory cycle. Midwest and Southeastern states have the highest percentage of good or generally constructive state regulatory agencies.

Most energy infrastructure investment has a useful life of 40 to 60 years, and therefore the recovery period for that investment is very long. So swings in energy policy or sentiment play an important role in the potential returns on investment. Unfortunately, the United States rarely steps up to the plate to establish long-term energy policy. As a result, supported energy infrastructure investment has changed rapidly, significantly increasing risk.

In the past decade alone, supported electric generation technology investment has swung from natural gas, to coal, to renewable and nuclear, to smart grid technology and customer efficiency and now back to natural gas. With this pace of change, a nimble business strategy is a desirable investment attribute.

Supported infrastructure investment can be subject to rapid change, so a preferred utility investment includes a management team that has developed malleable strategies that can adapt to evolving stakeholder needs or policy changes, particularly where strategic shifts are not catastrophic, such as betting the balance sheet on a single project. In a rapidly changing and fragile economy, a company with a diversified portfolio strategy is best positioned to provide attractive total returns in the next several years.

Given the market uncertainties, the potential for stricter environmental regulations and the advent of relatively low-priced natural gas, the best potential investment reward for the risk can be found in companies that are focused on expanding their use of natural gas. Increased natural gas utilization promises to be a winner on multiple fronts including lowering costs to customers, enhancing system flexibility and improving strategic options, as well as reducing emissions. These infrastructure strategies include investing in coal-fired to natural gas-fired power generation, residential and commercial fuel switching, CNG fleet refueling stations and other natural gas delivery infrastructure.

David Parker is senior utility analyst with Robert W. Baird & Co. energybiz.com E N E RGYB I Z 19

CEOS FOR THE 21ST CENTURY Unprecedented challenges require unprecedented leadership. Thomas F. Farrell II, Dominion Resources chairman, president and chief executive and winner of the 2012 EnergyBiz KITE CEO of the Year award, will discuss leadership for the future on Oct. 19 at noon ET. Register for the free webcast at www.energybiz.com/CEO

20 E N E RGYB I Z September/October 2012

GROUNDWORK FOR A NEW ERA

BY MARTIN ROSENBERG

KEVIN BURKE

was about to face a major labor

crisis. Jim Rogers would soon be embroiled in controversy surrounding a long, carefully planned merger to create one of the nation’s largest utilities.

PARTICIPANTS

goes along with the job of utility chief

Nick Akins CEO, AEP

executive officer. As the industry grows

James E. Rogers CEO, Duke Energy

sequences multiply.

and changes, the challenges and their con-

Lewis “Lew” Hay, III executive chairman, former CEO NextEra Energy

EnergyBiz sat down with Burke, Rogers and

Thomas R. Voss Chairman, President & CEO Ameren

in the industry; the future of coal, nuclear,

Benjamin “Ben” G.S. Fowke, III CEO, Xcel Energy Photos by Denis Warren

Dealing with unanticipated big issues

(from upper left, clockwise)

Michael W. Yackira CEO, NV Energy Kevin Burke CEO, Con Edison

five of their peers in June for a wide-ranging discussion about leadership changes gas and renewable generation; and the increasingly digital grid. Collectively, they manage enterprises worth $120 billion.

The men were candid, passionate and reflective in their observations. The exchange, edited for style and length, follows.

energybiz.com E N E RGYB I Z 21

E X ECUTI V E V ISION

Front (l to r): Thomas Voss, Jim Rogers, Ben Fowke and Michael Yackira. Back (l to r): Lew Hay, Nick Akins and Kevin Burke.

What are the leading strategic issues that you face?

ENERGYBIZ

We have a really bad economy in Nevada. We’ve been dealing with something unprecedented — growth has completely stopped. We had the first layoffs in the company’s history. But as a result, we dramatically improved our cost structure and we are getting people used to looking at every dollar they spend.

YACKIRA

BURKE New York is back to growing again — population is increasing, jobs are up. We’re looking at gas demand growth of about 3.5 percent a year, which is a lot. One of the biggest challenges is that we have to make sure we are making capital investments but not get too far ahead.

We have to make sure we are deploying capital early in a wise fashion. That is why we are moving more toward the operating company model that focuses on each jurisdiction. Our capital budget is roughly $3.5 billion a year, and it is becoming more and more of a challenge.

We not only have to deal with the infrastructure issues, but also the transformation of the fleet given the new emission requirements from the U.S. Environmental Protection Agency.

AKINS

VOSS I have two regulated businesses and a merchant business and the margins in the merchant business are 22 E N E RGYB I Z September/October 2012

extremely low. Trying to keep that business cash flow positive is a major focus for our company. The downturn in the economy is putting pressure on rates in the regulated business. We can’t sell power at margins anymore, which was supporting the rate structure. The merchant business and merchant margins are on my mind most of the time right now.

HAY We are pleased to see that for the last six or seven quarters we’ve been adding customers at a rate of about 26,000 per year.

That’s nowhere near where we were growing pre-recession, but it’s a lot easier to run a business when you have growth. The good news is that we have a new governor who is much more business-like. We have a new Public Service Commission that seems to be much more professional in how it does things. But the economy still isn’t strong and anytime you have to deal with a rate increase like we have at present it’s not easy.

In our competitive business, it’s tougher going these days.

Fortunately, most of our fleet is under long-term contracts.

We’ve got a big backlog of projects to construct between now and the end of 2015 and then the question is — where do

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E X ECUTI V E V ISION

we go from there? We do not know if we are going to have production tax credits. Our main focus is trying to figure out how to grow the business in new ways.

We’re just finishing a $7 billion building program. We built two modern gas plants and two advanced-technology coal plants.

As we look at the future for coal, we’re happy that we’ve completed these plants because there probably will not be another coal plant built in the United States for the next decade. This building of 2,600 megawatts has allowed us to retire 3,700 megawatts of old, fully depreciated high-emissions coal plants. It has reduced a lot of our incremental costs because we are shutting down these plants and our remaining plants are larger and more efficient.

The challenge is that we will not be back to our 2007 level of sales until 2016. Think of it as a lost decade. What is the growth beyond that?

ROGERS

We have an infrastructure challenge, modernizing old generation and transmission and distribution assets in a low sales environment. We looked at the environmental challenge a lot earlier than most and got ahead of the curve.

We’ve been systematically adding wind and we really view that as a hedge against natural gas.

FOWKE

Ben and Nick, what challenges do you face as new CEOs? ENERGYBIZ

When you aren’t the CEO, you underestimate what happens in the CEO position. When you report to the CEO, you say, “I can do that.” You look at the CEO’s schedule and say, “Well, my schedule is as tight as that one, so it’s no big deal.” It is a big deal. It is daunting, but at the same time it is exhilarating. It’s a great time to be in this industry because of the fundamental changes that are occurring.

Thirty years ago when I started, it was really all about which next central station generation you were going to build and how load was going to grow. Today, fundamental shifts are occurring, including the new abundance of shale gas. On the technology side, smart grid and energy efficiency are changing the face of the industry.

AKINS

We all talk about the challenges, whether you are in the CEO role or some other role. But this job carries with it a sense of responsibility. Just how many things can go wrong and how many people depend on you can weigh on FOWKE

24 E N E RGYB I Z September/October 2012

you if you let it. We are going to lose half of our workforce in the next decade due to retirements. That’s a lot of knowledge walking out the door in a very complex industry. But it’s also a tremendous opportunity as a CEO to ask, “What do you want this company to look like in 10 years?” Done properly, we will embrace more technology and process simplification.

Frankly, my legacy will depend on how well we manage that generational handoff.

Do any of you want to offer some advice to these two gentlemen?

ENERGYBIZ

The CEO has a distorted perspective on the business. That may sound like a crazy statement. All the big problems percolate up after people at different levels try to handle them. By the time they percolate up to the CEO they are big deals and it’s late in the game. In my company we have 15,000 employees and each one of them every day is doing wonderful things. Most of it you don’t even see because you’re dealing with other things. You have to always keep in mind that there are far more good things going on than bad things.

HAY

Think of it as a lost decade.

I was ready for the technical aspects, but as CEO you also worry about succession planning, diversity, the culture of your company and your image. That took more time and thought than I thought it would.

VOSS

Two things to focus on are your team and the culture.

BURKE

Are you worried that coal is not going to be fully utilized in this country?

ENERGYBIZ

Shale gas seems to be the game changer that everybody says it is. Our biggest challenge is regulators saying we should be “all gas all the time.” The strength of our industry has been that we’ve had a portfolio of ways to generate electricity so we are not overly dependent on gas, coal, nuclear or renewables. The coal producers are going to do fine but I suspect within the next decade coal will be about 35 percent of our generation, down from 43 percent, and gas will go up to about 35 percent. Producers will export ROGERS

their coal to China and other parts of the world. If they start to export gas, that can drive gas prices up.

YACKIRA If we look back at the history of this industry, whenever we counted on one thing, as we are with natural gas now, we’ve always been wrong.

AEP historically has been known as a coal-fired utility burning 80 million tons of coal a year, more than anybody in the industry. Today there is a tremendous opportunity for us and the entire country to rebalance the portfolio going forward. There will be less coal generation, but with emissions controls we will make the coal generation that remains as environmentally benign as possible and ensure its future in our nation’s resource mix.

AKINS

BURKE

Con Edison hasn’t burned coal in about 40 years.

There is life after coal. For the companies that are not combination electric and gas utilities, it really pays to learn about how the gas supply system works. People would be surprised by the lack of diversity of supply.

ENERGYBIZ Tom, Ameren is exploring development of modular nuclear power. What is its appeal?

The idea with these small modular reactors is to have an option for the future.

VOSS

Will more conventional nuclear plants be ordered after the first few get built?

ENERGYBIZ

Without higher gas prices and with no price on carbon, it’s hard to make the math work. Assuming we don’t extend the lives of our nuclear plants from 60 years to 80 years — we’re trying to figure out if that makes sense and whether federal regulators would approve that — we will start to retire our nuclear units in 2030. So that means that at the latest, in 2020 we need to start building nuclear to replace our existing fleet. If you are serious about carbon and climate change, you’ve got to be serious about nuclear.

Today, while nuclear only provides 20 percent of electricity in this country, it provides 70 percent of the carbon-free electricity. We need to keep it in the mix.

ROGERS

HAY In Florida, we at FPL are roughly at 65 percent natural gas generation. We are reasonably comfortable with that given what we are seeing with shale gas but we only

have two pipelines serving the entire state of Florida. We need diversity of fuels. I don’t know how we will get our Public Service Commission to ever agree to nuclear if natural gas prices stay low. I don’t know when we would actually pull the trigger to start building them, but nuclear power is important for both reliability and diversity.

AKINS It’s a tremendous financial challenge obviously, and strong legislative and regulatory support are needed. Modular nuclear reactors, if priced competitively, would be a decent solution. They could be located where we have retired generation and help us manage the grid with smaller units.

Is the American public ready to support large or modular nuclear reactors after the Fukushima accident?

ENERGYBIZ

ROGERS If you look at the response our industry had to Fukushima, as we’ve learned lessons we’ve incorporated them in our operations. The public should know that we are really focused on that.

As for the challenge of raising capital for nuclear power, nuclear plants in the future will be regional nuclear plants.

The days of one company building a nuclear plant are over.

In the future, three or four utilities will come together and share the costs over a much bigger customer base.

What can we expect with wind, solar, and geothermal power in the next few years?

ENERGYBIZ

The primary support for renewables over the last two decades has been the production tax credit, even though it’s been on and off. Production tax credits were a big success.

Back in the early ’90s we were producing wind energy for around 20 cents a kilowatt hour. Now, with the benefit of the production tax credits, we are entering into contracts in some areas of the country at 3 cents a kilowatt-hour. The cost of wind energy has come way down and the capacity factors of the wind turbines have gone way up. We have wind farms that are running at 55 percent capacity factors.

Over the lifetime of a wind farm, the taxes the wind farm pays, including those paid by the workers, is worth far more than the production tax credits. Solar costs have come down but it is still expensive. This would be a bad time to totally eliminate incentives for renewables primarily because the costs are still coming down. There ought to be an extension HAY

energybiz.com E N E RGYB I Z 25

E X ECUTI V E V ISION

but with an agreed upon ramp down, and that’s something that we’re finding has a lot of appeal in Washington.

what we’ve tried to do is have modular implementation of new technologies.

FOWKE We bought a lot of that wind, which has made us the biggest integrator and the biggest provider of wind in the country. But natural gas crowds out all technologies right now and we are very sensitive about raising customer rates.

ROGERS Smart grid has been oversold and overhyped and that really makes the deployment more difficult. I work very hard not to use the words “smart grid.” We are simply taking our distribution network and going from analog to digital and we are providing twoway communication. We are going to be able to operate at lower voltages and the line loss is going to be reduced.

That is going to make the distribution of electricity cheaper for our customers.

Some utilities are doing it quietly and just making it part of their capital programs, while other utilities are doing the “mother may I” with the regulators and come up with a cost-benefit analysis.

As Michael was saying, as you deploy it you learn some of the benefits that you didn’t expect.

What are the key benefits of smart meters and smart grid?

ENERGYBIZ

We did not go down the smart meter path.

We went down the smart distribution system path and we’ve been investing $100 million over the last few years in making the distribution system smarter. We’ve been developing technologies to reduce the capital-intensive nature of the distribution system. With the help of federal stimulus money, the distribution system is getting a lot smarter. As a result, we are able to maintain and increase the level of reliability in certain areas without making the kinds of investments we would have had to make in the past. It is useful to distinguish between making the grid smarter and making the meter smarter.

BURKE

AKINS The smart grid pilot projects are important because they help us define what smart grid is — based on the geographical area. There are different applications and different efficiencies that are available. We have to work with regulators so that we fully understand the value of each technology before full-scale deployment.

We put things in service that may have a 30year depreciable life and then we end up using them for 70 years or longer. We’re not used to putting things in that have a depreciable life of 20 years only to find out that the technology wasn’t the right choice three or four years ago.

FOWKE

YACKIRA We’ve been installing smart meters for about a year and a half now and we will be fully deployed by the end of this year throughout the state. Our Public Utilities Commission approved the project based on the operating cost savings. We didn’t take into consideration demand response action, which could help with our reserve margins as well as to reduce peak demand. There are a lot of benefits that can be gained that we have yet to quantify on the system side. I don’t disagree with Ben that it makes me a little nervous about the technology. But 26 E N E RGYB I Z September/October 2012

If you are serious about carbon and climate change, you’ve got to be serious about nuclear.

ENERGYBIZ How can you make the best use of an avalanche of new information you are getting about your customers and operations?

Right now we are providing information to our customers that they’ve never had before through an online tool. Fifty thousand customers are already using the tools, and that’s before we’ve even started educating them or advertising the benefits. Our program will provide the opportunity for our customers to take control of their energy use. We are not the ones who create the bill, the customer creates the bill. The more information we can provide and the more we can learn about them, the better our relationship with our customers will be.

YACKIRA

We are seeing tremendous operational benefits from our smart meters. We justified our whole program on operational benefits thinking that the gravy would be in the benefits to customers who want to access the information.

We have an internal training program that lasts six to nine months and involves cross-functional teams. Leaders from different areas of the company are asked to take a fresh look HAY

at smart meters and the data that we are getting. My goal is that we take the blinders off and get more creative about what we do with that data.

Mining the data and presenting it to the customer so they can connect the dots is a challenge. Since we don’t have any expertise in that, we will likely end up bringing in experienced people outside the company to help.

ROGERS

ENERGYBIZ Will the outcome of the presidential election have an effect on national energy policy?

AKINS I’m skeptical of there being a national energy policy that we all can galvanize around and that will produce the level of investment required going forward. It is going to be piecemeal, and we’ve had this challenge for decades.

We need a consistent, coherent national energy policy that enables long-term investments to be made. National policy should not define winners and losers when it comes to our energy resources. The states should move ahead with their own policies based upon their own resources.

ROGERS

In Washington, we already have too much policy.

But what we have is a policy that doesn’t combine energy and environmental policy, which are inextricably linked.

They are treated as if they are separate. I would much rather have someone empowered on the state level help get the balance right than rely on one-size-fits-all policies enacted in Washington.

The chances of a national energy policy are about zero. For this industry, the national energy policy is less relevant than a national environmental policy. The industry was pressing for a cap-and-trade decision from the Obama administration. We realized that — rather than have it forced upon us — we would rather be at the table to influence how it came about so as to plan better for our long-lived assets.

YACKIRA

I started in the business in ’73. We had the first oil embargo and Con Edison only burned oil. We got to the point where we had less than a week’s worth of oil in New York. Clearly, if there was any time when the country said we need an energy policy, it was in the ’70s. It is obvious that we can get by without it.

BURKE

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energybiz.com E N E RGYB I Z 27

E X ECUTI V E V ISION

Responding to Challenge PUBLIC POW ER FOCUSES ON MISSION

BY MARTIN ROSENBERG

What disruptive threats do you face?

ENERGYBIZ

Government regulations and mandates. A lot of money is being thrown at a lot of things that won’t ultimately benefit the consumer.

CARROLL

Some of the federal mandates by the Environmental Protection Agency are not attainable. We can meet some of the requirements but they don’t give us enough time to do it.

WILLIAMS

PARTICIPANTS Lonnie Carter President & CEO, Santee Cooper, South Carolina Douglas Hunter General Manager, Utah Associated Municipal Power Systems (UAMPS), Utah Phyllis Currie General Manager, Pasadena Water & Power, California Cindy Holman General Manager, Oklahoma Municipal Power Authority, Oklahoma Patrick McCullar President & CEO, Delaware Municipal Electric Corp., Delaware Robert Williams General Manager, Carthage Water & Electric Plant, Missouri

The thing that is most disruptive right now to the electric utility industry is the pace at which the EPA is sending out regulations. It makes it very difficult to plan because you are not sure how all of these regulations are going to stack up against one another. Ultimately, it is going to lead to a significant number of units being retired because they can’t be brought into compliance.

CARTER

CURRIE We are already past worrying about the impact of coal going out of our portfolio. We will move more toward renewables and natural gas — probably an over-dependence on natural gas. What worries me is what happens over time if the price of gas goes up significantly. There is a lot of uncertainty around how cap and trade is going to function in California and that is causing a lot of concern.

William Carroll General Manager, Greeneville Light & Power System, Tennessee

MCCULLAR The regional transmission organizations are crafting immature and imperfect markets.

There are a lot of barriers of entry to generation owners. I am also troubled by the process of getting transmission for new generation assets.

28 E N E RGYB I Z September/October 2012

It seems that by the time you figure out what the EPA rules are, they change slightly. It is very distressing to see what it would do to the consumer.

HOLMAN

ENERGYBIZ Turning back to new EPA emission standards, are you in danger of losing important generation? Do you all have access to other sources of power?

MCCULLAR It’s one of the pivotal questions. We may be looking at a reliability storm if many of these units are forced into retirement.

Photos by Gerry Lewin

pile up like never before with sweeping consequences, while new technology reshapes the business. It is a time of profound change, according to leaders of public power entities who recently met with EnergyBiz editors at the American Public Power Association’s annual meeting. The association represents 2,000 community-owned utilities serving 46 million Americans. The responses of the executives, members of the association’s board of directors, were edited for style and length.

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Without some real definite energy policy that is practical, you won’t have the investment decisions made today that give you the reliability 15 to 20 years out.

CURRIE

Are you all benefitting from the newfound abundance in shale gas? Is it readily available?

ENERGYBIZ

CARROLL Not immediately. There are not enough gas pipelines in rural Tennessee. It is going to be difficult to get that gas where it needs to be even if it stays affordable. I’m not convinced it is going to stay affordable very long.

ENERGYBIZ How are public power organizations coming up with strategies to deal with these complicated issues?

CURRIE We’ve gone through a very involved process in terms of putting together a 20-year resource plan. Part of it is to give citizens and elected officials an idea of the costs of the choices that we make.

What happens when the ultimate demand on gas is three or four times what it has been historically and you will pay seven or eight times what the cost was? It all comes back to the consumer.

HOLMAN

I’ve been in this business now for 30 years and everything about it has gotten more complex.

The public power model lends itself to dealing with this better than most people think. We’re near the constituents that we serve. Our interests are aligned. They want low costs and reliability. We decided that we are going to diversify our generation mix to survive all of these uncertainties.

CARTER

What are your concerns about transmission deployment?

ENERGYBIZ

CURRIE

The Federal Energy Regulatory Commission is in many ways over incenting the building of transmission. We don’t mind paying our fair share. But we don’t want to see a transmission provider or a potential provider get unreasonable premiums for risk.

Utilities have been doing regional planning for years and it has worked quite well in our part of the country. We have a robust transmission system. Then, of course, we have these organized markets that don’t give a price signal to build capacity or transmission in the appropriate way.

CARTER

30 E N E RGYB I Z September/October 2012

Lonnie, how is your nuclear project progressing and will more nuclear generation get built?

ENERGYBIZ

We started permitting these units in 2006. It’s taking us longer to get the licenses for the nuclear units than it takes to build them. We will see more nuclear power plants built in this country because people are serious about trying to address climate change and reduce the amount of CO² that we are putting in the atmosphere. The pace of nuclear development has been slowed by the low cost of natural gas.

But we know how to develop nuclear energy in this country.

We’ve been doing it for years and we’ve been doing it safely.

CARTER

How do you see smart meters and smart grid evolving?

ENERGYBIZ

Our smart meters were deployed in 2004. It was the right thing to do. We are going to do some really cool things for our customers. The technology has been wonderful, saving us money and saving customers money. I don’t know why investor-owned utilities don’t go any faster than they do. They are usually trying to make money and smart grid will help them do that.

CARROLL

One of the reasons we haven’t been moving as quickly as we thought we were going to move was due to privacy issues with the data. In fact, it has made us look at all of the information we hold on our customers.

HUNTER

ENERGYBIZ Are you having trouble finding and retaining workers with the skills to make the most of smart grid?

The smartest people don’t necessarily come from the big places, but they’ve got to go to the big places to get a good job. If we have a spot for them and the continuity for them, then the brain drain stops.

CARROLL

ENERGYBIZ

How has your business changed?

Smart grid really boils down to technology and deploying technology out into our systems. We’ve done it for years and deployed it in different ways to help lower cost.

On the customer side, we’ve put these meters out and we’ve CARTER

Front (l to r): Phyllis Currie and Cindy Holman. Back (l to r): Douglas Hunter, William Carroll, Patrick McCullar, Robert Williams and Lonnie Carter

introduced time-of-use rates. In our part of the country it’s been interesting to try to watch how people learn to adapt to the price signal. Our real challenge is to make sure we stay up-to-date with the technology, deploy it and get the most out of it as it comes along. Some people look at smart grid as a destination. I look at it as a journey.

My city council has been willing to allow us to bring innovative rates. In fact, they give us the authority to implement experimental rates. We are using this experimental rate-setting authority to look at how we can incent charging of electric vehicles at the right times of day for our system.

CURRIE

What really excites you about this business now?

ENERGYBIZ

Just when you think you’ve solved whatever your local issue is, here come five more. I encourage my staff to look upon these challenges as opportunities to grow.

CURRIE

We have 45 different members in eight states and I try to keep my staff as small as possible.

But we pay them well, reward them and help them feel engaged.

HUNTER

CARTER We really are at a transitional point for this industry. I’m anxious to be a part of making that transition better serve our communities.

We have the ability to build clean and efficient generation and still make sure that it is absolutely reliable.

MCCULLAR

As I get older and closer to the end of my career, I really get excited watching young people.

They’ve got so much to offer.

WILLIAMS

CARROLL I’ve got meters now that are smart as Santa Claus.

Every day, every week, every month, something pops up that shows this is a cool business.

ENERGYBIZ Do you think the outcome of the national election in November will make a difference in the challenges you face?

CARROLL Yes. With some changes in Washington, reason could prevail.

Nobody there now seems to care about the guy who writes the check every month.

I don’t think it’s going to make a difference. Every time you come to a pivotal election and you think things are going to change, they don’t change. The same forces will be there.

CURRIE

HUNTER I’m going to vote for whom I think, at the local level, is going to give me the better twist. That usually crosses party lines.

CARTER What happens with the election this fall matters.

We tend to want to focus on the executive branch but we really need to focus on everybody who we elect to Washington because they all have to work together. What this administration has done differently than others is that it’s been much more aggressive in pushing its policies through its agencies and taking a lot more authority for the executive branch. The biggest thing that the next Congress and president will have to do is deal with fiscal policy. That will have a significant impact on all of our businesses in ways that we don’t fully appreciate today. Putting the EPA genie back into the bottle will be difficult.

WILLIAMS I hope that the election makes some difference. I’m not convinced it will. I hope it doesn’t take blackouts in California and West Texas to really wake people up.

But the idea that we’ve got to solve all of our problems in the next two or three years is ridiculous. energybiz.com E N E RGYB I Z 31

NUCLEAR aims small THE R E AL NUCLE AR R ENAISSANCE?

BY RICHARD SCHLESINGER will soon award matching grants totaling $452 million over a five-year period to help guide two small modular nuclear reactor designs through the licensing process to actual operation by the year 2022. Several firms are competing for the grants, and as important as the grants will be to the winners, the DOE has a much more ambitious goal. It hopes to spur a nuclear industry that will supply domestic needs and restore the United States to supremacy in a burgeoning world market for nuclear plants. This, of course, is hardly the first time a U.S. nuclear renaissance has been predicted, but this time three details suggest it could be real.

First, the DOE decided to focus on small and modular.

Small means plants that generate less than 300 megawatts; modular can mean either that they are modularly built or that they can be deployed sequentially, starting with as little as 45 megawatts for a single unit and expanding over time to as many as 12 units at a single site.

Second, the DOE intends to choose the two winning designs based, in part, on actual teams of designer/ manufacturers and utility operators. Because licensing is by THE DEPARTMENT OF ENERGY

32 E N E RGYB I Z September/October 2012

far the most time-consuming part of building a nuclear plant, the DOE wants to make sure the process includes an enduser from the very beginning.

Third, while several fundamentally different forms of SMRs are in development here and abroad, including hightemperature gas-cooled reactors, molten salt reactors and molten metal reactors, the likelihood is that the DOE will focus on light-water reactors, because that’s the technology the Nuclear Regulatory Commission is most familiar with, having already licensed large light-water reactors. “Light-water reactors are most likely to meet NRC licensing requirements within our time frame,” says John E. Kelly, deputy assistant secretary for nuclear reactor technologies at the DOE. “We’re open to other technologies, but how quickly they can go through the regulatory system is a concern.”

The enormous up-front capital investment and the long construction time have been the greatest hurdles to the wider adoption of nuclear plants. SMRs address both issues. Large reactors have, traditionally, been built onsite. Precisely because they are smaller, SMRs are being designed to be built in factories and delivered in finished

pieces for on-site installation. A large nuclear plant may take anywhere from eight to 10 years from first spade to first electron. Kathryn J. Jackson, senior vice president and chief technology officer for Westinghouse Electric, estimates construction of the company’s factory-built SMRs could take just 24 months. She notes that time frame is competitive with the 18 to 24 months it takes to construct a combined-cycle gas turbine.

The Westinghouse design is modular in the sense that it will be built in pieces and assembled on-site. “The goal is to be as modular as possible, perhaps 90 percent modular,” says Jackson. “Parts will be built in factories and shipped to the site by rail or truck. Building everything in a consistent way saves enormous time. Studies have shown that building this way, every hour spent in a factory equates to about three hours at an assembly facility on-site, and that one hour is equivalent to about eight hours of stick-built construction in the hole, the traditional way of building large nuclear plants.” Because

The goal is to be as modular as possible, perhaps 90 percent modular.

construction time is perhaps the largest factor in up-front nuclear costs, cutting that time by as much as 80 percent suddenly brings nuclear into the budgetary range of many more utilities.

Warner Baxter, president and CEO of Ameren Missouri, the utility that is partnering with Westinghouse in the DOE application, agrees. “The SMR, with its smaller footprint, shorter construction period, and factory-based concept mitigates, if it doesn’t eliminate, the large upfront capital risk. It makes it more attractive to us and, I believe, will make nuclear more attractive to many more utilities,” he says.

NuScale Power, which is also competing for the DOE grant, will manufacture its entire SMR in American factories and ship the finished parts for on-site installation. But unlike the Westinghouse design, NuScale’s is modular in the sense that a utility can begin with one or two 45-megawatt units and add units as needed and as financing becomes available.

Additional units would be controlled from the same control station as was originally installed. This modular approach, according to Paul G. Lorenzini, NuScale’s CEO, greatly enlarges the potential market for nuclear. “Assuming our energybiz.com E N E RGYB I Z 33

NUCLEAR AIMS SMALL

unit costs, dollars per kilowatt, are approximately the same as for a large plant, we would put in an infrastructure and add modules one at a time,” he says. “We’re working through ways we can maximize the advantage of scaling up. At the very least, if the unit costs are comparable, as we think they are, and the construction schedules are shorter, you might be looking at less than a third to a half the total capital demand of a conventional, large nuclear plant. If you look at it from a national policy standpoint, it expands the ability of nuclear power to provide noncarbon solutions, which is part of what the energy policy people want to achieve.”

The NuScale approach offers important flexibility. Because each module operates independently, one can be taken down for service or refueling while the others continue to operate. NuScale is partnering with SCANA and NuHub, an economic development consortium focusing on developing the nuclear industry in South Carolina, to build the first commercial NuScale plant at the DOE’s Savannah River Site.

NuScale already demonstrated its design in a one-third scale test facility in 2003 at Oregon State University.

While it would appear that SMRs are economically viable, not everyone is convinced. Even John Kelly of the DOE admits the department wonders about the economics. “You think it’s going to be favorable, but we don’t have enough information to say that for certain,” he says. “By going forward with this program, we’ll get more information about the design, reduce the uncertainty about the licensing and therefore be better able to quantify what the actual costs are going to be.”

John Gilleland, CEO and nuclear program manager for TerraPower, calls himself agnostic about the up-front economics of SMRs. TerraPower is moving in a different direction, designing a 300- to 400-megawatt plant cooled not by light-water technology but by liquid metal sodium.

Sodium-cooled reactors are already operating in Russia, France and Japan, among other places. Gilleland believes their greater energy density – they operate at much higher temperatures than water-cooled plants – and the fact that they can go much longer between refueling will ultimately prove more cost effective. Furthermore, so-called fast reactors, such as the design being pursued by TerraPower, can burn what other plants consider waste products or spent fuel, which reduces the volume of eventual nuclear waste. That’s

34 E N E RGYB I Z September/October 2012

one reason Gilleland estimates that fuel costs are between $2 billion and $6 billion lower over the life of the plant than for a light-water plant. But because the DOE is at this point much better prepared to license light-water plants, Gilleland sees his primary market as overseas, at least for the next decade.

The other major concern, of course, is safety. What virtually all proposed SMR designs have in common is their reliance on passive safety systems. Rather than depending on pipes, valves, batteries, diesel generators and other active ways to circulate coolant, SMRs rely on THE ALLgravity and convection. In the event IMPORTANT of a total disaster, such as the tsunami NUCLEAR that struck Fukushima, these systems QUESTION require no power whatsoever to effect Will we ever see a nuclear renaissance? a safe shutdown of the plant. In this, Listen in as a panel of Westinghouse has been a leader with experts discuss this its passive safety design for the large crucial issue in a free webcast scheduled for AP1000 reactor, which it is adapting Sept. 20 at noon ET. to its proposed SMR. That design Register at has already won NRC approval, but www.energybiz.com/ other companies use essentially the nuclear same system, so approval should be relatively routine.

Whichever designs the DOE decides to reward, there’s no question that SMRs offer attractive options to utilities here and abroad. They allow smaller utilities, with less capital, to diversify their fuel portfolio with nuclear as a hedge against future carbon regulation and the inevitable volatility of natural gas prices. The ability to start small and add capacity as demand grows and as coal-fired plants are retired makes them that much more attractive. But the lead time remains a concern, at least for now, and no matter how safe passive systems are, there remains a large segment of the public that needs to be convinced that nuclear, along with renewable sources, is a safe, viable option to replace environmentally harmful carbon-fueled baseload generation. On the surface, SMRs look extremely attractive from an economic, safety and environmental perspective. As the DOE moves forward in helping at least two designs move through the long approval process, it remains to be seen whether the promise they offer will be fulfilled.

ONE SMALL WESTINGHOUSE REACTOR

W E S T I N G H O U S E E L E C T R I C C O M PA N Y L L C

Another giant step by the true leader in commercial nuclear energy

Westinghouse, the world leader in the development, licensing and deployment of commercial nuclear energy plants, is again leading the industry, this time with a 225 MWe integrated pressurized water reactor that can generate electricity for a residential community of 45,000 homes without emitting any greenhouse gases.

And unlike other designs, the Westinghouse Small Modular Reactor (SMR) is an outgrowth of proven, land-based nuclear reactor technology that takes safety, reliability and constructability to unsurpassed levels.

To make this exciting new reactor a reality, Westinghouse, with the full support and backing of its majority owner Toshiba Corporation, is working with a distinguished group of partners, notably Ameren Missouri, the Association of Missouri Electric Cooperatives, Associated Electric Cooperative, Inc., The Empire District Electric Company, Kansas City Power & Light Company and the Missouri Public Utility Alliance.

Proud of our track record of success, but always looking to the future, Westinghouse nuclear technology will help provide future generations with safe, clean and reliable electricity.

Check us out at www.westinghousenuclear.com

NUCLEAR AIMS SMALL

The Utility View A MER EN ENDORSES SM ALL NUCLE AR

BY WARNER BAXTER

IN MISSOURI,

an unprecedented alliance formed to strongly support Westinghouse’s application to the Department of Energy for up to $452 million in cost-shared investments in the next generation of nuclear power — small modular reactors.

This alliance consists of every electric provider in Missouri, including Ameren Missouri, all investor-owned utilities, cooperatives and municipals; bipartisan state and federal legislators, including Gov. Jay Nixon and Sens. Roy Blunt and Claire McCaskill; the University of Missouri; international and local labor unions; and businesses.

These supporters strongly believe the SMR technology will help provide a cleaner energy portfolio for our state and our country that will help meet future energy needs and strengthen our energy security affordably. The project will position the United States as the global export market hub for design, development and manufacturing of SMRs, thereby creating a transformational economic development opportunity that will generate thousands of new, sustainable, clean energy, American jobs. The Westinghouse-Ameren Missouri team, along with the state of Missouri, is best positioned to deliver on this important project for our country on the DOE’s timeline, and in so doing, deliver a strong return on the government’s investment.

There is a clear imperative to address our state’s and country’s increasing future energy needs and energy security with cleaner energy. In Missouri, coal-fired generation supplies approximately 70 to 80 percent of our energy needs. However, our state’s coal plant fleet is aging and certain units could face retirement due to the rising costs of environmental regulations. Replacing that capacity with cleaner energy, such as nuclear power, is attractive.

36 E N E RGYB I Z September/October 2012

There are many features that make SMRs appealing to Ameren Missouri and to other utilities. The Westinghouse SMR design enhances the already safe designs of nuclear plants in the United States. The size of these units is about one-quarter the size of the larger nuclear units, which requires not only a smaller operating footprint, but also incrementally adds generating capacity. Finally, these units will be installed from modules built in U.S. factories, which reduces the associated construction period, costs and financial risks, all of which benefits our customers.

Our alliance also strongly believes that the timely development and deployment of this state-of-the-art technology will create a transformational economic development opportunity. A recent study reported that the construction of just one SMR would create approximately 9,500 direct and 9,100 indirect jobs in the United States and create incremental economic benefits of nearly $3 billion. With the need and desire for new, cleaner generating capacity in the U.S. and around the world, the economic development opportunity is easy to see.

To capitalize on this requires a team that can deliver successfully on this project. The Westinghouse-Ameren Missouri team, along with the entire state of Missouri, is best positioned to do so. We already have an outstanding site at our Callaway nuclear facility, which has an excellent safety and operating record. We have also begun future site development work at Callaway. Missouri is situated in the heartland of America and has an excellent transportation infrastructure, skilled labor workforce, solid university system and a low cost of doing business that can support the design, engineering, manufacturing and exporting of SMRs throughout the country and the world.

Warner Baxter is president and chief executive officer of Ameren Missouri.

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NUCLEAR AIMS SMALL

Going Modular THE PROMISE AND UNTAPPED M ARK ETS

BY DR. KATE JACKSON

enjoyed significant accomplishments in the last year, including the issuance of the first construction and operating licenses for nuclear power plants in the United States in over 30 years.

We’ve also been faced with major challenges, including economic uncertainties that are slowing domestic expansion of nuclear energy.

And today, foreign competitors are making rapid gains in emerging nuclear energy technologies. It is our view that the United States needs to make an emphatic statement that our country continue to lead the nuclear technology innovation race by becoming the first to market with an Americanmanufactured small modular reactor.

While SMR technology is not new, a new breed of small reactors has emerged. Smaller in scale, more compact, modular in fabrication and able to deliver up to 300 megawatts — this next wave of emissions-free technology is enough to power a U.S. residential community of about 45,000 homes. Deployment of this reactor holds promise to advance energy, economic and environmental benefits in new and untapped markets such as aging fossil plant replacement, district heating and remote and small-grid markets, and process heat applications in the United States and around the world.

The best opportunity for competitiveness is to maximize power output while using the least amount of reinforced concrete, heavy forgings and commodities required, thereby optimizing equipment costs per amount of power generated.

And the use of proven and previously licensed components and the compactness of the reactor system, containment and plant footprint also add up to a design optimized for efficiency.

THE U.S. NUCLEAR ENERGY INDUSTRY HAS

38 E N E RGYB I Z September/October 2012

Westinghouse, founded in Pittsburgh in 1886, developed and deployed the world’s first pressurized water reactor in Shippingport, Pa., in 1957. As a result of our years of experience in the nuclear energy industry, Westinghouse is convinced that there is a significant market opportunity to extend the reach of the positive attributes of nuclear into the energy market while driving economic development and job growth. Simply stated, we believe that SMR development and deployment will be a major U.S. economic stimulus package, creating thousands of well-paying engineering, construction and manufacturing jobs as well as up to 300 permanent operational and maintenance jobs at each operating SMR. In fact, 100 percent of the components for the SMR will be provided by domestic suppliers.

But there are other reasons to move forward with SMRs. Electricity demand in the United States is expected to grow sharply in the 21st century, by almost 50 percent by 2030, according to the Energy Information Administration. These projections could go even higher if electricity demand continues to grow at the rates experienced in recent years.

The United States must address growing energy needs with emission-free energy solutions and take a leading role in this area, including the implementation of a balanced portfolio of clean energy options including next-generation nuclear energy technologies like the SMR. Maintaining U.S. leadership allows influence over international standards for safety, operational excellence, standards. Losing this leadership will mean importing SMRs from other countries and exporting those jobs.

Dr. Kate Jackson is Westinghouse Electric’s chief technology officer and senior vice president of research and technology.

2013 Presents a Unique Opportunity...

Is Your Utility Ready?

In the coming year, wind energy will offer an even greater opportunity to diversify your generating portfolio and add wind energy to your utility’s energy mix. Market conditions are lining up to potentially make 2013 an ideal year to capture these advantages at very cost effective prices.

AWEA ENERGY Join us for WIND the “Utilities & Wind Power 2 0 1 2 F prior A L toL theSAWEA Y M Wind P OEnergy S I U Fall M Seminar”

Symposium (use the code below to save 50% off Seminar registration). Presenters and panelists will guide you and prepare you for 2013 opportunities. Don’t miss the in-depth presentations and interactive discussions on the most important issues facing electric utilities and wind power implementation, providing insight and topical information.

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Wind energy costs have dropped over the past few years as wind turbine technology has matured, with taller towers, and with improved wind turbine productivity. Wind energy now competes with new installations of other electricity sources in wind-rich regions, and because the fuel is free, utilities can lock in wind energy prices for 20 to 30 years, keeping electric rates low for consumers and providing a hedge against fossil fuel price volatility. As a result, not only does wind energy provide a clean source of electricity, it has also been providing 30% of all new generating capacity added to the U.S. grid since 2007.

The American Wind Energy Association (AWEA) is working with electric utilities all over the U.S. to help them bring wind energy to their customers – as a source of emissions-free and domestically-produced electricity – but also as a source of clean energy jobs. Learn more about AWEA membership for utilities and how your utility can get involved directly in the wind energy industry.

Go to: www.awea.org/utility to learn more or send an e-mail to utility@awea.org today !!

Smart Grid Systems and Security Development Lifecycle

by Ido Dubrawsky, Itron Sr. Principal Engineer, and Michael Garrison Stuber, Itron Engineering Advisor

A

Security Development Lifecycle (SDL) is an engineering process in which cyber-security issues are considered throughout the entire product design and development process. It is used to help improve the product design process by incorporating security design principles.

An SDL is important to many industries but is particularly important to the utility industry due to the critical nature of the electrical grid to the nation’s economy and its population. Advances

40 E N E RGYB I Z September/October 2012

in metering and data collection technology have made the security of the electrical grid more important than ever.

SDL and the Smart Grid Historically, automated meter reading (AMR) was a technology that utilities implemented to improve operational efficiency in the meter reading process, but it offered little else. Advanced Metering Infrastructure (AMI) brought new capabilities such as firmware upgrades, remote disconnect, Home

Area Network communications, and more frequent readings. Along with these new capabilities came new security concerns. Smart grid solutions in which Distribution Automation (DA) and AMI are combined to provide a comprehensive monitoring and control system for the distribution network create even greater security challenges.

In a worst-case scenario with AMR systems a customer’s monthly meter reading might be exposed. But this data was already readily available simply by using a sight-glass to read the dials off

I N D US TRY I N S IG HTS - S P ON SOR E D BY ITRON

the meter, so the risk was quite low. With AMI and smart grid systems, the risk is considerably higher.

In many IT systems, individual subsystems or components are reasonably self-contained, creating natural barriers or breakpoints between the pieces that comprise the larger system. For example, there is a clear distinction between the firewall, the web server, the database and the host operating systems and hardware that might make up a webbased application. In smart grid systems, the hardware and software are often very intimately tied together and therefore the security of the entire system depends, quite literally, on the security of the components. If either the software or hardware security fails, the system as a whole can be compromise. This makes smart grid systems excellent candidates for the incorporation of a Security Development Lifecycle regimen into their development. SDL helps harden both the individual components, as well as the system as a whole, against an attack. Without such an effort, smart grid systems are more vulnerable to attack.

System compromise could result in a severe impact to the overall electric grid.

An SDL is a methodical effort that integrates security into a product development lifecycle from start to finish.

When security practitioners think of an SDL they typically think of Microsoft’s Security Development Lifecycle model or the Open Web Application Security Project’s (OWASP) Comprehensive Lightweight Application Security Process (CLASP) or Cigital’s Touchpoints.

Regardless of which specific model is used, they all follow the same basic pattern: conduct a threat analysis of the product to identify threat vectors, mitigations and understand the attack surface; use secure coding guidelines 1

2

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to ensure that poor code is eliminated; conduct periodic code reviews with an eye toward security issues; conduct security testing of the product to identify potential vulnerabilities and resolve them; conduct a final security review to ensure that the product is ready to be released. The sum of these efforts can help to improve the security of products.

Itron’s SDL Rollout For Itron, embracing an SDL simply made good business sense. As Itron became aware of the risks that smart grid solutions posed, it was obvious that the company would need to provide strong security within its products and that it would need an ongoing program of testing and validation to ensure that security controls worked as intended.

Without a consistent, defined approach to security as part of Itron’s broader development lifecycle, the company would likely find security issues in the testing and validation portion of its development process, rather than in the design and coding period when they are both easier and cheaper to fix.

In rolling out an SDL within its development teams, Itron chose to use Microsoft’s Security Development Lifecyle. It provides a comprehensive and proven model to work from. The company has worked very carefully to add just the right amount of additional process, documentation and rigor. Too heavy an implementation was likely to lead to missed deadlines, resentful developers or both. Too light an implementation would be ineffective, or worse, provide a veneer of security without actually generating real product improvement. Itron’s SDL rollout has focused on several areas: developer education, threat modeling, and validation.

One of the key components of an SDL is ensuring that software developers are educated in identifying poor coding practices and focusing on producing code with security in mind. What does it mean to write software code with security in mind? It means developers must work toward eliminating common mistakes like failing to validate input or not providing for more robust data handling. Attackers strive to make the software do something unexpected, and thereby gain access or advantage. Writing code with security in mind means taking steps to ensure it always does what the engineer intended. Secure coding should also include an understanding of software vulnerabilities and how to mitigate them so that, should an attack be attempted, the mitigation would help preserve the integrity of the system. While these are by no means the only items a developer should be concerned about, they do represent a good starting point.

Threat Modeling Another component of an SDL is the use of threat modeling during the product analysis and definition stage.

Threat modeling is the application of a structured approach to an analysis of a system – hardware or software – to try and determine the potential threat actors, vectors and risks to that system.

While not a panacea to all of the possible security problems that could be faced by a smart grid system, it does provide system architects, developers, and security researchers with a methodical way to understand the threats against the system as well as how to mitigate them. When building a threat model of a smart grid system where the hardware and the software are intimately tied together, it is important to analyze the hardware in isolation, the software in isolation and finally the two together.

http://www.microsoft.com/security/sdl/default.aspx https://www.owasp.org/index.php/Category:OWASP_CLASP_Project http://www.cigital.com/services/

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“Itron’s SDL rollout has focused on several areas: developer education, threat modeling, and validation.”

Analyzing threats against hardware in smart grid systems includes providing for mitigations against glitching and other fault induction attacks as well as other common methods that can be used in an attempt to make a system’s security fail. Hardware threats come from a wide variety of sources and are especially relevant to smart grid systems as some of the components of the system – the meter and the communication relay – are either sitting on the side of a house (in the case of the meter) or nearby on a utility pole (in the case of the communication relay). This makes for easy access to a connected device.

By understanding the physical threats against the device hardware, the security architect is able to incorporate 4

additional controls to help protect against potential hardware threats.

Similarly, with software threat modeling, the architects and developers can provide for controls and mitigations against common attack methods such as buffer overflows and heap overflows in field devices. Threat modeling allows Itron to clearly understand the risks and threats the product may face in a field deployment and how to withstand potential threats. A dedicated hardware hacker could extract cryptographic keys from hardware with the right specialized (and often expensive) equipment; however, Itron’s systems remain secure overall because the way Itron uses cryptography ensures that compromising an individual device does not lead to system compromise.

Security Testing While threat modeling and secure coding provide strong design controls against potential threats, the real measure of the success of an SDL in a design – and in particular smart grid system design – is security testing. Rigorous testing must be conducted on all components of a smart grid system in isolation as well as together as a whole in order to ensure that the threat vectors identified in the threat model are mitigated as expected and that the software is functioning as expected and resilient against attack.

Unlike functional testing, security testing is trying to determine that the software isn’t doing what it isn’t supposed to do. It is critical that the components be tested as a whole system as it may expose points or possible avenues of attack that

“Glitching” attacks involve a changing one or more of the inputs to a component, such as the supply voltage, so that it is out of the manufacturer’s specification.

Some components will behave inconsistently under such conditions, and these inconsistencies can be used to circumvent access controls.

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are not readily visible when testing is done on components in isolation.

Itron has been integrating an SDL across all of its products. Whether these are software-only products, such as the Itron’s meter data management system, or a combination of hardware and software, such as the Itron’s smart grid solution, an SDL has become an integral part of Itron’s product development lifecycle.

Itron believes that adopting an SDL is a key requirement of smart grid solutions moving forward and that the market place expects – and demands – this. Itron has seen a significant increase in RFPs that ask for information about SDL as part of their requirements, especially among larger deployments. It is clear that utilities are interested in SDL.

In addition to secure development practices, there is significant interest – both among vendors and utilities - in standardized cybersecurity testing for smart grid solutions. For example, the International Electrotechnical Commission (IEC) Technical Committee 65 is trying to define a uniform set of testing criteria that can be used to evaluate the security of industrial and control systems, and the SGIP Cyber Security Working Group has also endeavored to define security criteria for the smart grid.

whole. These efforts, coupled with Itron’s commitment to implementing and integrating Microsoft’s SDL into its product development process, lay a strong foundation for more secure product offerings for utilities and ultimately for a more secure energy infrastructure.

Itron participates in a wide range of industry organizations and working groups developing security guidelines and security testing criteria and to help advance strong cybersecurity standards in the utility equipment industry as a

Sector.

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Ido Dubrawsky is a Sr. Principal Engineer and the Security Engineering Team Lead at Itron. He has over 20 years of technical and managerial experience in network and system security and has worked in a wide variety of roles including previously as Microsoft’s Security Advisor for the Communication

Michael Garrison Stuber is an engineering advisor in Itron’s Office of the CTO. Michael has had a variety of engineering, management, and marketing roles within Itron, including serving as the lead architect for Itron’s Smart Grid solution.

http://www.iec.ch/dyn/www/f?p =103:7:0::::FSP_ORG_ID:1250 http://collaborate.nist.gov/twiki-sggrid/bin/view/SmartGrid/CyberSecurityCTG

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energybiz.com E N E RGYB I Z 43

NEW INFORMATION STRATEGIES

The Strategic Implications of Data ANALYTICS REALIGNING UTILITY IT // BY H. CHRISTINE RICHARDS THE UTILITY INDUSTRY is forging ahead with more advanced analytics. More than 65 percent of North American utilities have some sort of advanced analytics initiative in the planning or implementation stage today, according to the Utility Analytics Institute, a division of Energy Central.

This new wave of analytics initiatives is about more than having a database, extracting data and analyzing historical trends. Analytics initiatives today are focused on moving closer to real-time data and analysis, all while dealing with increasingly complex data feeds and information demands.

As utilities become increasingly digitized and accepting of analytics-based decisions, the importance of IT and its relationship with business groups will continue to grow.

Analytics — on top of the growing needs of digitized grids and meters — are adding new workloads to IT departments. In addition to the fundamental technology needs of analytics, utilities increasingly see the benefits of cross-functional collaboration as IT, operations and finance are all working more closely together than ever to address business needs.

IT is seen as an increasingly important part of that collaboration. In some recent research, we asked utilities to rank the importance of various departments in grid and customer analytics initiatives. Utilities ranked the importance of each department on a scale of 1 to 10, with 1 meaning “not important” to 10 meaning “extremely important.”

Engineering and operations are considered the most important business areas for grid analytics.

However, information technology is a close third, 44 E N E RGYB I Z September/October 2012

which shows how important the interaction between operational and information technologies is to moving forward with grid analytics. With customer analytics initiatives, IT becomes even more important, surpassing the importance of customer service departments.

IT is critical for analytics initiatives, but IT’s work on these initiatives is not done in isolation. With the emphasis on cross-functional teams to accomplish analytics initiatives, IT must work together more closely than ever with business groups, which can bring about clashes in strategy and more tactical business processes. This means a realignment of IT and business groups is in order to effectively address analytics initiatives.

In our most recent report, “Analytics Case Studies and Best Practices,” OG&E Electric Services, serving Oklahoma and western Arkansas, H. Christine Richards discussed how its IT departis director of the Utility ment is evolving in response Analytics Institute, to grid analytics efforts. OG&E which is presenting Utility Analytics Week. has a compelling business case The event is focused on for its volt/VAR optimization and data analytics solutions conservation voltage-reduction for utilities, Sept. 18–20, in Arlington, Texas. initiatives. This is evidenced by the greater than $280 million, 15-year net present value the utility has estimated for using such initiatives to avoid the addition of new peak generation capacity.

In order to effectively manage its expanded communications and control infrastructure related to these distribution activities, OG&E has reorganized parts of its IT group, forming a new group called “real-time operations” in IT. This group manages the utility’s

distribution management system, providing on-site IT staff support and reducing the barriers between traditionally siloed IT and business groups.

OG&E’s network operating center was also reorganized as the integrated operating center, which now operates a companywide communications network incorporating microwave, WiMax, AMI, and mesh radio covering 30,000 square miles of territory in addition to the corporate WAN traditionally managed by the NOC. The integrated operating center is located next to the utility’s distribution control center, so that the two groups can coordinate efforts to ensure the communications network and the distribution system are operating effectively together.

OG&E has a corporate-level strategic objective to build analytical strength around information gathered from new and existing technologies, customer databases and other sources. This information can be used to improve the customer experience, reduce OG&E’s costs and improve system reliability, among other benefits.

The reorganization of the IT group and the closer relationship between IT and operations are part of a comprehensive strategy that supports initiatives related to analytics and grid optimization. Volt/VAR optimization and conservation voltage reduction are great examples of initiatives that benefit from strong links between IT and operations, as both initiatives consume technical information about distribution circuits collected through communications infrastructure managed by the IT group, and use that information to take action that improves efficiency and lowers costs of distribution networks managed by the operations group.

As utilities continue to grow their analytics efforts, this need for collaboration and alignment between IT and its business groups will only continue to grow.

H. CHRISTINE RICHARDS

Director of Knowledge Services, Energy Central crichards@energycentral.com 720.363.6531

Enabling the Business FOSTERING INNOVATION // BY KENNETH COLEMAN THE WAY COMPANIES use technology and partner with IT continues to evolve. As a result, IT is becoming more and more of a strategic partner across all areas of the business. Southern Company IT is meeting this growth in demand by supporting new insights, enabling the business and promoting innovation.

At the same time the technology industry is working hard to provide customers with valuable information, Southern Company is working hard to find the proper use of this data to better serve our customers. IT is at the forefront of the initiative.

Smart Energy is Southern Company’s strategic framework for generation, transmission and customer use and includes three elements: Smart Power, Smart Grid and Smart Choices.

In support of Smart Power, Southern Company created a monitoring and diagnostics center that observes plant operations. We are using predictive analytics to send notifications of a potential issue before it becomes an outage. This is one reason our generating units have a reliability record that is approximately four times better than the industry standard. energybiz.com E N E RGYB I Z 45

NEW INFORMATION STRATEGIES

For more than a decade, we have used smart grid technologies to monitor the grid, gather data regarding conditions and isolate problems for faster restoration.

By the end of 2012, we will have installed 4.4 million smart meters. IT is partnering with all areas of the business to determine the best way to organize, store and share smart meter data to better serve our customers.

We are also exploring how to apply new and proven technologies to give our customers more insight into how they use energy. We call it Smart Choices.

We are researching hundreds of near-term pilot projects to determine what’s best for our customers.

The way IT supports the business is changing as the field of technology grows. We are moving from 46 E N E RGYB I Z September/October 2012

the developer role to more of a consultant role by a growth in collaboration with customers and suggesting when and where to use technology based on industry trends.

For example, mobility has changed the tools IT provides. Gartner stated in a December release that by 2015, mobile application development will outnumber PC projects by a ratio of 4-to-1. This industry trend coupled with the fact that more than 70 percent of Southern Company customers have Internet access at their homes or on their smartphones, has changed the way we communicate with our customers. Earlier this year, we launched a new mobile online customer tool, which allows customers to pay their bills, report an outage and find a nearby local office, all from their smartphones.

Mobility has also changed how we communicate with our employees. Within the last six months we launched a variety of mobile employee tools for expense reporting, real-time outage information and compliance requests.

Enabling the business also means appropriately researching and implementing cloud and software solutions. Southern Company has virtualized more than 50 percent of our servers and we are using cloud tools to help us gain efficiencies. We have also been able to apply software and introduce strategic vendor partnerships needed to manage and integrate our business.

IT has a legacy of employing a workforce filled with inventors, creators and innovators. The real value comes in providing meaningful solutions while also supporting our legacy systems.

Southern Company’s intellectual property program has earned 14 patent grants and more than $15.5 million in business value, but what’s really exciting are the 621 ideas the program has generated.

Finding the appropriate ways to harness this innovative thinking is important to our future.

Innovation is also changing our workforce. Some of the most sought after IT jobs didn’t even exist six years ago. We are finding ways to work with our employees to offer training for the jobs of the future.

Southern Company is partnering with leading research companies and benchmarking with industry CIOs to better understand technology trends and how they will change needed job skills.

Kenneth Coleman is senior vice president and chief information officer of Southern Company.

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Tool for Evaluating Storage A TIME SAVINGS // BY SALVATORE SALAMONE SANDIA LABS and the Department of Energy have developed a free Web-based tool for utilities and regulators to evaluate the technology and cost issues of using four different energy storage technologies and a variety of different battery types.

The Energy Storage Select tool lets a user conduct a quick, high-level analysis of energy storage options and determine the value of different energy storage technologies for specific situations.

“This is the first of a suite of easily accessible Web tools to help potential users and regulators to make decisions on energy storage options in specific applications,” said Imre Gyuk, program manager of the DOE’s energy storage program.

The tool evaluates flywheels, compressed air, pumped hydro, thermal storage, and six types of electric batteries. All have different costs and benefits, and estimating the usefulness of each in different storage scenarios is a difficult task.

Such a tool could save time and prove quite useful, as researching all relevant cost factors independently can take a utility days or weeks to complete. Sandia, partnering with the global testing and consulting firm DNV KEMA, aggregates all relevant factors into this single decision-support tool that runs in a few minutes.

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And rather than basing decisions on a single factor such as capital cost, the tool assesses how an energy storage technology performs while addressing uncertainties in application value, storage cost, cycle life, efficiency, discharge duration, and other parameters.

To that end, the tool aids decisions about what storage technologies would work best in a given situation. For example, if a utility must buy electricity HUGE BIOMASS during the day to meet peak load A 100-megawatt Nacogdoches biomass demands, it could use the tool to plant, the nation’s quickly evaluate several energy storage largest, has been fired up in Texas, according options to determine the cost-benefit to Southern Company, of buying lower-cost electricity at night which owns and operates the unit. and storing it for use during the day.

Austin Energy will Users can input the application they receive the power. are interested in (storing excess renewable energy, for example), as well as parameters such as energy costs and discount rates. The tool then aggregates all of the inputs and assumptions — technology costs, performance characteristics, and operation and maintenance costs — and quickly produces a list of suitable storage technologies for that application and their predicted benefits and associated costs. If one technology stands out, the utility can then run detailed, site-specific analysis using other tools.

Fuel Cells Boost Efficiency IMPROVED HEAT TRANSFER // BY SALVATORE SALAMONE THE PACIFIC NORTHWEST NATIONAL LABORATORY has developed a new solid oxide fuel cell system for distributed generation.

The system is based on small cells that operate at the highest efficiency rate yet — 57 percent versus 30 to 50 percent efficiencies previously reported — for solid oxide fuel cell systems of the same size.

Several new technologies are used to achieve the higher efficiencies. The cells use a lab-developed microchannel technology in the system’s heat exchangers.

The benefit of this technology is that more heat can be transferred compared with other designs. This makes the system more efficient. Additionally, the system recycles using the exhaust, made up of steam and heat byproducts, to maintain the steam reforming process.

Recycling means the system doesn’t need an electric device that heats water to create steam. Reusing the steam, which is mixed with fuel, also means the system is able to use up some of the leftover fuel it wasn’t able to consume when the fuel first moved through the fuel cell.

A single cell from the lab generates 2 kilowatts of electricity, and the lab says it can scale a system to 250 kilowatts. This total capacity is very unusual.

“Until now, most people have focused on larger systems that produce 1 megawatt of power or more and can replace traditional power plants,” said Vincent Sprenkle, chief engineer of the lab’s solid oxide fuel cell development program. “However, research shows that smaller solid oxide fuel are a viable option for highly efficient, localized power generation.”

Sprenkle noted that a key advantage of the new system is its potential role in local, distributed generation. Smaller systems can be placed closer to the homes and businesses that would use the power. In contrast, the larger systems would be comparable to traditional power plants and electricity would need to be sent over transmission lines, which introduces some loss.

As utilities explore the use of fuel cell systems for distributed generation, they might look to recent commercial deployments. For example, eBay announced it would use a 6-megawatt Bloom Energy fuel cell array as the primary energy source for a large data center in Utah. In a role reversal, the company will use the grid as its backup.

Toward an Impregnable Gird THE ROLE OF INFORMATION SHARING // BY LARRY CASTRO THE NATURE OF THE CYBER THREAT to our nation’s electric grid and the efforts at both the national level and state regulator levels to address this threat are well documented.

A recently reported example of these evolving vulnerabilities is that of the Niagara Framework. The Framework, a suite of interface software used to connect users to a wide range of SCADA-associated func-

tions across a broad scope of industries, including those in and supporting the electric power sector, links at least 11 million individual devices and machines in 52 countries worldwide to the Internet. Such a vast network of users makes it ripe for exploitation by determined threat actors.

The potential for vulnerabilities such as those found in Niagara to compromise the security of the grid has been recognized by Congress.

At a recent Senate Energy and Commerce hearing, energybiz.com E N E RGYB I Z 49

» TECHNOLOGY FRONTIER Gerry Cauley, president and chief executive officer of the North American Electric Reliability Corporation, emphasized that he was “deeply concerned about the changing risk landscape from conventional risks, such as extreme weather and equipment failures, to new and emerging risks where we are left to imagine scenarios that might occur and prepare to avoid or mitigate the consequences.”

In addition to recognizing the significance of the threat, numerous members and committees in Congress have concluded that there is a role for cybersecurity legislation in addressing this issue. There are several competing bills under consideration and there is some concern that the Senate will be unable to debate their merits before its late-summer adjournment.

There is consensus, however, that enhanced information sharing enabled by legislation that clarifies current ambiguities is a necessary ingredient in the drive to fortify our nation’s cybersecurity.

This information sharing has already begun. Cauley describes how NERC uses the Electricity Sector Information Sharing and Analysis Center (ES-ISAC) as a vital information-sharing element. In addition, another critical sharing function is provided by the Department of Homeland Security’s Industrial Control System Cyber Emergency Response Team (ICS-CERT). There are other information-sharing models under consideration beyond the ISAC and functional constructs.

Now is the time to formally build on current information-sharing models. Doing so will require examining what has worked and what has not. A recently released report produced by the Bipartisan Policy Center’s Cyber Security Task Force goes into detail regarding what works for information sharing.

The report states that the information shared must be timely and actionable. Information must flow between the industry players and the government’s cybersecurity centers of excellence such as the Department of Homeland Security’s U.S. Computer Emergency

Gatherings// Technology Frontier Oct. 9-10

Solar Brasil

Sao Paulo

Nov. 8-9

China Renewable Energy Integration & Storage Conv.

Beijing

For more information about these and other events, please visit www.energycentral.com/events.

50 E N E RGYB I Z September/October 2012

Readiness Team and the National Security Agency’s Threat Operation Center bidirectionally and at net speed. Sharing ELECTRIC VEHICLE RANGE constructs must recognize that the Japan’s SIM-Drive parameters of the threat may change Corp. has found a way to extend electric in the course of the intrusion event and vehicles’ driving range that the bottom line is to use the shared by 30 percent, according to GlobeNewswire. information to determine and execute The firm credits response courses of actions. use of lightweight materials and a unique In addition, the information shared motor system for the must be tailored to the specific cusbreakthrough. tomers and events at hand. Along with malware signatures associated with an event, there needs to be event-specific cyber threat intelligence describing tactics and methods. To the greatest extent possible this information should result from sanitizing classified information to prevent the disclosure of our nation’s own sources and methods. The key is the provision of relevant information described in accurate context.

The report goes on to state that the information shared must be shared with care. As industry situational awareness information is fed to our government’s cybersecurity centers to allow the centers to aggregate their view of net activity associated with a given event, care must be given by the industry providers of this data to protect the privacy of individual grid customers.

These are exciting times for enhancing cybersecurity for the grid. The electric power sector has been a proactive leader among our nation’s critical infrastructures in this regard. Enhancing information sharing will enable individual companies to access their security, identify shortfalls and prioritize investments where more needs to be done.

Larry Castro is a managing director at The Chertoff Group.

Solar Meets Smart Grid ADDRESSING A DISTRIBUTED ENERGY FUTURE // BY BARBARA LOCKWOOD DISTRIBUTED ENERGY is among the chief long-term business challenges for Sun Belt utilities.

As customers increasingly install electric gridconnected solar panels, become more energy efficient or otherwise reduce demand on the grid, the utility is still standing by to provide full service at night and on cloudy days. The costs to provide these standby services are nearly the same as without the solar energy.

Ultimately, as a result of net metering and other rate factors, fewer customers must share these fixed costs, which cause their rates to rise. This spirals until the utility is left with a small class of customers bearing all the costs of service at prohibitively high rates.

Arizona’s goal for renewable energy is 15 percent by 2025, with 30 percent from distributed energy.

With 300-plus days of sunshine each year, Arizona Public Service customers expect affordable solar programs and believe that we have vetted and overcome any and all operational issues.

How do we continue to ramp-up a distributed solar future without doing long-term financial harm to both the company and to customers?

APS has decided to use technology in creative ways to expand the options for renewable energy and to improve operational efficiency. Interestingly, through a number of pilot programs in Flagstaff, Ariz., we have found the two go hand in hand. Envisioning a smarter gird is leading to smarter ways to address distributed energy issues.

In 2009, we had an idea. What if we created a model to provide greater access and affordability to solar energy for APS customers? APS builds, operates and maintains it. The customer gets clean solar energy on his or her roof. This idea came to life in a pilot called the APS Community Power Projects, which is one of the nation’s most comprehensive distributed energy projects. Community Power enabled us to create a glimpse into a future when large numbers

of customers adopt solar energy and how we might need to adapt our electric system. APS and its partners received a $3.3 million grant from the U.S. Department of Energy to study the effects of a high concentration of solar energy on a single electric distribution line.

In 2011, APS began to generate 1.4 megawatts of utility-owned solar power from 125 residential rooftops, a school installation and a small solar power plant. The pilot has created economies of scale in Flagstaff that have opened the door for increased customer adoption of other net-metered solar programs.

With the ongoing success of Community Power and the DOE study, APS has been able to test other related technologies in the Flagstaff area. In February, APS began an energy storage pilot. The system, comprised of hundreds of lithium-ion batteries, is the size of a shipping container and has the equivalent power output of 1,200 hybrid vehicles. Currently, we are learning the dynamics of the device at a substation. Next year, it will travel to the Community Power Project’s neighborhood solar plant to test ways to get more distributed renewable energy onto the grid.

APS worked within its Renewable Energy Standard Tariff to propose projects and work with regulators for approval. In May, APS concluded a general rate case, in which 20 parties in the settlement process agreed to – and regulators approved – a Lost Fixed Cost Recovery mechanism. The mechanism is not full revenue decoupling but preserves its general purpose. It is a bill adjustor that will enable APS to recoup a portion of the lost costs from increased customer adoption of distributed energy and energy-efficiency measures.

This encourages the company to promote these programs and remain on goal with our state’s aggressive distributed energy and energy efficiency standards without doing long-term financial damage.

Although challenges remain, these efforts help to ease the transition to a distributed future: a high-tech, clean energy future that is affordable to customers and engages their spirit of participation.

Barbara Lockwood is general manager for energy innovation at Arizona Public Service. energybiz.com E N E RGYB I Z 51

Utility Analytics:

Your Questions.

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September 18-20, 2012 Arlington Convention Center, Arlington, TX UtilityAnalyticsWeek.com Utility Analytics Week is the most comprehensive event for utility professionals immersed in analytics. If you’re involved at ANY level in analytics in your facility, this is the one event you—and your team— cannot afford to miss.

Whether your utility is just beginning to embrace an analytics initiative or you are aggressively transforming data into actionable insights, Utility Analytics Week is your opportunity to get your questions answered and validate your decisions.

Hear from Keynote Speakers!

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Analytics Business Infrastructure

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Analytics for Success in the Blossoming Customer Relationship

Deploying Analytics to Thrive in the Post-Smart Grid Era

Building the USS Analytics Enterprise

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Four Situational Intelligence Case Studies

How to Attain Efficiencies and ROI Using Performance Scorecards and Dashboards

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Luncheon Keynote: Jim Greer, Chief Operating Officer, Oncor Electric Delivery

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Networking Luncheon

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Ensuring Enterprise-Wide Accessibility to Data

Break Embracing Customer Individuality to Drive Value

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Successfully Merging the Grid’s Traditional and “Smart” Data Sources

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State of Utility Analytics Panel

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Utility Analytics Institute Awards Reception

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Grid Analytics

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Networking Breakfast

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Keynote Presentation: Matt Vinnola, Director of Baseball Operations, The Texas Rangers Baseball Club

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Analytics Essentials for Customer Operations and Customer Engagement

11:30 - 1:00pm 1:00 - 3:15pm

Analytics Essentials for Grid Optimization and Asset Optimization

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San Diego’s Utility Lab A CONVERSATION WITH MICHAEL R. NIGGLI // BY MARTIN ROSENBERG San Diego Gas & Electric is pioneering the utility industry’s technology future. It is a leader in deploying and integrating renewables and is preparing for a potential major rollout of electric vehicles in its service territory. EnergyBiz recently interviewed Michael R. Niggli, the company’s president and chief operating officer, to discuss his views on the ongoing transformation of the utility business.

His comments, which follow, were edited for style and length.

ENERGYBIZ How is San Diego Gas & Electric changing to be a more digital, smart utility?

We are seeing the highest penetration of electric vehicles in the nation here in San Diego.

In addition, the partnerships we have with the tech community make for a great laboratory for the future of the electric industry.

NIGGLI

ENERGYBIZ

What is happening with photovoltaics?

We have one of the highest rates of penetration, with about 18.000 rooftop solar units that have been installed amounting to about 138 megawatts.

That is about 3 percent of our peak usage.

NIGGLI

ENERGYBIZ

What about utility-scale solar?

54 E N E RGYB I Z September/October 2012

NIGGLI We’ve signed a lot of projects in the last year.

Last year, we had 17 major contracts for just under 1,500 megawatts of new capacity. Later this decade, we will be the first in the nation to have 33 percent of our generation from renewables.

ENERGYBIZ So what has been the biggest challenge of integrating this intermittent resource into your grid from a reliability standpoint?

We are monitoring that very carefully. It is evident that our future resource mix has to change a bit. We have to pay a lot of attention to the characteristics of our backup supply. We are going to need a lot of peaking generation to back it up. Reliability is our number one goal. We are doing a lot of things to NIGGLI

Michael Niggli, president and chief operating officer of SDG&E, stands next to SDG&E’s fleet of plug-in electric vehicles and vehicle chargers at the utility’s headquarters in San Diego. // Photo courtesy Lauren Radack

try to ensure that the grid stays highly reliable. All of the smart grid improvements that we are seeing will assist us in that area.

You have 1.4 million electric meters and 850,000 gas meters. Are they fully smart metered now?

ENERGYBIZ

NIGGLI Yes. It is allowing us to use smart meters to roll out some additional demand reduction programs for the summer.

ENERGYBIZ Are you using time-of-use rates or how are you doing it?

We call it a “reduce your use” program. With smart meters we know how much people have purchased in any hour of any day. We provide an incentive for people to reduce their energy consumption, and we are able to track that very carefully and very accurately with our smart meters. We actually offer anywhere from 75 cents a kilowatt hour to $1.25. That is $750 per megawatt-hour and up to $1,250 per megawatt-hour. That’s a pretty big incentive.

NIGGLI

How are you communicating this to your customers?

ENERGYBIZ

NIGGLI We are reaching out in multiple languages.

On a hot day in the summer when we need to introduce this, we will have radio and television spots featuring local leaders.

ENERGYBIZ How will SDG&E be affected by California’s sweeping new cap-and-trade program for greenhouse gas emissions?

The impact is going to be pretty small at first.

We are working with the legislature and hope the revenues they get from a lot of this will come back to our customers in a direct rebate or to fund installation of additional electric vehicle charging stations or integration of photovoltaics.

NIGGLI

ENERGYBIZ What’s the likelihood that the politicians in Sacramento take this money and use it elsewhere in the budget?

I cannot predict the outcome in Sacramento.

I’m hoping that logic and reason prevail and that we get a beneficial use of the funds.

NIGGLI

How many electric vehicles are driving around in your service territory?

ENERGYBIZ

energybiz.com E N E RGYB I Z 55

» INTRODUCING as much as it is the charging capability of each one.

Right now most of the Leafs can charge at about 3 kilowatts, and I know they are coming out with a version at 6 kilowatts.

ENERGYBIZ If it gets anywhere near 200,000 in your service territory, how is that going to change your generation profile?

We could accommodate a lot of it with existing generation, but the only way that will happen is with a very thoughtful rate structure program. Right now we are experimenting with at least three pilot rates in our area that look at different on-peak, offpeak and super-off-peak pricing ratios. The incentive you can give to the folks to charge super-off-peak really do make a huge difference. If we ever approach those kinds of numbers, we will need a sensing command-and-control system that allows us to send signals to cars about the availability of low prices.

NIGGLI

ENERGYBIZ For a century, utilities around the nation have been very similar. Will utilities embrace very different business models going forward depending on their commitment to EVs, renewables and other technologies now coming into the market?

NIGGLI We are going to see rapid differentiation among some of the sort of business models that you have around the country. I like to think that we do have America’s finest innovators here in San Diego. In states where environmental improvements are a policy imperative, you will see a more rapid development and integration of electric vehicles and solar power. The companies that will thrive are those whose culture allows them to readily adapt to some of these innovations. We are seeing that the culture differential is becoming really important.

Policy has to support rather substantial innovation.

We’ve got more than 1,600 right now. We have a very active car-to-go program, especially in downtown San Diego, which is all electric vehicles.

As the electric vehicle charging stations get rolled out you will see a lot more people having a lot less anxiety about the range of the cars.

NIGGLI

ENERGYBIZ How many electric vehicles will be in your service territory in the next decade?

Well, we’ve seen some experts who forecast as many as 200,000 electric vehicles in San Diego by the end of the decade. That’s a very big number.

The issue for us is not necessarily the number of cars NIGGLI

56 E N E RGYB I Z September/October 2012

What kind of policies would you like to see come out of Washington after the November election?

ENERGYBIZ

NIGGLI Policy has to support rather substantial innovation. We have a tremendous amount of research going on in the energy field today. The grid of tomorrow has to be capable of accepting those innovations.

That is why the work on smart grid is so important.

» METRICS GETTING SMARTER Who Owns Smart Grid Data?

43% Information Technology

Department

20% Other

29% 60%

Metering Department

43%

Customer Service Department

Transmission and Distribution Department

6.7

is the rating utilities give themselves on a scale of 1 to 10 on their ability to manage data.

50

% say they miss opportunities to deliver useful information to customers.

45

% still struggle to report information to business managers as fast as they need it.

15% Business Analysts

Utilities rate themselves somewhat prepared when it comes to managing their smart grid data, and they expect to significantly ramp-up their efforts in the coming year, according to an Oracle study. The study was based on telephone interviews with 151 North American senior utility executives this spring. Rodger Smith, senior vice president and general manager, Oracle Utilities, said, “Utilities can benefit from establishing enterprise information strategies, and investing in the systems and people needed to make better business decisions.”

Source: Oracle

WEB WINNERS

TOP RATED

Customer Satisfaction AEP

ALABAMA POWER

www.aepohio.com

[48 Utilities]

PPL ELECTRIC UTILITIES

www.alabamapower.com

www.pplelectric.com

Industrywide Rating 828 on a 1,000-point scale Utilities are doing a good job helping customers review their accounts online and pay bills. But they have a ways to go to help customers set up accounts or figure out new ways to save energy online. That is the finding of a recent J.D. Power and Associates study of 48 utilities.

9% of customers access utility websites with a smartphone

35% of smartphone users would like to be able to use the device to report outages

85% of utilities in the study use social media

Source: J.D. Power and Associates

energybiz.com E N E RGYB I Z 57

» LEGAL ARENA Stimulating Smart Grid RECOVERY ACT REPORT CARD // BY DARRELL DELAMAIDE WHEN THE GREAT DEPRESSION hit the United States, Herbert Hoover followed by Franklin Roosevelt eagerly channeled government funds into the country’s biggest shovel-ready project of the era — the mammoth hydroelectric facility we know today as the Hoover Dam. The immediate goal was to put people back to work and to jump-start an economic recovery, but the means chosen was a long-term infrastructure project that transformed electric power in the western United States.

Today’s Department of Energy hopes to achieve some of the same objectives with a relatively small sliver of the $831 billion in stimulus funds made available by the 2009 American Recovery and Reinvestment Act to counter the recession brought on by the 2008 financial crisis.

Nearly $4 billion of that stimulus money is going into projects to develop smart grid technology and help train workforces at utilities to benefit from it.

“Our hope is that these projects will help reduce market risk and technology risk when making decisions about smart grid,” says Hank Kenchington, the deputy assistant secretary who is coordinating the effort through the department’s Office of Electricity Delivery and Energy Reliability. “We would like to help this technology reach escape velocity.”

Smart grid technology is designed to optimize distribution and consumption of electricity with the goal of moderating the rise in overall demand and making more effective use of all sources of energy, including alternative sources like wind and solar.

The bulk of the ARRA funds, about $3.4 billion, are going to 99 projects in the Smart Grid Investment Grant program, where the federal government supplies up to 50 percent of the funding. These projects are running now through 2015.

The remaining funds are going to 32 projects in regional demonstration of smart grid viability and energy storage, as well as for workforce training.

The smart grid grants are going to utilities, equipment suppliers, regional transmission organizations, states and research organizations to support such objectives as increasing the number and percentage of customers using smart grid-enabled energy management systems, distribution system feeders with distribution automation, and transmission lines instrumented with networked sensors used to assess and respond to real-time grid disturbances.

One of the biggest projects in the transmission category, for instance, is the $108 million effort — with the government supplying $54 million — by the Western Electricity Coordinating Council to install an extensive network of synchrophasor technology throughout the Western Interconnection, covering more than 1.8 million square miles across the entire western United States.

A main objective of the new technology is to give the 18 partners taking part in the program a better picture of what is actually going on in real time so that they can spot potential problems more quickly.

“It’s a significant step up,” says Vickie VanZandt, program manager for the project. “It’s like having an MRI instead of an X-ray.”

With only partial deployment of the synchrophasor technology, project participants have already seen instances of issues that could lead to the cascading failures such a widespread and interdependent system is prone to.

Among the efficiencies WECC hopes to realize from the project is better management of the California-Oregon Intertie, a key pathway channeling hydroelectric resources from the northwest to California’s energy-hungry consumers. The expectation is that increased efficiency from the smart grid technology will improve operational capacity by 100 megawatts, enough to power 100,000 homes.

The synchrophasor project was already in the works when the stimulus bill was passed, and the federal funds led to a vast acceleration of the project, VanZandt says, from installing only three phasor

It’s like having an MRI instead of an X-ray.

58 E N E RGYB I Z September/October 2012

measurement units a year to getting all 350 installed within the space of three years.

WECC officials credit the stimulus funds for being able to get a fully implemented smart grid functionality for the network’s 78 million customers in a much shorter time frame.

At the other end of the spectrum is the smart-meter project at Talquin Electric Cooperative in Florida, where until recently the 50,000 member/customers read their own meters to determine their bills.

“We were one of the few and certainly the biggest systems still using such antiquated methods,” says Jeremy Nelms, director of engineering at the cooperative. “It is quite a leap forward for Talquin.”

Nelms says that nearly 95 percent of the smart meters have been installed in the $16 million project.

The meters not only allow much more accurate and timely billing but also include remote shutoffs that obviates the need to send out a truck to turn off electricity for nonpayment.

“We estimate that we will save $600,000 this year just on truck rolls,” says Nelms. The cooperative expects further benefits from reduced consumption as new services enabled by the smart meters are added.

For the time being, however, Talquin’s customers, who are also part owners of the cooperative, are happy that everyone is paying their fair share for consumption of electricity.

The Department of Energy is still collating data to measure progress on the projects and will publish a report in the fall. But officials already sense that they are having an impact.

“I have a gut feeling that there are significant changes not only in the technology but in the utilities engaging with customers,” says DOE’s Kenchington.

Nor does the department believe that the benefits of the program are confined to utilities involved in the projects or to the time the stimulus funds are actually being disbursed.

Regional workshops hosted by the fund recipients are sharing results as the projects are being implemented, and these are helping educate both utilities and consumers about the benefits of the smart grid technology.

Likewise, says Kenchington, the data assembled by the department on the basis of the projects will help utilities, regulators and consumers make smart grid decisions for years to come.

Talquin’s Nelms sees another long-term benefit for the industry from the jump-start on smart grids.

“These projects make the utility industry fun again,” says Nelms. Industry pioneers doubtless found it exciting when power lines were first being strung through the countryside decades ago, Nelms says, but the industry has been something of a backwater since then.

“Smart grid technology has made it exciting for a young engineer coming out of college,” he said.

Gatherings// Legal Arena Oct. 1-2

Power Generation & the Environment

Teton Village, Wyo.

Oct. 10-11

New England REC Markets

Needham, Mass.

For more information about these and other events, please visit www.energycentral.com/events.

energybiz.com E N E RGYB I Z 59

» LEGAL ARENA

California Leads on Feed-in Tariffs BOOSTING RENEWABLES // BY AL SENIA THE STATE OF CALIFORNIA, long at the cutting edge of a number of renewable energy initiatives, is now turning its efforts to another controversial area: feed-in tariff or FIT programs for solar energy. The state legislature, the public utilities commission and individual investor-owned and municipal utilities are all moving in various degrees toward instituting FIT programs designed to boost small-scale renewable generation. Although the result of these various efforts has so far been limited and confusing, they have the potential within a few years to place California at the forefront of FIT programs in the United States, which has lagged behind other nations in their deployment.

“As usual, California is out in front on doing this,” said Tom Stanton, principal researcher for renewable resources and energy at the National Regulatory Research Institute. “So far, the impact has been very small. By U.S. standards, it is a huge program. There hasn’t been anything else that big. But by world standards it is still a small program.”

60 E N E RGYB I Z September/October 2012

California’s efforts are divided into two major programs and a variety of voluntary undertakings.

The state legislature first passed a bill in 2006 that established feed-in tariffs for small renewable generators. The measure was later expanded, and in May of this year, the California Public Utilities Commission began implementing the broadened FIT program. The program size was increased from 480 megawatts of renewable generating capacity to 750 megawatts.

The eligible project size was doubled from 1.5 megawatts to 3 megawatts. Both public and investorowned utilities were brought into the program. Most importantly, the measure now includes a renewable market adjusting tariff or Re-MAT, which allows the FIT price to adjust in real time based on market conditions. It is that part of the program that has drawn the most attention.

According to the California commission, under this Re-MAT program the three California IOUs are apportioned 493.6 megawatts of the total 750 megawatts comprising the program. Municipal utilities

will make up the rest. Southern California Edison, at 226 megawatts assigned and 70.5 megawatts under contract and in development, has the largest share.

Next is Pacific Gas & Electric, with 218.8 megawatts assigned and 94.8 megawatts under contract and in development. The state’s third investor-owned utility, San Diego Gas and Electric, has 48.8 megawatts assigned and 9 megawatts under contract and in development.

California’s entire FIT effort is even more complex because in 2011 the state commission established its own, separate Renewable Auction Mechanism or RAM program. It does not include the public utilities, and assigns each IOU a megawatt capacity to reach within two years utilizing four solicitations. The current schedule calls for the final RAM solicitation to be held in May 2013. The RAM FIT program is designed to drive mid-sized renewable energy development.

Meanwhile, some public utilities and IOUs in California are independently establishing their own FIT programs. Municipal utilities in Pasadena and Palo Alto plan to launch such programs soon. The Sacramento Municipal Utility District sold out its 100-megawatt FIT program capacity in one day. And the giant Los Angeles Department of Water and Power, the nation’s largest municipal utility, established a FIT program for 10 megawatts of power initially, but hopes to expand it to 75 megawatts by 2014 and 150 megawatts by 2016.

All of this activity has caused industry observers to sit up and take notice, although the impact of California’s effort still is unclear. “It is difficult to characterize California as a single program,” said Eran Mahrer, vice president of utility strategy for the Solar Electric Power Association. “The number of utilities, both investor-owned and municipal, makes it quite a mix of different approaches. It is unlikely that other states will follow suit with California’s approach in sum, but it is reasonable to believe that other states and utilities will pull ideas from California.” Mahrer added that the municipal utility in Gainesville, Fla., is the longestoperating true FIT in the United States. He believes that Austin Energy, which he describes as “the most comprehensively designed FIT of the bunch,” will be next to actually implement a true FIT.

It will draw in businesses that want to take advantage of the programs.

Meanwhile, NRRI’s Stanton said that 22 states including California introduced legislation this year to establish FIT programs. Other statewide FIT efforts currently are under way in Hawaii, Indiana, Oregon, Vermont and Maine. However, these appear to be more limited in scope than California’s programs.

“California’s effort is really big compared with any of the other states,” said Stanton. “It will draw in businesses that want to take advantage of the programs.”

Marc Ulrich, vice president of alternative and renewable power for Southern California Edison, said California’s effort is the most advanced because the state has been experimenting with FITs since 2007, while the other states have been involved only since 2009. “SCE began using its first FIT in 2007, and California’s program began in 2008,” said Ulrich.

“California has also established new forms of marketbased FITs that have capitalized on lessons learned from other areas.”

The pricing issue is one of the most difficult confronting FIT programs. Determining how the FIT price is based and whether capacity is capped can have a major impact on cost, especially for IOUs. SEPA’s Mahrer noted, “It is crucial to determine whether the FIT price is based on the value of the solar resource from an energy or capacity perspective, or is it based on the cost of the technology assuming that the technology represents a premium over its value. Second, is the FIT capped in terms of annual capacity? The answer to both of those is critically important to the IOU, as they will highlight cap and valueSOLAR CLOSES based transactions that are Amonix’s Las Vegas solar important elements in managing manufacturing plant that received a $15.6 million resources planning and increase grant closed this summer customer rates.” after only 14 months in operation, according to Terrie Prosper, a spokesman news accounts. for the California commission, The company chief executive died in a plane said, “The Re-MAT mechanism crash in December. in California avoids the primary It plans to restructure its operations. weaknesses of an administratively determined static tariff, where setting the rate too low will fail to stimulate the market, and setting the rate too high results in ratepayers overpaying for renewable energy.” The California Re-MAT program is designed to run for 24 months, with price adjustments every other month. According to Prosper, the program will not become effective until the commission adopts a standard FIT contract and tariff. energybiz.com E N E RGYB I Z 61

» LEGAL ARENA Moving Solar Forward CAN GERMANY SUSTAIN ITS BIG PUSH? // BY JULIA HAMM WHEN SEPA brought a group of U.S. utilities to Germany in June for a first-hand look at the world’s solar leader, the question our members asked throughout the weeklong trip was, “How can they keep this up?”

In the United States, solar power has gained strong momentum, but is nothing close to the installed solar capacity of Germany, which has more than six times that of the United States.

Germany’s solar feed-in tariff has spurred this growth, and is a major factor in the fall of the price of PV globally. Quite generous when launched 12 years ago, the FIT rate has fallen steadily and is now below the cost of retail electricity in Germany. But because of the FIT, financing for solar is easy to obtain, and construction continues at a brisk pace. This is aided by the fact that the cost of installing solar in Germany is significantly lower than in the United States.

In Germany, there is a national solidarity behind the decision to address climate change and the support for vigorous renewable energy deployment cuts across party lines. There is a general acceptance of socializing the costs of these decisions, from the guaranteed FIT payments to grid upgrade GEOTHERMAL requirements. Nothing apADVANCES proaching that consensus Ormat Technologies announced that it has exists in this country today. signed a $61.4 million Though the FIT is paid for contract with Enel Green Power North America in a surcharge on residential to provide equipment customer bills, those bills are to a geothermal plant in south Utah. relatively modest because the average German household consumes less than a third of the electricity of its American counterpart. There is more PV interconnected to the grid in the state of Bavaria than in the entire United States, but the utility there is confident of its ability to maintain grid stability. Keep in mind that 62 E N E RGYB I Z September/October 2012

German utilities already own reliability marks that far outpace the U.S. average.

On the horizon in Germany are two daunting challenges. One is a more than $20 billion euro expansion of the transmission grid to bring solar and wind to population centers. The second is a new rule that promotes on-site consumption of PV power by homes and businesses. Just as the United States turns more serious attention to FIT-like offerings, Germany is encouraging what amounts to a net-metering scenario.

With all costs of paying for the FIT and maintaining the grid contained in the energy charge, the big question is how costs will be covered if electricity revenues fall as a result of self-generation.

Germany has already accomplished what once seemed improbable, and we will watch with interest to see if the solar giant can continue to trump conventional wisdom.

Julia Hamm is president and chief executive of the Solar Electric Power Association.

» FINAL TAKE

Mark Hasemeyer, a University of Colorado graduate student, third from the right, on the roof of the Neges Foundation in Haiti discussing a solar system with local trainees. // Photo courtesy of Alan Mickelson

Green Haiti RENEWABLE DEVELOPMENT TOOLS // BY ALAN MICKELSON HAITI POSSESSES SIGNIFICANT renewable energy potential: full solar irradiance occurs 300 days a year, predictable daily trade winds on the coast are funneled through mountain passes, and streams and rivulets run down from the mountains that form the interior of the country. The Haitian government is offering energy credits for installation of green energy up to a total of $200 million. Numerous aid and nongovernmental organizations are further priming the green energy pump with investments. A problem lies in the investment in human capital. Haitians need to be trained so that the country as a whole can profit from green energy, and that is the ultimate goal of the Green Energy and Vocational Training for Haiti (VTH) project.

The project is a collaborative effort of faculty and students of the University of Colorado at Boulder and the Neges Foundation of Leogane, Haiti, that prepares

Haitian students for careers in renewable energy.

The effort is funded by the Institute of Electrical and Electronics Engineers and the University of Colorado Outreach through the Mortenson Center for Engineering in Developing Communities under the direction of Alan Mickelson and Michael Hannigan.

The VTH project has engaged a team of three undergraduates and four graduate students. To complete an engineering project in a country without a power grid is a challenge for aspiring engineers who are more accustomed to a university laboratory.

The “Train the Trainers” format — in which local instructors are trained by the Boulder students on essential knowledge and skills — offers ample opportunity for engineering graduate students to ply the trade of teaching.

In the United States, we are accustomed to plentiful and inexpensive electrical power, but the energy grid in Haiti has never reliably served more than 10 percent of the population. The earthquake of energybiz.com E N E RGYB I Z 63

» FINAL TAKE January 2010 so severely damaged what there was of that grid that only scattered and disconnected remnants remain. With reports of nearly 70 percent unemployment within the country, construction of a grid would seem an ideal public works project. The only grid that has ever existed in Haiti is in the southwest near the capital of Port au Prince. One of the pushes of the reconstruction has been to reverse the trend of population concentration in the Southwest that began

in the ’70s and continued through the ’90s. Current energy projects must supply their own power in environmentally sensitive areas that are rugged and lack a grid. A wise option for power for further development is green energy, and the VTH project aims to provide Haitians with the necessary tools to harness renewable energy sources to meet power needs.

Alan Mickelson is a professor of engineering at the University of Colorado at Boulder.

The Inside Story

BY MARIE YOLEINE GATEAU ESPOSITO NEGES — Nest for Educational Growth and Environmental Safety — says it all.

Our vision is to educate all constituents in all aspects of community development and environmental protection. To educate young children, a summer camp, Camp d Amitié, has been held every year since 1996. The goal of the camp is to allow children to learn about their environment, starting with trees and plants.

They study nature and ways to protect it. Our youth education program provides youngsters with the opportunity to turn items that were affecting their environment, like old tires, into arts and crafts. We educate women about their environment by getting them involved in creating a recyclable hygienic pad.

We also get the men involved in the recycling of plastics. They are not only cleaning their environment and their community, but also getting cash to support their families in exchange for their used plastics.

If Haiti is to flourish and move from poverty to prosperity, it must move toward renewable energy.

Neges is grateful to the University of Colorado at Boulder staff and students who have helped us plant the seeds for a renewable energy path for the community of Leogane. It is our hope that this commitment to better use our natural resources will spread throughout the country. It is through renewable 64 E N E RGYB I Z September/October 2012

energy that the government will be able to create more infrastructures and encourage businessmen to invest in the country.

Through renewable energy, students will be able to study at night with better lighting. Renewable energy will provide Haiti with the natural resources to help its children reach their full potential.

Marie Yoleine Gateau Esposito co-founded the Neges Foundation in 1998 with James Eustache Philemy.

» ADVERTISER INDEX Company

Page

URL

AWEA

39

www.awea.org/utility

Cisco

47

www.cisco.com/go/smartgrid

Day & Zimmerman

17

www.dayzim.com

DNV KEMA

1

www.dnvkema.com

Dow

7

www.dowinside.com

EPIS

37

www.epis.com

GP Strategies

inside front cover

www.etaproefficiency.com

Itron

3, 40-43

www.itron.com

Oracle

27

www.oracle.com/goto/utilities

Pike

15

www.pike.com

Power Engineers

23

www.powereng.com/hvdc5

Quanta Services

back cover

www.quantaservices.com

SEPA

13

www.solarelectricpower.org/ membership

Structure

9

www.thestructuregroup.com

TransForum

inside back cover

www.transmissionhub.com/ transforum

Utility Analytics Week

52-53

www.utilityanalyticsweek.com

UTC Power

29

www.utcpower.com

Verizon

4-5

www.verizon.com

Westinghouse

35

www.westinghousenuclear.com

These upcoming events will get you started.

TransForum EAST

December 4-6, 2012 Sheraton Pentagon City Hotel Arlington, VA

TransForum WEST Spring 2013

TransForum connects you to your peers in power transmission, to exchange a hand-shake, and best practices. You’ll discuss the nutand-bolts of your current projects, learn new business models and financing trends, and build relationships that will build business.

ď Ś LEARN MORE transmissionhub.com/transforum

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PRODUCED BY: TM

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