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Grid unification: is it worthwhile? Economist talks to RCA about the potential benefits of power transmission grid upgrade and re-organization in the Alaska Railbelt Alan Bailey Petroleum News
With single points of failure and insufficient capacity to make optimum use of all power generation capabilities along its length, the question of upgrading the Alaska Railbelt power transmission grid has long been debated. In the latest stage of this debate, the Alaska Legislature directed the Regulatory Commission of Alaska to investigate whether there would be benefit in having some form of independent operator manage the grid, most of which is currently owned and operated by six independent electric utilities. In conjunction with the commission’s investigation, Antony Scott, senior economist and energy analyst with the Alaska Center for Energy and Power, is conducting a series of talks, presenting to the commissioners an analysis of the costs and benefits of establishing some form of single operator for the grid.
As reported in the May 3 issue of Petroleum News, in late April Scott talked to the commission about the potential costs of grid reform. In a couple of subsequent presentations Scott has presented his analysis of the benefit side of the cost/benefit equation.
Economic dispatch Crucial to the benefit analysis is a concept referred to as “economic dispatch,” the means whereby the power needed anywhere along the grid might be dispatched from the most advantageous power generation source. Essentially, the cost of electrical power to the consumer can be minimized if, at any given time, the cheapest sources of power along the grid can be used.
Currently, the Railbelt grid, which stretches from Homer in the south, through the Anchorage region and up to the Fairbanks area in the north, is managed as several distinct sections, each with its own power dispatch arrangements and with individual utilities each charging their own fees for shipping power across their own grid segments.
Scott commented that, while there is benefit to be had from achieving economic dispatch within an individual grid segment, higher efficiencies could potentially be obtained from economic dispatch across the entire region. Currently, the bundling of transmission fees into the variable consumer cost of electricity, together with the charging of different and separate transmission fees by different utilities along different segments of the grid, form obstacles to the regional economic dispatch of energy, he said. And the biggest opportunity to be gained from improved efficiency would be an overall reduction in the cost of the fuel used for power generation, he said.
But, with possible winners and losers in different parts of the Railbelt, were the transmission system to be unified, the manner in which the benefits from the unification are distributed is critically important, he warned.
Transmission upgrades Given the technical limitations of the current grid, the question of upgrading the grid to increase transmission capacity and provide resilience against the possible failure of some grid segment, is inevitably interlinked with the issue of achieving economic dispatch - without a reliable grid, flexibly able to move power between any two points along its length, full economic dispatch cannot be achieved.
In 2013 the Alaska Energy Authority published a report recommending major Railbelt transmission grid upgrades. Although the agency pegged the cost of these upgrades at somewhere in excess of $900 million, the agency suggested that the benefits from the upgrades, particularly from the economic dispatch potential that the upgrades would bring, would more than offset the huge cost of the upgrade program.
But could these benefits be achieved without some unified form of management for the grid?
Scenario modeling For his analysis, Scott used the same economic modeling system that AEA had used for its report, but with Scott using different assumptions to test the outcome of different economic scenarios. In particular, Scott tested the impacts of differing amounts of cooperation between the utilities, both with the existing transmission system, and with AEA’s recommended transmission upgrades in place.
The modeling suggested that, without transmission upgrades, the benefits from efficient power generation usage would be quite modest, ranging from perhaps $5 million per year, given a reduction of some of the current dispatch hurdles between utilities, to $14 million if utilities Chugach Electric Association, Municipal Light & Power and Matanuska Electric Association were to fully pool their loads. By comparison, with the transmission upgrades in place, the annual savings from economic dispatch might jump up to some $79 million, the modeling indicated.
The modeling also indicated that the benefits from economic dispatch achievable as a consequence of transmission upgrades would come close to the cost of the upgrades themselves, falling a bit below or above the costs depending on which economic scenario is assumed. The relative cost of fuel north and south of the Alaska Range is a key factor in determining the level of the benefits, Scott said. In general, however, it appears that there is a situation in which economic dispatch benefits would substantially cover the increased costs associated with a transmission system buildout, he suggested.
Improved reliability Grid upgrades would bring additional significant benefits in terms of the improved reliability of power supplies - with single points of failure eliminated and a more robust infrastructure in place, the likelihood of power outages would be significantly reduced. However, the benefits of power supply reliability, while real, cannot readily be expressed in dollar terms. Likening the cost of ensuring power reliability to the cost of buying an insurance policy, Scott commented that people may not appreciate the benefit that they are asked to pay for unless a power outage occurs.
Scott tried to put some kind of value on the reliability benefits by estimating the annual cost of required additional power generation capacity, if each utility were to independently use its own generation to ensure continuity of power supplies, rather than using power delivered over the grid from other utilities. This cost worked out at about $74 million per year, he said, while also commenting that the utilities currently do support each other through the mutual provision of backup power.
Scott also commented that, given concerns about the need for reliable power supplies in the winter in the Fairbanks region, Golden Valley Electric Association, the utility for the region, has a stated preference to keep one of its generation plants running rather than depend on power delivered over the transmission intertie from the south. That policy would erode the potential benefits of economic dispatch, he said.
Management structure And, in general, the Railbelt transmission grid, given the fragmented nature of its management structure, does not have an effective model for building new transmission, especially given the lack of centralized planning for new transmission assets, Scott said. Moreover, as is common in transmission systems, the grid suffers from what is called a “free rider” problem, a situation in which, because multiple entities gain benefits from upgrades that a single entity makes, individual entities become reluctant to make infrastructure investments.
Some form of institutional glue and unified planning will be needed to achieve optimum efficiency benefits from an improved transmission system, Scott said. And, citing as an example the potential for failure of some existing 40-year-old submarine transmission cables that ship power north from Anchorage, Scott suggested that, in the absence of a more appropriate business model for managing the grid, the reliability of the Railbelt grid would likely fall in the future.
Economic inefficiency As an example of the type of economic inefficiency that can result from a lack of coordination between independent utilities, each accountable to its own customers, Scott cited a major upsurge in Railbelt power station construction in recent years. This upsurge, following decisions by Homer Electric Association and Matanuska Electric Association to generate their own power rather than continue to purchase wholesale power from Chugach Electric Association, contrasts with a steadier, gradual increase in power generation to meet a growing electric load, as projected in a couple of studies commissioned by the Alaska Energy Authority in 2008 and 2009. The high, early peak in actual power station construction suggests the potential for deferring some of that investment, had the utilities been operating in a more concerted fashion, Scott commented.
Scott did not make any specific recommendation on whether or how the management of the transmission grid might beneficially be changed. He did, however, comment that having a single company take over the ownership and operation of all Railbelt transmission and generation assets appeared to be impractical, given current contractual arrangements and asset ownership structures. He also questioned the concept of implementing an independent system operator, an organization that would manage the grid without owning the grid infrastructure - in the Lower 48 states the purpose of this type of organization is to facilitate an open market in power generation and supply, a type of market that is unlikely to flourish in Alaska, given the relatively few buyers and sellers of power, Scott said.
Scott did speculate on the possibility of a single company taking control of the grid. That might pave the way to a single “postage stamp” transmission rate on the grid, thus eliminating the multiple rates that currently inhibit economic dispatch. Publicly available monitoring of individual utility power dispatch information might then shed light on the best path forward for grid management, he said.
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