Matching Supply and Demand- A Chronology of Energy Products

Managing the electric grid is all about matching supply and demand- supply being electrical generation and demand being how much electricity people are using.  Since electricity is the only commodity that is simultaneously produced and consumed, matching supply and demand must happen every second of every hour of every year in perpetuity (or as long as society wants electricity).  This obviously presents many operational challenges, which is why a systematic, chronological method has been crafted to reliably manage the grid over the past century.

To ensure supply can meet expected demand at a given moment in time t, utilities will plan and procure generation in staggered amounts over the course of time leading up to time t.  The following explanation is from the perspective of a utility who participates in an Independent System Operator’s wholesale energy market.  There are six wholesale energy markets in North America, which are under the jurisdiction of the Federal Energy Regulatory Commission (FERC).

Before explaining the process, it is important to understand the difference between capacity and energy as commonly defined in power contracting.  Capacity is an amount of physically possible generation available on the system at a given point in time.  Energy is an amount of actual electrons being delivered from a generator to the system.  Analogous to a car, a car’s engine may have a peak of 200 horsepower, but when idling it is only producing 30 horsepower.

Multiple years out (t-X years), a utility will either build or contract with a new power plant to be available to supply electricity.   Years of planning and negotiating are needed in order for the facility to be ready to deliver power.  Next, roughly a year in advance (t-1 year), the utility will sign contracts for capacity of a generator which ensures a generator will be available at time t.  Although this contract can take many forms, the utility is ensuring the facility will be available to use during the contract term.  Next, a month or two out, the utility will contract once more for additional capacity to be available.  With updated forecasts of expected load, fuel prices, and market power prices, the utility is able to incrementally hedge their position with these monthly contracts.  Up to this point, the utility has procured capacity, and is in a “planning” mode to prepare for when they need to deliver electrical supply at time t.  Although the utility has procured enough capacity to meet ~115% of its maximum load, it can expect to procure additional necessary energy from the market closer to time t.

A few days before time t, the utility transitions its need to meet demand from planning to operations.  Using advanced meteorology and historical data, a refined demand forecast is produced.  This feeds into a preliminary resource “plan”, created 3-5 days out, of what generation resources need to be committed for time t in order to match expected demand.  The resource plan takes into account forecasted demand, fuel prices for the generation resources, forecasted generation output for renewables, energy market prices, generation resource outages, power market prices, and a few other parameters.  This resource plan is then re-created 1-2 days in advance, and is used for traders to buy and sell energy from the Day-Ahead wholesale energy market.  During hours when a utility’s generation is expected to be less than the demand forecast, traders will procure additional energy from the market.  Likewise, when the utility is expected to over-generate, traders will sell that excess generation into the market.

The utility’s final day ahead net energy position considers long-term contracts, short-term contracts, energy trades, and an updated load forecast.  This day-ahead net energy position is then transferred over to a Real-Time operations group, which manages the supply/demand balance on an hour-ahead basis.  Prior to the “flow hour” (i.e., the hour in which power is actually delivered), Real-Time operators will “true-up” the balance of supply/demand by adjusting generation schedules, buying/selling power from the Real-Time market, or committing additional generation resources.  Energy schedules and Real-Time market trades deliver power in 5 minute flat blocks.

Since demand is continually varying, an additional set of more granular energy products and controls are needed.  Between the 5-minute energy blocks and actual demand, a deficit or surplus of energy will result.  This deficit or surplus can be filled using various energy market products, however it is primarily done using Frequency Regulation.  Frequency Regulation is an energy product whereby a generation resource is moved up or down every 4-seconds to match current supply and demand.  As an energy product, the utility will procure capacity on a generator to be set aside as Frequency Regulation capacity.  During the flow-hour, the utility then calls upon that reserved capacity, and controls the generator output every 4-seconds.  Frequency regulation is essentially the final energy product that allows for a utility to match supply and demand.

Although not a distinct product, inertia, or spinning mass, is the final element that matches supply and demand.  Inertia is simply the amount of mass spinning in a large generator.  When there is a deviation in load, the shear mass of the spinning generator buffers the electrical grid from a large drop in electrical frequency.  Since the mass of a generating resources is always spinning when producing electricity, inertia naturally responds instantaneously.  Inertia is not a distinct product because it has inherently been a feature of all power plants- they have a large, heavy, spinning rotor that generates the electricity.

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CAISO’s Flexibility Constraint

For the past 100+ years, the largest deviations on the electrical grid have been caused by load.  There are two types variability on the system: certain and uncertain.  Certain variability is a generally predictable trend, and tends to have a large magnitude.  Examples include a steady increase in load as the sun sets and people begin to turn on their lights.  Uncertain variability is the changes in load that are not predictable.  The uncertainty around a load forecast is much smaller in magnitude that certain variability, but its very nature makes it more of a challenge.  An example would be when a specific person turns on their lights, increasing load a small amount.  Certain variability is that people will turn on their lights tonight; uncertain variability is exactly when and how many lights are actually turned on.

Variability- both certain and uncertain- have not been a huge issue in the past because conventional generation is dispatchable.  Operators can turn up a mid-level dispatchable resource (i.e. a combined cycle gas turbine) as night approaches, or ramp up a peaker when more lights than expected are turned on.  This is changing however, as more renewable generation is being brought online.  Predominantly solar and wind, these generation resources are not only non-dispatchable (for the most part), but more importantly they are inherently variably certain and uncertain.  This has caused grid operators to consider requiring a certain amount of flexible capacity to be committed in the operational timeframe (usually via a Day-Ahead and Real-Time market) to help balance the additional variability caused by renewable resources.

To shed some light on the magnitude of flexible requirements, one can take a look at the Bonneville Power Authority’s wind integration challenges.  Originally thought to be the ideal place for wind generation, the Columbia River Gorge has been a hotbed for wind developers.  It was believed that the 20 GW[1] (yes, gigawatt) hydro system that BPA operates would easily be able to absorb the variability of wind generation.  As it turns out, the hydro system operations has many constraints (such as flood control, wildlife constraints, etc.) that are prioritized over electricity generation, and as such, the hydro system is limited in its ability to provide the necessary balancing services.  The BPA system also has limited water storage capabilities, resulting in tighter operating constraints compared to other hydro systems.

By the end of 2011, is it predicted that roughly 6,000 MW of wind generation will be installed in BPA’s service area, the vast majority of which is concentrated in the Columbia River Gorge[2].  Due the large concentration, and thus little geographic and meteorological diversity, BPA can experience large swings in wind generation. For example, in 2010, BPA experienced a 30-minute wind ramp-up of 1,120 MW, or 40% of installed nameplate capacity.  Assuming load being constant and no imports/exports, BPA would have needed to ramp down 1,120 MW of conventional generation (including hydro) within the same 30-min window in order to maintain system reliability.

This real-life example illustrates the material challenge of integrating large amounts of variable and intermittent resources, such as wind, especially when it is mostly built in a concentrated geographical area.  These types of swings in generation can only be expected to increase as more wind generation is built out.  In California, where a 33% Renewables Portfolio Standard was recently signed into law, the California Independent System Operator is looking to institute a flexible capacity requirement.  It is probable all incremental renewable energy resources built to achieve the 33% RPS to be met with wind and solar resources, and thus they are gearing up to meet the accompanying need for system flexibility.

Essentially, the flexible capacity constraint in the CAISO will require enough back-up, fast response dispatchable generation to be committed in the event of a large variation of wind or solar generation.  The requirement will change hourly- as no flexibility will be needed for solar at night or for wind during at certain times.  The challenge in the CAISO is its current resource mix, where a vast majority of the fleet consists of aging natural gas plants that can take multiple hours to start.  Because of the current dispatchable resource mix, the CAISO may need to over-commit resources in order to meet their flexible ramping needs.  In other words, because the CAISO may not have enough quick-start resources to provide the necessary flexible capacity when it is needed at time t, the slow-start resources may need to be committed hours in advance to be ready.  This could result in multiple dispatchable resources running at idle in preparation for providing flexible capacity when it is needed.

Although this flexible capacity constraint may seem uneconomic, there is no other good short-term solution.  Insufficient flexible capacity could result in an inability to match supply and demand, leading to large frequency deviations, system faults, or worse, catastrophic blackouts.  The CAISO is working on a more comprehensive solution to Renewable integration, but this will take years to implement.  In the interim, while more and more renewable resources come online in the coming months and years, the flexible capacity constraint is a necessity to maintain grid reliability, even if it comes at an additional cost.

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[1] Facts on BPA: http://www.bpa.gov/corporate/about_BPA/Facts/FactDocs/BPA_Facts_2010.pdf

[2] See BPA’s map: http://transmission.bpa.gov/PlanProj/Wind/documents/BPA_wind_map_2011.pdf

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Offshore Sailing: Seattle to San Francisco

Offshore sailing can be one of the most fulfilling experiences in life.  It is easy to reminisce about the explorers battling the sea, finding new lands, and dealing with life aboard a ship.

When you are truly offshore (>50 miles), one really begins to learn to rely on one-self.  It’s you and the ocean, and there is no one to save you.  Even when sailing off the coast of the U.S., there are no guarantees about what can happen to your boat, or if the Coast Guard can save you from a life threatening situation.

In my most recent voyage, I sailed with three others nearly non-stop from Seattle to San Francisco.  Our last stop out of Washington was Neah Bay, a few miles from the open ocean.  We decided to leave early in the morning in order to avoid northwesterly winds and swells that often build up into the Straights of Juan de Fuca in the afternoons.  A few hours after hoisting anchor, we were rounding Cape Flattery, the Northwestern-most point of the continental United States. As if they were wishing us good luck, a small pod of Humpback whales surfaced a few hundred feet from the boat just as we began to turn South.

The tough part of sailing off of the coast of Washington and Oregon is the extreme weather.  Fortunately, this weather usually comes out from the North, so you’ll be sailing down wind for the majority of the trip.  In my first voyage down this stretch of the Wild West, we were greeted with 35-knot winds and 15-20 foot swells.  With a double-reefed main as our only canvas, the boat would be hurdled down these mountains of water.  The strong wind would push the boat up the backside of a swell and over the top, where we’d then literally surf down the front side.  The bow would crash into the backside of the next swell, sending foaming saltwater down the decks, washing off the sides and aft quarter.  I once saw our knot-meter read 14 knots, which is quite impressive for a displacement boat that has a hull-speed of just over 8 knots.  Realize that this is continually happening for four consecutive days without stopping, day and night.

Sailing downwind

Sailing downwind

On voyage #2, the weather was much more civil, with 5-10 foot swells and 15 knot northwesterly.  We headed due South to let the coast gradually ease away (since the coast drops to the SE), and ended up about 80 miles from shore on the second day.  On the third day, with the wind stable at 10-15 knots, we decided to go wing-on-wing, using the spinnaker pole to hold out the clue of the Genoa.  Spinnaker poles are difficult to manage, especially when the boat is rocking back and forth from the swells off our stern quarter.  Fortunately, with 4 guys on board, we were able to muscle the pole in place.  This set up, wing-on-wing, worked great, and we sailed under this for about 10 hours.

Sunset at SeaAgain, spinnaker poles are difficult to manage.  With the sun low in the sky, the night breeze beginning to strengthen, and our being on track to hit Cape Mendocino around 2am, we elected to stow the pole.  When you first think you should do something, you should do that something.  Hesitation is a dangerous path, and one not worth taking in could-be life-threatening situations.  Stowing the pole was much more difficult than anticipated, with the limited light and larger swells.  After being thrashed around for a number of minutes, three of us were able to stow it securely.

This turned out to be a wise decision.  Ian and I were on first watch, from 9pm-midnight, and the wind continued to build as we approached the famed cape.  At first, we reefed the Genoa and main.  More wind.  Now the sun had completely set, and moon was starting to rise, leaving us with limited visibility.  We reefed both sails a second time.  More wind. The main had no more reef points, but we could roll up the Genoa further, so we did until it was the size of a bed sheet.  The idea was to provide a little stability on the bow, however with the sail that small, the wind was thrashing it around like a flag.  More wind.  This was getting very serious, so around 1am with all hands on deck we dropped all sails, secured them, and went bare-poles.  With gusts at 40 knots and 10 foot breaking swells pushing us, we were doing 3 knots through the water!

Adding to the situation, a fellow boater about 60 miles from us was caught in the same fierce winds, and was calling “Mayday” over the radio.  His boat, a small fishing vessel, had either capsized or been drowned by a swell, and he was sinking.  Being far from shore, we heard the coast guard saying it would take several hours to reach him.  The only thing we could do was listen to the radio and hope he made it out alive.  (We think he did, since we heard no reports of a fatality the following days.)

Exhausted from the night before, it was welcoming to have the weather calm down in the morning.  Over the course of the day, the wind died to the point where we fired up the “iron genny” (i.e. our diesel engine), to bring us down the coast.  Finally, after 5 straight days, we pulled into Drake’s bay at around 1am.  It was nice to be at anchor at last, have the boat settled down, and allow us all to have a sound sleep.  Since we wanted to arrive in San Francisco mid-day, we pulled anchor at around 6am (yes, 5hrs later) and had a relaxing motor down to the mouth of San Francisco bay.

There’s nothing quite like sailing under the Golden Gate Bridge after being at sea for days on end.  Not only did it turn out to be a gorgeous cloudless day, but also we were the only vessel in the channel!  Great timing.

Its weird seeing so much civilization after being isolated for over a week.  Seeing all the buildings, cars, stores, people- all bustling about with their busy lives, like ants in farm.  I’m not saying I’m not one of them, but most others don’t take a step back and view life from the big-picture, and push themselves beyond their comfort zones.  Flying out of SF really hit this home.  Taking the flight back home, that was boring, “safe”, convenient, and all too easy.  Sailing the same distance, now that was a journey.

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How to save 50% off online purchases in 7 SECONDS

It is amazing the amount of information on the Internet, for better or for worse.  In this instance the information is great for you, the buyer.

The technique I’m about to use literally took me 7 seconds to implement, and I just saved 35% (could have been 50%) using it last night to buy a domain name online.  Its so simple, anyone can use it.

When you are buying a product online, look for the “enter promo code” button in the shopping cart.  If you see this, open a second tab, and Google search the website name, plus the words “promo code”.  This will bring up a plethora of websites that offer discount and promo codes using the sites name you entered.  Often that code will show up in the results page itself, saving you the time of going to another website.  Simply take that code, and type it in the promo code field on the website you were on (its best to use a second tab for the search so you don’t lose the shopping cart page).

Here is an example from last night.  I went to GoDaddy to buy a domain name.  Upon reaching the shopping cart page, I noticed the “Enter Promo Code” button.

0:00:00- At the shopping cart, I see the “Enter Promo Code” button
0:00:01- I open new tab and type “GoDaddy” into Google search box in Safari.  The 5th option down on the suggested search says “GoDaddy Promo Code”.  I click this
0:00:03- Google loads with results.  I see in the results “FAN3 for 35% off .COMs”.  Notice, I don’t actually click on the result, but merely see this in the summary.
0:00:05- Switch back to GoDaddy, enter the code into the field, click “Submit”
0:00:07- The promo code has been accepted, and I save 50% off of my purchase.

There was another promo code in the search results for 50% off of a .org address, but I needed the .com.  Either way, using this technique has saved me hundreds of dollars in the past year for online purchases.  Everything from domain purchases, to Amtrak tickets, to magazine subscriptions, the options are as limitless as is the number of things for sale online.

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PPA Price Escalation and Calculating the Levelized Cost of Energy

When negotiating a PPA, there are two types of ways to price the energy: at a flat rate for the duration of the contract, or at a base rate with a yearly escalator.

Often times counterparts will negotiate a price with a yearly escalator.  For example, a project might have signed a PPA at $100 with a 2% yearly escalator.

Having a contract base price with a yearly escalator can be beneficial to both the developer and the off-taker.  For instance, the developer might prefer to use a price escalator as a way to ensure their generation income is consistently proportional to O&M costs or land lease costs.  If their land lease increases annually at 2%, then having their PPA price escalate at that same 2% will keep their balance sheet in proportion from year to year.

The off-taker might prefer to sign a PPA with a price escalator because it incentivizes the developer to remain the owner/operator for the duration of the contract.  If the contract were at a flat rate, the developer might be more inclined to sell off the project to another party, potentially causing extra work for the off-taker (such as if the new party lacks experience/ relationships/ etc.).

When deciding whether to offer an escalating price (developer) or sign up a project (off-taker), it is necessary to compare the escalating price to a flat rate price.  This provides a true apples-to-apples comparison between project proposals.  In order to do this comparison, one must levelize the escalating price.

A levelized price essentially discounts the escalating price payments to a fixed, flat stream of payments.  To calculate the levelized price, you will need your A) Base Price, B) Escalation Rate, C) Term, D), Discount Rate.  Next, follow these steps. Below are example numbers I will refer to in each step:

Base Price: $100
Escalation Rate: 2%
Term: 10 yrs
Discount Rate: 10%

1) Calculate the Price for each year of the term.  Year 1 should be the base price, with each year following increasing by the escalation rate.  [Ex: Yr1 = $100, Yr2 = $102, Yr3 = $104.04,…, Yr10 = $119.51]

2) Find the Net Present Value of the 20 Payments over those 20 years, using your Discount Rate. [Ex: NPV(10%,$100,$102,…,$119.51) = $662.53]

3) Calculate the annual payment (like a loan) using the same term, the Discount Rate as your rate, and the NPV from step 2 as your Present Value.  [Ex: PMT=(10%,20yrs,$662.53) *(-1) = $107.82]

4) That’s it! From the example, a PPA Price of $100 with a 2% escalation factor is equivalent to a flat rate of $107.82.

Calculation for Levelized Price

This calculation is useful if you are a developer, comparing what price structure to offer your project at, or if you are an off-taker, deciding which project to sign.  When using this calculation, be sure to know your counterparty’s discount rate so that you know how they will be comparing your project (developer) or how they calculated their price (off-taker).

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Running of the Bulls

Last summer I had the amazing experience of participating in the “Running of the Bulls”.  And when I mean participate, I mean an adrelnaline rush sprint down the cobblestone street, narrowly missing the stampede of angry bulls! Before getting into the route and how best to run, a brief history lesson of this tradition:

The Running of the Bulls (in Spanish encierro, from the verb encerrar, to lock/shut up, to pen) is a practice that involves running in front of a small group (typically a dozen) bulls that have been let loose, on a course of a sectioned-off subset of a town’s streets. The most famous running of the bulls is that of the nine-day festival of Sanfermines in honour of San Fermín in Pamplona, although they are held in towns and villages across Spain, Portugal, and in some cities in Mexico and southern France, during the summer. Unlike bullfights, which are performed by professionals, anyone may participate in an encierro.

The purpose of this event is the transport of the bulls from the off-site corrals where they had spent the night, to the bullring where they would be killed in the evening. Youngsters would jump among them to show off their bravado.

Spanish lore says the true origin began in North-eastern Spain during the early 14th century. While transporting cattle in order to sell at the market, men would attempt to speed the process by hurrying their cattle using tactics of fear and excitement. After years of this practice, the transportation and hurrying began to turn into a competition, as young adults would attempt to race in front of the bulls and make it safely to their pens without being overtaken. When the popularity of this practice increased and was noticed more and more by the expanding population of Spanish cities, a tradition was created and stands to this day. [Source: Wikipedia.org]

Getting There.

The first challenge when attending San Fermin is getting there, and staying there.  In a nutshell, I took a bus from Barcelona to San Sebastian (North coast of Spain) because the Pamplona bus was sold out by several days.  Upon arriving in San Sebastian at 10pm, I met some fellow travelers who also wanted to go to the San Fermin festival, but we couldn’t find a hotel room.  So we paid a hotel manager to keep our bags in his janitorial closet, and then found a taxi to drive us the 60+ miles to Pamplona.

We arrive in Pamplona at midnight, and the place is going off.  There are concerts, there are people parading, there are literally hundreds of thousands of people partying in the streets.  We end up partying the whole night, staying up until the Running at 8am.

The Running.

If you plan on actually running with the bulls, you have to be in the street by 7:30am.  Otherwise, they put in place the fencing, and no one is let either in or out.  In other words, make sure you want to run by 7:30.  Also, if they catch you taking pictures while in the street after 7:30, you will be thrown out without mercy.

The bulls will be let loose promptly at 8am.  You will be able to feel the tension in the crowd when they fire the signal (a firecracker).  I began moving slowly forward after the signal, but wanted to wait to run until I actually saw the bulls.  However with so much adrenaline, myself and crowd around me began running as soon as everyone in front of us began running.

The bulls will run much quicker than you think.  Much quicker.  Within a matter of 10 seconds from when I started to run, the stampede was hurdling by within arms-reach on my right hand side.  I was truly amazing to see these huge animals rushing by, knowing how easily one could have been trampled.

It is important to remember when running that there are actually two sets of bulls that run.  The first set is the actual “running” of the bulls.  The second round follows by about 2-3 minutes, and trots along to pick up any stray bulls that might have gotten left behind in the first running.  If you plan on entering the ring after running in the street, it is necessary to do so before the second set enters the ring.  Immediately after the second set enters the ring, the gates are close and no one else is left in.

Running of the Bulls Route- Courtesy of BBC

When selecting where to start your run, first determine if you want to try and make it into the ring at the end. Also, standing on the south side at point 3.  Here, the bulls often lose their footing on the slippery cobblestone and slide into the adjacent wall, crushing anyone in their path.  I began my run between points 2 and 3, staying on the inside corner of 3 as the bulls passed by.  This allowed me to see the bulls approaching (at point 2), avoid trampling (inside corner at point 3), and be close enough to make the ring at point 8.  Unfortunately I wasn’t aware that the ring gates closed, and didn’t run fast enough to make the ring.

Overall, the Running of the Bulls was an amazing experience to take part in and something I would like to do again soon. If you do plan on participating, remember to be prepared, receptive of the original Spanish culture, and run quickly!

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