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.