Who runs Virginia’s electric power industry — the SCC? the General Assembly? or an obscure Pennsylvania company that doesn’t own a single megawatt of generating capacity or mile of transmission line?
by James A. Bacon
AUDUBON, PA–Some of the most important decisions affecting the price and reliability of electric service in Virginia aren’t made in Dominion Virginia Power’s headquarters in Richmond or Appalachian Power Company’s in Roanoke but in a nondescript office park in Audubon, Pa., a dozen miles northwest of Philadelphia.
That’s where PJM Interconnection oversees the electric transmission grid in a 13-state region that includes Virginia. Its job: safeguarding the integrity of the system by keeping the supply of and demand for electricity in precise balance, and creating wholesale electricity markets that allow members to buy and sell electricity with each other.
As one of ten regional transmission organizations in North America, PJM oversees a $50 billion-a-year electricity market for 61 million people in a territory stretching from New Jersey to Illinois. The company currently estimates that it saves the economy $2.8 billion to $3.1 billion a year by making the grid operate more efficiently. Its capabilities will be in demand as never before as states and power companies gear up to meet stringent new regulations imposed by the Obama administration to combat climate change.
The Clean Power Plan (CPP) mandates sharp reductions in carbon-dioxide emissions nationally. Across the country dozens of CO2-intensive, coal-fired plants will be replaced by generating units using natural gas, nuclear fuel, wind and solar. The transmission grid, erected to connect those coal plants to major population centers, will have to be reconfigured to accommodate electricity supplied from new locations. Drawing upon data showing where the transmission bottlenecks are occurring and where new capacity needs to be installed, PJM will orchestrate the grid restructuring.
Integrating green power sources into the system will be especially challenging. Solar and wind, which don’t emit CO2 and create no radioactive waste, are the cleanest energy sources available to replace coal on a large scale. But both are intermittent, with electric output varying widely by season, time of day and weather conditions. A single utility operating within a confined service territory would be hard-pressed to deal with these fluctuations. A regional approach will make the task easier. PJM can even out some of the localized, weather-driven flux in green power by drawing upon wind and solar plants across its 240,000-square-mile region.
Appalachian Power joined PJM in 2004 and Dominion joined in 2005, yet in Virginia hardly anyone outside the electric power industry has heard of the company, knows what it does or comprehends how it shapes the choices available to politicians and regulators as they juggle the competing imperatives of price, reliability and environment.
To understand the larger context in which Virginia energy issues are debated, I traveled earlier this month to Audubon, Pa., to see PJM operations first-hand. The company rolled out the red carpet, making available the managers who oversee the region’s wholesale energy markets and electric grid to answer my questions. The following report details what I learned.
Day-Ahead Markets
Trading stocks and cattle futures is child’s play compared to buying and selling electricity on the wholesale market.
Every day at noon, PJM holds a next-day electricity auction. Buyers submit how much electric load they want to purchase at a particular node in the PJM system, at what time they want the electricity, and how much they are willing to pay. Power companies and merchant generators with power to sell enter bids for how much power they will commit to providing, during which hours of the day, and at what price. PJM cranks all this data into a model that runs through successive iterations of analysis and spits out a ranking, from low price to high, of which power facilities will be called upon to supply each additional increment of demand for each customer.
“Our job is to make things as consistent between day-ahead and real time as possible,” says Michael Ward, manager of day-ahead market operations. “We get all the loads coming in. We get all the generation bidding in. And we match them, making sure the transaction physically can happen.”
That’s the simple version.
Adding complexity is the reality that nobody knows with any precision how much electricity will be supplied or demanded the next day. PJM projects day-ahead demand adjusting for season of the year, day of the week, holidays, weather forecasts, and other major influences, but surprises can occur. Likewise, the company projects supply based on historical patterns, taking into account planned maintenance & repair outages, but random supply interruptions cannot be predicted.
Another challenge is accounting for “congestion” in the electric grid. Just as highways get overloaded during periods of peak demand, so do electric transmission lines. Thus, when matching up buyers and sellers, PJM’s algorithms take into account not only the suppliers’ bid prices but congestion charges and other transmission costs that must be added to it.
One more complication: Financial enterprises engage in “virtual bidding,” speculating on the price of day-ahead markets. They buy virtual energy in the day-ahead market and sell it real-time the next day, usually playing off some quirk in the grid that increases congestion and skews the optimum distribution of electric power.
These speculators can actually “put electricity flow on the lines in the day-ahead market,” says Ward. It’s an open question whether they add value to the marketplace or just create another layer of complexity and overhead, but Ward is inclined to say they play a positive role overall. “Their bidding gives us insight into what’s going on with our day-ahead model,” he said. “They keep us on our toes.”
Even with the most advanced algorithms in the world — and PJM talks every day with Alstom, its Seattle-based programmers — the process of clearing the markets takes four hours. Under pressure from stakeholders, PJM will step up its game next year. Purchasing more computer processing power and using more powerful algorithms, the company plans to reduce its turn-around time to three hours beginning April 1.
Quicker feedback will allow bidders to redeploy resources more efficiently. Says Ward: “They say it’s worth a fortune to them.”
Real-Time Markets
The North American electric grid operates on a 60 Hz electrical frequency. All power producers deliver electricity into the grid at that frequency, and all consumers — manufacturing operations, HVAC systems, lights, home appliances — are designed to operate at that frequency. If too much power flows into the electric grid, the frequency increases; if the system has too little juice, the frequency declines. Tiny deviations from the 60 Hz norm — within 0.1 Hz either way — pose no problem. But larger departures can damage generating equipment, create instabilities and cause blackouts. The goal of every grid operator is to maintain the frequency as close to 60.0 Hz as possible.
PJM’s day-ahead markets do a reasonably good job of matching electrical generation with demand, but even the best predictions can’t anticipate the numerous short-term fluctuations that take place during the day. PJM’s real-time market operations forecast demand two hours ahead, based on the latest data, to see if additional commitments are needed to meet that demand.
Typically, resources for this “intermediate” forecast come from “quick start” sources that can dial output up and down with great flexibility, as opposed to base-load sources such as coal- and nuclear-fueled generators, which take hours to adjust output, or wind and gas, which run flat-out because the “fuel” is free. Examples of quick-start sources include gas-fired combustion turbines, pump storage hydro-electric dams, and stored power sources like electric batteries, which can inject power into the system within a second.
PJM also conducts 15-minute forecasts and buys electric power in five-minute increments from as many as 1,000 different generation points. This power comes from resources that are already online, either baseload units committed in the day-ahead market or the quick-source resources called up to meet intermediate demand. Battery storage, which can respond within a second, is especially well-suited for fine-tuning the frequency for short periods. The drawback is that batteries drain quickly and cannot supply power for sustained lengths of time.
The existence of day-ahead and real-time electricity markets creates some tricky decisions for power companies. As a rule, electricity consumers don’t want to purchase more electricity in the day-ahead market than they expect to use, so they usually purchase less than they think they’ll need and make up for the difference in the real-time market. But they don’t want to rely too much upon the real-time market because the price is volatile and can be extremely expensive.
While not perfect, the multi-layered markets have worked well so far. “We’re looking to meet the energy needs at a given point of time at the lowest costs with respect to transmission security,” sums up Lisa Morelli, manager of real-time market operations. “We’re finding the cheapest megawatts possible without creating reliability issues.”
Managing the Transmission Grid
PJM oversees the electric transmission grid — mostly high-voltage transmission lines of 500 kV or 765 kV, but some above 115 kV — in all or part of 13 states and Washington, D.C. Here in Virginia, Dominion and Appalachian Power own the transmission lines, but PJM has final say over how they operate. (Dominion, Appalachian Power and other power companies own and operate lower voltage lines, referred to as distribution lines, without interference.)
PJM’s number-one priority is maintaining the reliability of the grid — avoiding blackouts and brownouts. Looming over the company is the memory of the infamous 2003 blackout, which knocked out power to 50 million people in the northeast and Midwest and took two days or more to restore in some areas. With talk of terrorist sabotage and cyber-attacks becoming part of the national conversation, PJM’s obsession with grid reliability and resiliency has not diminished in the least.
The stakes are so high that PJM operates two control centers, one in Audubon, and one in Milford, Pa., about 40 miles away. The control rooms have the same layouts, the same displays, the same computers, the same software, and both are fully staffed. If a computer in Audubon malfunctioned for some reason, its twin computer in Milford would take over. If a transmission coordinator in Audubon keeled over with a heart attack, his counterpart in Milford would step in.
In a worst-case scenario, if Audubon became “a smoking hole in the ground,” says Chris Pilong, manager of dispatch, Milford would assume control over the grid. “Redundancy and resiliency is built into everything we do.”
The operations center in Audubon is a massive room with giant wall-mounted, digital maps and statistical displays providing vast arrays of real-time data. On the morning I visited, a temperate December day, the load was around 93,000 megawatts and climbing. Graphs tracked the electric load over 24 hours, comparing projections with actual performance. Other read-outs monitored minute deviations of the electrical frequency on the system.
For a facility of such strategic importance to the economy, the operations center requires remarkably few people to run — fewer than 10 in a shift, including the supervisor. Main functions include:
Coordination and forecasting. One member of the staff is designated a master coordinator. This person has two main roles: to coordinate the interchange of electricity between PJM and neighboring regional transmission organizations, and to oversee the 24-hour load forecast for the PJM region and sub-regions. For assistance, he (or she) can draw upon the expertise of an in-house meteorologist and weather data from outside sources.
Generation dispatch. A two-person desk is in charge of “generation dispatch” (the dispatch of energy from different power sources). The job of this desk is to balance generation and load across the grid and to keep frequency at 60 Hz. As closely as PJM matches supply and demand with its day-ahead, intermediate and five-minute markets, demand spikes occur in between the five-minute intervals. In response PJM signals power companies or energy-storage companies when to dial up or dial down their output. Normally, compliance is market driven: power companies receive a sweetener when they go along and a “deviation charge” when they don’t. However, if there is a major reliability issue — a situation that could trigger cascading blackouts, for instance — PJM can issue commands that power companies are legally obliged to obey.
Transmission dispatch. Four employees staff the desk that monitors congestion on the transmission lines. Developing plans on how to route power during scheduled repair/maintenance outages on sections of the grid, they work closely with power companies to track changes in transmission capability. Maintenance typically is scheduled for spring and fall months when electric loads are low. On a busy day, the PJM system might have as many as 30 “constraints” that alter electricity flow and create new congestion bottlenecks.
“If demand is picking up in New Jersey and the cheapest unit is in Illinois,” says Pilong, “they’ll dispatch from Illinois” — unless there is congestion on the grid. When the congestion cost goes up, the system looks for the next lowest-cost source on the grid. “They’re balancing power for the whole system.”
Renewables
PJM is agnostic on the desirability of renewable energy. That’s a matter for lawmakers, power companies and other stakeholders to decide. But the company is moving to accommodate the solar and wind power that will comprise an ever-larger percentage of electric output. States are enacting Renewable Portfolio Standards, and the federal Clean Power Plan will compel states to substitute renewable sources for coal. Like it or not, here it comes, and PJM wants to ensure that the new power sources can plug into the grid.
The problem with wind and solar is that power production cannot be turned on and off whenever desired. When the wind is blowing and the sun is shining, wind and solar units produce all the electricity they can. To maintain that magic 60.0 Hz grid frequency, regional transmission organizations must find some other power source that can ramp up quickly and adjust rapidly in response to varying weather conditions. By properly managing the grid, PJM has concluded, renewable energy sources could generate up to 30% of the electricity without compromising system integrity.
Electricity on the PJM grid normally flows from west to east. The major centers for electricity demand are the big metropolises along the Eastern Seaboard, at the eastern edge of the PJM system. There aren’t any power plants located in the Atlantic Ocean, therefore power that isn’t generated locally has to come from the west. As it happens, PJM’s western states have abundant, low-cost wind power — at night-time, wind power is so plentiful compared to demand that the price essentially falls to zero. The main factor limiting East Coast access to that cheap wind is the limited capacity of the transmission grid to carry it.
The key to integrating renewables — including rooftop solar, there are 70,000 renewable producers in the regional system — is upgrading the transmission grid. In mid-December, the PJM Interconnection Board authorized $490 million of new transmission line projects, bringing the total number of additions and upgrades to $28 billion since 2000. Under PJM agreements, transmission owners are obligated to build transmission projects that are needed to maintain reliability standards and that are approved by the board.
As the Clean Power Plan puts the electricity industry under unprecedented strain, committing power companies to shut down dozens of coal plants and invest billions of dollars in new, intermittent energy sources, Virginia’s utilities will become increasingly dependent upon a robust electric grid and the exchange of electricity with out-of-state power producers to balance fluctuating supplies of solar and wind power. In such an economic climate, PJM will be a key player in determining the reliability of Virginia’s electric power and how much it costs.
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