Future of the U.S. Energy Grid


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For more information, go to http://www.thinkdsi.com/grid/.

With the current focus on building a smart grid and investments being made on the technology side as well as the infrastructure side, energy is certainly getting much press! Uncertainty has never been higher.

This webinar aims to discuss this uncertainty. Based on field research and expert interviews, the recent comprehensive report "Future of the Energy Grid 2025" by Decision Strategies International presents views on everything from fuel mix to behind-the-meter innovation. What could the grid look like in 2025? How will different stakeholders be affected? Scott Snyder, President, and Stephan Hagelauer, Senior Consultant, will present the key findings of the report, and give you tools and tactics to help you develop resilient strategies and robust portfolio initiatives to succeed in the energy industry.

Three executives representing stakeholders in the energy industry will present how they have used the report to help “future proof” their own organizations and discuss some of the factors they find critical to success:

-Karl Pfirrman, Executive Vice President of PJM
-Rear Admiral Phil Cullom in charge of the US Navy Energy Strategy
-Govi Rao, CEO of Lighting Science

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Future of the U.S. Energy Grid

  1. 1. The Future of the US Energy Grid 2025 view of our National Power Infrastructure One West Elm Street, Suite 150, Conshohocken, PA 19428 | 610.717.1000 | www.thinkdsi.com
  2. 2. INTRODUCTIONS Presenter: Presenter: Moderator: Scott Snyder Doug Paradis Stephan Hagelauer President & VP Products Sr. Consultant CEO DSI DSI DSI Panelist: Panelist: Clayton Mitchell Karl Pfirrmann CAPT, CEC, USN PJM interconnection, NAVFAC Executive Vice Representative President Navy Energy Coordination Office (NECO) Slides and an audio recording of this webinar will be available. Please email request to hagelauer@thinkdsi.com Copyright 2009 2
  3. 3. Content Outline Why this report? 1 Methodology Overview 2 Key Findings 3 Real World Examples 4 Going Forward 5 Copyright 2009
  4. 4. THE CURRENT ENVIRONMENT • Approximately 60% of the electric power grid’s current assets will need to be replaced within the next 10 years. • The average age of power transformers is more than 42 years. • Construction of high voltage transmission facilities is expected to increase by only 6% (in line-miles) during the next 10 years. • Demand is projected to increase 30%, this need will be met using sources that have yet to be identified and developed. • A reduction of the spare capacity margin is projected to occur, reaching previously unexperienced levels. Copyright 2009 4
  5. 5. CHALLENGING TIME FOR ENERGY EXECUTIVES Explore what we can Exploit what we discover and create know and have Survive the Thrive in the Structural Recession / Short Term Near Future Discontinuities Financial Crisis Focus on Operation Focus on Transformation Reliability risk Reliability Risk Missing the smart End up with an grid transformation unbalanced portfolio and stranded assets Copyright 2009 5
  6. 6. RANGE OF ESTIMATES New capacity 250 required: 214 GW’s cost $650 billion 200 Renewable Efficiencies 150 could reduce Nuclear GW demand by 38% CT 100 to 48% CC coal Reduced 50 capacity cost would be $150 0 billion Baseline Efficiency  Potential  Realistic efficiency Source EEI, The capital investment challenge, 11/16/2008 Copyright 2009 6
  7. 7. SOME PERSPECTIVE ON THE NUMBERS 700 600 500 $Billion 400 300 200 100 0 U.S. Electric  TARP Program Grid investment  U.S. Defense  Market (T& D  (2010‐2020) budget (2010) revenues) Copyright 2009 7
  8. 8. Today’s Presentation 1 Why this Report? 2 Methodology Overview Key Findings 3 Real World Examples 4 Going Forward 5 Copyright 2009
  9. 9. THANKS TO OUR SPONSORS Copyright 2009 9
  10. 10. What Are Scenarios Shaped by Multiple Forces • Scenarios bound the realm of Technology Economy future possibilities Customer • Scenarios are shaped by multiple Environment types of forces Scenarios Industry Political & • Scenarios draw attention to Regulatory Business Models Google possibilities we may otherwise not have taken seriously • Scenarios create “memories of the future,” allowing us to recognize “weak signals” as the future unfolds 10 Copyright 2009 10
  11. 11. FORCES LIST Collection Evaluation Generation •Define key • Create forces stakeholder survey with groups 45 key forces and evaluate Top Trends •Develop based on 1. ~~~~~~~~~~~ 2. ~~~~~~~~~~~ forces list from predictability 3. ~~~~~~~~~~~ interviews with & impact . . 30 + experts . (utility, • 10/08 Held Top Uncertainties transmission, forum at the 1. ~~~~~~~~~~~ dispatch, Mack Center 2. ~~~~~~~~~~~ 3. ~~~~~~~~~~~ regulatory, and at Wharton . technology,) to review . . surveys, & forces list environmental and select scan resulting scenarios in 400 individual forces Copyright 2009 11
  12. 12. Today’s Presentation 1 Why this Report? 2 Highlights on the Methodology 3 Key Findings Real World Examples 4 Going Forward 5 Copyright 2009
  13. 13. FORCES AT PLAY Health of the Workforce Attack on the grid US Economy availability Who has authority over the grid? Technology Consumption behavior Commodities Level of price levels infrastructure Carbon regulation (coal, oil, NG)? investments Copyright 2009 13
  14. 14. FUTURE U.S. ENERGY GRID: 2X2 MATRIX OF THE Driver of Change Markets Government THE NEW POWER GREEN IS GREEN DEAL Technological Breakthrough Multiple BOILED FROGS D.H.E Limited Copyright 2009
  15. 15. SCENARIO A: SNAPSHOT – “I-GRID” SCENARIO A SNAPSHOT – GREEN IS GREEN Market drives change, high degree of technology breakthroughs Initial decline in reliability leads consumers to seek solutions to be less reliant on the grid Renewable sources are heavily subsidized Consumers are actively taking part in power management and benefit from power sale back opportunities High level of investment in small scale generation technologies Heavily decentralized power generation Multiple new players enter the market attracted by 2025 view of the the level of investment and robust margins industry The industry is one of the key engines of the US economy Copyright 2009
  16. 16. STRATEGIC IMPLICATIONS- GREEN GREEN IS Situation- Incumbents displaced Strategic Implications Regulatory Displacement Challenge Regulatory uncertainty on how to Existing market shrinks achieve the emission reduction goals Market perception impacting valuation, ability to raise capital and message to Technology public No dominant technology, multiple Converting in a reactionary mode solutions Multiple solutions providing grid parity energy Strategic Responses Market/Customers Must be part of the green evolution and Increase in demand for higher control not perceived as a barrier to progress over power consumption, price transparency and energy choice Early funding of pilot projects leveraging or combining various clean technologies Industry/ Competition New entrants capitalizing on the early demand to stake position “Cannibalize yourself” before others can New entrants solidifying their technological lead and increasing market share. Copyright 2009
  17. 17. SCENARIO A: SNAPSHOT – “I-GRID” SCENARIO B SNAPSHOT – THE NEW POWER DEAL Government drives change, high degree of technology breakthroughs Initial shock to the system due to climate event Heavy involvement of the government due to the crisis Investment focused on zero carbon generation Highly centralized grid relying on large scale generation plants Customers are participating but not feeling the price impact due to the government control over price The industry has consolidated, size and scale with a set profit level is the dominant operating model 2025 view of the The federal government controls both the industry investment direction and the major decisions over grid development Copyright 2009
  18. 18. STRATEGIC IMPLICATIONS- THE NEW POWER DEAL Situation- The happy few Strategic Implications Regulatory The scale challenge Centralized decision making on Expertise and ability to manage very large generation, transmission and price and complex infrastructure will define the entities being selected to operate in this Technology scenario Carbon neutral and zero emission Ability to integrate and operate inside a technologies most likely to be selected large and complex system will be a differentiating factor Market Customers Operational efficiencies will be the way to Demanding clean energy solutions and extract superior margin actively managing individual footprint Industry/ Competition Strategic Responses Players with expertise in building and managing complex infrastructure are Must have experience with larger scale selected projects using green solutions Government moves to integrated Must have demonstrated ability to scale resource planning solution rapidly and efficiently Margins are dictated by the government Relationship with the government and regulatory agencies will be keys Copyright 2009
  19. 19. SCENARIO C: A: SNAPSHOT BOILED FROGS SCENARIO SNAPSHOT – – “I-GRID” Market drives limited change, limited breakthroughs in technology There is no imperative for change The lasting effects of the economic crisis of 2009 resulted in lower investment in technology Investments are focused on existing technologies and limiting the price increase With demand increasing less due to weak economy the reliability level is still acceptable Carbon levels are high but consumers are not willing to pay a premium to lower them The industry is successfully sweating the assets with 2025 view of the appropriate level of capital available for maintenance industry The climate is getting warmer but the impacts are still manageable Copyright 2009
  20. 20. STRATEGIC IMPLICATIONS- BOILED FROGS Situation- The status quo Strategic Implications Regulatory The cost challenge Little or no new regulation on carbon Must be able to produce and distribute at a emissions low cost Policies focus on enabling low cost Low cost alternatives (competition or productions technology) will be selected if available Technology Incremental improvements are made to increase output and efficiencies, some improvements are concentrating on emission reduction Market Customers Strategic Responses Strong push on efficiencies resulting in The asset portfolio will have to be a curtailed demand examined to reach the right balance between capital cost and operational cost Industry/ Competition The fuel mix selection will be critical and Price is a key differentiator should favor low operational cost in the long Strong focus on efficiencies and cost run control to insure competitive advantage Copyright 2009
  21. 21. SCENARIO D: SNAPSHOT – DEPARTMENT OF SCENARIO A: SNAPSHOT – “I-GRID” HOMELAND ENERGY Market drives limited change, limited breakthroughs in technology Successful cyber attack on the CA smart grid Government elevate the security of the grid infrastructure to cabinet level position Investments are focused on hardening the infrastructure. The security lens is used to judge every major investments Highly centralized and secured grid delivers reliable power to the US population Carbon levels are high but consumers are not willing to pay a premium to lower them 2025 view of the New players in cyber and physical security have industry entered the market and either acquired or partnered with incumbents Copyright 2009
  22. 22. STRATEGIC IMPLICATIONS- DEPARTMENT OF HOMELAND ENERGY Situation- Incumbent on top Strategic Implications Regulatory The Information security challenge Centralized decision making Expertise and ability in deploying ad Investment decision made by the protecting cyber infrastructure incumbents Understanding of multiple security threats and adapted responses Technology Asset portfolio must contain High level of investment on assets/infrastructure with the appropriate communication and security technology security profile Generation and transmission technologies that demonstrate a high level of security are favored Market Customers Strategic Responses Low demand for green technologies Partnership with security experts in physical Customers are seeking solutions and cyber security enhancing reliability Develop a portfolio that includes robust assets and infrastructure Industry/ Competition Smart grid projects should involve cyber Security and communication players security expert to test for vulnerabilities have gained ground in this scenario Copyright 2009
  23. 23. Today’s Presentation 1 Why this Report? 2 Methodology Overview 3 Key Findings 4 Real World Examples Going Forward 5 Copyright 2009
  24. 24. CAPT CLAYTON MITCHELL Naval Facilities Engineering Command (NAVFAC) Representative to • the Navy Energy Coordination Office (NECO) NECO Ashore Working Group liaison responsible for overall • coordination of Navy ashore facilities/installations on energy policy/guidance and related initiatives. Also act as Action Officer for Navy/Marine Corps Research, Development, Test, and Evaluation (RDT&E) program execution under the American Recovery and Reinvestment Act. Oversight responsibilities include initiatives to: Reduce lifecycle costs and environmental impacts, – Reduce consumption of resources, – Conserve energy and maximize use of renewable energy sources, – Reduce green house gas emissions, – Improve quality of life for our Sailors, Marines, and their families, and – Enhance partnerships with other agencies and communities. – Copyright 2009 24
  25. 25. US NAVY ENERGY CHALLENGES Current Situation Navy consumes a significant amount of energy on both Fleet and ashore operations – about 25% ashore/75% Fleet (includes Surface/Air/Expeditionary operations) Highly dependent on fossil fuels: Volatility in supply and price Dependent upon the grid for shore operations Significant capital investment in present inventory. National Security interests driving quest for improved energy efficiency and conservation. Environmental/climate challenges driving need to reduce carbon emissions. Why use an adaptive strategic planning approach? Identify alternative approaches to meeting Navy energy requirements Develop investment strategy for enhancing Fleet and Ashore operations energy use. Future Readiness – Evaluate options for future force structure with energy as a primary consideration Current Readiness – Identify those energy investments for today which balance current operational readiness against investments necessary to achieve Navy’s vision of energy efficient Fleet operations tomorrow. Navy has established Task Force Energy to develop near and long term energy strategy. Expected Benefits Greater security Reduced carbon emissions Enhanced flexibility to accommodate new energy Lower costs/Increased reliability technologies, including renewable, intermittent and distributed sources Copyright 2009 25
  26. 26. KARL PFIRRMANN PJM INTERCONNECTION, EXECUTIVE VICE PRESIDENT • PJM Interconnection is a regional transmission organization (RTO) that coordinates the movement of wholesale electricity in all or part of 13 states and the District of Columbia. Copyright 2009 26
  27. 27. ENERGY INDUSTRY CHALLENGES Current Situation PJM does not own any assets (transmission or generation) but must insure the reliability of the gird and the flow of electricity between its members. In doing so, PJM operates the largest market for wholesale electric power in the world. Advising its members regarding the balance between forecasted demand and planned capacity addition falls within the realm of PJM responsibilities. Why use an adaptive strategic planning approach? To gain an understanding of the potential risks and position PJM’s role is responding to these risks To build consensus among the RTO members and identify the robust capabilities PJM must develop to continue succeeding in its mission Expected Benefits A balanced portfolio of options to protect existing operations and potentially expand the scope of services if opportunities materialize A set of signposts to monitor in order to anticipate industry developments Copyright 2009 27
  28. 28. Today’s Presentation 1 Why this Report? 2 Methodology Overview 3 Key Findings 4 Real World Examples 5 Going Forward Copyright 2009
  29. 29. Visibility into the Developing Scenarios - Dynamic Monitoring for the Grid Scenarios Launching Monitoring Program for the Future Energy Grid Scenarios • Online program to establish energy uncertainty tracking and energy grid • expert community Why? • – Track key environmental factors relating to the Future Grid. – Look for weak signals that could affect the industry as a whole and help identify events that might surprise the industry – Examine implications of external factors on various stakeholders in the industry – Better understand which scenarios of the future are gaining or losing weight. Copyright 2009 29
  30. 30. Monitoring with Strategic Radar – A “GPS” to navigate the future of the Energy Grid Scenarios Scan for the Weak Monitor the known forces Signals impacting market changes What is monitoring? •Monitoring is the process that is used to track changes in each of the forces/indicators that affect our future and how those change the likely weight of future scenarios •A parallel activity is called scanning which looks for weak signals from events, news, blogs, social networking, and subscriptions that might “change the game” Copyright 2009
  31. 31. KEY TAKEAWAYS DSI research and significant expert input led to four scenarios that bound the future of the US grid Significant uncertainties surround the future of the US energy Grid – Investment decisions will need to consider a range of environments This tools should be used by energy stakeholder to stress test their current strategy , investment plans and identify new opportunities across scenarios A dynamic monitoring process, Strategic Radar, is being used to track early signals to see which scenario is emerging We hope to build a community to participate in leveraging the Grid Scenarios and provide on-going monitoring/scanning of the environment Copyright 2009 31
  32. 32. What is Next? • Free extended summary available after this webinar hagelauer@thinkdsi.com • Report available immediately • Monitoring Program immediate launch – Results available in Q2 – Expert Network building effort currently ongoing • Additional information available at: – http://www.thinkdsi.com/grid/ Copyright 2009