In the presentation Dr. Fox-Penner will be summarizing the key topics in his book, namely the shifts required in the US power grid to change from a centralized, vertically-integrated energy infrastructure to a more distributed generation infrastructure. He will cover the decarbonization of the US power sector as well as the impact of “smart grid” developments. Finally, he will contrast the US situation with that of China and talk about the impact of large amounts of renewables integration on the grid.

1. The Future of Electric Utilities in
the U.S. and China
Presented to the Beijing Energy Network
by Peter Fox-Penner
and Judy Chang
June 27, 2012
1850 M Street NW, Suite 1200
Washington, DC 20036, United States
Peter.Fox-Penner@Brattle.com
Judy.Chang@Brattle.com
Views expressed in these slides are solely those of the authors. Copyright © 2012, The Brattle Group, Inc.

2. Today, Utilities Everywhere Face Four
Gigantic Disruptive Forces
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3. Disruptions Affecting U.S. and EU Utilities
Enables lower
$ 1 trillion sales, distributed
investment (U.S.) power, and
by 2030 much more
competition
New firms take
Sales barely
market share
increasing each
away from
year
centralized grid
The result: Increasing prices, lower sales, loss of market to competitors.
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4. Decarbonization –– U.S.
U.S. Generation- 2012
No U.S. national climate policy yet, but regional
policies and proposed Clean Energy Standard 12%
Few new coal-fired plants, no CCS, and almost 42%
20%
all new fossil fuel plants will be gas
Environmental rules could force 30-60 GW of 27%
coal plant closures U.S. Generation- 2035
State and federal renewable laws mandate 65
14%
GW (2025) - - mostly wind 36%
18%
Integrating renewables and storage into grid
requires operating changes and new capital 33%
Sources: ““Annual Energy Outlook 2012, Early Release,””
and ““Annual Energy Outlook 2011,”” Energy Information
Administration.
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5. Substantial Costs of Decarbonization
Lead to Price Increases
Total generation decarbonization
~ $1 trillion
$/MCF
New transmission to integrate
renewables and maintain
reliability- $ 250 billion
Replace aging distribution system U.S. Average Annual Retail Price of Electricity
Cent Per KWh, Real $2005
with smart grid - $600 billion
Price increases so far have been
moderated by the fall in price of
¢/KWh
75%
natural gas
Sources:
Peter Fox-Penner, ““Smart Power,”” Presented at Exelon’’s Annual Attorney Meeting, Philadelphia.
““U.S. Natural Gas Wellhead Price,”” Energy Information Administration, 2012.
““Electric Power Annual 2011,”” Energy Information Administration, October 2011.
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6. Power Sales and Energy Efficiency (EE)
Energy efficiency policy is a mixture of national standards, state utility programs, and
private firms selling energy efficiency (““ESCOs””) –– no nationwide strategy
U.S. power use is projected to increase around 0.8%/yr with current policies, but growth
could be much less
U.S. Projected Power Demand
AEO 2008 –– 1.10%/ year
AEO 2010 –– 0.89%/ year
AEO 2012 –– 0.76%/ year
Smart Power –– 0.51%/ year
Source: ““Annual Energy Outlook 2012 –– Early Release,”” Energy Information Administration, 2011.
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7. DG In The U.S. and Europe
Overnight Costs for Wind and PV
(Onshore Wind and PV)
The price of solar panels in the U.S.
dropped by 50 % in 2011. Even with
declining feed-in tariffs, solar conditions
2010$/kW
are expected to rise steadily.
Buildings will integrate PV (and later
microwind) as well as geothermal-
Utility Scale vs. Distributed Solar California is targeting 100% Net Zero
(CSP and PV)
buildings by 2030
Community-scale PV and wind increases
Installed MW
resilience, reducing cascading failures
Sources: ““Annual Energy Outllok 2011,”” The Energy Information Administration,
2011; ““U.S. Solar Market Insight 2011 Year-In-Review””, Solar Energy Industries
Association, 2011.
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8. Over Time, the Smart Grid Will Change Everything
Enable time-based rates (““dynamic pricing””)
and smart EV charging with 5-15% bill
savings.
End billing based on cumulative commodity
KWh –– enable value-added services.
Enable behavioral and information-based
energy efficiency.
Create multidirectional distribution grids with
storage.
Allow better management of distribution grid:
outages, voltage, maintenance, more.
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9. Summary of the U.S. and EU Challenges
Trillions of dollars of investments needed in generation,
transmission, and distribution
Sales are barely increasing, so average costs and rates rising
for many years to come
New competitors can enter and steal customers away by
offering retail power and energy efficiency services
Today’’s electric utilities will only get weaker and farther from the
customer if they keep their traditional business model
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10. Contrasts With China
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11. China’’s Electric Power Industry is in a Very
Different Position Than the U.S.
Growth is 5% - 12% a year doubling the system in <10 yrs;
demand is 70% industrial
Scale economies and vertical integration are still significant
Large-scale supplies are far from load centers very large
grid buildout
Goals from 12th Five Year Plan:
•• 11.4% non––fossil fuel generation by 2015, and renewable energy resources
20% by 2020
•• Optimize existing capacity and distribution system
•• Construct gas and pumped storage to meet peak demand
•• Develop distributed energy resources
•• Smart and strong grid- develop inter-provincial transmission, a strong grid
backbone, and deploy smart grid technologies
Yet China still has the fundamental challenges of trillions of RMB of
investment, higher power costs, and opposition to higher rates
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12. Some of China’’s Electric Power Challenges- From
an Analytic Perspective
Are changes needed to pricing and contracts?
Is further structural reform needed?
With rapid expansion in so many areas, how can long term system
costs be minimized?
Rapid urbanization and distance to large sources raise questions of
best resilience and strategy.
Will the smart grid operate based on non-price factors or price?
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13. Renewable Integration Issues Can be Defined
Across Different Timeframes
Operations Planning
Seconds Minutes Hours Days Months/Years
Primary Frequency Load- Generation Generation
Frequency Regulation Following/ Commitment and
Response (AGC) Energy and Transmission
Blocks Capacity Capability
Ancillary Services
Energy
Resource Adequacy & Procurement
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14. Simulating Wind and Solar Impact on Grids
Frequency Regulation requirement for each 5 minute interval is
estimated with two components of variance of load and generation:
1. 5-minute forecast error, PLUS
2. intra-5-minute volatility
intra-5-min volatility
average actual
5-minute load
5-minute forecast error
Minute-by-minute
5-minute schedule
deviations from 5-
min schedule
t t+5
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15. Renewable and Storage Topics Have Gained
Worldwide Attention
Storage can be used to complement and integrate renewable energy
But the cost of energy storage needs to drop significantly
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16. Thank You
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17. About The Authors
Dr. Peter Fox-Penner is a consulting executive and internationally recognized authority on energy and electric power
industry issues. He is a principal and chairman of The Brattle Group, a leading international economic consulting firm.
In his consulting practice, Dr. Fox-Penner advises energy companies, government agencies, and their counsels on
energy regulatory and market policy issues. Although his work has spanned most areas within the energy field, his
current primary focus is on electric industry competition and structure, global climate change, and energy efficiency
policies.
Dr. Fox-Penner’’s background includes co-founding Environment2004, the Environmental Alliance, and Patriot's Energy
Pledge; service as a senior official in the U.S. Department of Energy and the White House Office of Science and
Technology Policy; and staff positions in the Illinois Governor’’s office. He has a Ph.D. in economics from the business
school at the University of Chicago and M.S. and B.S. degrees in engineering from the University of Illinois.
Peter Fox-Penner
Chairman Contact: Peter.Fox-Penner@brattle.com or +1.202.955.5050.
The Brattle Group
Judy Chang is an energy economist with a public policy and engineering background. She has expertise in the analysis
of electricity power markets and advises clients on the financial and regulatory issues relating to renewable energy
investment and procurement decisions. She is experienced in leading utility executives, board members, and
stakeholders in making challenging strategic decisions complicated by pressures from customers, policy makers,
regulators, and wholesale and retail competitors. Ms. Chang has authored expert reports and submitted expert
testimony before the U.S. Federal Energy Regulatory Commission and state regulatory authorities regarding power
market issues. Her other recent work includes evaluating the potential impact of integrating renewable energy onto
power systems. Accordingly, she has designed and helped develop a model that estimates the operational effects and
the associated costs of variable resources on a grid.
Ms. Chang has authored a number of articles and reports and presented at a variety of industry conferences. She holds
a Master’’s in Public Policy from Harvard University’’s Kennedy School of Government, is a member of the Board of
Judy Chang
Directors of the Massachusetts Clean Energy Center.
Principal
The Brattle Group
Contact: Judy.Chang@brattle.com or +1.617.864.7900.
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18. Firm Overview
The Brattle Group provides consulting and expert testimony in economics, finance,
and regulation. We have assisted government agencies all over the world with
electric and gas restructuring, tariff calculations, market design, contract
renegotiations, and regulatory policies.
Our services to the electric power industry include:
Climate Change Policy and Planning Rate Design and Cost Allocation
Cost of Capital Regulatory Strategy and Litigation
Demand Response and Energy Efficiency Support
Electricity Market Modeling Renewables
Energy Asset Valuation Resource Planning
Energy Contract Litigation Retail Access and Restructuring
Environmental Compliance Market Design and Competitive Analysis
Fuel and Power Procurement Mergers and Acquisitions
Incentive Regulation Transmission
We have more than 200 staff across six global offices: Cambridge, MA; San
Francisco, CA; Washington, DC; London, Madrid; and Rome.
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