One of the continual challenges in business is matching the supply and demand of a product to maximize profitability while most efficiently utilizing resources. This principle is most evident in the energy markets of today as it deals with more variability than ever before.
A key reality of our energy markets is that peak demand in megawatts (MW) is growing at a faster rate than our base energy usage in gigawatt-hours by about 6.46% each year since 1990 per the U.S. Department of Energy’s Energy Information Agency’s (EIA) database.
The problem will become more pronounced in the future as more and more renewable energy is brought to market and competes favorably for dispatch onto the grid with nuclear, coal, and natural gas units.
In the past, the grid was more simple as reliable nuclear and coal generators produced electricity when needed for base or continual load, and natural gas combustion turbines were introduced to meet the peak demand along with hydroelectric plants. This high reliability of generation performance made the Independent System Operator’s (ISO) work much easier.
Today’s electrical grid must balance energy supply and demand with increasing amounts of variable wind energy and intermittent solar energy. The now-famous California “Duck” chart shown below exhibits this new solar energy impact and challenge for ISO’s. With more solar energy potentially entering the grid during the daylight hour, this reduces the amount of energy that can be supplied by base load, coal and/or nuclear plants.
This perhaps may not be a problem as we need all of the solar and wind energy we can generate. However, if on very sunny days and very windy nights, there is not a destination for energy generated by solar and wind energy facilities, the energy cannot be produced and the generators are idled. This has large implications on our full utilization of the generous renewable energy resources in our country, the economic performance of the generators, the production of renewable energy credits, and for wind facilities the generation of valuable production tax credits (PTC).
Without production of energy by renewable energy to utilities for its final destination to end user markets, the renewable generator is denied two key sources of revenue to pay off its project financing: 1) energy sales revenue and 2) PTC revenue estimated at around 2.3 cents per kilowatt-hour (kWh). Renewable energy plants desperately need demand for their energy every hour of the day so they can produce that energy.
This explains the supply dilemma facing ISO’s and the renewable generator economics, but what about the operations of peaking power plants to respond to this ever-changing, multiple-sourcing energy market? As renewable energy grows in its share of the energy market, the need to maintain reliability for the grid is met by natural gas combustion turbine (CT) peaking units which operate to fill this gap.
Unless we have frequent renewable energy reductions and the CTs are called on repeatedly for long periods, we may be operating these expensive plants at a lower capacity factor than is economic. Consider the operation of an airline as an analogy, where the company would fly planes with only 25% of their seats occupied by fare-paying customers. Not an efficient or profitable operation, right? Ultimately to get the power reliability we have become accustomed to in the US the utility ratepayers pay for this flexibility, in not only the capital cost of building a CT but the operating and maintenance of its operation.
Unfortunately in the power utility sector, all kilowatt-hours of energy are not created equal. Energy demand has its peaks and valleys and does not remain constant throughout each minute in every 24 hour day. Therefore, the kwhs produced in the afternoon on a hot summer day are more valuable than one produced at 2 AM in the middle of winter night.
That describes the key energy timing problem in the utility industry in satisfying energy demand for every hour of the day when the price of energy from multiple generating sources is constantly changing throughout the day.
We have identified several main problems facing the utility industry today:
1. accepting renewable energy when the sun shines and wind blows while maintaining grid reliability,
2. ensuring that renewable energy facilities generate energy, revenue, renewable energy credits, and production tax credits, and
3. economically matching energy supply and demand by supplementing base load plants in peak demand periods
What are utilities to do to solve this problem? Many have already taken strategic and economic action by installing hydro pumped storage (HPS) facilities. HSP plants use two reservoirs of water separated by elevation, and pumping water uphill from lower to upper reservoir in periods of low demand (creating an off-peak demand source) and generating energy as water flows from upper to lower reservoir in periods of high demand (creating a peak power source).
Below is sketch of how an HPS facility works, courtesy of the Hydro.org website.
Without HPS, utilities or power generators have paid customers to take energy during off-peak periods to provide the necessary demand to more efficiently operate power plants, or specifically for wind facilities, to harvest the PTCs. In the United States today, approximately 21 gigawatts (GW) of HPS capacity exists or about 21,378 MW. Only 221 MW of HPS capacity was added in 2015.
From an energy capacity perspective, pumped storage is about 2.5% of global total electrical power capacity. Although HPS uses about 20% more energy in pumping water uphill during off-peak periods than generating energy during the peak period, they provide key economic relief to the energy sector.
Japan, with a much smaller energy demand than the US, has the most HPS capacity in the world at 25,183 MW, followed by US at 21,378 MW, China at 15,643 MW, Italy at 7,544 MW, and Spain at 5,347 MW. Since Japan is an island nation, it does not have the advantage of an integrated grid, and therefore must balance its energy supply and demand solely within its boundaries.
Therefore, hydro pumped storage facilities enable the energy supply and demand for a utility and a country to be optimized in the following ways:
1. Provides an energy demand source for generators during off-peak periods,
2. Allows renewable energy generators to produce energy whenever the resource is available, regardless of non-HPS market demand for its energy,
3. Generates energy during peak power periods to minimize the capital and operating expense and carbon footprint of peaking power plants,
4. Shifts relatively-cheap, off-peak power supply to more expensive peak power demand periods, and
5. Increases the revenue from renewable energy generators by incenting the maximum amount of renewable energy production
There are many already-disturbed, mining sites that could offer lower-cost, less environmentally impactful opportunities for development, with existing power connections to the grid to reduce capital expenditures.