Grid Modernization From an Energy Policy Perspective By

Chuck Newton

Newton-Evans Research Company

Company’s Mission and Role in Life: Bridging the Gap Between Suppliers and Users of Grid Modernization Technology • Ongoing studies of Electric Power Grid Modernization and

control systems usage patterns and plans among the world’s electric power delivery utilities.

• We serve as the bridge between what utilities need and want in control systems and infrastructure and what systems providers-equipment manufacturers need to know in order to develop solutions to meet utility requirements.

The U.S. Electric Power

Industry

• More than 3,000 utilities deliver electric power to consumers in the United States.

• These are of three principal ownership types:

• Investor-Owned (the fewest in number, but the largest in terms of revenue, customers and assets) Entergy, PGE, FPL, ONCOR, Southern Company

• Public Utilities

• Federal Entities (TVA, Bonneville Power Administration, Western Area Power Administration)

• State Entities (PUDs in Washington, PPDs in Nebraska, others) SRP in Arizona

• Municipals (nearly 1,900 in the USA) LADWP, San Antonio, Austin

• Cooperatives

• About 64 G&T’s

• About 920 Distribution Cooperatives – SMECO, NVEC, Pedernales,

The Changing Energy World – Here at Home

New Secretary of Energy –Rick Perry – Will NOT demolish the

DOE.

United States becoming more self-reliant for energy resources

• With or without federal mandates or guidance Smartening the Grid Infrastructure

– Ongoing Process

Nation moving ahead with grid-scale energy storage deployments

Moving Rapidly to Renewable Energy Sources

• Renewables Playing a more important role each year

• 36.5% of grid electricity was zero carbon in June 2017 versus 31.7% a year earlier.

• Coal-fired generation is down to 30.4% of total.

Energy Department Invests Up to $50 Million to Improve the Resilience and Security of the Nation’s Critical Energy Infrastructure

Innovative Research at DOE’s National Labs Will Build on Ongoing Efforts to Create America’s Modern Electricity System of the Future.

Washington, D.C. September 12, 2017. – Today, the Department of Energy (DOE) is announcing awards of up to $50 million to DOE’s National Laboratories to support early stage research and development of next-generation tools and technologies to further improve the resilience of the Nation's critical energy infrastructure, including the electric grid and oil and natural gas infrastructure. This investment builds on the Department’s ongoing efforts toward the rapid development and widespread adoption of tools and technologies that will help create a more resilient, secure, sustainable, and reliable electricity system that can meet the demands of the 21st century and beyond.

“A resilient, reliable, and secure power grid is essential to the Nation’s security, economy, and the vital services that Americans depend on every day,” said Secretary of Energy Rick Perry. “As round-the-clock efforts continue to help communities recover from the devastation of Hurricanes Harvey and Irma, the need to continue strengthening and improving our electricity delivery system to withstand and recover from disruptions has become even more compelling. By leveraging the world-class innovation of the National Laboratories and their partners, this investment will keep us moving forward to create yet more real-world capabilities that the energy sector can put into practice to continue improving the resilience and security of the country’s critical energy infrastructure.”

The Future of Coal as an Energy Source

• The U.S. Energy Information Administration’s new Today in Energy brief looks at the decline in U.S. coal production during 2016.

•

• "U.S. coal production in 2016 is expected to total 743 million short tons (MMst), 17% lower than in 2015, and the lowest level since 1978. Falling production in 2016 continues an eight-year decline from peak production in 2008. Production in all major coal regions fell by at least 15%. Low natural gas prices, warmer-than-normal temperatures during the 2015-16 winter that reduced electricity demand, the retirements of some coal-fired generators, and lower international coal demand have contributed to declining U.S. coal production."--EIA

The Petra Nova facility – near Houston - captured carbon dioxide from the process of coal combustion for the first time in September, and has now piped 100,000 tons of it from the plant to the West Ranch oil field 80 miles away, where the carbon dioxide is used to force additional oil from the ground. The companies say that the plant can capture over 90 percent of the carbon dioxide released from the equivalent of a 240 megawatt, or million watt, coal unit, which translates into 5,000 tons of carbon dioxide per day or over 1 million tons per year. They’re calling it “the world’s largest post-combustion carbon capture system.”

Working Facility!

But there was another coal plant that also planned to capture carbon dioxide — but using a very different approach. It’s the Kemper Plant, operated by Mississippi Power, and was operational for a few months. This plant had been designed to turn lignite, a type of coal, into a gas called syngas, stripping out some carbon dioxide in the process. The syngas is burned for electricity and the CO2 is then again shipped to an oil field to aid in additional oil recovery. This is called a “pre-combustion” clean coal facility. Mississippi regulators also recently told the utility that the Kemper plant should only burn natural gas, prompting Southern's decision last week to suspend efforts to operate a coal “gasification” unit at the plant. The $7.5 billion plant was designed to convert cheap lignite coal into synthetic gas, but it has never run properly.

Non-Working Facility

Facts on Energy Storage

According to market research firm IHS, the energy storage market is set to “explode” to an annual installation size of 6 gigawatts (GW) in 2017 and over 40 GW by 2022 — from an initial base of only 0.34 GW installed in 2012 and 2013.

Flywheel and battery energy storage systems are operating today in the competitive ancillary services power market – providing a 10x faster and more accurate response to a power dispatcher’s signals compared to power turbine generators.

PJM Interconnection projects that just a 10-20% reduction in its frequency regulation capacity procurement - made possible by additional storage projects - could result in $25-50 million in savings to residential, commercial and industrial consumers.

Energy Storage Technology The Smarter Network Storage (SNS) facility – reportedly the only one of its kind currently operating on the UK energy network – can store enough electricity to power 6,000 homes for 1.5 hours at peak times.

Inside construction of the world's largest lithium ion battery storage facility - SDG&E's 120 MWh Escondido storage project will help mitigate a natural gas shortage in southern California. The U.S. and UK are leaders in piloting grid-scale energy storage systems.

US utility Southern California Edison (SCE) and Tesla announced the completion of their energy storage project in Ontario, California. The completed 20MW energy storage project will help SCE to reduce peak demand on its grid network. The energy storage plant will store electricity enough to power 15,000 homes. The energy storage system will be used to store energy during periods when demand is low and provide it into the grid for over 4 hours during peak periods.

Concerns with Current Approach to Smart Grid Development

Pace: The momentum of the migration to SG is

directly tied to the health of the economy.

Policy: Migration to SG is highly dependent upon long-

term energy policy development.

Regulation: Considered separately from policy, we need more uniformity in regulatory developments

across the country.

Investment: Capital and human resource

requirements are significant

Transfer of Knowledge: Do we need to re-invent the wheel? Or, can we learn and adopt technical innovations

from other industries?

Interdependencies – Mean that Regulations and Policies (can and do) affect both electricity and communications!

Communications Electricity

Achieving the Power Delivery System of the Future:

Integrating Two Infrastructures

Electrical Infrastructure

“Intelligence” Infrastructure

QUADRENNIAL ENERGY REVIEW: SECOND INSTALLMENT U.S. DOE - Jan 6, 2017 The Quadrennial Energy Review (QER) Task Force released the second installment of the QER report titled “Transforming the Nation’s Electricity System.” QER 1.2 analyzes trends and issues confronting the Nation’s electricity sector out to 2040, examining the entire electricity system f rom

generation to end use, and within the context of three overarching national goals: (1) enhance economic competitiveness; (2) promote environmental responsibility; and (3) provide for the Nation’s security.

Energy Policy – Where do we stand today?

Who Regulates Which Utilities?

Type of Utility NERC FERC NARUC

EEI- Investor-Owned Y Y Y

APPA – Public Owned T T Y

NRECA – Member-Owned T T Y

Telecommunications Policy FCC Y

Energy Policy – Long Term • Energy Requirements for the USA

• Abundant

• Secure

• Efficient from Production through Delivery/Usage

• Cost-Effective

• Environmentally Sound

• Self-Reliant

• Interdependent with Communications Technologies

Presidential Comments on Energy Policy

• To DOE Staff:

• “… and We’re going to be an exporter -- exporter. We will be dominant. We will export American energy all over the world, all around the globe. These energy exports will create countless jobs for our people, and provide true energy security to our friends, partners, and allies all across the globe.”

• As you all know, I approved the Keystone XL Pipeline and the Dakota Access Pipeline in my first week. Thousands of jobs -- tremendous things are happening.

• I’m dramatically reducing restrictions on the development of natural gas. I cancelled the moratorium on a new coal leasing –

• We’re ending intrusive EPA regulations that kill jobs, hurt family farmers and ranchers, and raise the price of energy so quickly and so substantially.

• In order to protect American jobs, companies and workers, we’ve withdrawn the United States from the one-sided Paris Climate Accord

Can President Trump Simply Withdraw U.S. from Paris Climate Agreement?

U.S. Secretary of State John Kerry, with his two-year-old granddaughter Isabelle Dobbs-Higginson on his lap and United Nations Secretary-General Ban ki-Moon looking on, signs the COP21 Climate Change Agreement on behalf of the United States during a ceremony on Earth Day, April 22, 2016, at the U.N. General Assembly Hall in New York, N.Y. Credit: U.S. Department of State Flickr

President’s Energy Policy Discussions

• Today, I am proudly announcing six brand-new initiatives to propel this new era of American energy dominance. First, we will begin to revive and expand our nuclear energy sector -- which I’m so happy about -- which produces clean, renewable and emissions-free energy. A complete review of U.S. nuclear energy policy will help us find new ways to revitalize this crucial energy resource. And I know you're very excited about that, Rick.

• Second, the Department of the Treasury will address barriers to the financing of highly efficient, overseas coal energy plants. Ukraine already tells us they need millions and millions of metric tons right now. There are many other places that need it, too. And we want to sell it to them, and to everyone else all over the globe who need it.

• Third, my administration has just approved the construction of a new petroleum pipeline to Mexico, which will further boost American energy exports, and that will go right under the wall, right? It’s going under, right? (Laughter and applause.) Have it go down a little deeper in that one section. You know, a little like this. Right under the wall.

• Fourth, just today, a major U.S. company, Sempra Energy, signed an agreement to begin negotiations for the sale of more American natural gas to South Korea. And, as you know, the leaders of South Korea are coming to the White House today, and we've got a lot of discussion to do. But we will also be talking about them buying energy from the United States of America, and I’m sure they’ll like to do it. They need it. Thank you. (Applause.)

• Fifth, the United States Department of Energy is announcing today that it will approve two long-term applications to export additional natural gas from the Lake Charles LNG terminal in Louisiana. It’s going to be a big deal. It’s a great announcement.

• Finally, in order to unlock more energy from the 94 percent of offshore land closed to development, under the previous administration, so much of our land was closed to development. We're opening it up, the right areas, but we're opening it up -- we’re creating a new offshore oil and gas leasing program. America will be allowed to access the vast energy wealth located right off our shores. And this is all just the beginning -- believe me.

April 14 Memo From Secretary Perry to DOE

• Specifically, the April 14 memo directed a study that explores the following three issues:

• (1) The evolution of wholesale electricity markets, including the extent to which Federal policy interventions and the changing nature of the electricity fuel mix are challenging the original policy assumptions that shaped the creation of those markets;

• (2) Whether wholesale energy and capacity markets are adequately compensating attributes such as on-site fuel supply and other factors that strengthen grid resilience and, if not, the extent to which this could affect grid reliability and resilience in the future; and

• (3) The extent to which continued regulatory burdens, as well as mandates and tax and subsidy policies, are responsible for forcing the premature retirement of baseload power plants.

DOE’s Report to the Secretary of Energy

• Staff Report to the Secretary on Electricity Markets and Reliability

• August 2017

1. The evolution of wholesale electricity markets, including the extent to which Federal policy interventions and the changing nature of the electricity fuel mix are challenging the original policy assumptions that shaped the creation of those markets.

While centrally-organized markets have achieved reliable wholesale electricity delivery with economic efficiencies in their short-term operations, changing circumstances have challenged both centrally-organized and, to a lesser extent, vertically-integrated markets.

Evolving market conditions and the need to accommodate VRE (variable renewable energy) have led to the increased flexible operation of generation and other grid resources. Some generation technologies originally designed to operate as baseload were not intended to operate flexibly, and in nuclear power’s case, do not have a regulatory regime that allows them to do so.

2) Whether wholesale energy and capacity markets are adequately compensating attributes such as onsite fuel supply and other factors that strengthen grid resilience and, if not, the extent to which this could affect grid reliability and resilience in the future.

Markets recognize and compensate reliability, and must evolve to continue to compensate reliability, but more work is needed to address resilience. Reliable and affordable electricity is essential to the modern economy, including the manufacturing, services, and financial sectors. Fuel assurance is a growing consideration for the electricity system. Recent severe weather events have demonstrated the need to improve system resilience.

Significant progress is already being made to understand what is needed to maintain power system reliability under changing market conditions, but more work is needed to understand what can be done to maintain resilience in a variety of conditions as the grid changes over the coming years.

3) The extent to which continued regulatory burdens, as well as mandates and tax and subsidy

policies, are responsible for forcing the premature retirement of baseload power plants.

The biggest contributor to coal and nuclear plant retirements has been

the advantaged economics of natural gas-fired generation.

The recent and unprecedented rise of natural gas as a top electricity generation resource, the increase

in VRE penetration, the flattening of electricity demand growth, and a host of policy issues—regulations,

mandates, and subsidies at the state and Federal levels—have negatively impacted traditional baseload

generation, particularly coal and nuclear power plants.

NERC’s CEO Gerry Cauley spoke to the Energy Secretary’s concerns by

describing the current reliability and resilience issues. As a common thread in each of our Reliability Assessments, the most pressing reliability issues in North America

are:

1. As conventional resources prematurely retire, sufficient amounts of essential reliability services, such as

frequency and voltage support, ramping capability, etc., must be replaced based on the configuration and

needs of the system.

2. Resource flexibility is needed to supplement and offset the variable characteristics of solar and wind

generation.

3. Higher reliance on natural gas exposes electric generation to fuel supply and delivery vulnerabilities,

particularly during extreme weather conditions. Maintaining fuel diversity and security provides best assurance

for resilience. Premature retirements of fuel secure baseload generating stations reduces resilience to fuel

supply disruptions.

4. Because the system was designed with large, central-station generation as the primary source of electricity,

significant amounts of new transmission may be needed to support renewable resources located far from load

centers.

5. To make risk-informed decisions about how to maintain and protect BPS reliability, NERC has often stressed the need to study evolving market, technology, policy, and regulatory factors, as well as to understand how they are affecting “fuel supply, generation and transmission infrastructure planning, operations and investment decisions.”217

ss NERC

Building Resilience into the Power Grid NERC uses the infrastructure resilience definition that the National Infrastructure Advisory Council developed in 2010: “Infrastructure resilience is the ability to reduce the magnitude and/or duration of disruptive events. The effectiveness of a resilient infrastructure or enterprise depends upon its ability to anticipate, absorb, adapt to, and/or rapidly recover from a potentially disruptive event.”218 Examples of events that test a system’s resilience include severe natural events (wildfires, hurricanes, floods, droughts, and earthquakes) and coordinated, extensive physical and cyber-attacks and geomagnetic disturbances. Resilience is typically achieved through hardening or recovery. Hardening refers to physically changing infrastructure to make it less susceptible to damage. Hardening improves the durability and stability of energy infrastructure, making it better able to withstand the impacts of hurricanes, weather events or attacks. Recovery, by contrast, refers to the ability of an energy facility to recover quickly from damage to any of its components or to any of the external systems on which it depends – typically through storage and redundancy. Recovery measures do not prevent damage; rather, they enable energy systems to continue operating despite damage, and/or they promote a rapid return to normal operations when damages/outages occur. Advanced planning for contingencies, interagency coordination, and training exercises enable an effective restoration process. BPS reliability is adequate219 today despite the retirement of 11 percent of the generating capacity available in 2002, as significant additions from natural gas, wind, and solar have come online since then. Overall, at the end of 2016, the system had more dispatchable capacity capable of operating at high utilization rates than it did in 2002.220 The composition of the BPS and its requirements, however, are changing, so simple extrapolation of previous reliability trends is not prudent. In this chapter, we review current system reliability and resilience, look at how power plant operations are changing with the evolving generation mix, and evaluate potential reliability and resilience issues.

Office of Energy Policy and Innovation (OEPI) What We Do For the Commission, the Office of Energy Policy and Innovation (OEPI) coordinates the development of policies and rules that address emerging challenges in the electric and natural gas industries. We work to develop Commission policies that: •Evaluate the energy markets and interstate grid to improve economic efficiency, system operations, and reliability in light of new developments and in response to state and federal public policies;

•Evaluate energy market rules to ensure adequate compensation for resources responding to system needs;

•Remove barriers to ensure access to the market and grid by all resources; and

•Enhance coordination between wholesale electric and natural gas systems.

Division of Policy Development (DPD) The Division of Policy Development initiates and coordinates the development of Commission policies to: •Enhance the efficient planning and operation of energy markets and the interstate power grid; •Improve the coordination between wholesale electric and natural gas systems; •Remove barriers to ensure access to the market and grid by all resources; and •Improve coordination between wholesale and retail electric markets. DPD’s Work: 1.Identifies emerging energy issues and develops policies to address those issues. 2. Provides analysis and research to support the Commission’s decision making. 3. Coordinates with states and other agencies in support of the Commission's state-federal collaborative efforts. 4. Fulfills the requirements of the Energy Policy Act of 2005 and the Energy Independence and Security Act of 2007. 5. Evaluates regional planning processes to ascertain the success of the processes in developing system-wide plans and considering new technologies, and proposes reforms as appropriate. 6. Conducts outreach to assess industry trends and innovation in the electric and natural gas markets.

Division of Economic and Technical Analysis (DETA) The Division of Economic and Technical Analysis works to enhance existing market rules, processes, and operations in the electric and natural gas industries in order to promote competition and efficient market design, address emerging challenges, and send appropriate long-term investment signals.

DETA’s Work: 1.Evaluates energy market design focusing on the economic and operational efficiency of the markets and proposes policy changes that support accurate pricing, competition, and market-to-market coordination. 2. Evaluates processes for the interconnection of new resources and proposes policies to support efficient entry and exit and to meet long-term system needs. 3. Conducts economic, engineering and technical analysis in support of the Commission’s review of industry proposals, which includes quantitative analysis of electricity and natural gas market data. 4.Manages industry data and empirically assesses the outcomes of policy changes on market participant behavior and market operations. 5. Conducts targeted outreach to review the outcome of policy choices, learn about emerging industry challenges, and discuss the need for future reforms.

National Association of Regulatory Utility Commissioners (NARUC)

Founded in 1889, the National Association of Regulatory Utility Commissioners (NARUC) is a non-profit organization dedicated to representing the State public service commissions who regulate the utilities that provide essential services such as energy, telecommunications, power, water, and transportation. NARUC's members include all 50 States, the District of Columbia, Puerto Rico, and the Virgin Islands. Most State commissioners are appointed to their positions by their Governor or Legislature, while commissioners in 14 States are elected. Our mission is to serve in the public interest by improving the quality and effectiveness of public utility regulation. Under State law, NARUC's members have an obligation to ensure the establishment and maintenance of utility services as may be required by law and to ensure that such services are provided at rates and conditions that are fair, reasonable and nondiscriminatory for all consumers.

NARUC – Committee on Electricity

Committee on Electricity The Electricity Committee develops and advances policies that promote reliable, adequate, and affordable supply of electricity. Through strong collaboration with the Federal Energy Regulatory Commission and related Federal agencies, the Committee also seeks ways to improve the quality and effectiveness of regulation through education, cooperation, and exchange of information.

Staff Subcommittee on Electricity Staff Subcommittee on Electric Reliability Staff Subcommittee on Clean Coal and Carbon Management Staff Subcommittee on Nuclear Issues-Waste Disposal Subcommittee on Nuclear Issues-Waste Disposal Subcommittee on Clean Coal and Carbon Management

What has been the effect of recent regulatory activity and Uncertainty on Policy Direction on Grid Modernization Efforts?

Grid Modernization is picking up steam. Every

phase of operations including generation,

transmission and distribution is involved

Recent Newton-Evans studies have found no

slowdown in grid modernization efforts

Increased investments in P&C, Substation

Modernization and Control Systems

Upgrades and replacements of key

infrastructure equipment

7%

41%

21%

8%

7%

5%

12%

4%

39%

25%

8%

5%

8%

9%

4%

39%

26%

5%

7%

8%

9%

$0

<$100,000

$100,000-$249,999

$250,000-$499,999

$500,000-$999,999

$1-$2.5 million

>$2.5 million

Estimated Annual Budget Allocation for Protective Relay Hardware

2016

2017

2018

13%10%

26%

16%

22%

47%

16%

25%

40%

29%

35% 35%

EMS SCADA DMS or ADMS OMS

% o

f re

spo

nd

ents

Do you plan to add any new/replacement or upgraded/retrofitted systems by 2019?

New/Replacement Upgrade/Retrofit No plans for either

System Currently

Installed Future Plans by YE 2019

Planned Estimated Budget Range

2017 - YE 2019

New or

Replace

Upgrade or

Retrofit

$1-5

million $5-10 million >$10million

EMS 29 9 15 15 2 4

New or

Replace

Upgrade or

Retrofit

<$250,

000

$250,000 -

$750,000 >$750,000

SCADA 64 7 32 16 13 8

New or

Replace

Upgrade or

Retrofit

<$500,

000

$500,000 - $2

million >$2 million

DMS or

ADMS 22 18 11 12 8 7

OMS 50 11 17 16 6 4

The following chart summarizes the responses from the questions, “Which systems do you use?”

“Which systems will you add?” and “What’s your budget range for new systems?” The numbers in the

chart represent the number of survey respondents (out of a total of 69).

$0

$20,000,000

$40,000,000

$60,000,000

$80,000,000

$100,000,000

$120,000,000

2017 2018 2019 2020

Estimate of external spending for new and retrofit substation automation and integration programs

New Substations Retrofit Substations

Smart Grid and IT/OT Expenditure Global Outlook for 2020

$8.3 Billion Overlap Portion of

Operational IT & Smart Grid

for Control Systems

Substation Automation

Protection and Control

Payroll,

Accounting,

HR etc

Admin IT

$20.5B

Total Smart Grid $21B

Engineering

Workstations, CAD,

GIS

T&D Ops. IT

$10.5B

Source: Newton-Evans

$6.5 Billion “Pure” Smart

Grid for DA, AMI, Comms, TX & DX Monitoring/Control Devices, Renewables Interties

“Pure”

Smart Grid

$6.5B

6.2 Billion Overlap Portion of Admin IT/Smart Grid for MDM, Portions of CIS, Billing, OMS

$21B =$6.5B+$6.2B+$8.3B

Key Source for Our Work at Newton-Evans U.S. Energy Information Administration

www.eia.gov/aeo AEO2017

U.S. Energy Information Administration

Overview/key takeaways

EIA’s Annual Energy Outlook provides modeled projections of

domestic energy markets through 2050, and includes cases

with different assumptions of macroeconomic growth, world

oil prices, technological progress, and energy policies.

With strong domestic production and relatively flat demand,

the United States becomes a net energy exporter over the

projection period in most cases

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Grid Modernization From an Energy Policy Perspective By

Chuck Newton

Newton-Evans Research Company

Thanks for being here this morning!