CALIFORNIA ENERGY COMMISSION National Heat Transfer Meeting AICHE & ASME Terry Surles California Energy Commission Technology Systems Division June 13,

CALIFORNIA ENERGY COMMISSION

National Heat Transfer MeetingAICHE & ASME

Terry Surles California Energy Commission

Technology Systems Division

June 13, 2001


Why Worry about Energy?(Circa 12/98)

Petroleum selling at < $11/barrel Proven natural gas reserves at 175 Tcf Abundant supply (~Mt) has depressed uranium

prices (< $80/kg U) There always was a lot of cheap coal (~$26/ton) Perception of adequate generating capacity and

reserve margin


We’re Concerned Now Oil is at $30/barrel, modification of economy Natural gas price has peaked at $60 and demand

(at least temporarily) is depleting reserve capacity

Energy use impacts global commons (7.4 G + C/yr. in 1997)

Deregulation has changed playing field New regulations and international policies Regional reserve margins are problematic


A

g

l]

l

l’

l’


California Must be Prepared to Face the Same Issues as Others Must

Economics Resource competition Difficulty for new technology market penetration

Environment Climate change Life cycle analysis for contaminants

Security Oil, nuclear materials

Energy costs fundamentally affect our overall economy


Energy Challenges - Most are Not Unique to California

Population growth, improved standard of living Increased reliance on natural gas Continued reliance on oil Continued need to improve process and end-use energy

efficiency and demand-side management Demand spikes, “needle peaks” Use of older generating facilities Financial constraints climate change initiatives NIMBY, NIMTOO concerns


Demographics High-technology industrial sectors Social values Air quality Water availability and quality Seismic In-state R&D excellence

California Context


Major Forces at Work Governance

PURPA: renewables, co-generation EPA/1992: transmission to non-utilities, merchant plant development Competition, increased use of market-based approaches

Environment Sustainable Emphasis on environmental impact NIMBY Leads to less reliance on coal, nuclear

Technology Shift from large central-station constructed energy to smaller more

modular, flexible-manufactured energy Increased role of information technology Emphasis on Natural Gas


Mid 90’s: California makes the Move to Deregulation

Gas turbine technology works Natural gas prices drop, potential for cheaper electricity

Large industrial customers push deregulation Margaret Thatcher deregulates the UK

PUC and utilities visit UK PUC published blue book (blueprint for AB 1890) PUC plans for future electric system (1994)

Balanced plan for future including fossil, renewables and energy efficiency


AB 1890 Arrives: Legislation Passes, No Dissenting Votes

Utilities move out of generation to run distribution wires, lease transmission to ISO

New (to CA) players buy 18,000 MW No long-term contracts Utility stranded costs recovered through retail cap Public purpose programs

support for renewables, efficiency, R&D


AB 1890 Arrives: Underlying Assumptions

Enough capacity reserves new power plants cost less than old ones Old, dirty power plants will be retired There would be robust competition, wholesale and

retail

Consumer would have accurate information on power use and options to switch to alternative providers


California Energy Retrospective Previous system wasn’t broken Market power became concentrated

profits up by selling more for less

No price signal for end users Loss of momentum on demand side management

10GWh saved by early 1990’s Restructuring derails utility DSM

1.4 GW of renewable cancelled “No need” Price was above cost to utilities

Results Demand up 0.7%, price up 1300% Blackouts with 28 GW load, with ~50 GW capacity


Summary of Market Performance for April 1998 to December 2000

Average market power mark up for Calendar year 1999 - $4/MWh Calendar year 2000 - more than $40/MWh January 2001 - more than $130/MWh

Wholesale energy and ancillary services cost 7 billion for 1999 27 billion for 2000 70 billion for 2001 (estimated from January and

February 2001)


California Electricity Problems:Non-Causes

“Soaring electricity demand” 1990 - 1999 only 1.1% per year

“Huge electricity demand from Internet” Claimed 8-13% of electricity demand Actual 2-3% and growing slowly

“Environmental regulations prevented power plants” Uncertainty, restructuring and stranded costs chilled

construction “California built no power plants in 1990s”

Added 4010 MW, most small scale “Fuel shortage”


California Electricity Issues

Tightened regional power pool reserves CA is 40% of WSCC, but 15% of peak rise

‘95-’99 As biggest net importer, got the most volatility

Coordinated maintenance scheduling and systems operations lost in deregulation Maintenance contracts expired in Autumn ‘00 New players had no incentive against outages

One-in-75 year drought in Pacific Northwest


Washington 21.1 0.7

California 13.8 1.2

Oregon 20.4 1.4

Idaho 28.5 2.2

New Mexico 20.1 3.6

Utah 29.6 3.6

Arizona 40 3.7

Nevada 66.3 6.2

% of population growth 1990-2000State

% of yearly energy consumption growth 1988-1998

Energy Demand and California Population Growth


Reported Capacity Outages (1999 vs. 2000)

Avg

. Dai

ly O

utag

es (

MW

)


Generator Outages in CaliforniaAverage of total megawatts off-line by month

MW

1999 2000 2001

Jan. 1999 3,086 MW

April 2001 14,990 MW


0 20 40 60 80

1998

1999

2000

2001

Stage 3

Stage 2

Stage 1

California Stage 1-3 Alert

Number of Statewide Electricity Alerts by Year

(through June 18, 2001)


California Energy Issues: Interdependencies

Relationship of natural gas to electricity use storage down 87% from 11/99 to 11/00 Generators pass through spot gas prices $3 to $60 MBtu from 12/12/99 to 12/12/00

1-in-75 year drought will cause increased gas demand 600 Bcf in west, 225 Bcf in So Cal

SONGS outage reduces 1100 MW of generating capacity increase gas demand by 200 Mcfd

First cold winter in US in three years price up all over, higher in CA


Key Program Elements

New Generation Construction

12 new major plants licensed since 4/99 (8.5 GW)

4 new power plants on-line this summer

3 new power plants on-line next summer

10 new major power plants in application review process

Has reduced power plant construction approval time by at least 50%


Coal16%

Large Hydro19%

Nuclear17%

Natural Gas36%

Eligible Renewable

12%

2000 Net Power System

Eligible Renewables

Biomass & Waste- 2.3

Geothermal - 4.6

Small Hydro - 3.0

Solar - 0.4

Wind - 1.5


New Generation Approved and Under Construction (6557 MW)

520 450

1060

500320880

1048

559

500 720

Blythe

Huntington Beach

Moss Landing

Elk Hills

Sunrise

Delta

La Paloma

Pittsburg- Los Medanos

Sutter

High DesertMW per Plant

June 2001


Key Program Elements

Demand Reduction Program

Programs designed to reduce electricity usage by approximately 10%

Leverages integrated set of programs 20/20 for residential and

commercial/industrial Demand buybacks and

uninterruptibles Energy efficiency Public education and

outreach


Per-capita electricity consumption, 1960–2000

0

2

4

6

8

10

12

14

16

1960 1965 1970 1975 1980 1985 1990 1995 2000

Rest of U.S.

California

(DOE and CEC data, compiled 1960–89 by Worldw atch Institute, 1990–2000 by Rocky Mountain Institute; 2000 data are preliminary; 1991–2000 population data not yet renormalized to 2000 Census findings)

California: policy really does workM

Wh

per

pers

on-y

ear


0

5000

10000

15000

20000

25000

30000

35000

40000

45000

50000

43,509 MW

Contribution to ISO Peak DemandAugust 16, 2001 (MW)

Commercial AC

Commercial Lighting

Residential AC

Other

MW

60005000

6000

26,509


We Must be Prepared to Address Future Market Scenarios

Regulated

De-regulated

De-centralizedCentralized

Status Quo • New energy systems

• Same players

Supermarket of Choices

• Same energy systems

• New players


AB 995: Public Goods Program

Energy efficiency: $228M annually (administered by the CPUC/CBEE)

RD&D: $62.5M annually Renewables: $135M annually (administered by

the Energy Commission) Renewed for ten years


California has Established a $62M/yr Public Interest Energy Research

Program (PIER)

California’s Energy Future

Economy:Affordable Solutions

Quality:Reliable and

AvailableEnvironment:Protect and

Enhance


Vision Statement

The future electrical system of California will provide a clean, abundant and affordable supply

tailored to the needs of “smart”, efficient customers and will be the best in the nation.

Tailored, clean, abundant, affordable supply

Smart, efficient customers


Attributes for Addressing State Issues

Program Integration

Balanced Technology Portfolio-Temporal-Technology-Risk

TechnologyPartnerships- Universities- Industry- Federal

Focus onCalifornia- Specific to State needs


We Will Have a Balanced Technology Portfolio

Breadth of technology choices Development state: temporal goals Risk options Impact

Roadmapping technology selection to address California issues


Efficient Funding and Management: Enhancing Partnerships and Collaborations

US DOE and their laboratories- opportunities for co-funding

EPRI, GTI - co-funded, targeted memberships, technical support

California Agencies - Cal/EPA, Trade & Commerce, CalTrans

Utilities - market transformations, linkage among public goods programs

Private Sector - associations, individual companies Universities - R&D, technical support


Given Our Limited Budget and California Characteristics, We’re

Not Going to... Build the next GCM or other large scale

models Work on Generation IV nuclear technologies Work on most Vision 21 coal technologies Duplicate other efforts well-funded by DOE,

EPRI and others Duplicate specific R&D already funded by

industry


PIER will Attack Problems that will Make a Difference to California’s Future

Lead in decreasing building energy use through research in energy efficient technologies, tools and strategies.

Align closely with DOE/OIT for petroleum refining and work with EPRI and Cal/EPA on electronics industry

Develop technologies that produce collateral benefits, e.g. water re-use Lead in the development of distributed generation technologies Develop communication and control systems to improve the effectiveness

of both distributed generation and demand reduction technologies Develop storage and conversion technologies to improve overall efficiency

and quality/reliability of electricity generation Innovate technology development for addressing reliability and

vulnerability of transmission and distribution systems Lead in establishing a scientific foundation for environmental standards,

regulations, and mitigation measures affecting existing and developing technologies

Develop tools to help customers deal with price volatility


Energy and Economy Ranking

GSP Employees Electricity GasFood & Kindred 2 2 3 2Chemical & Allied 4 6 5 4Petroleum Refining 7 9 1 1Stone, Clay, Glass &Concrete

8 7 6 3

Fabricated metal 5 4 9 8Trans. Equip. includeAerospace

3 3 7 9

Lumber/Wood/PaperProducts

6 5 4 5

Computer/Electronics 1 1 2 7


Aerospace Chemicals Computers Glass Paper andPulp

PetroleumRefining

S101,0002,0003,0004,0005,0006,0007,0008,000

California Electricity (GWh) Use by Industrial Sector


Aerospace Chemicals Computers Glass Paper andPulp

PetroleumRefining

S10100,000200,000300,000400,000500,000600,000700,000800,000

California Employment by Industrial Sector


Technical Issues that are Affecting California Industry: Reducing Cost of

Production Need for electricity reliability - up to six 9s High electricity costs Expensive natural gas Emission issues Transmission constraints Industrial capacity constrained by limits on available power,

natural gas and emission credits Power quality - due to highly digital economy Water shortage and need to treat waste streams Very high consumption of date centers/network farms


Non-technical Issues

PIER/Industry collaborations - we are providing cost-shared R&D

Proof before risking capital on new technology demonstrations

First cost too high - we are providing buy-downs for promising but performing technologies

Permitting takes too long - CEC is streamlining


PIER will Achieve Longer-Term Goals by Focusing on:

Specific collaborative partnerships Specific technologies and consortia Targeted user consortia Policy modifications on state and national

level Analytical tools to support program

modifications and decision making


PIER will Develop into a Robust Institution Appropriate for California’s

World-Class Economy

California context: we can “frame the debate” on a national level

Funding where “we make a difference” in reinventing the business

Market transformation: working with the private sector

Develop a sustainable organization that will provide a stream of benefits to California


Funded Program Areas to Date (in millions)

Supply $30.9Renewables, EPAG

Demand $40.6Buildings, Ind/Ag/Water

$37.1Strategic, Environmental


In Summary

Near-term: need to get through this summer

Mid-term: need to collaborate effectively to get new technologies in the marketplace

Long-term: need to work on new approaches to “change the rules of the game”


Next Steps

Diffuse excess market power Address potential for supply overshoot Change buyer’s mentality

Education - it’s more than flicking a switch Take control - it’s not a tax

Develop alternatives Demand side Supply side Enabling technologies


Next Steps: Demand Side Management

Develop incentives for negawatts, conservation expand Title 24 for commercial buildings Integration of building design with PV Understand new economy needs, i.e. data centers Net metering/real time pricing systems Incentives for load shifting technologies Another way of dealing with “NIMBY”


Next Steps: Production

Develop and display distributed generation technologies

Launch new paradigm shifting programs create a new market

Look to integrated systems in the future merge transportation/electricity

Don’t give up on a particular resource Support and develop storage and conversion

technologies as part of systems approach


Next Steps: Enabling and Supporting System

Transmission Systems new materials and technology O&M responsibilities

Interconnection needs to be standardized Better understanding of interdependencies relationships Be prepared to deal with unanticipated events/regulations Improve information availability

capacity generation market concentration outage causes


U.S. 1997 Carbon Emissions - 1500 Tcf


Carbon Management: An Approach for Integrated Energy Systems

Management

Carbon Management

Efficiency-operational- DSM- end use

Decarbonization- “clean energy” Sequestration


Carbon Management and California: An Appropriate Paradigm for

State R&D Program

Environment Economy Reliability

Couple state and external

issues Long-term solutionscouple to current events

Integration with external

R&D provides flexibility


We will Couple the California Context with Precepts of Carbon Management

End-use efficiency and demand-side technologies

buildings and appliance technologies

manufacturing, agriculture, water efficiency

storage and conversion technologies

Clean technologies renewables and small-scale fossil generation and control

technologies that enhance environment

power conditioning new technologies with collateral

benefits

Enabling technology improvement and development

development of sensors, models, systems for real-time pricing

models, sensors, monitoring systems to improve T&D system operation and integration of DG

science base and model improvements to evaluate impacts of energy systems

development of new integrated systems and economic models to improve understanding of deregulated market structure


Carbon Management: An Umbrella for Global, National, State and Local

Concerns

Global

- Climate Change

- Resource Consumption

Nation

- Security

- Environment

- Economy

State

-Economy

- Environment

- Reliability

Local

- End use

- NIMBY

Documents

CALIFORNIA ENERGY COMMISSION National Heat Transfer Meeting AICHE & ASME Terry Surles California Energy Commission Technology Systems Division June 13,