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Consumers drive power market transformation: observers

The electricity sector faces consumer-driven disruptions akin to the paradigm shifts that disrupted transportation, entertainment and the newspaper industry during the 20th century, market observers said Thursday in separate presentations.

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Such changes, driven by consumer demand, had impact that was both positive and negative effects. In transportation, while the problems of disposing tons of horse manure and dead horses ended, air pollution and traffic deaths increased sharply, said Prajit Ghosh, Wood Mackenzie's head of power and renewables research, in a webinar called "Energy Market Disruption and the Role of Power Markets: Are the Markets Prepared?"

Houston Chronicle business columnist Chris Tomlinson during a Gulf Coast Power Association luncheon in Houston Thursday cited the fast growth of the internet and its services in the 1990s as a major driver of print and television news media shrinking to a fraction of its former size.

"Our business plans were faulty," Tomlinson said. "To this day, we're still playing catch-up."



Opinion-leading power consumers prefer renewable energy and natural gas, but this trend runs counter to Department of Energy Secretary Rick Perry's September 29 notice of proposed rulemaking that asked the Federal Energy Regulatory Commission to structure markets to compensate baseload generation, particularly coal-fired and nuclear units, for "the essential energy and ancillary reliability services" they provide.

In particular, the rule would guarantee that certain eligible "fuel-secure generation units," which have a 90-day fuel supply on site, fully recover their costs.

"If FERC does what Perry asks, first there will be a rush on coal," Tomlinson said. "It will also undermine 20 years' work building competitive energy markets ... [and] undermine the next 20 years of energy investment."

Tomlinson cited Vistra Energy's recently announced plans to retire 4,200 MW of coal-fired capacity as evidence that Electric Reliability Council of Texas prices have not been sufficient to support continued operations, but that shows the ERCOT market works.

"Those plants needed to be shut down, because the supply of natural gas is too high and too long-lasting," Tomlinson said.

Claiming that "there's no problem with the market," Tomlinson said the problem is market participants who "must change to meet consumer expectations."

Wood Mackenzie's Ghosh compared consumers' response to the advance of power generation and storage technology to their reaction to the growth of broadband telecommunications, smart phones and wireless data networks. Such developments helped Netflix grow massively and bankrupted Blockbuster Video.

Plunging costs for wind and solar power is corresponding with the oil and gas industries' growing investment in such resources, which is likely to result in further research and development, further cost reduction reducing costs and boosting renewables growth, Ghosh said.

Meanwhile, electric vehicles are moving from being oriented toward the relatively small, expensive sedan market niche toward a mass-market segment, Ghosh noted, citing Tesla's and Volvo's plans.

Such efforts have "helped in reducing the cost of storage because of economies of scale," Ghosh said.

Another disrupting factor is increased energy efficiency, Ghosh said. New, more-efficient lighting standards went into effect in late 2007, and new lights consume between 10% and 20% as much electricity as the incandescent bulbs they are replacing, Ghosh said, which has suppressed electricity demand.

But while the proliferation of electric vehicles may boost power demand, rising generations tend to look at vehicles as a service, rather than as a device that must be bought, which may affect how many cars are on the road. Ghosh cited the growth of ride-sharing services, such as Uber and Lyft, and the expected introduction of autonomous vehicles over the next few years.

Wade Schauer, Wood Mackenzie power and renewables research director, noted that fully charging a new EV at a "super-fast" level in five minutes creates 1.2 MW of demand, which would require distributed battery sites to smooth power demand.

Meanwhile, the growth of solar power in California has resulted in lower wholesale prices for solar generation, while if the anticipated growth of EVs in California result in large numbers starting to be charged in the early evening, that would tend to boost demand for storage to arbitrage those prices, Schauer said.

Germany has about 50 GW of wind nameplate capacity and 40 GW of solar capacity, Schauer said, but during some peak demand periods this past January, virtually none of it was available. Therefore, for Germany to meet its deep [decarbonization] goals, it "will either need to find ways to store energy for weeks at a time or expand its grid to access resources across the continent," Schauer said.

--Mark Watson, markham.watson@spglobal.com

--Edited by Valarie Jackson, valarie.jackson@spglobal.com