UPDATE 1-Germany's Daimler picks U.S. executive to lead global trucks operations
* Has run U.S. trucks division since 2009 (Adds chairman comment and background on Daum)
By John Kemp
LONDON, July 11 Britain's National Grid has outlined plans to keep the lights on during the dark winter evenings of 2014/15 and 2015/16 - when the margin of spare generating capacity could fall as low as 4 percent and the risk of some disconnections could be as high as 50 percent.
In the process, it has offered the first look at the grid of the future. National Grid wants to use a smart approach to create more flexibility in both electricity generation and consumption to handle rising demand and the integration of increasing amounts of uncertain wind power onto the network.
In a consultation that runs until July 26, National Grid is proposing to create two new mechanisms to curtail demand during peak periods while providing incentives for generating units that would otherwise be mothballed or decommissioned to remain on stand-by in case wind farm output proves insufficient.
Between November and February in 2014/15 and 2015/16, the projected Demand Side Balancing Reserve (DSBR) would pay customers who agreed to reduce their consumption by a specified amount for up to two hours in response to an instruction from the grid, principally during the peak demand period on week days between 4 pm and 8 pm.
Any customer with a meter that measures consumption in half-hour intervals would be able to participate. To encourage a wide range of customers to take part, instructions will be issued by smart phone or over the internet, and the contractual arrangements will be kept simple.
Whenever possible, National Grid will issue warnings in advance that demand-reduction is likely to be called.
National Grid is also proposing to create a Supplemental Balancing Reserve (SBR) that would pay operators to keep a number of generating units that would otherwise have been mothballed or decommissioned on stand-by between November and February of 2014/15 and 2015/16.
Some of the SBR may end up being provided by coal-fired and gas-fired generating plants that would otherwise close. So the grid proposes to make payments that would cover the cost of keeping the capacity available, the electricity actually generated, and having to warm up the power plant before electricity production begins.
To avoid disrupting the wider market and the government's objectives for cleaner electricity, the grid would only call on the SBR as a last resort, after all other options, including DSBR, have been exhausted.
To ensure that SBR resources are genuinely additional, the grid will check that the generating units would not otherwise be participating in the wholesale market, and they will be forbidden from providing other non-SBR generating and balancing services in those periods.
National Grid will hold a workshop to discuss the proposals on July 17 and plans to invite the first offers from consumers and generators to participate in DSBR and SBR for 2014/15 and 2015/16 in the first quarter of 2014.
National Grid operates Britain's transmission network and is required to coordinate and direct the flow of electricity in an "efficient, economic and coordinated manner" under the terms of its licence.
It must balance the amount of electricity being put onto the network by generators and taken off by suppliers on behalf of their customers, taking into account the grid's finite capacity to transport electricity from generators at one location to consumers at another.
It buys a number of different balancing services from both electricity producers and consumers to help it cope with potential imbalances over a variety of timescales, ranging from seconds to hours.
At the shortest timescale, the grid manages second by second imbalances between supply and demand through its frequency response programme. Generators are paid to operate slightly below their full capacity and fast-start generators, for example gas turbines, are held at a very high state of readiness, so they can provide an extra surge of power within seconds of an instruction being given by grid controllers.
At longer timescales, the grid contracts with generators to provide a Short Term Operating Reserve (STOR). Participating generators must be able to provide 3 megawatts (MW) or more within four hours of receiving an instruction, and be able to sustain this level of output for at least two hours, at least three times per week. In practice most STOR resources are available within 20 minutes or less.
National Grid aims to have 1800 MW of STOR available every day, though depending on system conditions and contract costs this may be boosted to 2300 MW.
If all else fails, National Grid can resort to "MaxGen," instructing generators to run flat out, or request "emergency assistance" from other system operators in Ireland and France via the interconnectors.
As a last resort, the grid will issue instructions to the regional distribution network operators to reduce or disconnect demand.
The full list of balancing services is explained on National Grid's website and their actual employment is detailed in monthly reports ().
MIND THE GAP
Britain will still have enough generating capacity to maintain its target short term operating reserve in the next few years. But the amount of spare capacity above that to cope with unexpected contingencies like the unavailability of a major power station or a burst of very cold weather is set to shrink to a very low level that is causing concern.
Past experience suggests spare capacity will be narrowest during early evenings in winter. Over the last 20 years, the three half-hour periods of maximum power demand each year (known as "triads") have all occurred between Nov 17 and Feb 8.
The period of highest demand is normally on weekdays, other than public holidays, between 4 pm and 8 pm. Lights are switched on, some residential customers return home and begin to prepare evening meals, but many commercial and industrial users are still open and operating. The grid can remain under strain for up to four hours at a time.
DSBR resources are aimed at reducing load during this critical period, with some support from the supplemental balancing reserve.
The disappearance of spare capacity is mostly the result of policy. Dozens of older coal-fired and gas-fired power plants are being retired at the end of their economic life and under the terms of the EU's Large Combustion Plant Directive (LCPD).
They are being replaced by increasing amounts of wind generation, which is more variable and less reliable.
New fossil-fuel plants to provide a back-up to the wind farms have not been built because operators are uncertain about whether they will be able to recover construction costs in the relatively small number of hours that they are expected to run each year.
In response, the government has proposed introducing a capacity mechanism that would pay operators to build new generating units (probably gas-fired plants) to act as a back-up to the wind farms. An auction would be held for generating capacity that would be delivered four years ahead, with the first capacity to be delivered in the winter of 2018/19.
The government is also planning auctions for more demand-side response (DSR) services, with the first delivery in the winter of 2016/17.
But that leaves a gap of two winters, 2014/15 and 2015/16, when the margin of spare capacity is set to become very narrow. It is this gap that National Grid wants to bridge with the DSBR and SBR.
However, depending on the results of the capacity mechanism and DSR auctions, the grid might extend the demand side balancing reserve and supplemental balancing reserve for the winter 2016/17 and beyond.
Both DSBR and SBR are stop-gap responses to a problem that has been caused by the poor sequencing of policy (in particular the retirement of coal and gas-fired generating units under the LCPD before a new capacity mechanism is up and running). But DSBR in particular offers a window into the future.
Smart technology (including half-hourly meters and smart communications via smart phones and internet-connected devices) will be employed to curtail demand in line with available electricity supply, particularly if a period of cold still weather settles over the country for days at a time, reducing wind output.
DSBR is a therefore pilot for Britain's 21st century electricity system that will have more renewable generation and require customers to be more flexible in the way they use electricity.
* Has run U.S. trucks division since 2009 (Adds chairman comment and background on Daum)
* Indexes down: Dow 0.04 pct, S&P 0.01 pct, Nasdaq flat (Updates to early afternoon)
NORMAN, Okla., Feb 27 The U.S. Federal Reserve might need to raise interest rates in the near future to avoid falling behind the curve on inflation, Dallas Fed President Robert Kaplan said on Monday.