June 17, 2017


The next energy revolution: The promise and peril of high-tech innovation (David Victor and Kassia Yanosek, June 13, 2017, Brookings)

[A]s the cost of renewables is plummeting and their share of the power supply is rising, they have begun to transform electricity markets. In Germany, wind and solar power account for almost 30 percent of the power mix; in Hawaii, they account for about a quarter. Traditional utilities have struggled to adapt. In March, grid operators in California shut down 80 gigawatt-hours of the state's renewable power because the grid couldn't handle the afternoon solar surge; without more capacity to store power, even larger curtailments will occur. In Texas, among many other places, prices occasionally turn negative when the wind is blowing hard but people don't need too much electricity--in other words, companies are paying customers to use the electricity they generate. Utilities that have failed to see these changes coming have floundered. The market valuations of the top four German utilities are about one-third the level they were a decade ago--in large part because they were stuck with the costs of the old electric power system even as the government provided lavish support for renewables.

Renewables are just one part of this transformation. In the coming years, utility companies may face an existential challenge from smaller and more decentralized energy systems known as "microgrids." Microgrids first emerged decades ago, driven by customers, such as the U.S. military, that prized reliability above all else and that did not mind paying more for it: military bases have to keep functioning even if the bulk power grid fails. Early adopters also included remote communities, such as in Alaska, that are far from the conventional grid. But now, microgrids are spreading to other places, such as university campuses and hospitals, where they generate reliable power and are often designed to save money by using waste energy to heat and cool buildings.

New technologies, such as fuel cells and battery storage systems (to store extra power produced by renewables), along with more sophisticated software, have led to even smaller systems called "nanogrids," which Walmart and other megastores have begun to adopt. And picogrids may be next. As more and more people rely less on the traditional grid for power (while still interconnecting with it to help ensure reliability), policymakers and companies will need to create new regulatory systems and business models. Some states, such as New York, have embraced these changes, aggressively promoting decentralization by rewarding companies that invest in decentralized systems. But no one has yet worked out a detailed plan for how to integrate new grids with traditional power systems.

The second major source of innovation is better data analytics. Oil companies, for example, have begun to use complex algorithms to analyze massive amounts of data, making it easier for them to find oil and gas and to manage production. In April 2017, for example, bp announced that, using these methods, it had identified another 200 million barrels of oil in an existing field in the Gulf of Mexico. According to bp, data crunching that used to take a year now takes just a few weeks. And cloud processing makes it possible to generate millions of scenarios for developing an oil field. When firms can evaluate more options, production from fields can rise by five percent, with a 30 percent cut in the investment required to drill holes and begin producing oil. The industry has also begun to use data analytics for "predictive maintenance," reducing unplanned downtime by analyzing historical data to predict equipment failures before they happen. This practice, pioneered by industries such as the aircraft engine business, is helping cut costs on oil and gas rigs, where compressors and other rotating equipment can cause costly interruptions when they fail.

The third and most important trend is automation. In remote offshore oil fields, robots have already begun to perform dangerous tasks, such as connecting pipes during drilling operations, a job traditionally carried out by the versatile workers known as "roustabouts." Soon, intelligent automated systems will enable remote drilling, controlled almost entirely by a handful of high-tech workers in onshore data rooms hundreds of miles away. And companies are developing robots that can live on the ocean floor and inspect offshore pipe lines and underwater equipment. At the moment, offshore oil rigs typically employ 100-200 workers, a figure that could fall. Although people remain indispensable for critical safety roles that require complex decisionmaking, automation will transform the industry's work force. According to a McKinsey study, within ten years, oil and gas companies could employ more data scientists with Ph.D.'s than geologists.

Automation has already changed the power industry, where smart meters have all but eliminated manual meter readings. In the future, automation, along with better data analytics, will make it easier to manage the variation in supplies that comes from using renewable sources such as wind and solar energy and more complex, decentralized grids. It can also make the grid more reliable. The inability of grid operators to understand what is happening in real time plays an important role in many power outages; automation and improved human-computer interaction could make blackouts much rarer.

Posted by at June 17, 2017 12:17 PM