Traditional Electricity Industry Gets a Jolt : LUSENET : Grassroots Information Coordination Center (GICC) : One Thread

(B) OPINION: Traditional Electricity Industry Gets a Jolt Source: Knight Ridder/Tribune Business News Publication date: 2000-08-08

Aug. 8--By Walt Patterson of the Royal Institute of International Affairs LONDON--Traditional electricity is in trouble. As the new global economy of computers and telecommunications gathers momentum, the last thing it needs is rolling power cuts like those that have been threatening Silicon Valley in California.

But such high-profile electricity problems are only the most immediate symptom of deeper malaise. The traditional technologies and systems that shaped world electricity for a century now face demands they may be unable to meet. Innovative electricity technologies, challenging tradition, are going to change the role and nature of electricity in human society.

Electricity is traditionally considered a commodity, such as natural gas or water, delivered to a customer's meter. Liberalization, competition and the market apparatus being laboriously erected across Europe, North America and elsewhere presume that electricity is a commodity.

Electricity is not, however, a commodity. A commodity can be stored and held back from the market until the seller gets the price desired. Electricity cannot be stored. Nor, despite frequent usage to the contrary, is electricity a fuel. A fuel such as coal, oil or natural gas is a physical substance. It comes out of a hole in the ground at a particular place. If you want to use it anywhere else you must physically transport it there.

Electricity, by contrast, is a physical phenomenon happening instantaneously throughout an entire interconnected system, including all end-use equipment. Moreover, electricity can be generated anywhere, at a price. Just ask the person with the hissing headphones sitting next to you on the bus.

Traditional electricity is generated in large-scale remote central stations and delivered to users over a network that includes long transmission lines. This common technical model, replicated all over the world in the past half-century, arose for one main reason: Scaling-up the generating technology powered by steam or water turbines reduced the cost of a unit of electricity.

In modern industrial countries the remarkable success of traditional electricity through the 1980s confirmed and reinforced the underlying view of electricity as a commodity. This enabled free-market theorists to launch the process of liberalization, beginning in Chile and the United Kingdom in the late 1980s and spreading through the 1990s at an accelerating rate over much of the world.

By a remarkable coincidence, however, liberalization got under way just as a new fuel, natural gas, was emerging as a serious option for electricity generation in many parts of the world. This new fuel could be used in generating technologies whose economies of scale were very different from those of traditional steam-turbine and water-turbine generators.

The first breakthrough technology was the gas turbine. A gas-turbine generator can be efficient and economic at a much smaller size. It can be ordered, installed and in operation in under two years. Firing natural gas, it requires no fuel storage; it produces no solid waste, and its emissions can be very low. It can, therefore, be sited much more easily, close to users and, indeed, on the site where the electricity is to be used. It, thus, lends itself well to co-generation -- producing electricity, heat and cooling -- with overall fuel efficiency above 80 percent .

In the first rush of liberalization, new gas-turbine stations tended to be aggregations of generators on a single remote location, like traditional steam-turbine and water-turbine stations. Gradually, however, understanding dawned that gas-turbine technology makes smaller stations closer to users not only feasible but frequently desirable, reducing the need for costly long transmission lines and the accompanying losses, especially when generators can be located on site.

The trend toward more and smaller generators closer to users is a sharp break with the traditional trend toward ever-larger stations ever farther away.

The new trend toward decentralization of electricity systems has been gathering momentum since the mid-1990s. Other innovative generating technologies now emerging, among them microturbines, fuel cells and modular renewable energy technologies, will reinforce this new trend. As yet these small-scale technologies remain more costly than traditional options considered in the traditional context. But liberalization is also changing the financial ground rules.

In a traditional monopoly franchise, captive customers have guaranteed a revenue stream to support large-scale, long-term projects such as gigawatt-scale power stations and long transmission lines. In a liberal context, such projects become acutely risky, not for captive customers but for company shareholders and bankers. The new financial ground rules are already affecting the choice of electricity technologies. This effect will intensify as other small-scale options prove themselves.

As traditional systems suffer relentlessly increasing stress, the demand for reliability and control may drive the move toward generating your own electricity on site. Microturbines, fuel cells and other small-scale generating technologies will make more and more places candidates for on-site generation.

At the same time, in a liberal context, electricity companies find that competing to sell anonymous units of electricity at a customer's meter is a precarious business. They can compete only on price; their margins become vanishingly small. If customers can also switch suppliers more or less at will, this form of business is a good way to go bankrupt.

Enlightened companies are, therefore, seeking better ways to win customers and retain their loyalty. The age of the genuine "energy service company" may be dawning at last. Local electricity systems with on-site generation may prove to be a potent manifestation of the new business now emerging.

In your own economic interest, you and your energy service company will want to ensure that your buildings, lighting, motors and electronics use your own electricity as efficiently as possible. Optimizing the whole local system makes economic sense; and economics and environment point in the same direction.

The consequences for energy use could be remarkable. Innovative electricity won't look traditional. But it just might be sustainable.

WALT PATTERSON is senior research fellow in the Energy and Environmental Program of the Royal Institute of International Affairs, London, and author of "Transforming Electricity" (RIIA/Earthscan 1999). His next book, "Keeping The Lights On," will be published in 2001. His views are not necessarily those of Bridge News, whose ventures include the Internet site

-- Martin Thompson (, August 08, 2000

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