A competitive edge9 July 1998
The Electric Power Research Institute claims it can give US hydro power operators and owners a competitive advantage in a deregulated electricity market. Michele Blanco, George Touchton and Norris Hirota* explain how this can be achieved
The electric power industry in the US, as in other countries, is rapidly moving to a very different business environment. In the past, the US industry was characterised by rate regulation, franchise protection for monopoly producers and vertical integration. Just around the corner, however, change is looming in the shape of large-scale competition, market pricing, product differentiation, radically different operating protocols and vertical disintegration.
Compared with other business segments the above changes are having a greater impact on power generation, where competition is being unleashed throughout the US. The electric-power-research-institute (EPRI), as a supplier to the generation industry, is not immune to what is happening.
In the US, hydro power represents between 10% and 12% of electrical generation, with an installed capacity of approximately 90,000MW. State-level restructuring initiatives aimed at creating the competitive playing field, have created an initial flurry of hydro power divestiture activities by electric utilities within the last six months. This is only the start: legislation is either just pending or has yet to be formulated in the majority of the states in the US.
In addition, it is expected that a large percentage of those utilities that do not divest will re-structure and re-organise their generation assets into subsidiary or unregulated businesses, so that when all is done, the majority of US hydro assets will be owned and operated by competitive, not regulated, power production entities.
And what will be the impact of industry restructuring on US hydro power generation? Hydro generation may be highly valued in a deregulated electricity market. The special role that hydro resources can play in supplying system support and ancillary services may give owners a competitive and strategic advantage in the energy market.
On the other hand, the energy market is only developing and the full impacts can not be completely understood at this time. It is clear, however, that today, and increasingly in the future, hydro assets will most certainly pose opportunity and challenge for their owners.
As the industry re-invents itself, EPRI’s hydro power customers have emphasised the need for almost immediate solutions to help them reduce, and keep their fixed and variable operating costs low — as well as maintain their assets ready to capitalise on market opportunities. With an eye on adding significant value, EPRI’s products can help by delivering insights, key information, and a powerful analysis capability that gives hydro power owners and operators a competitive advantage. The following are examples of such products which are proving to be successful and to be beneficial to customers.
A new EPRI project launched in 1998 with funding from over 30 customers is aimed at developing opportunity cost pricing methods to quantify the benefits of hydro generation technologies, through system support and other ancillary services, to the electricity supply system. The intention of this work is to further the understanding of what these mostly intangible benefits are, and how and to what extent supplying these benefits affects hydro power resources. These in-sights and methods can be used to improve the ways that ancillary services are obtained, for example, by the ISO. They will help companies attribute earnings across various sets of assets and allow improved allocation of capital and O&M resources across assets.
In addition to these methods, EPRI is developing a hydro module to its plant profit manager (PPM) software which simulates a fossil steam unit’s optimal dispatch in a competitive market and projects pre-tax net operating income.
The hydro module will add hydro- specific features, such as additional ancillary service types, unit efficiency and operating restrictions, which are needed to project cash flow from operating a hydro resource. Hydro PPM’s case and investment analysis features will help owners and operators analyse the value of operational and investment alternatives.
Environmental and public issues
The greatest cost challenges facing hydro power owners and operators today in the US come in the area of mitigation of environmental and public issues related to their projects. Requirements to protect fish and wildlife resources and balance multiple demands for water use — determined mostly at the time of relicensing — can threaten the economic viability of hydro power projects. EPRI provides forums for the exchange of data, information and experiences aimed at developing best practices for managing these issues and creating protocols, guidelines and software tools for ecological assessments.
For example, in December 1997, EPRI completed the Turbine Entrainment and Survival Database which contains recent data on fish entrainment studies conducted at 43 hydro facilities, and turbine passage survival tests conducted on 52 turbines. This information should be sufficient to estimate the impacts associated with entrainment and turbine passage on many species of fish for hydro sites with characteristics similar to those represented in the studies.
Because hydro plants are ageing — US hydro infrastructure averages more than 35 years old — owners and operators need enabling technologies to modernise their facilities and ensure that plants are ready and reliable. EPRI began updating the Hydro Power Plant Modernisation Guide in 1998, which was first published nine years ago. The original three-volume set will be replaced by a seven-volume series that will cover topics such as:
•Life extension/modernisation needs assessment.
•Auxiliary mechanical technologies.
•Auxiliary electrical technologies.
•Civil/balance of plant technologies.
•Plant automation technologies.
The initial set of reports became a standard engineering tool for hydro owners/operators in the US, and this next series promises to be even more valuable as a modernisation reference, scoping and planning tool.
Even in the most competitive industries there exists a role for collaboration among competitors. Cost saving is more than important to competitive companies — it is vital to their success.
To the extent that collaboration provides cost savings, competitors will gain an equally-shared advantage from collaborating on the development of a solution to a common need. On a company versus company basis, gaining the competitive advantage from a collaborative effort comes from the unique application of the result by each individual company.
Collaboration can also help the hydro power industry as a whole to remain viable, especially when the industry is in danger of being weakened by opposition interests. The old adage ‘united we stand, divided we fall’, rings especially true when dealing with environmental and public issues.
In these cases the best results for all stakeholders come from a truly collaborative, all-interests-represented process.
EPRI looks forward to continuing to fulfil its important role as innovation catalyst and collaborative facilitator, and to provide scientific and technological leadership to the new global energy technology enterprise.
|What is the Electric Power Research Institute?|
|Created by the US’s electricity utilities in 1973, EPRI is a non profit, private research organisation which carries out scientific research and provides innovative technological solutions to energy problems. It is one of the US’s oldest and largest research consortia, and it aims to make the generation, delivery and use of energy affordable, efficient and environmentally sound. EPRI has made significant changes to the way it does business in order to increase benefits for its global energy partners and clients. While still focusing on the collaborative development of strategic science and technology-based solutions, EPRI’s business strategy also aims at building the applied value of its work and maximising value-to-cost. One key initiative includes a new business model and organisation, which was adopted in December 1997. Client outreach efforts are now structured around eight key market segments, and EPRI’s scientific and technical capabilities are aligned with these market segments through 15 product line teams. Combined with more flexible packaging and pricing options, this structure allows EPRI to create solutions that are tailored to the specific needs of its customers.|