The Generating Company Challenge: Manage Change While Maintaining Reliability

The accelerating pace of change on all fronts-from regulations to markets to technologies-isn't an abstract trend for generating companies. It's something they have to address in practical terms every day.

In mid-November, current members of POWER' s Generating Company Advisory Team responded by email to a set of questions about their concerns, challenges, and new initiatives as they plan for the year ahead. The companies they represent have quite different portfolios and operating territories, but their responses (not everyone answered every question) underscore a shared commitment to maintaining safety and reliability in the face of constraints that cannot always be anticipated.

Let's start with the most obvious concern for U.S. power generators. Which of the new regulations finalized over the past year or so is most responsible for keeping you awake at night, and why? What's your company's near-term plan for addressing that challenge?

Preston Gillespie, Duke: The Clean Power Plan has raised legal questions that have to be addressed because customers deserve certainty on regulatory requirements before investment decisions are made. Duke Energy is a national leader in reducing emissions and providing customers with increasingly clean electric power. We're proud to do that in a way that keeps power reliable and affordable for the 23 million people who rely on us. Nuclear energy plays a key role today in reducing carbon and will continue in the future.

Each of the states where we operate has different challenges, depending on its emission reduction targets, existing generating fleet and infrastructure, and the overall economic condition of the state. We will continue to work with our states as they determine next steps related to the plan.

Mark McCullough, AEP: The Clean Power Plan has a lot of our current focus. With a service territory that spans 11 states, we are diligently working with stakeholders at the state level to support compliance strategies and implementation plans.

I wouldn't say any one rule keeps me "awake at night," but the barrage of separate, disconnected rules make it very difficult to chart out a solid plan for prudent investment. I find it very interesting and disheartening that whenever the subject of a National Energy Policy is raised, it receives more laughter than credence. We should be talking about and focusing on the prudent care and feeding of the energy backbone of our country. AEP will continue to advocate for rational rulemaking that allows the time necessary to ensure that reliability is maintained and that economic issues are addressed. Our country should recognize that a balanced portfolio of generation technologies and resources is critical for enhancing environmental stewardship and ensuring an economically viable future for our nation.

Sarah Orban Salati, AES: The key issue for us is in the pace of rulemaking, as well as the determination by states on the implementation of the rules. These factors lead to a greater potential for stranded assets and a patchwork of rules that could greatly affect the value of assets, based solely on the state in which they are located.

From a customer perspective, reliability is another area of focus, especially given other changes occurring in our industry, including the increase in renewables and distributed generation.

We've been actively engaged at the federal level, to encourage the Environmental Protection Agency to write rules that take these areas of focus into account. We've also stepped up our advocacy at the state and local level, as implementation of several of the rules-particularly 316(b) and the Clean Power Plan-will require a significant amount of work by the relevant agencies in each state and providing stakeholder input will be critical to ensure our concerns and those of our customers are addressed.

Tacoma Power is exclusively hydro, but Duke also has a significant hydro portfolio. Hydro has been less visible as a clean renewable resource lately. Do you all see that changing, or not?

Gillespie: Duke Energy has consistently viewed hydro generation as a clean, renewable form of electric generation. For more than 100 years, hydro generation has been part of our diverse energy portfolio and continues to play an important role in meeting our customers' electric needs. Hydro generation allows us to flatten our energy demand curve by using it as an energy resource to meet peak demand in the summer and winter. Our portfolio includes pumped-storage hydro generation and traditional hydro units. Hydro may not capture headlines, but it remains one of the cleanest forms of generation.

Pat McCarty, Tacoma Power: We hope that hydro, which is the largest contributor to clean renewable energy in the nation, starts to get the visibility and recognition it deserves. I am on the board of directors for the National Hydropower Association, and we have recently launched a new campaign called UnlockHydro. Our goal is to educate policymakers, raise public awareness, and generate support for modernizing the hydro licensing process. Unlocking hydropower will help our nation fight climate change and secure our clean energy future.

The hydro licensing process has lacked coordination among federal and state agencies, resulting in conflicting priorities and deferred decision-making that delays both project deployment and real environmental improvements. These roadblocks are pushing the licensing process for some hydropower facilities to up to a decade or even longer, while fossil energy sources can be approved in a fraction of the time.

McCullough: Within the AEP service territory, we do not anticipate a significant increase or decrease in hydroelectric generation. Today, AEP owns nearly 900 MW of run-of-river and pumped storage hydro capacity in Ohio, Indiana, Michigan, West Virginia, and Virginia. Hydroelectric generation and pumped storage is highly location-dependent and can be difficult to permit and costly to implement, so additions will be very limited. However, it seems that existing hydro should be classified as a renewable generation resource for compliance with future carbon reduction programs.

Salati: AES' portfolio consists of 7 GW of hydro capacity, predominantly located in Brazil, Colombia, and Panama. Hydro seems to be a slightly less exciting topic at the moment when compared to newer technologies such as solar photovoltaic (PV) or batteries, but it remains a viable clean resource for AES, and we continue to invest in hydro. We are building Alto Maipo, a 531-MW run-of-river hydroelectric plant, with expected commercial operation date in the second half of 2018, to help diversify our portfolio in Chile.

Though it's still a minority player, energy storage has been gaining ground in the past couple of years. What storage resources does your company currently have, and what types are likely to be considered in the near term?

Gillespie: From our perspective, Duke Energy has been involved in energy storage technologies for many years. We operate two pumped-storage hydroelectric stations. Jocassee began operation in 1973, and Bad Creek entered service in 1991. We are able to pump water when demand and costs are low, store it, and then generate when demand is high, making pumped storage an ideal energy storage technology.

We also have pilot projects under way that utilize battery storage to address fluctuations in solar electric systems from adverse weather conditions and assist in regulating electric grid reliability. For example, we are partnering with Toshiba in Ohio to pilot a 2-MW storage project that will assist in regulating grid frequency for PJM. We operate one of North America's largest battery storage installations at our Notrees wind farm (a 36-MW system for frequency regulation). In the near term, we will continue this focus on energy storage for greater reliability and to leverage various forms of renewable energy.

McCarty: Any hydropower projects with storage reservoirs have the capability to provide energy storage. Tacoma Power has projects with significant storage and doesn't have any near-term plans for adding other storage resources.

McCullough: AEP has several sodium-sulfur (NaS) batteries deployed on our distribution system to provide ancillary services for the distribution grid. AEP also owns and operates the 586-MW Smith Mountain pumped storage hydroelectric generating facility in Virginia. The first generating unit at Smith Mountain began operating in 1965, with additional capacity added in 1966 and 1980.

We have not deployed any additional energy storage technologies on our system, but recently invested in Greensmith, a company focused on grid-scale energy storage deployment, to help us stay in touch with the latest energy storage developments. We also are actively evaluating battery potential and storage technology options (such as li-ion and aqueous flow batteries) for market opportunities and grid support services in both our regulated and competitive service territories. We see frequency response and regulation as a growing, near-term economic application for storage, and we know that storage will play a key role in the future of the industry.

Salati: AES is currently the world leader in grid-scale battery-based energy storage, with eight years of experience and the largest fleet (96 MW) currently online. We offer the AES Advancion energy storage array to utilities and power system operators as a safe, reliable, and cost-effective alternative to traditional thermal peaking plants and as an unmatched flexible power resource. The Advancion storage solution is now in its fourth generation, incorporating best-in-class battery and power conversion from the world's largest component suppliers.

Where's the emphasis in the coming year or two for your generation business: managing plant closures, upgrades, or new generation?

Gillespie: Natural gas as a generation source will continue to heavily influence our plans in the coming years. We have already built four combined cycle gas generation facilities, with another planned in 2018 for Citrus County, Florida.

For our nuclear business, we will continue to focus on ensuring our operations remain safe, reliable, and cost-effective. We are competing in an environment that not only requires a sharp focus on effective cost management but also demands industry-recognized top performance. We continue to review the possibility of building additional nuclear generation. A diversified fuel portfolio reduces risks, so we will keep the new nuclear option open.

Likewise, we will also operate our new and modernized fossil stations. Over the years, we have invested $7 billion to significantly reduce sulfur dioxide and nitrogen oxide emissions. Again, it is important that we have a diversified portfolio, and our coal units help in that respect. Duke Energy constantly evaluates the performance and benefits of our older, less-efficient coal-fired generation. Some of these older units were retired in 2011. Additional retirements are anticipated through roughly 2018.

McCarty: We are just starting the replacement of the governors and exciters on about a dozen of our units. No plant closures. We are installing a 225-kW community solar project on our warehouse roof in Tacoma.

McCullough: Over the next year, AEP will be completing the closure of about 7,000 MW of coal-fueled generation. We also are building four utility-scale solar PV projects in Indiana and Michigan. These PV installations range from 2.5 MW to 5 MW each, with a total combined capacity of approximately 17 MW, and they will help us better understand the value and opportunities for large-scale solar generation.

We also remain focused on maintaining the availability and flexibility of our fossil-fuel generating fleet to maximize its market potential and ensure reliability. In the near future, we have limited need for additional generating capacity, but when we do need to build dispatchable capacity, it will be high-efficiency, natural gas-fueled generation.

Salati: We continue to leverage our global platform by expanding our existing fleet. We currently have 6 GW of capacity under construction and expected to come online through 2018 in the U.S., Chile, Colombia, the Dominican Republic, India, the Netherlands, and the United Kingdom. These projects encompass multiple technologies and fuel sources to meet our mission of providing safe, reliable, and sustainable energy solutions.

What major market challenge, if any, do you see for your generating fleet in the year ahead?

Gillespie: Natural gas continues to be the major player in the energy marketplace. We have substantial quantities available in the U.S., and the cost continues to go down. Competition is beneficial and can drive the right behavior. That is our challenge-ensuring we have the best strategies and plans in place to keep our diversified fleet reliable, available, and competitive for the long term.

McCarty: The Pacific Northwest is coming out of a year that produced very little snowpack. All of our reservoirs are significantly lower than normal, which results in less-than-anticipated generation. The last significant drought we had was in 2000, when the energy crisis hit the West Coast and sent market prices soaring. This year it looks like prices will stay low because of the plentiful, cheap natural gas.

McCullough: My answer here is not specific to the AEP fleet, but addresses how capacity is valued in electricity markets today. While regional transmission organizations and the Federal Energy Regulatory Commission are struggling to determine a fair market value for dispatchable generating capacity, power plant owners are struggling to justify long-term investment in that capacity because they currently only have a short-term revenue stream to support that generation. Our industry is incredibly capital intensive, and we can't treat capacity like a commodity and expect that model to support the investment necessary to ensure a reliable generation supply.

Although rhetoric from outside our industry would suggest that we play the reliability card out of convenience, we know that a reliable electric supply is essential for our customers, communities, and economies. And, we also are acutely aware of how hard it is to maintain that reliable, essential supply of electricity, even under "static" conditions. A National Academy of Sciences report in 2012 said that while electric prices were around 11 cents/kWh at the time of the Aug. 14, 2003, blackout, the cost of not having electricity was over $5/kWh. We must appropriately value firm, reliable generating capacity if we are going to minimize blackout/brownout scenarios.

Salati: The biggest market challenges we are currently facing are related to macroeconomic headwinds, including the significant devaluation of foreign currencies, especially the Brazilian Real, as well as poor hydrology in Latin America.

What's your fleet's main equipment or operating challenge, and how are you addressing it?

Gillespie: We operate six nuclear generation facilities, with some units operating under extended licenses. We place great focus on preventive maintenance and the Aging Management Program. We recently implemented an IT platform for the nuclear fleet that utilizes the latest technology to help us operate these facilities from a common system rather than multiple, redundant IT systems. This reduces our costs, and further enhances safety and reliability.

We also continue to effectively manage other critical systems at our sites, which remains a priority, especially as we evaluate extending the operation of these units (second license renewal).

Another major focus is on the human side of our business. We are striving through various programs to reinforce a culture of accountability and ownership of results. With that leadership focus, we will sustain our goal of a high-performing organization focused on safety and predictable performance.

McCarty: We are in the process of replacing a significant portion of our aging "black box" equipment such as electronic governors and exciters.

McCullough: We must offer our customers a great "generation value," which requires top-notch cost and performance profiles, combined with stellar environmental stewardship. We also face significant challenges related to the flexibility and the responsiveness of our operations. PJM's capacity performance process requires that our units operate at their very best in the most demanding scenarios. These challenges keep our team focused on continuous process improvement-identifying key issues and soliciting solutions from the people who know our systems best: our operators, mechanics, technicians, and front-line teams as well as our engineers, traders, and administrative talent.

Salati: Our main goal is to reduce our forced outage rates and minimize our heat rates. We have developed global asset management standards that are being implemented at all of our businesses, to continually improve how we manage the full life cycle of our assets. We have also established a highly successful global heat rate working group to leverage our unique global expertise, develop audit protocols, train our people, and conduct peer-to-peer reviews to identify substantial savings and efficiencies.

What would you like to see developed in the near term for the generation sector in terms of a technology or service?

Gillespie: An ongoing challenge for the nuclear industry is used fuel management. Our fleet uses a combination of used fuel pools and dry cask storage. However, we need a national solution. We believe the federal government should fulfill its obligation to the industry in managing used fuel storage over the long term.

McCullough: Improved sensors, controls, and diagnostics will help address near-term issues with unit flexibility and availability. Novel technologies for improved and more efficient inspection techniques (such as nondestructive examination techniques, use of UAV [unmanned aerial vehicle] drones, etc.) at our generating plants and dams will further enhance reliability, availability, and regulatory compliance.

Salati: New technologies that enable the integration and lowering of price points to help deliver renewable energy to more people, particularly those in the developing world.

Data analytics has been a buzzword on the distribution side for years, but it's now gaining traction on the generation side. Where is your company using or anticipating the use of "big data" and analytics in the plant, and why?

Gillespie: Most nuclear fleets have invested significantly over the years in analytics, and Duke Energy is no exception. Whether it is in the chemistry area, fuel, or maintenance trending, we review and evaluate data constantly. The new IT platform we completed in August ties all six nuclear sites together so we can generate analytical data that has the same look and feel. We now use common terminology and can access data on key systems at any site at any time.

Putting ourselves in the position of seeing a trend develop and then responding appropriately can be the difference between a unit running well or being taken out of service. Data and analytics will continue to be a major focus and are key attributes for any high-performing organization.

McCullough: Our generating units include highly sophisticated equipment, components, and control systems that produce tremendous amounts of data through the course of normal operation. All of our units have data historian systems and servers to manage and store that data. While we have a legacy of analyzing our operating data to find problems, plan maintenance, optimize performance, and support strategic decision-making, the technology and computing power available today enables us to use and analyze the data in new and exciting ways.

Since 2013, AEP has operated a central Monitoring & Diagnostics Center to remotely monitor power plant equipment. The M&D Center uses Advanced Pattern Recognition (APR) software to compile data, develop models, and detect trends and anomalies in equipment and systems operation. Using and sharing data in this way helps with condition assessments, enhances safety, optimizes maintenance schedules and long-term asset management, and improves overall operational excellence. All of this helps reduce forced outages and improves our position in the marketplace. As we expand the use of APR across our generating fleet and discover new technologies and methods to analyze and use the data that we have, we see high potential for continuous improvement opportunities.

Salati: "Big data" ultimately helps us make better decisions at operational, tactical, and strategic levels. We have been investing in tools to make information available for our operating teams to perform statistical analysis. The amount of information collected outpaces the speed at which the data can be processed-the value is in prioritizing where to look and that starts with the most critical assets.

Do you see potential dangers with greater reliance on digital data feeds? For example, though plant simulators are great for training, one plant manager commented at a recent industry event on their limitations. He said that new operators don't know what's behind the buttons. With what looks like an inevitable transition to increasing reliance on data-based operational decisions and digital controls, what's the ideal path forward for your plants?

Gillespie: New technology is not the issue. Improved technology is great, but must not be applied in isolation. Ensuring operators have the best, ongoing training and understanding of the benefits or limitations of their instrumentation is key. Using the newest technology, where applicable, enhances safety and performance. However, we have to make sure our employees have the very best training to be proficient in performing their work.

McCullough: Data, models, and simulation will never be able to predict every real-world situation, and quality of the data is critical for the development of useful tools that will effectively support training, performance improvement, and strategic planning. That said, the digital data analysis tools and modeling systems available today provide opportunities to capture, share, and analyze more information than ever before. So, there must be a balanced and focused effort to implement and manage these systems, and to ensure that quality data are being fed into the systems, so that quality results are produced.

AEP has long utilized simulators for operator training and development, and recently developed a phased, plant-by-plant plan to introduce APR software in our facilities to better capitalize on the data and information that we have. But, we are still cautious about how we use these digital analytical tools so we aren't overly dependent on just data. We recognize the need for our plant teams to understand the physical system interreliance and to understand what's "behind the buttons." Understanding water chemistry, metallurgy, system design, etc. still are important elements of ongoing training for our operators and technicians. We are constantly looking for ways to improve our coaching, teaching, and training systems and culture.

Salati: Automation tools were created to maintain control of thousands of systems simultaneously, with the precision that humans can't achieve. It's in these digital controls where we can find better accuracy and higher efficiencies in the systems.

Plant managers typically say that ensuring safety is their primary concern. What factors are making that a larger or smaller challenge these days, and how are your plants addressing safety culture development?

Gillespie: In the nuclear industry, we will never cut corners. Safety must always be our primary focus because the public, customers, and employees depend on it. The challenge is ensuring our decisions around outages, maintenance, and other activities always reflect a strong focus on safety. For example, we can operate a safe plant while using performance-based data to determine the optimum maintenance cycle.

As leaders, we are compelled to communicate the basis of our operating decisions and consistently reinforce that safety will never be compromised. When we place a premium on excellent communications, our teams are better informed and aligned with our values. In today's changing environment, reinforcing our safety-based values is more important than ever.

McCullough: A commitment to zero harm is one of AEP's core values, and also is a pillar of AEP Generation's mission. Safety is paramount at AEP, and through targeted initiatives in recent years, we have seen a marked improvement in our employees' commitment to safety. Employees throughout AEP Generation are encouraged to say something and/or do something when they see an unsafe situation. Seeking ideas and input on how to improve safety from front-line employees all the way up the management chain has proven to be an excellent way to encourage ownership of safety in every employee and to promote safety leadership at all levels of the organization. We also understand the value of understanding human performance in enhancing our safety culture and have built specific actions into our business plans that will help us improve.

Salati: At AES, safety is our company's first value-not a priority that may change from time to time, but a value that defines our culture. We have several tools to help us put safety first. We use a disciplined process, guided by a cultural scorecard, to measure the health of our safety culture and comprehensive programs. We want our people to return home to their families every day. Working at AES has instilled a strong safety ethos for me outside of the office. When walking down the street or in my home, I now see everyday activities through a safety lens.

What's the most successful or promising approach your company has used lately to attract new employees to the generation side?

Gillespie: It isn't just about attracting new employees; it's also about being able to transfer knowledge between individuals-those new in their careers and those nearing the end of their careers. Like most nuclear fleets, our workforce is aging. Many employees were here when their plant began operation and have a tremendous amount of knowledge and experience. We have programs in place designed to capture that knowledge before an individual retires. This might be in written form, collected on video, or perhaps part of a pre-job demo illustrating the best approach to performing maintenance activities or other work. Knowledge transfer and retention is critical to our business.

To make sure we are attracting the best talent, we offer internships at our generating sites through community/technical colleges and universities, especially those with engineering curriculums. This allows a student to earn a salary, gain hands-on knowledge, and experience a positive atmosphere that appeals to them and allows us to evaluate their potential.

McCarty: We recently created a company-wide cross-functional team to coordinate the outreach and recruitment efforts. Part of the group's effort will be to implement a military transitional program to attract, hire, and transition veterans; establish a company-wide internship program; and to develop a draft model for a pre-apprenticeship program to partner with local institutions.

McCullough: Because we are retiring 7,000 MW of coal-fueled generation and have been focused on retaining as many of the employees who worked on those units as we can, we have not needed to attract additional generation employees. Going forward, we know that having a fun and engaging culture that values continuous improvement will be essential to attract the talent we need to address future challenges.

We have seen unbelievable growth in some of the younger members of our team in recent years as they have had opportunities to participate in and lead critical idea generation, value-stream analysis, and structured problem-solving efforts. These activities have resulted in incredible cost and performance improvement for our fleet and also are helping enhance the skills and experience of our future leaders.

What issue or issues (other than federal regulations) are affecting plant operations in ways you didn't anticipate five years ago?

Gillespie: As shared previously, I would say competition has been a key driver in our business. For many years, external pressures made coal a more expensive proposition compared to nuclear. Five years ago, natural gas was still viewed as a peaking generation source, and costs were just starting to come down. Natural gas as a fuel source has made the market much more competitive. For the nuclear fleet, we were the lowest-cost energy source. Now, we are focusing on more effectively managing our costs and enhancing performance, while maintaining a laser-like focus on safety.

McCarty: The impact of the significant wind development in the region has affected the markets and, in some ways, the plant operations.

McCullough: The biggest shock for us was Ohio's decision to deregulate our generation fleet in the state. This was right after we completed considerable investment in environmental retrofits on our Ohio generating units and at a time when market prices and energy demand were at all-time lows. The generation organization responded incredibly well to the challenge, and to date, we've had considerable success in the competitive generation space.

However, sustainable success for competitive generation remains a challenge. Proper market valuation of firm, 24/7 generating capacity will help provide a more predictable set of future challenges. The growth of intermittent generation resources also will expand the need for flexibility and responsiveness from our dispatchable generation resources. This can be done, but adequate funding mechanisms for maintaining reliable, dispatchable capacity have to be established.

Salati: The need for flexible generation alongside the emergence of renewables, as well as the change in market load profiles are all impacting the operations of our plants and the technologies we consider when building new capacity.

What would your company like to do, and why, if money were no obstacle-new builds, acquisitions, training-anything?

Gillespie: We need additional renewables, and energy storage is particularly important for the future. From an energy diversity standpoint, we also need to keep the new nuclear option, especially from a clean energy, baseload generation perspective.

McCullough: If money were no obstacle, we would put significantly more funding into and attention toward research and development (R&D). Achieving significant global greenhouse gas reductions while also sustaining reliable and affordable power generation will require deployment of low-carbon fossil-fueled generation and advanced nuclear generation worldwide.

Renewables have received a lot of attention and R&D funding in recent years, while we have limited the near-term options for new, dispatchable generating capacity to natural gas. Transformational technologies for both low-carbon, fossil-fueled generation and advanced nuclear generation to help maintain fuel diversity are critical for our industry. R&D focused on innovative, low-carbon, firm-capacity power cycles is currently moving too slowly. At the current pace of development, there is no way we can pilot, demonstrate and deploy new technically and economically feasible low-carbon fossil generation or advanced nuclear generation at commercial scale when it will be needed. Appropriate investment in R&D for distributed energy resources, systems reliability, interact-ability, and security also will be important as the "grid of the future" evolves.

If the general public understood one thing about power generation better, what would that be, and how would you suggest the industry deliver that message?

Gillespie: Electricity is a necessity in today's world, and generating electricity is complex no matter the fuel source. It takes good, capable, and dedicated people to allow our business to thrive. The many systems needed to produce and deliver electricity to our customers require significant investment in capital, material, and people. It is critical we reinforce the inherent value of our product to our customers in today's modern world.

McCarty: That hydroelectricity is clean, green, and renewable.

McCullough: The value of firm generating capacity on the grid and the difference between capacity and energy is something that continues to be confusing. Renewables are seen as the generation of the future. While we strongly support the need for additional renewable generation deployment to reduce emissions, firm capacity (provided by fossil- and nuclear-fueled generation) is also necessary to provide energy and to manage renewable variability and meet customer demands.

Renewables cannot be reliably dispatched at any time, and also can't provide many of the ancillary service capabilities that firm capacity resources provide to support the grid. These grid-level benefits are not directly visible to the customer, but are a key component of highly reliable service. The "grid of the future" will require a much higher overall generation nameplate capacity in order to provide the same reliability. Explaining this complex reality is challenging when the people take the incredibly reliable electric service in our nation for granted. There is no incentive to learn more or even care.

Salati: The technology that we use every day on our smart phones and computers-such as batteries, nanotechnology, analytical power-is revolutionizing our industry, making it an exciting and dynamic sector in which to work to improve lives around the world. a-

-Gail Reitenbach is POWER's editor.

The post The Generating Company Challenge: Manage Change While Maintaining Reliability appeared first on POWER Magazine.