IEEE Power & Energy Magazine - July/August 2015 - 28

As pricing structures change for distributed resources, the
conventional wisdom of central station economics is being
challenged and so are traditional business models.
new generation technologies-likely in the form of natural
gas combined cycle units or renewable generation including
wind and solar, or other resources such as demand response
or battery storage-will have a substantial impact on overall
prices of electricity to consumers.
As noted above, the direct costs of the environmental
regulation is the imposition of additional equipment on coal
fired generators. The indirect impact is the cost of retiring the large fleet of coal generation in the United States
between 2012 and 2020. These retirements will likely drive
up short-run marginal costs in both the deregulated and
regulated markets in the United States. Capacity prices
will also likely increase with the retirement of a large number of base load units. To the extent that these retirements
are replaced with additional new generation, additional
new costs to the end consumer will also be created.
Additional environmental concerns that will have an
increasing effect on the power sector are the production of
greenhouse gases and their global impact along with water
availability, use, treatment, and consumption. Various carbon markets have formed, although none of these to date
have been effective in accelerating reduction of emissions;
instead, renewables mandates have been more effective.
Water is typically not priced as input into the power sector and therefore was treated historically as an unlimited
resource, particularly with fossil fuel-powered generation.
For example, many older power plants were originally developed with simple and cost effective "once through" cooling
systems. However, this required a large volume of water as
well as discharges of heated water back into the originating water source, with detrimental effects to fish and other
aquatic species. New environmental regulations are requiring power plant operators and new generation entrants to
minimize the impact on water consumption in their operations. Some power plants are facing possible curtailment
of their annual operating hours due to their current water
cooling and discharge practices. Some plant operators have
maintained that current low electric market prices are not
sufficient for the upgrades plants require to meet these new
water requirements and that, alternatively, they would retire
the units. In the future, particularly in regions with limited
water resources, the cost of water should become an integral
part of generation and electric pricing.

Conclusions
The article described a coming era of many options that
are very different to the options offered by the initial great
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innovation of the incandescent lamp supplied by central station generation that led to power sectors globally. In the late
1800s the option of electric lamps versus kerosene lamps
was economic where the cost of kerosene production, transport, and distribution was higher than electricity production,
transport, and distribution. That was a simple case of doing
one or the other.
Today, looking into the future the multiplicity of paths
forward presents a large number of choices that transcend
electricity production, transport, and distribution and
are confounded with complexities of policy, regulation,
markets, and technology innovations. Will the two key
structures of the modern power sector of the wholesale
market and the utility business mo-del‑continue to exist
as they are today, or will mutations be required to those
structures?
The great innovation of electricity production and electric lighting for the masses led to a broad set of transformational developments over generations from that single
great innovation. With the era of optionality, we have many
innovations in energy production, transport, and distribution
commercializing over a relatively short span of time; it will
take future generations to further exploit the broad implications of these innovations.

For Further Reading
Energy Exemplar, LLC. (2015, Jan.). Cooptimization of
transmission and other resources, White Paper, Funded by
the U.S. Department of Energy. [Online]. Available: http://
tinyurl.com/prdvyto
J. D. Jenkins. (2014). Economic regulation of electricity distribution utilities under high penetration of distributed energy resources: Applying an incentive compatible
menu of contracts, reference network model and uncertainty
mechanisms. Master's Thesis. Massachusetts Institute of
Technology. [Online]. Available: http://dspace.mit.edu/
handle/1721.1/90052#files-area
MIT. (2011). The future of the electric grid. [Online].
Available: http://mitei.mit.edu/system/files/Electric_Grid_
Full_Report.pdf
J. A. Schumpeter, Capitalism, Socialism, and Democracy.
Floyd, VA: Impact Books, 2014 (orig. ed. 1943).

Biography
Randell Johnson is with Energy Exemplar, Hartford, Connecticut.
p&e

july/august 2015

http://http:// http://www.tinyurl.com/prdvyto http://dspace.mit.edu/ http://mitei.mit.edu/system/files/Electric_Grid_

Table of Contents for the Digital Edition of IEEE Power & Energy Magazine - July/August 2015