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What Party Planning Can Teach You About the Power Grid

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The U.S. power grid runs on aging infrastructure, and that should worry us all. And while some power grid operators take the necessary steps to protect from excessive electricity demand, there are some that don’t.

Each independent system operator, called an ISO, (such as PJM or ERCOT) has a power grid that can handle a limited amount of electricity at any given time; and the capacity of each grid varies from one ISO to another. 

In the energy industry, capacity means the maximum output a power generator can produce under ideal conditions. Now apply that concept to an entire power grid.

It’s easy to have a false sense of security that power is always at the ready – whenever you flip a switch or boot up equipment. But there is actually a limited amount of electricity that can safely move across the grid. And the limit depends on several factors such as regional temperatures, efficiency of grid equipment, number of power generators feeding the system, and number of customers served by it. 

That's why reserve margins matter 

Every year, each ISO prepares for unexpectedly high electricity demand by setting a reserve margin. A reserve margin is the extra power capacity available beyond the projected maximum of electricity demand. 

For example:

On a really hot summer day, we tend to consume more energy because it takes more power to cool homes and businesses. Individually and collectively, we’re putting more demand on the power grid. The very worst of these days each year are called peak load days. They’re the days that we’re using the highest amount of electricity, and they almost always occur during the summer. 

On some peak load days, we attempt to draw more power than the grid can handle – exceeding even the reserve margin – and this results in a short- or long-term power outage called a blackout. Power failures can be disruptive to your business if you’re unprepared for the cost and impact on operations. In cases where they affect many consumers and last days or even weeks, outages can be disastrous.  

To protect consumers from blackouts, the North American Electric Reliability Corporation (NERC) releases standard target reserve margin levels for each ISO, calculated based on load, generation and transmission characteristics. The goal of each ISO is to achieve reserve margins above NERC’s reference margin level in order to both adequately meet the power demand, and to prepare power grids for unexpected demand on peak load days. 

Think of it like planning a dinner party

Let's say you’re throwing a party, and you invite 60 people.

Out of those 60 people, only 40 RSVP that they are coming. You need to order enough food to feed all of your guests. So, do you order enough for 40? Or do you order a little extra, in case of last-minute attendees? Most of us would probably order enough to feed 50 people, so no one goes hungry if more people attend than you anticipate. 

In this analogy, the 60 invitees represent the capacity on the grid (ie, the maximum possible "output" of the party). The 40 invitees who RSVPed represent NERC’s target reserve margin. Your catering order to feed 50 party goers represents the ISO’s actual reserve margin.

The point is, it’s important to have some wiggle room if energy demand increases unexpectedly…or more hungry people show up to your dinner party.  

Rule of thumb: “Always have more capacity available to ensure the reliability of the grid.” - EIA

PJM, the largest U.S. power grid serving over 65 million homes and businesses, has a required target reserve of 16.1 percent, as calculated by NERC this year. PJM’s reserve planners were ready for the long, hot summer and planned a comfortable reserve margin of 28 percent. 

"PJM continues to ensure that the power supply is secure and reliable, while maintaining efficient and transparent markets that save billions of dollars for our customers," said Andrew L. Ott, PJM president and CEO.

ERCOT, the ISO in Texas, is taking a more liberal approach. NERC’s reference reserve margin for ERCOT is 13.75 percent, but Texas’s reserve margin for this summer is only 9.3 percent

And this lenience isn’t unique to 2018; ERCOT’s reserve margin predictions for the next several years continue to fall below NERC’s target margin. If we continue having hot summer days that approach capacity, ERCOT may need to take emergency actions “ranging from calling a conservation alert to shedding load to help prevent a major blackout,” according to the EIA

So why is ERCOT operating so close to the margin? After all, they originally projected reserve margins for this summer at 18 percent. ERCOT's capacity reserve plummeted when three coal-fired generation plants based in Texas recently retired. It caused the capacity of the grid overall to decrease by 4,200 megawatts  – the equivalent energy usage of 840,000 homes during peak demand. 

Despite the staggering effects of the retirements, ERCOT’s job is the same: they must supply electricity to the entire state of Texas. Until something changes, the Texas grid is in a dangerous spot and at risk for blackouts. 

What does this mean for you or your business?

If you’re a large energy consumer and participate in ERCOT’s Load Resource, the Texas demand response program, low reserve margins could be a financial opportunity. When the grid is stressed or electricity prices spike, the Load Resource demand response program pays businesses to reduce their energy use on short notice.  

As a resident or small business owner, be aware of imminent peak load days and try to conserve energy wherever you can. You’ll save some money and take some load off the grid. 

The bottom line is this: the risk of blackouts is not only possible, it’s inevitable. And while we can do our part to take care of our aging electricity grids, we should all be prepared for the worst. 

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Posted: August 03, 2018

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