In an excerpt from his remarks at an RFF Policy Leadership Forum, Chris Crane, president and CEO of Exelon, shares his thoughts on how the electricity industry is responding to major changes in how energy is produced, delivered, and consumed.
On the Natural Gas Boom
The advent of shale gas, as we all know, has been a game changer. Having plentiful, cheap gas is great for the economy and for industry.
That said, it’s caused all of us in the industry to reexamine our investments. Shale gas and renewables have decreased the margins of conventional fuel profits. They have made many coal plants and some nuclear plants less economically viable—to the extent that if we were to build a new generation facility right now, we would build natural gas. The problem is, as an industry, we’re all going to the same fuel source again. So fuel diversity is an important consideration for maintaining competitiveness—one that the independent grid operators should keep in mind as they design their capacity markets.
Take, for example, this past winter, when we saw a noticeable shift from oil to natural gas for heating homes. We had to move more generation to natural gas to meet demand during a very cold period. Home heating became the top priority. If you disrupt gas to a large population, just the time to relight the pilot lights could have a significant effect. This winter our transmission was constrained, and there were natural gas plants—including some of our own—that failed to meet demand. As a result, there was a dependency on some of the old coal units that are about to retire to be able to meet the load during that period.
By contrast, if we load the core of a nuclear plant and fuel it to run 18–24 months, it does not matter what the weather is like outside—that plant runs, so it’s highly reliable. It can support the needs of the grid in stress periods. I think the market design must compensate assets for their capability around that. If a natural gas plant has a dual-fuel mix with oil storage to meet those peak capacity needs, it should have a compensation mechanism.
On Renewables and Distributed Energy
Exelon has a small distributed generation business. It is a customer-facing product that we offer to our larger industrial customers who receive gas and electricity now, but if they want solar panels, we will install them. We also are doing a deep evaluation of fuel cells, as we look at potentially expanding our business line. For example, I have spent time at the Toshiba research facility in Yokohama, Japan, learning more about how its engineers are perfecting the manufacturing and efficiency of fuel cells for the residential level. Researchers at Bloom Energy in San Jose, California, are doing fantastic work on their industrial-scale solid oxide fuel cells, which are much larger. So technology is advancing, but we need to design a system that is reliable and fair to all consumers.
Exelon is piloting a microgrid with the Illinois Institute of Technology in Chicago, and the focus of the project is on reliability. If the grid goes down, the hospitals, the University of Chicago, a very important police command center, and other critical infrastructure would isolate from the grid, and the distributed generation would pick up and run. That’s a neat concept. It’s all about reliability and security. There is a defense mechanism in there, but at the end of the day, that customer base still needs to be attached to a larger grid to provide economic-scaled generation.
On Subsidies and Customer Choice
People should have choice, but it should be understood that we cannot continue to subsidize everything. When customers want to have a microgrid, that should be facilitated for them within the regulatory framework and the utility’s suite of products that they offer. Consumers can then decide from there.
Likewise, if you put a solar panel on your roof, that is your choice. If you have excess power and want to sell that power back to the grid, that’s fantastic for the grid, but what has to happen to enable that? The design of the local distribution system has to handle the voltage fluctuations. Every customer has a specific service capacity. If a family has a 200-amp service entrance on their house, that utility distribution system needs to be designed to provide them 200 amps at any instantaneous moment they want. Just because they install a solar panel does not mean they are disconnecting from the grid. There’s a dependency, but there should be an enabling on the grid to allow for solar, and the consumer should be compensated at the wholesale price of energy.
