Broker eXcelerate Series: Balancing Supply and Demand to Keep the Lights On

For most power customers, the interaction with their utilities is fairly basic: they turn the lights on or plug in their devices and they simply expect the electricity to flow. If the power isn’t working, that’s a major problem. Then once per month, they receive and pay a bill, but if that bill is for more than is expected then that’s also a problem. The power providers can do everything right 99% of the time, but if they err in these instances then the customers get frustrated, agitated, and dissatisfied.

Despite those seemingly simple interactions from the customer side, the truth is that the energy sector has so much more going on behind the scenes 24/7 that carries incredible complexity, interactions among various stakeholders, and planning and responses that are necessary to keep that 99% success rate operating, all happening without the customer ever seeing. On a grid-wide basis, the overarching goal is to ensure that power supply running through the grid is constantly able to match the instantaneous demand, necessary to achieve reliable power when the lights turn on while keeping the prices predictable and affordable. However, with millions of customers for which to account, the unpredictable nature of individual actors, and the impact of uncontrollable factors like weather or equipment outages, ensuring this constant balance of supply and demand is no easy feat.

For anyone with a stake in the power sector (whether as a customer, a power broker, a utility, or anything else) who want to better understand the inner workings of the grid, some key fundamentals include control areas, balancing authorities, and spinning reserves. So for the curious readers seeking to be informed, let’s dive into these concepts for this latest entry in the Broker Excelerate educational series.

Control Areas

To start, a control area is the basis of the entire interconnected grid in the United States. As defined officially by the U.S. Department of Energy, a control area is:

“Electric power system in which operators match loads to resources within the system, maintain scheduled interchange between control areas, maintain frequency within reasonable limits, and provide sufficient generation capacity to maintain operating reserves.”

Another way to understand this idea is that the control area is the summation of power systems that are all controlled by a common scheme and overseer to ensure power output matches instantaneous demand while accounting for other needs like interactions with bordering control areas, keeping frequency of electricity where it needs to be, and ensuring enough generation can be called upon as quickly as possible to respond to events. The PJM Interconnection, for example, is a control area. Control areas may cover one specific utility grid or service area, it may cover two or more interconnected grids, or it may even encompass a wide region: the United States has over 140 unique control areas.

So the control areas are the boundaries defining these operations, but it’s the balancing areas that hold the control.

Balancing Authorities

As noted before, local electricity grids are intertwined and connected and create larger networks, which can interact for greater levels of reliability. All told, the continental United States has three main grid systems: the Eastern Interconnection, the Western Interconnection, and the Electric Reliability Council of Texas (ERCOT). These grid systems all operate independently for the most part, with limited (if any) power flowing between them. These systems are the physical interconnections, but the actual operation is managed by what’s known as balancing authorities, which are composed of electric utilities that have accepted the balancing responsibilities for a given portion of the grid: 36 balancing authorities in the Eastern Interconnection (including 5 Canadian ones), 37 in the Western Interconnection (including 2 in Canada and 1 in Mexico), and 1 overarching balancing authority for all of ERCOT. For example, the Western Interconnection Coordination Council includes the California Independent System Operator (CAISO) as its largest balancing authority, while also including major utilities (such as NV Energy) and municipal utilities (such as Los Angeles Department of Water & Power) as balancing authorities. Note that all Regional Transmission Organizations (RTOs) also function as balancing authorities.

The role of a balancing authority, as noted by the Energy Information Administration, is to ensure “in real time, that power system demand and supply are finely balanced. This balance is needed to maintain the safe and reliable operation of the power system. If demand and supply fall out of balance, local or even wide-area blackouts can result.” Speaking broadly, balancing authorities are entities that are responsible for operating a transmission control area; their role is to match generation with demand on a constant basis, while also factoring in the important power characteristics like frequency, power factor, etc. This role can be complicated (but is even more urgent) during times of extreme weather or disaster.

The specific services offered by a balancing authority to generators in their service area include generation imbalance services (ensuring the control area can maintain load-resource balance), energy imbalance services (implemented when there’s a difference between actual energy delivered to a load and the energy scheduled to that load, addressing the deviation), operating reserves (made available to customers to meet their operating reserve requirement, spinning or otherwise), and, in certain instances, variable energy resource balancing services for the growing level of distributed energy resources connected to the grid.

Balancing authorities are also responsible for maintaining conditions of the grid systems in accordance to all relevant standards and regulations, such as reliability standards issued by the North American Electric Reliability Corporation.

Spinning Reserves

If the goal of the balancing authority is to keep the generation lined up with demand in the control area, spinning reserves are one of the most critical tools they can employ to do so. Overall, operating reserves represent the generation capacity available to a given system operator on short order to meet demand if loads unexpectedly increase or a generator goes down. Operating reserves can be either spinning reserves or non-spinning reserves. Spinning reserves represent the extra capacity that is actively available by increasing the output of generators already up and running on the grid (i.e., these power plants are already spinning but at less than full capacity, and when the spinning reserves are called upon the plant ramps up production closer to 100% capacity). Non-spinning reserves, meanwhile, represent capacity not currently connected to the grid but with the ability to swiftly be brought on after a short delay when needed, such as fast-start generators.

These terms and the principles behind them are pretty tightly regulated because of how important they are to the proper operation of the grid. Spinning reserves must be synchronized to the grid system and ready within 10 minutes of request from the balancing authority, while non-spinning reserves are off-line and can be synched to the grid within 10 minutes of instruction and can keep that output going steadily for at least 2 hours

These types of resources are critical to the smooth running of the grid, and without them there would be many more interruptions while prices would be more challenging to keep steady. Because of the importance of having readily available extra reserve capacity to meet unexpected demand events, the typical process followed is that power plants will by default run below their maximum capacity so they can ramp up to meet the new needs that may come about. This process inherently leads to inefficiencies and waste on a day-to-day basis, but planning around the assurance of extra capacity outweighs those inefficiencies in order to ensure long-term reliability.

Bringing it All Together

Customers in the modern world have high demands. Constant analysis, planning, and real-time responses all go towards making sure that’s the case. As stakeholders in energy generation or brokerage can attest, this process is all quite critical lest power goes out, customers suffer, and reputation fails.

The system of balancing authorities and spinning reserves are certainly not perfect and failures do occur, but overall the United States has the 23rd highest ranked reliability in the world (despite the wide geography and complex regulatory environment that is so unique to the United States), so clearly something is being done right!


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