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Electricity:  The Peak Demand Problem

Sigma Investment Counselors

August 31, 2016

Demand for electricity tends to peak in the early evening.  Managing peak demand in an environmentally and economically sound matrix is difficult.

Load balancing has always been a problem for electric power systems, both because most large scale electric generators operate most efficiently at constant rates and the cost of creating a system that is large enough to respond to peak demand on a cost effective basis.

Historically, electric utilities have operated  baseload units, primarily fossil fuel and nuclear, that nearly always operate at or near capacity.  These units are supplemented by intermediate and peaking units that operate as needed.  Peaking units are typically natural gas-fired combustion turbines.

The increase in renewable energy sources, primarily solar and wind, has further exacerbated the peaking problem.  Both are subject to weather and, solar in particular, is most effective during low demand times of day.  For example, California set a record for solar-power generation in early July, but the peak demand for electricity comes in the early evening, long after solar production has peaked.

At one time, natural gas was viewed as the “good” fossil fuel.  However, that seems to be changing.  Unfortunately, the increased use of solar and wind power generation has forced an increase in natural gas-fired peaking capacity.

All of this has given rise to a renewed interest in a century-old technology (pumped storage) that involves moving water to store power generating capacity.  In a pumped storage system, excess electricity during off peak hours is used to pump water to an upper reservoir.  During peak demand periods, the water is released through a turbine system that generates electricity while the water is accumulated in a lower reservoir.

Pumped storage facilities are expensive to build but, according to the Energy Department, remain the cheapest form of large scale electricity storage.  That is now.  The highly sought long term solution would be large, efficient battery systems.  Hence the world wide effort to build a better battery.  Break throughs in this area have proven to be difficult, despite the best efforts of electric car proponents.

This may be an area of potential interest.  History suggests that battery technology will improve and the market potential may be large.

All comments and suggestions are welcome.

Walter J. Kirchberger, CFA®

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