Power Transmission Technology: The Second Revolution Superconductor-Based Technologies and Regulatory Reform Strategies To Boost Grid Capacity, Improve Reliability and

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Power Transmission TechnologyThe Second
RevolutionSuperconductor-Based Technologiesand
Regulatory Reform StrategiesTo Boost Grid
Capacity, Improve Reliabilityand Break the
Gridlock
Massachusetts Restructuring Roundtable Boston,
MA November 16, 2001 John B. Howe Vice
President, Electric Industry Affairs
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American Superconductor Corporation
Nasdaq AMSC

• We are a world leader in developing and
  manufacturing products using superconducting
  wires and power electronic switches for the power
  infrastructure

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Overview

• Todays Power Grid is Severely Stressed
• The Grid Never Violates the Laws of Physics
• New Grid Technologies Description and Benefits
• High-Capacity HTS TD Power Cable
• Distributed SMES for Voltage Stability
• Network Effects of a Stronger Power Grid
  Component Benefits -- System-level Benefits
• Regulatory and Legislative Reforms That Can Speed
  the Adoption of New Grid Technologies

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A Convergence of Many Factors...

• Demand Growth
• Siliconization
• Siting Obstacles
• Erratic Pace of Deregulation
• Eroding Reliability

Has Brought Us to Power Gridlock --
And A Demand for New Power Technologies
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The Power Struggle Summer 2001
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Grid Investment Lagging in U.S.
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Power Grids Have Limited Capacity

• The amount of power that can be transmitted
  through a particular grid is limited by a number
  of factors, chiefly
• Thermal Limits
• Line/cable conductors reach physical capacity
• Overload leads to excessive sag, degraded
  insulation, burnout and outright failure
• Stability Limits
• Lines reach limit of safe operation by standards
  of Prudent Operating Practice
• Overload puts system at risk of fast collapse
  during a contingency (line outage, plant trip)

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The Changing Role of the Power Grid

• Pre-1990s Vertically-Integrated Monopoly
• Mid-1990s Rise of DG -- Is the Grid Obsolete?
• 2000s The Grid Isnt Going Away Soon --
  But It Needs a Major Upgrade Now!!
• The Grids New Role Platform for Competition

The Lesson from Other Regulated Industries The
Key to Robust Competition Lies in a Robust
Physical Network
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Superconductor Technology Benefits

• Raise Energy Efficiency
• Increase Capacity
• Improve Reliability and Power Quality
• Reduce Environmental Impacts
• Put Scarce Real Estate to Higher Value Uses

Component Benefits of Superconductivity are
Leveraged into even Larger System-Level Benefits
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HTS Wire 140x Increase in Wire Capacity
The Basis for the Revolution
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HTS Wire Price/Performance Trend
Performance and Yields are Rising -- Costs are
Falling
1200
Actual
1000
Target
800
Price/Performance Ratio, /kA-m
600
400
200
0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Price of One Meter of Wire Carrying 1,000
Amperes
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First Commercial HTS Wire Plant --Devens
Commerce Park, Massachusetts
8/00 Broke Ground
8/01 First Employees
1/02 Fully Equipped
8/02 High-Yield Production
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HTS Power Cable Alliance

• Exclusive commercial agreement
• Alliance since 1990
• 30 million in funding to AMSC
• First HTS cable in 1996 - Beta-phase about to
  start

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High Capacity HTS Power Cables
More power carried in same right of way at much
lower voltages and system costs.
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HTS Cable The 3-to-1 Advantage
(3, 4) Three HTS Cables Are Installed --
Six Conduits Free for Expansion/Other Uses
(1, 2) Nine Existing Copper Cables Are Removed
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Urban Re-Electrification Virtual Bus
2
3
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Urban Re-Electrification Urban Ring
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HTS Re-electrification Reclaiming Corridors
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HTS DC Transmission Uses and Benefits

• Integrate Markets Tap the Large Interregional
  Price Disparities Exposed by Deregulation
• Special Delivery Serve Congested Urban Load
  Pockets with Virtual Power Plant
• Operation Avoid Parallel Path / Loop Flows
• Environment Avoid AC Line Siting, EMF Issues
• 2020 Vision Separate Grid into AC Islands
  Connected by Controllable DC Bridges
• Improved Stability and Reliability
• Make the System Function as the Economists Want
  it to!

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Distributed SMES Attacks the Power Bandwidth
Problem

• Power Transmission Lines Never Operate at Full
  Capacity (or Bandwidth)
• Our Least Expensive New Grid Capacity
  The Capacity that Already Exists but Cant be
  Used
• At What Fraction of Maximum Bandwidth are Your
  Utilitys Power Lines Operating?
• U.S. Average 35 !

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Old Solution- String More Lines!
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A New Solution - SMES

• Power electronics and superconductors
• Most effective
• Lowest cost
• Quickest solution
• No environmental permits

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SMES Basics
Proprietary Storage Technology...

• Coil of LTS wire stores enough energy to deliver
  3 megawatts of power in one second.

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SMES Products
Plus Proprietary Power Electronics Technology
Delivers megawatts of real power instantaneously
and simultaneously with megaVARS of reactive
power.
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PQ SMES Precise Power Quality Protection
LINE VOLTAGE (IN)
LOAD VOLTAGE (OUT)
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D-SMES Wide Area Grid Stabilization
1.1
1
D-SMES
0.9
0.8
Base Run - 115kV
0.7
0.6
Relative Voltage
0.5
0.4
0.3
0.2
0.1
0
0
0.5
1
1.5
2
Time in Seconds
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D-SMES vs. Conventional Overhead Lines

• Effective alternative where existing lines are
  stability-limited (vs. thermally limited)
• Eliminates siting political obstacles
• Quick installation
  (2 days)
• Mobility -- avoids
  stranded asset risk

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WPS Northern Loop (No. Wisconsin)
D-SMES

• First permanent use of superconductors in a
  live grid
• 6 units deployed in July 2000
• 3 MVAR reactive power capacity (2.3x short term
  overload capability)

100 miles
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WPS Northern Loop
350
Thermal Limit
300
Current Operation
250
200
Available Load Serving Capability, MW
150
100
50
0
Six D-SMES 15 Safe Increase in Power Bandwidth
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Entergy Gulf States (East Texas)
D-SMES

• Two units in 2001, two more in 2002
• 8 MVAR reactive power capability (2.3x overload)
• D-SMES built into Entergys strategic planning
  process

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Entergy Gulf States
1900
Thermal Limit
1800
1700
1600
Current Operation
Available Load Serving Capability, MW
1500
1400
1300
1200
1100
1000
Four D-SMES 20 Safe Increase in Power
Bandwidth
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D-SMES Uses and Benefits

• Utility Increase Load Serving Capability Over
  Existing Lines -- Maintain Reliability Objective
• Trader / Marketer Increase Import / Export /
  Transfer Capacity -- For a Slice of the Benefit
• System Planner / IPP Facilitate Interconnection
  of New Merchant Generators -- and Fill in
  Holes Caused by Retirement of Older Generators
• Environmental / Emissions Trading Reduce Need
  for Dirty Reliability-Must-Run (RMR) Units --
  Generate / Claim / Trade Valuable Credits

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A Stronger Grid Gives Rise toSystem-Level
Benefits

• Enable Closer Adherence to Economic Dispatch
  (Fuel Efficiency and Air Quality Benefits)
• Better Integration of Remote Resources including
  Coal/Nuclear and Renewables (Solar/ Wind)
• Integrated National Grid Can Save 10Bs in
  Generation Investment to maintain Reserve Margin
• Reduced Congestion Is Essential to Ensure the
  Success of New Retail Competitive Frameworks

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The Problem
For Utilities that Operate Under Traditional
Cost-of-Service Regulation, Investing in
Transmission Assets to Reduce Congestion is
Unprofitable or Worse.
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Some Level of Transmission Constraints is
Economically Efficient
Benefits of Relieving Constraint
Dollars Invested
Economically Desirable Level of Constraint
Cost of Relieving Constraint
Number of Hours Constrained
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What Determines Optimal Constraint?The Form of
Regulation Matters!!
Large RTO Internalizing All Congestion Costs
Dollars Invested
Vertically-Integrated, Local Regulated Utility
Unbundled DISCO under Cost of Service
Unbundled DISCO under Multi-Year Price Cap
VI Utility with Non-Regulated Marketing/Generating
Affiliate
Number of Hours Constrained
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Network Investment The Key to Robust Competition

• Telecom, 1970s No One Will Replicate the
  Existing Communications Network
  (1980s-90s Fiber Optic, Wireless Networks)
• Natural Gas, Early 1980s A Sunset Industry
  (1990s New Pipelines, Compression, IT)
• Airlines Landing Gates Key to Mitigating
  Incumbent Market Power (the OHare Problem)

Competition in Commodities Spurred by
Competition in the Building of Network Facilities
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Incentives to Strengthen the Grid Regulatory
and Legislative Actions

• Move RTO Focus From Congestion Management to
  Congestion Relief!
• Performance-Based Regulation (a la UK)
• Mandatory Reliability Standards
• Coordinate Development of Road, Railway and
  Utility Infrastructures
• In the Long Run, the Most Stable End Point Will
  Be True Network-Based Competition.

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Stimulating New Grid InvestmentExempt
Transmission Facilities

• Applies to New Facilities -- Not Existing AC
  Network
• Must Meet Low Environmental Impact Standard
• Technologies with Controllable Current
  (Avoid Impact on Underlying AC Network Flows)
• ETFs Have No Recourse to Eminent Domain
• Show Absence of Market Power (Size, Ownership)

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Proposed Benefits of ETF Status

• Exemption from Rate Regulation under FPA
• Eligibility for Streamlined/Federalized Siting
  Process Modeled on Interstate Natural Gas
  Pipelines
• Exemption from Open Access Requirements under
  FERC Order 888 / 2000

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Break the Gridlock!Thank You!Questions?jhow
e_at_amsuper.comwww.amsuper.com