Musk Bulks Up Tesla Batteries in Leap Beyond Cars to GridBy Mark Chediak and Dana Hull – Apr 28, 2015, 7:51:59 PM Bloomberg 

Musk Bulks Up Tesla Batteries in Leap Beyond Cars to Grid

Elon Musk, co-founder and chief executive officer of Tesla Motors Inc., smiles during the GPU Technology Conference (GTC) in San Jose on March 17. Photographer: David Paul Morris/Bloomberg

Billionaire Elon Musk thinks he can pave the way to a better energy future by turning the mattress-shaped batteries in Tesla’s electric car into upright pillars so they can be used to power homes, businesses and even utilities.

Musk will lift the veil Thursday on a new generation of batteries designed to store growing volumes of solar and wind energy. If he gets it right, Tesla Motors Inc. will have spun a significant second business off the technology originally designed for its electric vehicles — and will gain a toehold in a business projected to generate tens of billions of dollars in a decade.

Nobody in the power industry has yet been able to come up with a cost-effective way to store large volumes of energy for later distribution. Tesla is making a bet that its huge $5 billion “gigafactory” currently under construction near Reno, Nevada, will enable the mass production needed to drive down the cost of batteries and make them competitive for a broad range of customers, including traditional suppliers of electricity.

Tesla has scheduled an event Thursday at its design studio in Hawthorne, California, to announce both a Tesla home battery and what it called last week in a note to investors “a very large utility scale battery.”

Eagerly Awaiting

“Whatever Tesla announces on Thursday is just the beginning,” said Peter Rosegg, spokesman for Hawaiian Electric Co., where 12 percent of the utility’s customers have rooftop solar panels. “Tesla doesn’t have to go after the market — the market will come to them. We’re very eager to see what they have to say.”

Tesla, based in Palo Alto, California, has its eye on a business that’s poised for tremendous growth. As homes, businesses and utilities use more renewable energy generated by sun and wind, the need to provide for reliable power grows. Batteries can be used to store electricity during peak production times, and then dispense it later when the sun isn’t shining or the wind isn’t blowing.

Musk tweeted a teaser about their Thursday announcement: “For the future to be good, we need electric transport, solar power and (of course) … the missing piece,” he posted on Twitter Tuesday. Tesla fell 0.8 percent to $228.63 at 10:58 a.m. in New York.

Global Growth

A January report from Navigant Research estimates that worldwide revenue from grid-scale energy storage could total more than $68 billion by 2024 as renewable resources multiply and electricity grid operators seek ways to balance their mix of generation assets.

Tesla is already supplying batteries to homes and commercial businesses such as Wal-Mart Stores Inc. through pilot projects and a supply agreement with SolarCity Corp., a relationship that generated $2.7 million in revenue for Tesla in 2014, according to a recent regulatory filing. That’s less than 1/10 of 1 percent of the automaker’s total for last year.

But Tesla is thinking much bigger, saying in job postings that its energy-storage business will soon grow to billions in sales. Musk plans to combine the strengths of the company’s patented lithium-ion batteries, which currently can run a car for about 265 miles (426 kilometers) per charge, with its expertise in power management software.

Green Trio

Musk’s green power ambitions involve three inter-connected enterprises: SolarCity, where he serves as chairman, the battery factory in Nevada, and the Tesla car business. With the move into energy storage, Tesla can help green the grid that fuels its cars while offering solar customers a way to store any excess electricity in batteries for use during hours of less sunlight and greater demand.

An even larger potential market will be utilities that have traditionally generated power with coal and natural gas.

“Tesla isn’t just going to sell batteries to SolarCity,” said Ben Kallo, an analyst with R.W. Baird & Co. “They are going to sell to project developers, wind and solar developers, and directly to utilities. The residential product isn’t going to be a huge needle mover in the near term, but the numbers are very big on the utility side.”

Tesla will face competition from other battery makers such as Korea’s LG Chem Ltd. and legacy U.S. power providers such as AES Corp. and startups such as JLM Energy Inc. It will have to navigate regulatory hurdles in a state-by-state market with varying degrees of subsidies and incentives for the technology.

Moving Slowly

Utilities, more cautious by nature, have been slow to adopt storage on their own.

“Storage doesn’t neatly fit into transmission, distribution or generation categories so it can be tough for utilities to justify investing in storage projects,” said Brian Warshay, an analyst for Bloomberg New Energy Finance. “Some utilities, like the California investor-owned companies, are getting into storage because their regulator basically told them they have to.”

In Tesla’s home state, a groundbreaking energy-storage mandate requires PG&E Corp., Edison International’s Southern California Edison and Sempra Energy’s San Diego Gas & Electric to collectively buy 1.3 gigawatts of energy storage capacity by the end of 2020. New York is also pushing utilities to use storage to relieve congestion on transmission lines and plans for the retirement of the Indian Point nuclear power plant.

All these companies are potential customers for Tesla. The automaker has been in talks to provide its batteries to Oncor Electric Delivery Co., the largest power-line owner in Texas.

“Batteries really are kind of a panacea for the grid,” said Don Clevenger, senior vice president of strategic planning for Oncor. “They provide better reliability.”

Tesla Planning Battery for Emerging Home Energy-Storage Market By Dana Hull and Mark Chediak – Feb 11, 2015, 10:48:18 PM

Tesla Planning Battery for Emerging Home Energy-Storage Market
By Dana Hull and Mark Chediak – Feb 11, 2015, 10:48:18 PM

(Bloomberg) — Tesla Motors Inc., best known for making the all-electric Model S sedan, is using its lithium-ion battery technology to position itself as a frontrunner in the emerging energy-storage market that supplements and may ultimately threaten the traditional electric grid.

“We are going to unveil the Tesla home battery, the consumer battery that would be for use in people’s houses or businesses fairly soon,” Chief Executive Officer Elon Musk said during an earnings conference call with analysts Wednesday.

Combining solar panels with large, efficient batteries could allow some homeowners to avoid buying electricity from utilities. Morgan Stanley said last year that Tesla’s energy-storage product could be “disruptive” in the U.S. and in Europe as customers seek to avoid utility fees by going “off-grid.” Musk said the product unveiling would occur within the next month or two.

“We have the design done, and it should start going into production in about six months or so,” Musk said. “It’s really great.”

Tesla already offers residential energy-storage units to select customers through SolarCity Corp., the solar-power company that lists Musk as its chairman and biggest shareholder. Tesla’s Fremont, California, factory is also making larger stationary storage systems for businesses and utility clients. The Palo Alto, California-based automaker has installed a storage unit at its Tejon Ranch Supercharger station off Interstate 5 in Southern California and has several other commercial installations in the field.

Utility Clients

But the even larger market may be utility clients.

“A lot of utilities are working in this space and we are talking to almost all of them,” Chief Technology Officer JB Straubel said on the earnings call Wednesday. “This is a business that is gaining an increasing amount of our attention.”

California sees energy storage as a critical tool to better manage the electric grid, integrate a growing amount of solar and wind power, and reduce greenhouse gas emissions. Utilities like PG&E Corp. are now required to procure about 1.3 gigawatts of energy storage by 2020, enough to supply roughly 1 million homes.

To contact the reporters on this story: Dana Hull in San Francisco at dhull12@bloomberg.net; Mark Chediak in San Francisco at mchediak@bloomberg.net

To contact the editors responsible for this story: Jamie Butters at jbutters@bloomberg.net Terje Langeland

The Musk Family Plan for Transforming the World’s Energy

It’s all about ending Global Warming.

So buy a Tesla and install a Solar City panel on your house to support an end to Global Warming

Hedge against Electricity BlackOuts from storms like Hurricane Sandy or Hot Summers.

By CHRISTOPHER MIMS
Elon Musk and his cousin, Lyndon Rive, have always been close. Their mothers are twins, and Messrs. Musk and Rive grew up together.
“We’ve known each other for as long as we’ve been conscious,” said Mr. Musk, speaking at a panel this week at a private conference in New York.
There is an obvious, almost brotherly affection between the two men. Mr. Musk says Mr. Rive “is an awesome guy and really hardworking and driven, and you can trust him with anything.” And when Mr. Rive recounts the drive to Burning Man in 2004 when Mr. Musk told him his next venture should be in solar power, Mr. Rive says that when Mr. Musk tells you what area to get into next, you get into it.
Their closeness continues, and if Messrs. Musk and Rive can achieve their shared vision, the result will be a transformation of the world’s, or at least America’s, energy infrastructure.
The companies the two men run—Tesla Motors Inc. and solar energy system provider SolarCity Corp.—are uniquely compatible. It isn’t just a product of the affiliation of their founders, but is also a consequence of Mr. Musk sitting on the board of SolarCity and being its largest individual shareholder.
Tesla makes cars, but it also—in the not too distant future—will make batteries. Lots of them. Tesla is building a $5 billion “gigafactory” in Nevada for batteries, one so large that it will, says Mr. Musk, be larger than the whole of earth’s current capacity for manufacturing lithium-ion batteries, most of which currently go into phones, tablets, laptops and other mobile devices.
At the conference Wednesday, Mr. Musk disclosed that a portion of the gigafactory’s capacity will be set aside for building “grid-scale storage.”
In other words, Tesla is going to continue its tradition of manufacturing battery packs for SolarCity, only on a much grander scale.
Up to now, SolarCity has sold Tesla-built battery packs to a handful of corporate and residential customers. The rationale is simple: The sun doesn’t always shine, so the best way to manage solar power on-site is to save it up for cloudy days and overnight.
SolarCity’s revenue has been growing 100% a year since its founding in 2006, and Mr. Rive says his goal is to maintain that pace for as long as possible. To that end, SolarCity announced in June the acquisition of Silevo, a Silicon Valley-based maker of solar panels that Mr. Rive insists is capable of producing at scale the most efficient solar panels on the market.
Mr. Musk said that while his gigafactory won’t exclusively sell grid-storage batteries to SolarCity, conversations with the company are “our best feedback as to deciding what the product would look like.”
Mr. Musk went even further, describing “the product” as a bank of batteries that “looks good,” is about 4-inches thick and can be mounted on the wall of the garage in a home.
Thanks to the economies of scale that will come from Tesla’s gigafactory, within 10 years every solar system that SolarCity sells will come with a battery-storage system, says Mr. Rive, and it will still produce energy cheaper than what is available from the local utility company.
Mr. Musk also noted that in any future in which a country switches fully to electric cars, its electricity consumption will roughly double. That could either mean more utilities, and more transmission lines, or a rollout of solar—exactly the sort that SolarCity hopes for.
America’s solar energy generating capacity has grown at around 40% a year, says Mr. Rive. “So if you just do the math, at 40% growth in 10 years time that’s 170 gigawatts a year,” says Mr. Rive. That’s equivalent to the electricity consumption of about 5 million homes, which is still “not that much,” he says, when compared with overall demand for electricity. “It’s almost an infinite market in our lifetimes.”
There are almost innumerable barriers to the realization of Messrs. Musk and Rive’s plan. For Tesla, there is the possibility that a superior battery technology could come to market soon after Tesla and its partner, Panasonic Corp., build their gigafactory, rendering their $5 billion investment obsolete. And SolarCity has almost the exact same problem with its ambition to build its own solar panels. While Mr. Rive says that Silevo’s technology is “next generation” and can compete with the cheap panels that China has been exporting to the rest of the world, the oughts are littered with the carcasses of U.S. solar panel manufacturers who claimed they could do the same, including Solyndra Inc.
And while this is a threat to shareholders rather than his aims, there is also the risk that Mr. Musk will find other, more efficient routes to reaching his stated goals, which include moving the world onto electric transport and solar power generation as quickly as possible.
For example, when asked whether or not the U.S. should erect trade barriers designed to protect American solar-panel manufacturers, Mr. Musk said: “If the Chinese government wants to subsidize the rollout of solar power in America, OK, it is kind of like ‘thank you’ is what we should be saying.” And in a subsequent interview at The Wall Street Journal’s offices in New York, Mr. Musk emphasized that “the reason I created Tesla was to accelerate the transition to sustainable transport. And I made that clear to investors.”
Despite the dumping of solar panels by China representing a substantial threat to SolarCity’s $750 million bet on Silevo—which includes a $350 million acquisition cost and an estimated $400 million to build a solar panel manufacturing plant in Buffalo, N.Y.—Mr. Rive agrees with Mr. Musk that there should be no barriers to trade in solar panels.
“Any extra tax on solar is just bad,” says Mr. Rive. “We have a big problem to solve—let’s solve that problem.”
That “big problem” is climate change. And Mr. Rive has been no less public than Mr. Musk about the purpose of his company being more than turning a profit. It’s one more thing their companies—and the two men—have in common.
—Follow Christopher Mims on Twitter @Mims or write to him at christopher.mims@wsj.com.
Christopher Mims

Assault on California Power Station Raises Alarm on Potential for Terrorism

April Sniper Attack Knocked Out Substation, Raises Concern for Country’s Power Grid

By REBECCA SMITH WSJ
February 5, 2014

SAN JOSE, Calif.—The attack began just before 1 a.m. on April 16 last year, when someone slipped into an underground vault not far from a busy freeway and cut telephone cables.

Within half an hour, snipers opened fire on a nearby electrical substation. Shooting for 19 minutes, they surgically knocked out 17 giant transformers that funnel power to Silicon Valley. A minute before a police car arrived, the shooters disappeared into the night.

A sniper attack in April that knocked out an electrical substation near San Jose, Calif., has raised fears that the country’s power grid is vulnerable to terrorism. WSJ’s Rebecca Smith has the details. Photo: Talia Herman for The Wall Street Journal
With over 160,000 miles of transmission lines, the U.S. power grid is designed to handle natural and man-made disasters, as well as fluctuations in demand. How does the system work? WSJ’s Jason Bellini has #TheShortAnswer.
To avoid a blackout, electric-grid officials rerouted power around the site and asked power plants in Silicon Valley to produce more electricity. But it took utility workers 27 days to make repairs and bring the substation back to life.

Nobody has been arrested or charged in the attack at PG&E Corp.’s PCG -1.29% Metcalf transmission substation. It is an incident of which few Americans are aware. But one former federal regulator is calling it a terrorist act that, if it were widely replicated across the country, could take down the U.S. electric grid and black out much of the country.

The attack was “the most significant incident of domestic terrorism involving the grid that has ever occurred” in the U.S., said Jon Wellinghoff, who was chairman of the Federal Energy Regulatory Commission at the time.

The Wall Street Journal assembled a chronology of the Metcalf attack from filings PG&E made to state and federal regulators; from other documents including a video released by the Santa Clara County Sheriff’s Department; and from interviews, including with Mr. Wellinghoff.

Related
Q&A: What You Need to Know About Attacks on the U.S. Power Grid

The 64-year-old Nevadan, who was appointed to FERC in 2006 by President George W. Bush and stepped down in November, said he gave closed-door, high-level briefings to federal agencies, Congress and the White House last year. As months have passed without arrests, he said, he has grown increasingly concerned that an even larger attack could be in the works. He said he was going public about the incident out of concern that national security is at risk and critical electric-grid sites aren’t adequately protected.

The Federal Bureau of Investigation doesn’t think a terrorist organization caused the Metcalf attack, said a spokesman for the FBI in San Francisco. Investigators are “continuing to sift through the evidence,” he said.

Some people in the utility industry share Mr. Wellinghoff’s concerns, including a former official at PG&E, Metcalf’s owner, who told an industry gathering in November he feared the incident could have been a dress rehearsal for a larger event.

“This wasn’t an incident where Billy-Bob and Joe decided, after a few brewskis, to come in and shoot up a substation,” Mark Johnson, retired vice president of transmission for PG&E, told the utility security conference, according to a video of his presentation. “This was an event that was well thought out, well planned and they targeted certain components.” When reached, Mr. Johnson declined to comment further.

A spokesman for PG&E said the company takes all incidents seriously but declined to discuss the Metcalf event in detail for fear of giving information to potential copycats. “We won’t speculate about the motives” of the attackers, added the spokesman, Brian Swanson. He said PG&E has increased security measures.

View Graphics

Utility executives and federal energy officials have long worried that the electric grid is vulnerable to sabotage. That is in part because the grid, which is really three systems serving different areas of the U.S., has failed when small problems such as trees hitting transmission lines created cascading blackouts. One in 2003 knocked out power to 50 million people in the Eastern U.S. and Canada for days.

Many of the system’s most important components sit out in the open, often in remote locations, protected by little more than cameras and chain-link fences.

Transmission substations are critical links in the grid. They make it possible for electricity to move long distances, and serve as hubs for intersecting power lines.

Within a substation, transformers raise the voltage of electricity so it can travel hundreds of miles on high-voltage lines, or reduce voltages when electricity approaches its destination. The Metcalf substation functions as an off-ramp from power lines for electricity heading to homes and businesses in Silicon Valley.

The country’s roughly 2,000 very large transformers are expensive to build, often costing millions of dollars each, and hard to replace. Each is custom made and weighs up to 500,000 pounds, and “I can only build 10 units a month,” said Dennis Blake, general manager of Pennsylvania Transformer in Pittsburgh, one of seven U.S. manufacturers. The utility industry keeps some spares on hand.

A 2009 Energy Department report said that “physical damage of certain system components (e.g. extra-high-voltage transformers) on a large scale…could result in prolonged outages, as procurement cycles for these components range from months to years.”

Mr. Wellinghoff said a FERC analysis found that if a surprisingly small number of U.S. substations were knocked out at once, that could destabilize the system enough to cause a blackout that could encompass most of the U.S.

Not everyone is so pessimistic. Gerry Cauley, chief executive of the North America Electric Reliability Corp., a standards-setting group that reports to FERC, said he thinks the grid is more resilient than Mr. Wellinghoff fears.

“I don’t want to downplay the scenario he describes,” Mr. Cauley said. “I’ll agree it’s possible from a technical assessment.” But he said that even if several substations went down, the vast majority of people would have their power back in a few hours.

The utility industry has been focused on Internet attacks, worrying that hackers could take down the grid by disabling communications and important pieces of equipment. Companies have reported 13 cyber incidents in the past three years, according to a Wall Street Journal analysis of emergency reports utilities file with the federal government. There have been no reports of major outages linked to these events, although companies have generally declined to provide details.

“A lot of people in the electric industry have been distracted by cybersecurity threats,” said Stephen Berberich, chief executive of the California Independent System Operator, which runs much of the high-voltage transmission system for the utilities. He said that physical attacks pose a “big, if not bigger” menace.

There were 274 significant instances of vandalism or deliberate damage in the three years, and more than 700 weather-related problems, according to the Journal’s analysis.

Until the Metcalf incident, attacks on U.S. utility equipment were mostly linked to metal thieves, disgruntled employees or bored hunters, who sometimes took potshots at small transformers on utility poles to see what happens. (Answer: a small explosion followed by an outage.)

Last year, an Arkansas man was charged with multiple attacks on the power grid, including setting fire to a switching station. He has pleaded not guilty and is undergoing a psychiatric evaluation, according to federal court records.

Overseas, terrorist organizations were linked to 2,500 attacks on transmission lines or towers and at least 500 on substations from 1996 to 2006, according to a January report from the Electric Power Research Institute, an industry-funded research group, which cited State Department data.

An attack on a PG&E substation near San Jose, Calif., in April knocked out 17 transformers like this one. Talia Herman for The Wall Street Journal
To some, the Metcalf incident has lifted the discussion of serious U.S. grid attacks beyond the theoretical. “The breadth and depth of the attack was unprecedented” in the U.S., said Rich Lordan, senior technical executive for the Electric Power Research Institute. The motivation, he said, “appears to be preparation for an act of war.”

The attack lasted slightly less than an hour, according to the chronology assembled by the Journal.

At 12:58 a.m., AT&T fiber-optic telecommunications cables were cut—in a way that made them hard to repair—in an underground vault near the substation, not far from U.S. Highway 101 just outside south San Jose. It would have taken more than one person to lift the metal vault cover, said people who visited the site.

Nine minutes later, some customers of Level 3 Communications, an Internet service provider, lost service. Cables in its vault near the Metcalf substation were also cut.

At 1:31 a.m., a surveillance camera pointed along a chain-link fence around the substation recorded a streak of light that investigators from the Santa Clara County Sheriff’s office think was a signal from a waved flashlight. It was followed by the muzzle flash of rifles and sparks from bullets hitting the fence.

The substation’s cameras weren’t aimed outside its perimeter, where the attackers were. They shooters appear to have aimed at the transformers’ oil-filled cooling systems. These began to bleed oil, but didn’t explode, as the transformers probably would have done if hit in other areas.

About six minutes after the shooting started, PG&E confirms, it got an alarm from motion sensors at the substation, possibly from bullets grazing the fence, which is shown on video.

Four minutes later, at 1:41 a.m., the sheriff’s department received a 911 call about gunfire, sent by an engineer at a nearby power plant that still had phone service.

Riddled with bullet holes, the transformers leaked 52,000 gallons of oil, then overheated. The first bank of them crashed at 1:45 a.m., at which time PG&E’s control center about 90 miles north received an equipment-failure alarm.

Five minutes later, another apparent flashlight signal, caught on film, marked the end of the attack. More than 100 shell casings of the sort ejected by AK-47s were later found at the site.

At 1:51 a.m., law-enforcement officers arrived, but found everything quiet. Unable to get past the locked fence and seeing nothing suspicious, they left.

A PG&E worker, awakened by the utility’s control center at 2:03 a.m., arrived at 3:15 a.m. to survey the damage.

Grid officials routed some power around the substation to keep the system stable and asked customers in Silicon Valley to conserve electricity.

In a news release, PG&E said the substation had been hit by vandals. It has since confirmed 17 transformers were knocked out.

Mr. Wellinghoff, then chairman of FERC, said that after he heard about the scope of the attack, he flew to California, bringing with him experts from the Joint Warfare Analysis Center in Dahlgren, Va. After walking the site with PG&E officials and FBI agents, Mr. Wellinghoff said, the military experts told him it looked like a professional job.

In addition to fingerprint-free shell casings, they pointed out small piles of rocks, which they said could have been left by an advance scout to tell the attackers where to get the best shots.

“They said it was a targeting package just like they would put together for an attack,” Mr. Wellinghoff said.

Mr. Wellinghoff, now a law partner at Stoel Rives LLP in San Francisco, said he arranged a series of meetings in the following weeks to let other federal agencies, including the Department of Homeland Security, know what happened and to enlist their help. He held a closed-door meeting with utility executives in San Francisco in June and has distributed lists of things utilities should do to strengthen their defenses.

A spokesman for Homeland Security said it is up to utilities to protect the grid. The department’s role in an emergency is to connect federal agencies and local police and facilitate information sharing, the spokesman said.

As word of the attack spread through the utility industry, some companies moved swiftly to review their security efforts. “We’re looking at things differently now,” said Michelle Campanella, an FBI veteran who is director of security for Consolidated Edison Inc. ED -0.04% in New York. For example, she said, Con Ed changed the angles of some of its 1,200 security cameras “so we don’t have any blind spots.”

Some of the legislators Mr. Wellinghoff briefed are calling for action. Rep. Henry Waxman (D., Calif.) mentioned the incident at a FERC oversight hearing in December, saying he was concerned that no one in government can order utilities to improve grid protections or to take charge in an emergency.

As for Mr. Wellinghoff, he said he has made something of a hobby of visiting big substations to look over defenses and see whether he is questioned by security details or local police. He said he typically finds easy access to fence lines that are often close to important equipment.

“What keeps me awake at night is a physical attack that could take down the grid,” he said. “This is a huge problem.”

—Tom McGinty contributed to this article.

Write to Rebecca Smith at rebecca.smith@wsj.com

Corrections & Amplifications
Federal experts who examined a California substation after an attack last April were attached to the Joint Warfare Analysis Center at Dahlgren, Va. An earlier version of this article misidentified the men’s command as the Surface Warfare Center in Dahlgren, and incorrectly said it trains Navy SEALs.

U.S. Risks National Blackout From Small-Scale Attack

Federal Analysis Says Sabotage of Nine Key Substations Is Sufficient for Broad Outage

By REBECCA SMITH WSJ
March 12, 2014 7:03 p.m. ET

The U.S. could suffer a coast-to-coast blackout if saboteurs knocked out just nine of the country’s 55,000 electric-transmission substations on a scorching summer day, according to a previously unreported federal analysis.

The study by the Federal Energy Regulatory Commission concluded that coordinated attacks in each of the nation’s three separate electric systems could cause the entire power network to collapse, people familiar with the research said.

The U.S. could suffer a coast-to-coast blackout if saboteurs knocked out nine of the country’s electric-transmission substations on a summer day, according to a previously unreported federal analysis. National War College Professor Dr. Richard Andres discusses.
A small number of the country’s substations play an outsize role in keeping power flowing across large regions. The FERC analysis indicates that knocking out nine of those key substations could plunge the country into darkness for weeks, if not months.

Related
With over 160,000 miles of transmission lines, the U.S. power grid is designed to handle natural and man-made disasters, as well as fluctuations in demand. How does the system work? WSJ’s Jason Bellini has #TheShortAnswer.

“This would be an event of unprecedented proportions,” said Ross Baldick, a professor of electrical engineering at the University of Texas at Austin.

No federal rules require utilities to protect vital substations except those at nuclear power plants. Regulators recently said they would consider imposing security standards.

FERC last year used software to model the electric system’s performance under the stress of losing important substations. The substations use large power transformers to boost the voltage of electricity so it can move long distances and then to reduce the voltage to a usable level as the electricity nears homes and businesses.

The agency’s so-called power-flow analysis found that different sets of nine big substations produced similar results. The Wall Street Journal isn’t publishing the list of 30 critical substations studied by FERC. The commission declined to discuss the analysis or to release its contents.

Some federal officials said the conclusions might overstate the grid’s vulnerability.

Electric systems are designed to be resilient and it would be difficult for attackers to disable many locations, said David Ortiz, an Energy Department deputy assistant secretary who was briefed on the FERC study. The agency’s findings nevertheless had value “as a way of starting a conversation on physical security,” he said.

The study’s results have been known for months by people at federal agencies, Congress and the White House, who were briefed by then-FERC Chairman Jon Wellinghoff and others at the commission. As reported by the Journal last month, Mr. Wellinghoff was concerned about a shooting attack on a California substation last April, which he said could be a dress rehearsal for additional assaults.

“There are probably less than 100 critical high voltage substations on our grid in this country that need to be protected from a physical attack,” he said by email this week. “It is neither a monumental task, nor is it an inordinate sum of money that would be required to do so.” Mr. Wellinghoff left FERC in November and is a partner at law firm Stoel Rives LLP in San Francisco.

FERC has given the industry until early June to propose new standards for the security of critical facilities, such as substations.

Executives at several big utilities declined to discuss the risks to substations but said they are increasing spending on security. Virginia-based Dominion Resources Inc., D -1.41% for example, said it planned to spend $300 million to $500 million within seven years to harden its facilities.

A memo prepared at FERC in late June for Mr. Wellinghoff before he briefed senior officials made several urgent points. “Destroy nine interconnection substations and a transformer manufacturer and the entire United States grid would be down for at least 18 months, probably longer,” said the memo, which was reviewed by the Journal. That lengthy outage is possible for several reasons, including that only a handful of U.S. factories build transformers.

The California attack “demonstrates that it does not require sophistication to do significant damage to the U.S. grid,” according to the memo, which was written by Leonard Tao, FERC’s director of external affairs. Mr. Tao said his function was to help Mr. Wellinghoff simplify his report on the analysis.

The memo reflected a belief by some people at the agency that an attack-related blackout could be extraordinarily long, in part because big transformers and other equipment are hard to replace. Also, each of the three regional electric systems—the West, the East and Texas—have limited interconnections, making it hard for them to help each other in an emergency.

Some experts said other simulations that are widely used in the electricity industry produced similar results as the FERC analysis.

“This study used a relatively simplified model, but other models come to the same conclusion,” said A.P. “Sakis” Meliopoulos, professor of electrical and computer engineering at the Georgia Institute of Technology in Atlanta. He estimated it would take “a slightly larger number” of substation attacks to cause a U.S.-wide blackout.

In its modeling, FERC studied what would happen if various combinations of substations were crippled in the three electrical systems that serve the contiguous U.S. The agency concluded the systems could go dark if as few as nine locations were knocked out: four in the East, three in the West and two in Texas, people with knowledge of the analysis said.

The actual number of locations that would have to be knocked out to spawn a massive blackout would vary depending on available generation resources, energy demand, which is highest on hot days, and other factors, experts said. Because it is difficult to build new transmission routes, existing big substations are becoming more crucial to handling electricity.

In last April’s attack at PG&E Corp.’s PCG -1.29% Metcalf substation, gunmen shot 17 large transformers over 19 minutes before fleeing in advance of police. The state grid operator was able to avoid any blackouts.

The Metcalf substation sits near a freeway outside San Jose, Calif. Some experts worry that substations farther from cities could face longer attacks because of their distance from police. Many sites aren’t staffed and are protected by little more than chain-link fences and cameras.

While the prospect of a nationwide blackout because of sabotage might seem remote, small equipment failures have led to widespread power outages. In September 2011, for example, a failed transmission line in Arizona set off a chain reaction that created an outage affecting millions of people in the state and Southern California.

Sabotage could wreak worse havoc, experts said.

“The power grid, built over many decades in a benign environment, now faces a range of threats it was never designed to survive,” said Paul Stockton, a former assistant secretary of defense and president of risk-assessment firm Cloud Peak Analytics. “That’s got to be the focus going forward.”

Write to Rebecca Smith at rebecca.smith@wsj.com

Grid Terror Attacks: U.S. Government Is Urged to Takes Steps for Protection

Groups Say Industry Response to Potential Threats Is Insufficient

July 6, 2014 2:53 p.m. ET

An attack on a PG&E substation near San Jose, Calif., in April knocked out 17 transformers like this one.Talia Herman for The Wall Street Journal

Two research groups urged the federal government to take action to protect the electric grid from physical attacks, rather than leave security decisions in the hands of the utility industry.

The Congressional Research Service recommended that Congress examine whether a national-level analysis of the grid’s vulnerabilities is needed or if individual power companies’ internal security assessments are sufficient.

Separately, a nonprofit research group said efforts proposed by utilities to harden the grid fall short because they don’t account for how one region might depend on others. The report from the Battelle Memorial Institute, which operates six of the U.S. Energy Department’s laboratories, said attacks could occur across more than one electric system, destabilizing large areas.

The Federal Energy Regulatory Commission is considering new safety regulations proposed by an industry-dominated electric power organization. FERC, which regulates the nation’s high-voltage transmission system, told the industry in March that it must act to fortify the grid, after a series of articles appeared in The Wall Street Journal detailing how susceptible the electric system is to attack.

The first article described an April 2013armed attack on a substation near San Jose, Calif., which threatened electricity supplies to Silicon Valley. Other articles pointed out that transformers are especially vulnerable to damage and that an analysis by federal experts said an attack on as few as nine critical substations could result in a nationwide blackout.

The Congressional Research Service, essentially a think tank for federal lawmakers, last month said there is widespread agreement among experts that high-voltage transformers—the most costly pieces of equipment in electrical substations—are “vulnerable to terrorist attack, and that such an attack potentially could have catastrophic consequences.”

Attacks could cause blackouts lasting weeks, or even months, because it is difficult to obtain replacement transformers, the report said. Utilities keep relatively few spare transformers on hand because they can cost millions of dollars apiece. Each transformer is custom-built for its location so units aren’t easily swapped. Transformers are also heavy, often weighing hundreds of tons, so are hard to move.

The rules proposed to FERC by the industry-controlled North American Electric Reliability Corp. would require utilities to assess their own vulnerabilities and draft security plans for substations. But the proposal doesn’t define the threats against which utility assets should be protected, nor do they require any specific defenses, such as ballistic shields for transformers. The rules would require third-party verification of assessments and security plans, although utilities would be allowed to perform that service for each other.

Related Video

With over 160,000 miles of transmission lines, the U.S. power grid is designed to handle natural and man-made disasters, as well as fluctuations in demand. How does the system work? WSJ’s Jason Bellini has #TheShortAnswer.

NERC has said that its proposal gives utilities flexibility to respond to differing situations.

Jason Black, who wrote the Battelle report, which was published in May, said a utility-by-utility assessment is a flawed approach.

It would be better to determine which U.S. facilities are critical by looking across many utilities’ systems, he said. A blackout in New York, for example, might require electricity to be rerouted from the Midwest, making some substations in that region critical to the Empire State. But an insular assessment by an Ohio utility might not identify the importance of certain locations to New York.

“Assessments to determine critical facilities would be more rigorous if undertaken at a regional level,” Mr. Black said.

Write to Rebecca Smith at rebecca.smith@wsj.com

 

Why SolarCity and Tesla are going to replace your utility

POWER PLAY

Why SolarCity and Tesla are going to replace your utility

By Todd Woody @greenwombat 9 hours ago

The power plant in your garage. Tesla Motors

 

Millions of California homeowners and businesses have installed solar panels on their roofs to generate their own electricity. Now a small but growing number of them want to pull the plug on their utilities by storing that energy in batteries and tap that power when the sun isn’t shining. And that has set off a fight over who will ultimately control the state’s power grid—California’s three big monopoly utilities or their customers empowered by companies like SolarCity and Tesla Motors.

SolarCity, the Silicon Valley solar installer, has quietly begun to offer some homeowners a lithium-ion battery pack made by electric carmaker Tesla to store electricity generated by their rooftop photovoltaic arrays. Stem, another Silicon Valley company, will sell or lease a $100,000, 54-kilowatt-hour battery pack to businesses so they can arbitrage the grid by storing electricity when rates are cheap and then using that energy when they’re high.
 
The state’s utilities, however, are refusing to hook up solar-powered batteries and other home energy storage systems to the grid without charging connection fees that can run $800 or more. Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric argue that homeowners that cut the cord will saddle other customers with the cost of maintaining the transmission system.  (In a preliminary ruling issued in October, regulators ordered the utilities to connect solar battery systems for free while the issue is sorted out.)
 
But SolarCity customers like Marco Krapels pose a far more existential threat to a century-old power system. Six years ago Krapels put a 2.4-kilowatt solar panel array on the roof of his Marin County, California home. Last April, SolarCity installed a 10-kilowatt-hour Tesla battery in his garage to store electricity generated by the panels. “I should technically be able to function with solar and just the battery indefinitely as long as the sun shines,” Krapels, a renewable energy financer, told me as he stood by his Tesla Model S electric sports sedan. “I don’t want to have to buy power from PG&E at peak rates, I want to use my own power. You see this power line going from the street to my house? I look forward to the day when I cut that wire.”
 
It certainly makes economic sense for Krapels to do that, especially as a hedge against rising electricity rates. State subsidies pay 60% of the cost of the Tesla battery and Krapels leases the system for less than $40 a month. That’s even less than his lease payments to SolarCity for his solar array. So far SolarCity has signed up more than 300 customers for its solar battery system, according to Peter Rive, the company’s co-founder. As of July 1, there were 667 applications for energy storage systems in California that could store 33 megawatts of electricity, according to the state Public Utilities Commission.
 

“The long term goal for us is to basically integrate storage systems with solar power systems by default,” says Rive. “Over the next five years you’ll find an increasing percentage of our customers will be getting solar with battery storage.”

So just how much a threat do SolarCity and Tesla pose to utility hegemony? Time will tell but a look at the companies combined market cap compared to those of the parent companies of California’s Big Three utilities should give utility executives pause. So should the fact that a Tesla Model S battery pack can store six to eight times the electricity of the Tesla home unit. It’s relatively simple to engineer car batteries to store solar electricity and provide power to a home on demand, say at night, when the car is parked in the garage.

+

SolarCity:Tesla:utilities

“I see the solar companies and companies like Tesla converging,” says Krapels. “Soon their market value will exceed that of utilities that are fighting them. That’s when it’s going to get interesting.”

 
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Case For Exporting Marcellus Shale Gas

Q&A: Industry Economist Makes the Case for Exports

JUNE 18, 2013 | 3:26 PM
BY 

Liquefied natural gas (LNG) storage tanks and a membrane-type tanker are seen at Tokyo Electric Power Co.'s Futtsu Thermal Power Station in Futtsu, east of Tokyo February 20, 2013. Japan's imports of LNG hit a monthly record of 8.23 million tonnes in January, on an increased need for fuel to generate electricity after the nuclear sector was hit by the Fukushima crisis.

ISSEI KATO / REUTERS/LANDOV

Liquefied natural gas (LNG) storage tanks and a membrane-type tanker are seen at Tokyo Electric Power Co.’s Futtsu Thermal Power Station in Futtsu, east of Tokyo February 20, 2013. Japan’s imports of LNG hit a monthly record of 8.23 million tonnes in January, on an increased need for fuel to generate electricity after the nuclear sector was hit by the Fukushima crisis.

The nation’s new energy secretary Ernest Moniz spoke at an energy conference Monday, where he told the audience that applications for new natural gas export facilities would be decided upon by the end of the year. Gas producers want to sell their fuel overseas where it fetches a higher price. But before it gets shipped abroad, it has to be converted to its liquid form known as LNG – or liquefied natural gas. Building those facilities is expensive. The closest proposed LNG export terminal to the Marcellus Shale deposit is in Cove Point, Maryland. That could cost more than $3 billion dollars to convert from its former role as a natural gas import terminal. But domestic manufacturers and those who say U.S. security depends on keeping the fossil fuel stateside are pushing back. Environmentalists worry that exports will stimulate more production in states like Pennsylvania, where activists have been pushing to implement a drilling moratorium. StateImpact spoke to the chief economist of the American Petroleum Institute, John Felmy, about the future uses of natural gas, and the export issues.

A: Felmy: Well, Marcellus Shale could play a tremendous opportunity in terms of exports, because it’s such a vast deposit. Developing it can of course be used to supply other states, as we are doing now. But there is likely to be so much of it, that exporting it at a very good price would help in terms of keeping production going.

Q:  Phillips: Right now we have the price of natural gas at about $4 per million btu [British Thermal Units] here domestically. And what are we seeing oversees?

A: Felmy: Well in Europe, it’s about $12 per million BTU. But in Asia, it’s as much as $17 or $18 because of the challenges that Japan faces with the Fukushima plants.

Q: Phillips: And I know that the industry is getting a lot of push back from manufacturers who are concerned that if you start exporting natural gas the price for them is going to be too high. And what they have been saying the low price in natural gas has allowed them to come back to the US, and that they are seeing a manufacturing renaissance, because of natural gas prices being so low.

A: Felmy: I think there is enough to go around because all indications are, as the economists would say, is that the supply curve is really flat. In other words, when you have an increase in demand from exports you don’t kind of have a sharp increase in price. And if you look at the drilling data, you see that it tends to support that conclusion.

Q: Phillips: And why is that?

A: Felmy: It is because it is a huge resource, and the industry has been so creative at improving technology, such that we have gotten so much more gas from areas that we’ve never dreamed of. Where ten years ago we were talking about building all these LNG import terminals, and you had all these terminals built and so that was the consensus and everyone from Alan Greenspan on down.

Q: Phillips: The price of natural gas has gone up and down and up and down. And when you think about how much it costs to build an export facility, The Dominion proposal at Cove Point, Maryland is about $3.4 billion dollars, how do you manage that risk? It seems like a pretty risky thing.

A: Felmy: Lets let the market work. Lets not have government intervention. It’s the investors who are going to be taking the risk and things could change, but right now the U.S. is so far ahead of other countries, even though many other countries have huge deposits of shale gas, that we are going to have that opportunity for quite a while.

And so, if you look at the major competition internationally, right now it’s Australia and their costs have increased significantly. And if you look at the deposits in other areas like China, Argentina, and Russia they are large, but because of issues of rule of law, and ownership of the resource, because in most countries except for the United States, the government owns that gas. Here in the US private individuals can [own that gas]. Such factors are reasons why we are ahead and why we are likely to stay ahead.

Q: Phillips: So talk to me about the end user here, how feasible is it that we are going to be seeing cars run on natural gas?

A: Felmy: Well, only 3% of natural gas supply is being used in cars right now. It’s primarily fleets, busses, things like that. So you can expand the car fleet with natural gas, but it is very expensive.  So, it’s about $8,000 to convert car, at that level of expense the car will expire before you get your money back.

But for heavy duty trucks and fleets of cabs, that is a very viable option. We are also going to see a lot of growth in electric power generation. And because of emission restrictions we are already seeing a huge shift from coal to natural gas. We’re incidentally seeing a shift from nuclear to natural gas. For example, there’s a [nuclear] plant out in California, the San Onofre, they decided not to restart. Well, the only other alternative to supply that electricity is with natural gas.

Marcellus Shale Exports Could Transform Global LNG Market

Marcellus Shale Exports Could Transform Global LNG Market

JULY 25, 2013 | 10:14 AM
BY 

The offshore loading pier at Dominion has not received a ship importing liquefied natural gas since January 2011.

LINDSAY LAZARSKI / WHYY/NEWSWORKS

The offshore loading pier at Dominion has not received a ship importing liquefied natural gas since January 2011.

In energy-hungry countries, all eyes are on Pennsylvania’s Marcellus Shale gas. In a dramatic shift from just five years ago, the U.S. is looking to export, instead of import natural gas. And if more natural gas starts getting shipped abroad, Pennsylvania’s Marcellus Shale could help change the global market for natural gas, and lighting homes in Tokyo.

The U.S. currently has two export terminals, one in Sabine Pass, Louisiana, and the ConocoPhillips LNG export terminal in North Cook Inlet, Alaska. The U.S. Department of Energy just gave preliminary approval for ConocoPhillips to expand its Freeport, Texas import terminal to export liquefied natural gas. About 17 other export proposals now await approval by the DOE, including the Cove Point liquefied natural gas import terminal operated by Dominion Resources.

 

Lindsay Lazarski / WHYY/Newsworks permalink

The offshore loading platform (background) as seen from the Cove Point Lighthouse.

THE “SWEET SPOT” YIELDS A GLUT

In areas of northeast Pennsylvania, drillers say they’ve hit the “sweet spot.” In a drill rig several stories up above a Susquehanna County forest, gas workers guide a giant diamond drill bit, about the size of a basketball, as it cuts through the rock thousands of feet below. Steve MacDonald is in charge of this operation for Cabot Oil and Gas.

Cabot Oil and Gas public relations officer George Stark with a drill rig worker outside of the "dog house."

SUSAN PHILLIPS / STATEIMPACT PENNSYLVANIA

Cabot Oil and Gas public relations officer George Stark with a drill rig worker outside of the “dog house.”

“This is what we call our dog house, this is the command center of our operations up here,” says MacDonald. “This is our driller Mr. Reed here. He shows you how fast we’re drilling, how fast we’re pumping so he understands what’s going on downhole.”

Downhole in places like this Cabot Oil and Gas well, the company has struck gold, so to speak. Cabot’s natural gasproduction volumes and profits soared in 2012, exceeding all expectations.

And because of wells like these in Pennsylvania’s Marcellus Shale formation, a glut of natural gas has developed nationwide.  Domestic prices for natural gas have dropped about one-third, since July, 2008 before the shale boom really took off.

But overseas, prices are three or four times that.  So drillers here want to ship their gas abroad. The economist for the American Petroleum Institute, John Felmy says exporting Marcellus Shale gas makes sense.

“Because it’s such a vast deposit,” says Felmy, “and developing it, of course, can be used to supply other states as we’re doing now. But there’s likely to be so much of it that exporting it at a very good price would help in terms of keeping production going.”

API’s John Felmy talks to StateImpact Pennsylvania about exports.

As the price has dropped, production in some of Pennsylvania’s gas fields has tailed off.

PIPELINES LEAD TO IDLED IMPORT TERMINAL

In what some call a stroke of luck, the wells across Pennsylvania could easily be connected to an existing interstate pipeline system, which links up to a nearby import terminal.

One of seven holding tanks at Dominion's Cove Point Liquefied Natural Gas Terminal.

LINDSAY LAZARSKI / WHYY/NEWSWORKS

One of seven holding tanks at Dominion’s Cove Point Liquefied Natural Gas Terminal.

That import facility lies about 320 miles south of Susquehanna County, on a spit of land jutting out into the Chesapeake Bay, where large white cylindrical tanks are surrounded by a network of 32-inch pipes. The Cove Point liquefaction plant is operated by Dominion Resources. And Dominion also owns and operates a pipeline system that connects these tanks to Pennsylvania’s gas fields. It was only a couple of years ago when plans for that system were to use it for storage and transport between different markets on the East Coast. Today, the company wants to reverse the flow, transporting shale gas to their export facility in Lusby, Md.

The onshore liquefaction plant sits surrounded by a nature preserve. To get to the offshore dock, visitors have to head down into a tunnel and use a bicycle to travel beneath the water to the pier that lies out in the middle of the Chesapeake Bay.

Before any natural gas gets shipped overseas, it has to be cooled to minus-260 degrees Fahrenheit, the point where it becomes liquid. Export plants that liquefy the gas cost billions of dollars to build. So what they want to do at Cove Point’s idled import facility is spend the relatively bargain basement price of $4 billion converting it to an export facility.

The last time a ship docked at this pier was on New Years Day of 2011. Since then, the seagulls have moved in and made it home.  Hideaways beneath large pipes hold nests with chirping chicks. A nearby dump provides scraps of food, which the nesting birds bring back safely to this deserted pier, leaving the white-washed dock littered with chicken bones and bird poop.

Liquefied natural gas technician Ernest Ortiz monitors the process from the offshore control center.  Ortiz says he would love to start seeing ships coming to the dock. The last one to unload LNG was on New Years Day, 2011.

LINDSAY LAZARSKI / WHYY/NEWSWORKS

Liquefied natural gas technician Ernest Ortiz monitors the process from the offshore control center. Ortiz says he would love to start seeing ships coming to the dock. The last one to unload LNG was on New Years Day, 2011.

Dominion Resources spokesman Dan Donovan says this facility would make one of the best places in the U.S. to export natural gas.

“We have a world class dock and pier,” says Donovan. “We have the storage, we have a pipeline into what is now the second largest natural gas field in the world.”

Donovan’s point about the pipelines is key.

The company’s plan for their pipeline system used to be to pump imported natural gas to states like New York, New Jersey and Ohio. But their plans have changed almost overnight.

“No one saw this coming,” says Donovan.

FUKUSHIMA AND THE SHALE GAS REVERSAL

And Dominion wasn’t the only industry player surprised by Marcellus Shale production.

Wolfgang Moehler is the director of global LNG, the shorthand for liquefied natural gas, for the firm IHS Global.

“[The years] 2007, 2008, the assumption was that the U.S. would become, in the next ten years, the largest gas importers in the world,” says Moehler.

But today, that assumption has been turned on its head, thanks in part to all those productive Marcellus Shale wells, and the March, 2011 nuclear disaster in Japan.

Japan’s energy situation changed dramatically back in March 2011. Before the meltdown at the Fukushima Daiichi plant, nuclear energy supplied a third of Japan’s needs. Where it once had 50 nuclear reactors, today the country is down to just two.

Photo taken from a Kyodo News helicopter over the town of Okuma, Fukushima Prefecture, shows the Fukushima Daiichi Nuclear Power Station on July 9, 2013. Tokyo Electric Power Co., the operator of the crippled plant, said the same day that the density of radioactive cesium in groundwater by the sea at the plant has soared to around 90 times higher than three days ago.

KYODO/LANDOV

Photo taken from a Kyodo News helicopter over the town of Okuma, Fukushima Prefecture, shows the Fukushima Daiichi Nuclear Power Station on Tuesday, July 9, 2013, more than two years after the meltdown. Tokyo Electric Power Co., the operator of the crippled plant, said the same day that the density of radioactive cesium in groundwater by the sea at the plant has soared to around 90 times higher than three days previous.

Analyst Wolfgang Moehler is watching a dramatic shift in the global LNG market, partly due to increasing energy needs in developing countries like India, and the loss of nuclear energy in Japan.

“So a significant amount of that electricity production had to be substituted from fossil fuel generation,” says Moehler.

Japan was already the world’s largest importer of natural gas, but since Fukushima, the pace has increased steadily. Moehler says Japan would love to snag some of that cheaper American gas coming from Pennsylvania’s gas fields. And Pennsylvania’s gas producers would love to sell at a higher price.

He explains that importing nations like Japan are locked into long-term natural gas contracts tied to the price of oil.

“The emergence of the U.S. now as a potential exporter opened up a competition,” said Moehler. [Energy companies in countries like Japan] could also go back to their traditional producers and say well we have a different opportunity, we have to renegotiate the price. So Fukushima has a very very strong impact on Japan’s decision making in that regard.”

SHIFTING GLOBAL LNG MARKETS

Photo shows the inside of the world's largest liquefied natural gas tank in Yokohama near Tokyo, unveiled by Tokyo Gas Co. on March 13, 2013.

KYODO/LANDOV

Photo shows the inside of the world’s largest liquefied natural gas tank in Yokohama near Tokyo, unveiled by Tokyo Gas Co. on March 13, 2013. Japan’s imports of LNG hit a monthly record of 8.23 million tons in January.

But Dominion Resources still has a number of hoops to jump through before it starts piping in Marcellus gas, liquefying it, and shipping it out. IHS analyst Wolfgang Moehler says despite current contracts with neighboring countries like Australia and Indonesia, it may still be cheaper for Japanese energy companies to pay for the Cove Point conversion, and the extra transportation costs of shipping LNG through the Panama Canal to the Pacific rim. This is how good a deal Marcellus Shale gas seems to companies in Japan. Sumitomo Corporation, a Japanese trading company and its U.S. affiliate Pacific Summit Energy, has agreed to help foot the almost $4 billion bill to convert Cove Point to a natural gas export terminal. That company, along with the U.S. affiliate of India’s GAIL Ltd., have signed 20-year service agreements with Dominion to provide natural gas. Sumitomo has since announced that the exported gas would be sold to Tokyo Gas and Kansai Electric Power.

First, the U.S. Department of Energy has to approve any deals with non-free-trade countries, and determine if they’re in the public good. Dominion’s Dan Donovan says they’re pretty confident their proposal will gain approval from the DOE. The Federal Energy Regulatory Commission also has to weigh in. The state of Maryland has to issue about 30 different permits.

LNG EXPORT OPPONENTS

And not everyone is thrilled with LNG exports. American manufacturers don’t like the plan, because cheap natural gas has helped domestic factories become more cost-efficient.  They say exports would raise prices at home.

Listen to StateImpact’s interview with George Biltz of Dow Chemical.

On the environmental front the Sierra Club is challenging the Cove Point plan in court.

Sierra Club attorney Craig Segall says regulators should not turn a blind eye toward the impact of increased production in natural gas fields like Pennsylvania.

Cove Point Lighthouse sits within sight of the Cove Point LNG terminal.

LINDSAY LAZARSKI / WHYY/NEWSWORKS

Cove Point Lighthouse sits within sight of the Cove Point LNG terminal.

“So if that continues, you wind up making these really large national energy policy decisions,” says Segall, “not just here [in Cove Point] but cumulatively across all these terminals and never ask this serious question. This implies x percent increased methane emissions, y percent increased wastewater production, and as a result, increased wastewater capacity in the fracking states.”

Segall wants the federal government to study the larger upstream impacts.

Natural gas exports may be a good deal for drillers, their investors, and  landowners who leased their mineral rights. But Segall thinks more thought should be given to Pennsylvanians who get few of the benefits of drilling but most of the burdens.

So what would Segall say to someone living in Tokyo, facing rising energy costs?

“I think that’s absolutely the hardest question,” he told StateImpact.

Segall says renewables should be pursued. But in the meantime, he has no easy answer.

“But there’s always this question of equity,” he says. “There’s a question about how do we provide energy globally. And there’s the question about who suffers where energy is produced and who wins, upstream in Pennsylvania or anywhere along the supply chain.”

Segall also says the increased tanker traffic in the Chesapeake Bay could upset its already threatened ecosystem.

Dominion Resources says converting the Cove Point plant will create thousands of new jobs in Maryland and upstream in Pennsylvania.

The company expects the Department of Energy to make a decision on its application by the end of the year.

Companies Unplug From the Electric Grid, Delivering a Jolt to Utilities

BUSINESSSeptember 17, 2013, 11:05 p.m. ET

Companies Unplug From the Electric Grid, Delivering a Jolt to Utilities

By REBECCA SMITH and CASSANDRA SWEET CONNECT

Michal Czerwonka for The Wall Street Journal

At Kroger’s food-distribution center in Compton, Calif., a tank system converts organic waste into biogas to produce electricity used by the facility

On a hill overlooking the Susquehanna River, two big wind turbines crank out electricity for Kroger Co.’s Turkey Hill Dairy in rural Lancaster County, Pa., allowing it to save 25% on its power bill for the past two years.

Across the country, at a big food-distribution center Kroger also owns in Compton, Calif., a tank system installed this year uses bacteria to convert 150 tons a day of damaged produce, bread and other organic waste into a biogas that is burned on site to produce 20% of the electricity the facility uses.

These two projects, plus the electric output of solar panels at four Kroger grocery stores, and some energy-conservation efforts are saving the Cincinnati-based grocery chain $160 million a year on electricity, said Denis George, its energy manager. That is a lot of money that isn’t going into the pockets of utilities.

From big-box retailers to high-tech manufacturers, more companies across the country are producing their own power. Since 2006, the number of electricity-generation units at commercial and industrial sites has more than quadrupled to roughly 40,000 from about 10,000, according to federal statistics.

Experts say the trend is gaining momentum, spurred by falling prices for solar panels and natural gas, as well as a fear that power outages caused by major storms will become more common.

Michal Czerwonka for The Wall Street Journal

Organic waste

“The battle cry is Hurricane Sandy,” said Rick Fioravanti, vice president of energy-storage technology at DNV Kema, a Netherlands-based consulting company.

The growing number of companies that are at least partly energy self-sufficient is sending a shudder through the utility industry, threatening its revenues and growth prospects, according to a report earlier this year by the Edison Electric Institute, a trade association for investor-owned electric companies.

State and federal regulators say they are worried that utilities could end up with fewer customers to pay for costly transmission lines and power plants.

Utility executives, meanwhile, are asking themselves a disquieting question: “Am I going to just sit here and take it and ultimately be a caretaker of a museum, or am I going to be part of that business” that’s emerging, said Nick Akins, chief executive of American Electric Power Co., a big Ohio-based utility. AEP is considering helping its customers install their own generating facilities.

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On-site generation still accounts for less than 5% of U.S. electricity production. But it is peeling off some of the bulk sales that utilities find especially profitable. And some of the companies getting into the business think it is approaching a tipping point called “grid parity,” at which point power would be as cheap to make as to buy from a utility.

Since 2007, when the first solar arrays went up on its store roofs in California, the installed costs of Wal-Mart Stores Inc.’s solar systems have dropped from $6 or $8 per watt of capacity to about $3.50 per watt, said David Ozment, the company’s senior director of energy management. He said he expects the retailer to be paying as little for solar power as utility power “in less than three years,” opening the floodgates to solar expansion.

Wal-Mart produces about 4% of the electricity it uses but intends to make 20% by 2020, taking advantage of idle acreage on thousands of store rooftops.

On-site generation isn’t a new idea. It existed before the electric grid—the interconnected system of power plants, substations and transmission lines that ferry power thousands of miles—was stitched together beginning in the 1920s.

But for most of the past 50 years, the practice was associated mostly with remote locations like Alaska fish canneries or industrial facilities like oil refineries that generated lots of waste heat that could be harnessed for power production.

Almost overnight, that niche market has gone decidedly mainstream. Six years ago, Google Inc. attracted attention by installing big solar arrays atop its Silicon Valley complex in California. Other tech companies followed suit, worried about ensuring power supplies for energy-hungry server farms and achieving sustainability objectives.

Apple Inc. now gets 16% of its electricity from solar panels and fuel cells that run on biogas. Apple’s data center in Maiden, N.C., makes all the power it consumes, a company spokeswoman said.

BMW AG’s assembly plant in South Carolina, which made 300,000 vehicles last year, gets half its electricity from an on-site energy center that burns methane piped to it from a nearby garbage dump. Drugstore chain Walgreen Co., which has solar panels at 155 stores, plans to install them at 200 more.

Falling equipment prices make on-site generation increasingly attractive. From 2002 to 2012, the cost of installed solar systems fell by half, according to an August report from the Lawrence Berkeley National Lab. Companies also have the option of leasing big solar systems, rather than incurring the capital cost of buying them.

Many “clean energy” projects also qualify for federal and state subsidies. In the case of solar installations, there is a 30% federal tax credit, which is set to drop to 10% in 2017. Government officials say a shift to greener energy resources is good since it reduces the output from coal-fueled power plants, which produce about 40% of the nation’s electricity and are the most polluting.

But analysts say the importance of subsidies has been waning, overshadowed by steep declines in the cost of power-generating equipment. For example, the cost of solar modules—the biggest single component in a rooftop solar system—has dropped about 80% in the past four years, to about 65 cents a watt from about $4 a watt, said Galen Barbose, a senior researcher at the lab.

Companies also are turning to wind turbines and technologies like fuel cells, batteries, small natural-gas turbines and reciprocating engines, which are natural-gas-fueled cousins of the auto’s internal combustion engine.

Engineering and technology company SAIC Inc. is installing enough generating capacity at a data center outside New York to meet the center’s core needs, with batteries for backup power. The system uses reciprocating engines burning natural gas, an option considered reliable in storms because gas pipelines are buried.

A report released by the White House in August estimated that power outages caused by bad weather cost the U.S. economy $18 billion to $52 billion a year in lost productivity from 2003 to 2012.

Demand for fuel cells in the U.S. is coming primarily from telecom companies, hotels and universities, said David Wright, CEO of ClearEdge Power Inc., a manufacturer in Hillsboro, Ore. Many buyers want reliable on-site generation as a hedge against storm-related outages.

By next year, Verizon Communications Inc. plans to install $100 million worth of fuel cells from ClearEdge and Bloom Energy, as well as solar panels, at 19 data centers and other facilities in seven states, including New York and New Jersey.

Some traditional utility companies are edging into the on-site generation business.

Edison International, which owns big utility Southern California Edison, recently bought a Chicago-based developer of rooftop solar projects, SoCore Energy LLC, and it is an investor in solar-finance company Clean Power Finance.

As power production becomes more decentralized, “I want to make sure the company is deeply involved,” said Edison CEO Ted Craver.

Write to Rebecca Smith at rebecca.smith@wsj.com and Cassandra Sweet at cassandra.sweet@dowjones.com

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