Black day for Silicon Valley as thousands are left powerless

California is in the grip of blackouts amid turmoil in its electricity industry. Gerald Michaluk and Faisal Choudry explain the background to the crisis

The lights are going out in Silicon Valley, the powerhouse of the US economic miracle. A state of emergency has been declared and the public are facing rolling blackouts and big price increases. As a result of having to buy power at a higher cost than they can charge consumers, the top two utililities, Pacific Gas & Electric and Southern Califorinia Edison, are all but bankrupt with debts of $11bn.

Gray Davis, the governer of California, has had to commit public funds to prevent a complete blackout and the shutdown of Silicon Valley. The state is facing a number of problems:

– An inadequate transmission grid means that surplus power in the south of California cannot be effectively routed north.

– California has not built a big power station for more than ten years, despite rising demand. Those plants that have been built are mainly gas fired, and rising gas prices have made them expensive to operate.

– Prices on the state’s power exchange have been running at between $300 and $400 per MWh and as high as $1,500. The $300 figure translates into 30 cents per KWh, but there is a regulatory cap of 10 cents per KWh on the price that utilities can charge consumers. Southern California Edison is losing $1m an hour, while Pacific gas & Electric is borrowing $1m an hour.

– Business and domestic demand has soared and many computer companies require a constant supply of electricity - a cut for even a fraction of a second can result in huge losses in systems and revenue.

– Last summer was one of the hottest in years, and the winter has been cold and stormy. As well as increasing demand for air conditionong or heating, the storms caused nuclear plants to cut output for safety reasons.

– It is thought some Californian generators may have been selling electricity to other states for a higher price.

– Peak demand occurs in the summer when Californians turn on their air conditioning. Most plant maintenanceis undertaken during winter and little effort is made to minimise shutdown times.

California’s deregulatory dream of 25% energy savings has now turned sour - but the British are coming. Companies such as Scottish Power and National Grid have bought US power stations and claim up to 60% cost savings, while firms such as Innogy, formerly part of National Power, are at the cutting edge power industry technology and could solve most of California’s generating and distribution problems. Transmission inadequacies could be tackled by installing "Regenesys" fuel cell technology, which allows power produced off-peak to be stored and used during peak times.

This would optimise the use of existing transmission lines, saving the the need to spend $300m on a new north-south transmission path. Expertise in engineering operation and maintenance, coupled with plant conditioning monitoring systems, would ensure optimum performance and minimise maintenance, allowing California to generate more power from it’s existing portfolio plants.

– Gerald Michaluk and Faisal Choudry are consultants with Marketing Management Services International, the UK’s fifth largest strategic marketing consultancy.

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© Marketing Management Services International 2011