Massachusetts Restructuring Roundtable Boston, MA November 16, 2001 John B. Howe

REVOLUTIONIZING THE WAY THE WORLD USES ELECTRICITY TM

Power Transmission Technology:The Second Revolution

Superconductor-Based Technologiesand Regulatory Reform Strategies

To Boost Grid Capacity, Improve Reliabilityand “Break the Gridlock”

Massachusetts Restructuring RoundtableBoston, MA

November 16, 2001

John B. HoweVice President, Electric Industry Affairs


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

American Superconductor Corporation

Nasdaq: AMSCNasdaq: AMSC


Overview Today’s Power Grid is Severely Stressed

The Grid Never Violates the Laws of Physics

New Grid Technologies: Description and Benefits High-Capacity HTS T&D 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


……Has Brought Us to “Power Gridlock” -- Has Brought Us to “Power Gridlock” -- And A Demand for New Power TechnologiesAnd A Demand for New Power Technologies

A Convergence of Many Factors...

Demand Growth

“Siliconization”

Siting Obstacles

Erratic Pace of Deregulation

Eroding Reliability


The “Power Struggle:” Summer 2001

In Georgetown: Lost Business Merchants Bemoan Costs as Power Outage Continues

June 15, 2001

The Detroit NewsMajor Detroit power line failsIt happens nearly one year after the city's worst outage

June 13, 2001

Another Boston-Area Power OutageAugust 24, 2001


New Generating Capacity

19301930 19401940 19501950 19601960 19701970 19801980 19901990 20002000

4040

3535

3030

2525

2020

1515

1010

55

00

66

55

44

33

22

11

00

Transmission Investments Estimate

New

gene

ratin

g ca

paci

ty (‘

000

meg

awat

ts) Transm

ission investment (1992 US$ billion)

Source: CERASource: CERA

Grid Investment Lagging in U.S.


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)

Power Grids Have Limited Capacity


The Changing Role of the Power Grid

Pre-1990s: Vertically-Integrated Monopoly

Mid-1990s: Rise of DG -- “Is the Grid Obsolete?”

2000s: The Grid Isn’t Going Away Soon -- But It Needs a Major Upgrade Now!!

The Grid’s New Role: Platform for Competition

……The Lesson from Other Regulated Industries:The Lesson from Other Regulated Industries:The Key to Robust CompetitionThe Key to Robust Competition

Lies in a Robust Physical NetworkLies in a Robust Physical Network


Superconductor Technology Benefits

Raise Energy Efficiency

Increase Capacity

Improve Reliability and Power Quality

Reduce Environmental Impacts

Put Scarce Real Estate to Higher Value Uses

……ComponentComponent Benefits of Superconductivity are Benefits of Superconductivity are Leveraged into even Larger Leveraged into even Larger System-LevelSystem-Level Benefits Benefits


The Basis for the Revolution The Basis for the Revolution

HTS Wire: 140x Increase in Wire Capacity


HTS Wire Price/Performance Trend

0

200

400

600

800

1000

1200

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Pric

e/Pe

rfor

man

ce R

atio

, $/k

A-m

*

* Price of One Meter of Wire Carrying 1,000 Amperes

Performance and Yields are Rising -- Costs are Falling

ActualTarget


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


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


High Capacity HTS Power Cables

More power carried in same right of way at much lower voltages and system costs.


(1, 2)(1, 2)Nine Existing Nine Existing Copper Cables Copper Cables Are RemovedAre Removed

(3, 4)(3, 4)Three HTS CablesThree HTS CablesAre Installed -- SixAre Installed -- SixConduits Free forConduits Free forExpansion/Other UsesExpansion/Other Uses

HTS Cable: The 3-to-1 Advantage


2

3

Urban Re-Electrification: “Virtual Bus”


Urban Re-Electrification: “Urban Ring”


HTS Re-electrification: Reclaiming Corridors


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!


Power Transmission Lines Never Operate at Full Capacity (“or “Bandwidth”)

Our Least Expensive “New” Grid Capacity: The Capacity that Already Exists but Can’t be Used

At What Fraction of Maximum Bandwidth are Your Utility’s Power Lines Operating?

U.S. Average = 35% !

Distributed SMES:Attacks the Power Bandwidth Problem


Old Solution- String More Lines!


A New Solution - SMES

Power electronics and superconductors

Most effective

Lowest cost

Quickest solution

No environmental permits


Proprietary Storage Technology...

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

SMES Basics


Delivers megawatts of real power instantaneously and simultaneously with megaVARS of reactive power.

…Plus Proprietary Power Electronics Technology

SMES Products


PQ SMES: Precise Power Quality Protection

LINE VOLTAGE (IN) LOAD VOLTAGE (OUT)


Time in Seconds

D-SMES: Wide Area Grid Stabilization

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

1.1

Rel

ativ

e Vo

ltage

0 0.5 1 1.5 2

Base Run - 115kV

D-SMES


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


WPS Northern Loop (No. Wisconsin)D-SMESD-SMES

100 miles

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)


Ava

ilab l

eA

vaila

b le

Load

Ser

ving

Cap

abili

ty, M

WLo

ad S

ervi

ng C

apab

ility

, MW

0

50

100

150

200

250

300

350

Six D-SMES: 15% Safe Increase in Power BandwidthSix D-SMES: 15% Safe Increase in Power Bandwidth

ThermalLimit

CurrentOperation

Dynamic Voltage

Limit

Operating in the Operating in the RED ZONE RED ZONE

6 D-SMESAdded

WPS Northern Loop


Entergy Gulf States (East Texas)

D-SMESD-SMES Two units in 2001, two

more in 2002

8 MVAR reactive power capability (2.3x overload)

D-SMES built into Entergy’s strategic planning process


1000

1100

1200

1300

1400

1500

1600

1700

1800

1900

Ava

ilab l

e Lo

a d S

ervi

ng C

apab

ility

, MW

Ava

ilab l

e Lo

a d S

ervi

ng C

apab

ility

, MW

Four D-SMES: 20% Safe Increase in Power BandwidthFour D-SMES: 20% Safe Increase in Power Bandwidth

Operating in the Operating in the RED ZONE RED ZONE

Dynamic Voltage

Limit

ThermalLimit

CurrentOperation

FourD-SMES Added

Entergy Gulf States


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


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


The Problem

For Utilities that Operate Under Traditional Cost-of-Service Regulation,

Investing in Transmission Assets to Reduce Congestion is Unprofitable…

or Worse.


Some Level of Transmission Constraints is Economically Efficient

DollarsInvested

Number of Hours Constrained

Cost ofRelievingConstraint

Benefits ofRelievingConstraint

EconomicallyDesirableLevel ofConstraint


What Determines “Optimal” Constraint?The Form of Regulation Matters!!

DollarsInvested

Number of Hours Constrained

Vertically-Integrated,Local Regulated Utility

Unbundled DISCO underCost of Service

Unbundled DISCO underMulti-Year Price Cap

VI Utility with Non-RegulatedMarketing/Generating Affiliate

Large RTO InternalizingAll Congestion Costs


Competition in Commodities Spurred byCompetition in Commodities Spurred by Competition in the Building of Network FacilitiesCompetition in the Building of Network Facilities

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 O’Hare Problem)

Network Investment:The Key to Robust Competition


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.


Stimulating New Grid Investment:“Exempt 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)


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

Proposed Benefits of ETF Status


“Break the Gridlock!”

Thank You!Questions?

[email protected]

Documents

Massachusetts Restructuring Roundtable Boston, MA November 16, 2001 John B. Howe