“We forget just how painfully dim the world was before electricity. A candle, a good candle, provides barely a hundredth of the illumination of a single 100 watt light bulb.” – Bill Bryson
The electric world is an amazing one: illuminated screens bring us all the information that humans have compiled thus far on demand, large metal boxes hold our food and keep it cool so that it lasts longer, and outlets charge batteries for our mobile devices which we can then bring anywhere to communicate instantly with loved ones on the other side of the planet. While using power is a relatively painless act for the consumer, there is a frenetic pace of activity happening on the other side of the outlet.
“The way you get your lights on here is through a market that figures out the schedule for all the generation, and then they manage the minute-to-minute fluctuations of load, and production,” said Paula Lipka, a recent IEOR PhD graduate who has just begun working on the short-term electric supply team at PG&E. In order to keep prices low and meet ever-rising energy demands, providers such as PG&E must bid their energy resources (i.e. hydropower, gas, solar, etc.) into the competitive California Independent System Operator (CAISO) market. In her new position, Paula supports the day-ahead group as well as the real-time group which updates bids every 5 minutes (24 hours a day, 7 days a week). Because there are not currently many options for efficiently storing energy that has already been generated (though, Paula tells us PG&E is in the process of greatly increasing this and currently has a large pumped storage hydro-plant and couple of large batteries), in most cases any power generated must be used immediately by the consumer.
And with renewables becoming a larger part of the picture, not only do energy providers have to competitively bid their resources into the market, but also account for more unreliability in the system, “You will have cases — especially in real-time — where a cloud [covers solar panels] and power goes out. There are also issues with over-generation, and there is a pretty huge ramp that occurs in the evening when solar goes away and everyone is coming home. There are also more price spikes and negative prices. Negative prices mean that there is too much energy in the market and instead of getting paid by the market, you have to pay to generate power into the market,” said Paula. So, for example, in the mid-afternoon when everyone is back from lunch and before the dinner-time rush of energy, there may be negative prices because there is too much power in the market (if the day was say, sunnier than expected, for example).
So, one can see why when asked what the most important skill she learned while at Berkeley IEOR was, Paula did not hesitate before saying “optimization under uncertainty.” Paula is still learning about how things work at PG&E, but hopes that she can contribute to the process by updating the models to better account for uncertainty in its bids (i.e. how confident are we in our bid?), update the way data is visualized by the real-time team, and on a broader level help facilitate communications between the real-time and day-ahead teams. Of course, whatever models she comes up with, they will have to work in a matter of seconds to be relevant for the real-time team where strategies change every 5 minutes.
Energy wasn’t always bought and sold in such a frenzied manner. Before the passing of the Federal Energy Policy Act which introduced competition into the wholesale energy market in 1992, the industry basically operated as a monopoly with one local utility typically in control of generation, transmission and distribution services for the area. Long-term deals were typically communicated by phone call and were not very market-based. This opened up the market for manipulation by industry. For example, in the past, providers could withhold power generation in order to artificially inflate prices.
While it is still possible for providers to manipulate the market, it is much more difficult because the market is competitive (with prices changing every 5 minutes) and there are controls in place to help prevent market manipulation. “There are a lot of different strategies. They will do a number of different tests such as the pivotal supplier test which looks to see if anyone is dominating the market. If you are the person setting the price, and they see that your price is for some reason way higher than your default bid, then your bid will be mitigated to the default price,” Paula said explaining one way that the market works to prevent cheating.
Clearly, the energy markets are one place optimization techniques are very valuable. With IEOR students being free to apply engineering tools in many different disciplines, Paula said she chose energy systems because she knew she wanted to work on practical problems and liked energy because there was so much real data available. She also knew the problems were very relevant and saw the potential to make a big impact as there is still a lot of work to do to sort through the various policies and approaches to making the market fair and optimal.
Since picking a topic to focus on in IEOR can be challenging because there are so many possible fields where IEOR techniques are valuable, Paula recommended that students start by working to make connections in the areas they are interested in, “That can help a lot if you are a PhD student trying to come up with an interesting research topic. It’s often a lot easier and more fun if you are more aware of what is going on in the field you are interested in.”
As far as how to get started making connections — which is not always easy — Paula said she was fortunate that her advisor Professor Oren helped her get an internship at the Federal Energy Regulatory Commission (FERC). She believes that internships are a great way to connect with industry because it forces you to connect with people, and because you are working on real projects together, it makes it easier to make those connections last.
Though, Paula is excited to apply her knowledge and skills she knows she will definitely miss Berkeley IEOR. “There was a good group of people there and that was nice to have. Also, I have quite a bit of flexibility at my job, but not as much as a being a grad student. Having that super-flexibility to look at anything you want is something really useful — but it can also be challenging. So, I will miss that. Also, I will miss having such a wealth of knowledge available. Being able to learn about the best approaches that are going on right now is very useful.”
So, the next time you plug in your iPad, laptop, or any other of the myriad devices that use power, remember Paula and the invisible market that works 24 hours a day to deliver reliable power to our outlets.