Ukrainian Power Resilience

Energy Central Power Perspectives™ Podcast · 152. ‚Ukrainian Power Resilience Through the Eyes of a Utility Leader‘ with Steve Walsh, Traxys

 

TRANSCRIPT

Jason Price:

Welcome to the Energy Central Power Perspectives Podcast. This is the show that brings leading minds from the energy industry to discuss the challenges and trends that are transforming and modernizing our energy system. And a quick thank you to West Monroe, our sponsor of today’s show. Now, let’s talk about energy.

I am Jason Price, Energy Central Podcast host and director with West Monroe, coming to you from New York City. And with me as always, from Orlando, Florida is Energy Center producer and community manager, Matt Chester. Matt, this week’s episode is an important and unique one for Power Perspectives as we’ll explore the energy sector in Ukraine and discover any lessons learned to share with our audience on how a resilient grid is not just an etherization issue, but a military one as well. You’ll hear from a former colonel in the US Marine Corps and former executive for a multinational utility and energy company in the United States and abroad. But first, Matt, share with us some key data points to kick things off for today’s discussion.

Matt Chester:

Sure, Jason. And for our listeners who may not be well-versed in the energy sector in Ukraine, I say don’t worry. I wasn’t either, but I did dig into the numbers a bit for the sake of this episode. Ukraine, it’s known as a critical transit country for oil and gas supplies being sent from Russia to Europe, but Ukraine also produces notable amounts of fuels from coal to gas to oil and more. Despite that, Ukraine does rely on imports for about 35% of its total energy supplies. Focusing on the grid specifically, Ukraine, as the country consumes 134 billion kilowatt-hours of power annually. That ranks around 27th of all nations. And then in terms of how that power is broken out, Ukraine has four nuclear plants that provide over half the country’s power, while fossil fuels make up about 37%. And to-date, Renewable energy has remained a bit of a more marginal part of their grid mix, though. Hydropower specifically does total a capacity of 12 million kilowatts across the country.

Jason Price:

Thanks for that, Matt. And our next guest knows these facts and figures very well. Our guest today is Steve Walsh, former officer in our military-turned-utility leader. As I mentioned, Steve retired from the US Marine Corps as a colonel and brings three decades of global leadership spanning roles and power generation, energy distribution, and renewable energy development. His experiences are not only vast, but also richly varied, from leading energy distribution companies in both Ukraine and Kazakhstan, to serving on the board of the largest hydroelectric power company in Eastern Europe. Given his firsthand encounters with the challenges and successes of the Ukraine power grid, especially admits political turmoil and conflict, Steve’s insights are particularly timely and invaluable. So we’re eager to hear his experiences and tease out what lessons our American Power Company leaders can learn from the success in Ukraine. So with that, please, let’s welcome Steve Walsh to the Energy Central Power Perspectives Podcast.

Steve Walsh:

Thank you, Jason. Thank you, Matt. It’s a privilege to be here today. I look forward to engaging in a didactic discussion as it relates to the energy system in Ukraine and Eastern Europe, and how the utilities and/or energy companies elsewhere around the world can perhaps take a lesson learned from what’s going on in Ukraine and how they can do things better within their sector.

Jason Price:

Thank you, Steve. We are thrilled to have you on the show. You have an impressive and diverse career in the power industry that we could only barely scratch the surface of in our introduction to you. So why don’t you take a moment to credentialize yourself. Please share your background both in the Marines and in the power sector and given your time around the globe covering Latin America, Middle East, East and Western Europe. I have to ask, how many languages do you speak?

Steve Walsh:

I joined the Navy when I was 17. Soon thereafter, went to the Naval Academy, graduated there in ’79, took a commission in the Marines and spent my first 21 years primarily in infantry special operations assignments. I was very fortunate to get the opportunity to serve as an advisor in El Salvador during the Civil War there and got my first real practical energy experience, in that I helped rebuild a geothermal plant that was in the area that I was assigned that had been damaged by the guerrillas. So that was my first practical energy experience, if you wish. When I retired the first time from the Marine Corps, I joined AES, a big global power company, and I worked primarily in Latin America in distribution and in generation assets in leadership capacities. In 2004, I was recalled to active duty because I was told I had a unique skill set that the military needed, and I spent 18 months in Iraq and Afghanistan as the electricity program officer rebuilding energy generation, transmission distribution, which was exciting to say the least.

Went back to AES, served at the corporate headquarters as the VP of government legislative affairs, and then went back into operational roles in Ukraine, Kazakhstan, the Middle East. Left AES in 2012, set up my own company that did mergers acquisition advice, and then got hired by Traxxas where I currently work in 2013 and have been with them for about 10 years working on difficult workout situations, process improvement, what have you. So I’ve got a very interesting, shall I say, skill set from the standpoint of being fed with a fire hose. As far as languages, I grew up speaking Spanish and English and then have learned Russian and a little bit of French since then. So that’s about as far as I can go on the language barrier.

Jason Price:

Well, that’s impressive. Thank you for that background. Really fascinating and want to dig into really the meat of the discussion today is what’s going on in Ukraine and what you’re learning and all. So as noted, you have visited Ukraine numerous times since the conflict with Russia began. What can you tell us about the state of the Ukrainian power grid amid this extreme type of stress? And what are the challenges, and how has the grid and the nation’s electric sector workers respond to them?

Steve Walsh:

It’s been discussed, Jason, Iran, Ukrhydroenergo and KievoblEnergo, which are two distribution companies that at the time AES owned in Ukraine. And I did that for about four years, from about 2006 to about 2010. We had about 1.6 million meters spread out over 50,000 square kilometers of territory. So all we did was distribution, bring the power to the house or bring it to the business, and then charge it. We didn’t do transmission lines and we didn’t do power generation. But what I observed in those four years was the resiliency of not only the Ukrainian people, but equally important, the resiliency of the system that was how it was originally designed during Soviet times.

There’s a famous quote by Vladimir Lenin that says communism is the power of the Soviet people and the electrification of the nation, words to that effect. That really hit home to me in that the grid, as we would know it or call it within the former Soviet Union, was redundant and extensive from the standpoint that every little village, no matter where it was, had electricity brought to it. They might not have running water, they may have a well, but every little village has got electrical power. And to keep that electrical power going, because obviously the villages, many of them are very remote, they had to have redundant systems that had multiple lines coming in and out to allow that power to basically be on all the time. I think that is one of the fundamental characteristics of why the Ukrainian system has been able to hold up so well, an inherent redundancy.

And then you combine that with the character of the Ukrainian people in that they are very adopt at, as we used to call it in the Marine Corps, improvising, adapting, and overcoming. What I mean by that is they’re very good at fixing something either on the fly, on their own, not waiting for, shall we say, a third party in times even a national government to come in and repair stuff because that’s in the nature of the system that was developed during Soviet times.

During Soviet times, it was pretty obvious that the state couldn’t provide or didn’t provide everything you needed or even wanted. So, as a consequence, you had to do a workaround. And the Ukrainian people are experts at the workaround in that you know someone who can fix it, or you can fix it yourself, you know someone who’s got a line on the supplies you need, or they know someone that can get you the supplies you need outside the system. And it’s that, shall we call it, a workaround mentality that allows them to basically repair the grid quickly within sometimes hours of an attack that otherwise would be waiting for supplies for weeks? So I think that’s the inherent resiliency that they have, and they’re using it certainly to their advantage.

Jason Price:

All right, well, that’s really interesting because they’re facing a whole different set of issues compared to the United States, but at the end of the day, the system goes down for one reason or the other, in our case, obviously a lot of it has to do with climate change and the impacts of weatherization, grid management issues and so on and so forth. So for our audience, share with us, put your critical hat on and do some comparing, contrasting. What are some lessons that perhaps we could take away from how the Ukrainians are maintaining their resiliency, and what can we learn from the things they’re doing?

Steve Walsh:

First and foremost, time spent improving redundancy in the grid is absolutely critical, and it pays dividends exponentially. As most people know, 90% of outages in a distribution system occur because of vegetation. A tree grows into the line, a tree falls on the line, the post rots and falls over, something like that. When I was in Ukraine, we spent a significant portion of our budget on vegetation management. And as a consequence, we didn’t have a lot of vegetation-related outages, principally because we were very aggressive in spending both money and in how we reduce the threat of vegetation-induced outages. So I think that’s one thing. Sadly, in a lot of distribution companies in America, vegetation management becomes the weak sister, if you wish, and the neglected portfolio, and you’re always fighting for an increased cut cycle or that sort of thing, and oftentimes it’s the first to suffer.

A good example of that would be the previous management and practices with PSE&G out on the West Coast. PAG probably now wishes that they had a different attitude toward vegetation management, having gone bankrupt and paying out billions of dollars in claims for fires started by their network. So that’s probably one good takeaway. The other is demand management that I think very common in my experience overseas, where you’ll call people up to reduce power or literally just go ahead and open a circuit so you don’t want to have wide swings in the grid when it comes to managing the network versus just try to provide as much power to everyone all the time, which is probably an unrealistic attitude to have. So I think those are two of the big things as it relates to lessons learned that we can understand from what’s going on in Ukraine. I don’t know if that resonates with some of the listeners or not.

Jason Price:

Yeah, I think so. I think that a lot of our listeners, the knee-jerk response to weatherization or resiliency issues is to just build, build and build. In this case, Ukraine is doing more of a lower cost redundant type of network, so it puts things in perspective in terms of communities along the water of building that back up after a storm comes through. A lot of communities are putting that into question now in terms of the sensibility of making those kinds of investments over and over again, and what does that mean from an equity standpoint of everyone else having to pay for that. Perhaps there are other ways to look at keeping that community along the water resilient, through perhaps some lessons learned in other areas of the planet that look at resiliency and redundancy differently than perhaps we’re looking at it. I think you raised some interesting thoughts there.

Steve Walsh:

I think resiliency is obviously key. The sad part about the reality in many western countries is you’re dealing with a regulated utility or regulated environment. And in that regulated environment, it’s almost like you’re constantly fighting with a regulator trying to put something into a rate base. Often times, you don’t do the right thing, you do the easiest thing, or you do something that is probably going to get approved versus what really should be done. But that’s the reality of the world that we live in. So certainly during Soviet times, there was no regulator, there was no had to make a case and do a business analysis. We’ll put the line through wherever we have to. Permitting wasn’t an issue, we’ll do it because it’s the right thing to do. The reality is, we don’t live in that environment anymore, certainly in the West. That’s what we have to deal with.

Jason Price:

All right, so I do want to ask you a bit more about the industry itself, the utility industry in Ukraine. So share with us, are there other ways that you see the war in Ukraine impacting the job of the utilities, and in what ways does that come to mind? For example, how do you see the war impacting the supply chain and workforce? Certainly, of course, national defense and grid mod, but apply your lens of Ukraine on what this means for the rest of the energy and utility industry.

Steve Walsh:

I think first and foremost, and we’ll start with the supply chain, having spares is always a difficult task to perform because something that’s sitting on the sidelines not being used, waiting for the catastrophic or emergency event to occur, you’ve got significant capital tied up. And what we’ve seen in Ukraine is that, first and foremost, the Russians, when they use the correct piece of equipment, we’ll call it a cruise missile that is purposely designed for a ground attack, not an aircraft missile repurposed, they can be extremely accurate when it comes to targeting nodal infrastructure within the energy space. Primarily, they tend to go after not only power stations but large transformers. And I’ve seen that at Ukrhydroenergo with multiple cruise missile strikes into not the power station itself, but into the large transformer step up, step down transformers that we have that are at any power station.

And they are often times custom-built, long-lead items to order. Keeping extras of those or protecting that infrastructure that usually there’s a blast wall around a large transformer, that’s purely for if it’s an internal fire or if something happens to the transformer. The reality is now you’re seeing sites hardened against external missile attack is now becoming a requirement because sourcing a large transformer often times is extremely difficult. So I think redundancy in major equipment items that can be moved around and used in multiple locations is a must. We don’t do a very good job of that in the United States. We probably need to focus some more attention on that in the event that we were to suffer a catastrophic loss of some large-scale transformers. But the reality is they’re expensive, they’re difficult to move, but when you need one, you really need one. So that’s probably one of the biggest things that I’ve seen in the nine visits since the invasion that I’ve made back to Ukraine for board meetings and elsewhere is the key infrastructure items, having spares of those that can be deployed to put back the grid back to where it was.

Jason Price:

Any comments on your everyday utility worker? Just sort of like what’s their mood, how are they doing? In many respects, they are on the front lines as much as the soldier carrying the gun, providing a service to the country. Maintaining the energy flow is critical to keep food cold and preserved and medicines cool. And share with us any conversations you had, any thoughts you want to share?

Steve Walsh:

I spend a significant amount of time when I travel to Ukraine going to be just about everywhere that’s more or less safe, and that’s a relative term of course, to meet with the rank and file folks that are fixing stuff, that are operating machinery, that are operating power station, repairing transformers or transmission lines, and probably they are some of the most stoic folks I’ve ever met. They understand that it’s up to them and to them alone to make things work. You see people that no one’s worried about, „Hey, am I on the clock? Am I on overtime? Am I going to get paid for this?“ „I got to get this on because I’m the only one that can do it, and if I don’t reconnect the system, the village down the street is not going to have electricity.“ And as we know, once you get used to having electricity, you really like it, and you don’t want to live without it.

So I think the stoic mindset of the Ukrainian people, and which brings me to another point. Let’s not forget Ukraine, the greater Ukraine area has been invaded, bombed, strafed, attacked for centuries. This is not just a one-off, what the Russians have done. It seems like their entire history for the last 500 years is somebody’s been running over them, running through them, imposing their will against them, what have you, enforcing famine like they did in the ’30s, the Soviet government did to the Ukrainians to try to break their will, literally starved 3 million people and took their food away. You have a group of people that have a tremendous amount of grit, I have to honestly say. They don’t complain a lot, they just get stuff done when it gets really difficult. And I think that is a very good characteristic to have, particularly in times like now. Some countries, they don’t really have that.

That is pretty much rank and file throughout the folks in the energy sector. That said, a lot of people in the energy sector, they get more or less an exemption from military duty being called up in the draft. We have over 100 people in Ukrhydroenergo who have volunteered to go and fight, which is pretty impressive when they could sit on the sidelines, but they’ve volunteered to go forward. And we’ve also had people killed and wounded at work, at the power stations when they’ve been attacked by the Russian cruise missiles and drones and stuff like that. To survive tough times, you need tough people.

Jason Price:

So Steve, you come from a military background, which surely impacts the way you see military applications and integrations of our energy technologies, as well as grids as a strategic asset to protect and for, of course, our enemies to target. So for any of our utility leaders listening in, are there any specific ways you suggest that the military lens should be considered perhaps more so or differently than perhaps in the past in terms of what we could learn from what’s going on in Ukraine by our utility leaders?

Steve Walsh:

I think there’s probably a couple. First and foremost, it’s a continuation of the mission if you wish. If the mission is to provide power to the people and that requires key people in key positions, then probably the first and foremost for a utility would be what is your succession plan? I am amazed by the difficulty often times they have when someone leaves either voluntarily or involuntarily, there’s just a scramble around trying to find someone to replace them, to keep the ship on course or to keep going in the right direction, pick a word. That’s absolutely critical, having a viable succession plan for everything, for every job you have. If someone can’t come to work or if they’re disabled or killed or what have you, someone’s going to step up and move right into that position. They may take a little bit of training, or they may not be as perfectly smooth as the previous individual, but having a succession plan, a viable succession plan throughout the business is absolutely key.

And that’s what one of the big lessons I think from Ukraine because people get called up for military duty, they get killed or wounded. You got to have someone step right in because the mission, keeping the ship afloat, keeping the ship on course, keeping the customer supplied with energy, that’s non-negotiable. You got to do that. To do that, you need to have a good succession plan, rock solid. So the key people, decision makers, there’s always somebody there to get something done. I think that’s first and foremost.

The second part is planning. This is a universe where you have to plan for the probable, not necessarily the possible. A lot of people will complain about, „I’ve got a plan for so many catastrophes or potential disturbances,“ they’re probably looking at the possible. „My transformer is going to be hit by a meteorite.“ Okay, that’s maybe possible. Is it probable? No, it’s not. So what you have to do is you allocate your resources for the probable, and then plan accordingly.

And then I think lastly would be a perfect plan perfectly executed probably is not as good from a time perspective to address the issue as a good plan 85% percent, 90% compete executed very quickly. That often times is better than the perfect plan. So I think we in the utility space often try to plan something to the Nth degree when the reality is you got to get energy restored, you got to get the lights back on. An 85% percent solution done quickly and done forcefully is often better than a perfect plan. So I think those are the three big things that I would say from a military perspective, there’s a common phrase in the military, the first plan, your plan of attack never survives the first contact. You always have to be able to, in football terms, call an audible. I think the more you plan, the better you get at it, certainly, but be prepared to call an audible to adjust the plan accordingly as the situation dictates. That’s one of the big things that the military taught me and has carried over into my time in the civilian industry.

Jason Price:

And Steve, besides the military background, you also have a global background, global perspective. You shared with us, travel the world from South America, Middle East, East and Western Europe, of course, the United States. So really interesting and unique lens. Share with us what are some common threads that you see as well as unique differences that you see when you visit a grid and utility across the globe. What has surprised you and stood out as something that’s very common and then also something that clever and unique to the culture or country that you’re visiting?

Steve Walsh:

I’ve had that opportunity to do not only operate a business, run a business, but also to do some due diligence on the merger’s acquisition side, look at acquisitions. And I’ll use an example. When I was living in Ukraine, AES was invited to come and bid for basically to run the distribution network of Albania. And I had never been to Albania and spent a week there and started looking at the business, and it was owned by the government, and they were going to privatize it, and they were going to sell it to a company like AES, and they were going to manage the distribution network of the country of Albania.

And about 20 minutes into my investigation, I made a kind of comment. I said, „Well, let me see your accounts receivable, are they aged, what the status of payment was.“ I found out that the highest non-payer of the bills for energy in Albania was surprisingly the Albanian government itself. And when we, AES, elected to pass and not put a bid in, the Albanian government at the time was astonished. They’re like, „Well, you’re 26 countries around the world. Why don’t you want to come and buy our grid and run our distribution network?“ I pointed out to them, I said, „Well, we want to be successful, but if the government itself is not paying their bills, how can we expect to have anyone pay their bills and be able to run this efficiently?“ So I think the paradigm shift for me was just because the bill payer is a government entity, don’t expect that it will always be timely in their payments.

To use another analogy, when I lived and worked in Ukraine, one of my customers was the Chernobyl power station. Now, the power station at Chernobyl, unit number four, was destroyed and tests had gone bad. I think everyone realizes that it wasn’t an experiment, it was an actual deliberate test that obviously didn’t go well. The other three reactors were, over time, shut down. The US government, along with some European Union funding, built a series of cooling ponds to take reactors one, two, and three, take their cores out and put them in a cooling pond. The cooling pond basically circulates cold water around the reactor that’s going to decay over the next 150 years until it’s basically not giving off any heat. Almost every other month, I had to go to Chernobyl and meet with the station manager who was there to get him to pay his electric bill because we were supplying electricity to the site. Inevitably, they would not pay. They knew right away that they were behind on their payments, and it was a government entity. And I knew that I wasn’t going to cut off the power because if I did, all the water would boil out of the cooling ponds and it would be obviously a disaster.

So it was a kind of kabuki dance, if you wish, with the station manager to finally get him to pay the bills, so I could at least come clean on all my customers and as to what their status of payment was. So I think that’s often times an interesting cultural difference when you’re dealing with state-owned entities that sometimes think that they don’t have to follow the rules that they themselves or the government has set up, which is an interesting one.

From the standpoint of rural electrification, in my time around the world, I have found nowhere that people don’t appreciate having electricity. They may not be so concerned whether it’s coming from a renewable source or not, but everyone, and I mean everyone, is a supporter of rural electrification. If you’re in the middle of nowhere, you’d like to have a power line to yourself. Yeah, you can have some off-grid setups, which in some aspects are the reality if you’re in the middle of nowhere. Congo, I spent a lot of time in the DRC, and there are places there at mine sites where the distributed generations, the only way to do it. But for the most part, rural electrification really does bring prosperity. We’ve pretty much put the grid in the United States to every place where it needs to go. But in the rest of the world, there are often places that rural electrification really is a huge thing to do, and it’s probably money well spent because once you have electricity, it gives you so much more opportunity to work 24/7. It gives you the opportunity to expand the local economy. So I think that’s one of the big things that I’m a big proponent of is rural electrification whenever possible. You really see it overseas from my experience.

Jason Price:

That’s interesting. That’s a great compare and contrast. So thank you for that.