Power Magazine takes a hard look at the 2008 generation scene

In an often biting and blunt review of what to expect in the generation market, Power Magazine has clearly elaborated on some of the key challenges the energy industry will face over the next year. The opening paragraphs are perhaps the most blunt.

Predicting the U.S. power industry’s 2008 performance requires understanding how utilities and other plant developers respond to risk and uncertainty. Three years ago, mercury controls had the undivided attention of every coal plant operator. Today, the imminent arrival of carbon controls has caused a tectonic shift in the industry. In years past, builders of new power plants focused on getting grandfathered out of new regulations. Today, developers are canceling plants before the climate change debate in Congress has ended, already assuming the results will be bad for them.

Even the mere anticipation of carbon controls, and the sea change they will bring to the U.S. economy, has created strange bedfellows and stranger enemies. Environmental groups are now embracing nuclear power because they perceive it to be the lesser of two evils—after coal. Proposed carbon cap-and-trade regulations have executives of nuclear and wind power utilities vilifying their counterparts at coal-based utilities, who are asking for “need” allowances to ease the transition.

Thirty years ago, America’s major utilities faced common challenges arm-in-arm. That time has passed.

The article goes on to detail the prospects of the main forms of energy; sadly, none of their findings are good. While the impending election cycle initially appears to bode well for renewables, the simple fact remains that there are just not sufficient levels of wind, biomass, or other renewables ready to handle the rapidly growing demand for, baseload energy. At the same time, many in government and society have actually begun to believe the notion that we will be able to supply our never ending demand growth with conservation and wind, despite the fact that even new wind proposals are also beginning to meet stiff public and regulatory opposition.

We see proposals for new generation plants -- whether coal-based, nuclear, or hydro -- immediately shot down on legally and scientifically questionable grounds and suggestions for new gas exploration denied by powerful special interests and all the while demand continues to grow by what the people at Power mag term, "double-digit rates."

As one friend recently commented in a private conversation, perhaps it is going to "take a few black outs" for regulators and the public to realize that at some point an near exponential growth in demand for energy is going to run afoul of supply realities. If people refuse to build new capacity, but always demand more from aging infrastructure, something eventually has to break. In the meantime, utilities will do their best to meet demands and implement conservation measures (such as SRP's recent summer rate increase suggestion, which could see daytime summer electricity rates in Arizona hiked by as much as 9.3% as a means of decreasing peak demand use). However, even the best conservation programs are not going to avoid the need for new capacity.

The Power Magazine outlook for 2008 doesn't tend to engender a lot of confidence as pricing will continue to grow alongside of demand and supply and stability will diminish in the face of growing opposition to almost all forms of new generation proposals.

Perhaps it will take black outs, as my friend suggested. I would personally hope that we might return to a more productive and proactive outlook in the generation industry. The sniping and backbiting has apparently got us nowhere, so it would seem to be a good time to look back to the era when the electricity industry faced challenges arm-in-arm.

Perhaps together we can come up with an affordable and realistic solution.