Betting on Power Generation
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The utility sector’s paradox is that it is building power plants that last 40 years. But the energy policies set forth in Washington have much shorter lives. What to do?
Energy executives gathered in Charlotte and sat starry-eyed at the thought of a comprehensive, long-term policy that set the rules for everything from carbon emissions to nuclear certainty. But they all agreed that such a scenario is highly unlikely. As such, they are moving forward with balanced portfolios that they think are good bets.
“If you are waiting for regulatory and legislative certainty, this will be a luxury item,” says Randy Zwirn, chief executive of Siemens Energy at the Energy Inc. conference held in Charlotte last week. In the absence of this type of stability, he says that companies must listen to their customers and to their regulators -- and to pay attention to what is happening in the world. The aim is to develop a vision and to proceed accordingly.
In the case of Siemens, which has a mix of energy options, it is placing big bets on natural gas. To that end, it has hired 3,500 people during the worst recession in decades and is currently staffing up with about 1,500 new workers at its Charlotte-area facility where it is assembling gas turbines.
Jim Rogers, who is Duke Energy’s chief exec and who also spoke at the conference, says that no matter his audience he tries to convey that energy policy and development must involve the construction of clean, affordable and reliable generation. Environmentalists, for example, are focused exclusively on the creation of green energy while regulators emphasize affordability and reliability.
Consider: While nuclear power plants are expensive and cost at least $10 billion to construct, they are running at 95 percent capacity, making them inexpensive to operate and ultimately cheap to own over a 40 year time horizon. At the same time, coal is running at 78 percent of capacity while natural gas combined cycle is eclipsing that of coal. Peaking plants, meantime, are meant to ensure that demand on sweltering days gets met and thus requires facilities to quickly ramp up.
“We have a portfolio of options,” says Rogers, who engaged this reporter in an in-person interview. “That’s been the secret to our 40-year plan.”
The utility industry acknowledges that its efforts to inform the public-at-large could improve. The increasing need for electricity coupled with the array of new technologies and environmental laws will translate into higher power prices. Consumers must know the ultimate cost of such progress will filter down to them.
The decisions over how and where to invest both public and private resources are one of give-and-take. That is, risks are associated with each choice -- whether they come in the form of sustainability or reliability. And those dynamics must be put in the proper perspective with the understanding that no energy form is ideal but that the nation needs a modern infrastructure to remain economically competitive.
This country reinvests 2 percent of its gross domestic product in energy infrastructure while China is plowing back 9 percent, says Christopher Kearney, chief executive of SPX Corp., during the conference. It’s a balancing act, he admits, as the nation is grappling with record debt levels.
“We are beyond the critical phase,” Kearney told this writer. “The build-out needs to be paced. If it is done gradually, it will be easier. If it is done in crisis, it will be jolt and harder to sell.”
The global economic downturn dampened electricity consumption. And while the pace of recovery is picking up, it will take some time to return to pre-recession productivity rates.
Nevertheless, the time to think about new development is now, something that utilities and their partners recognize. The objective is to increase outreach programs and to form bonds with regulators, consumers and environmentalists alike, says Frank Yoho, an executive with Piedmont Natural Gas.
“We spend a lot of time being part of our community and dealing with each of them on an open basis,” says Yoho.
Billions are needed to modernize the nation’s generation fleet. But it’s money that will be well spent: For each $1 billion invested in infrastructure about 20,000 jobs are either directly or indirectly created -- a fact that Rogers says can facilitate such development while helping get back the country’s “mojo."
The development of energy policy will likely occur in bits and pieces, not enough to provide a clear, long-range picture. Utilities will therefore continue to evaluate their own needs and to build for an expected future increase in demand in the cleanest and most reliable way.