Transmission
One of the most critical institutional and infrastructure challenges facing the U.S. power industry is transmission. The NERC "2009 Long-Term Reliability Assessment" says that transmission siting is the issue most likely to be the major challenge to long-term reliability. Without some near-term resolution, the nation will be unable to realize either the full potential of its vast renewable energy resources or the more secure grid deemed so essential to the nation’s well-being. Respondents to the Black & Veatch survey ranked transmission as the second-greatest barrier to the development of renewable energy resources, after low electricity market energy prices.
Two concerns rise to the top: siting and cost allocation. The industry is working with the Congress, FERC, and state regulators to perfect legislative language in the proposed Senate energy bill that addresses both areas. How much authority should FERC have over transmission siting? Should it (and can it legally) preempt state siting authority? What is the proper balance between state and federal regulation, and how is that institutionally achieved? Should Congress write specific language into the law regarding the allocation of transmission costs, potentially shackling FERC’s discretion, or should FERC retain its ability to establish rates on a case-specific basis?
A significant portion of the western transmission system resides on federal lands that are particularly well-suited for the development of wind, solar, and geothermal resources. Until recently, permitting on these lands needed to clear no fewer than nine federal departments before approval. In October 2009, a memorandum of understanding was signed by the nine departments that is intended to greatly expedite the siting process. This will be accomplished primarily through the designation of a lead agency for all federal authorizations, unified environmental documentation, and consolidated environmental reviews. The new procedures will unfold in 2010.
Enter the Dragon
China is vast. It is also an excellent laboratory for energy technology. With its centrally controlled, quasi – market economy, as well as its low-cost production infrastructure, it is emerging as a potential global market leader in solar cell manufacturing, wind equipment production, and carbon capture and sequestration technology. Penetrating the U.S. market is one of its trade objectives. For example, Duke Energy has announced deals (real and potential) with Chinese companies to develop solar photovoltaic (PV) projects in the U.S. as well as to explore the development of clean coal and carbon capture demonstration projects in China, where permits to accomplish such feats appear to be less daunting than in America.
The implications of the Duke deals and similar ones will be mixed in the coming years. On the one hand, it is likely that the PV cells involved will be produced in China. But the trend toward manufacturing solar arrays overseas is already occurring due to natural global economic forces. Just recently, General Electric announced plans to close its only solar panel manufacturing plant in Delaware, acknowledging the competitive advantages that China and other low-cost-producing nations have. On the other hand, the more rapid development and deployment of the systems co-developed by Duke and ENN Group will employ more Americans more quickly. Labor costs are by far the largest cost component (and source of value) in the full life-cycle value chain of PVs.
As if to further underscore the increasing role of China in U.S. electricity circles, AES Corp. recently announced that China’s sovereign wealth fund has acquired a 15% stake in the company. The pace of mergers and acquisitions in other industries that began in mid- to late 2009 will continue into 2010, creating a favorable environment for additional investment activities. Although outright acquisitions of, or mergers between, Chinese and U.S. energy and utility companies appear unlikely anytime in the near future, it is probable that more investments by the Chinese in U.S. energy companies and projects will occur, through joint ventures and outright purchase of stock.
Environmental Regulation
As in 2008, the 2009 Black & Veatch survey respondents ranked carbon emissions and water supply as the first and second top environmental concerns. This year, mercury replaced nitrogen oxides as number three (Figure 8).
8. Survey results: environment. Environmental concerns are near the top the list of problems causing anxiety in utility executives. A rating of 5 indicates a very important concern; a rating of 1 is for an issue of only average concern. Source: Black & Veatch’s 2009 Strategic Directions in the Electric Utility Industry survey
Last year was a year of initiation, development, and coordination among the new federal powers that will call the shots on environmental matters in 2010. In the next year or two, the industry will feel the full force and effect of the policies and regulations that are now under development. There is no doubt that this reinvigorated regulatory focus will be on the full range of critical energy, water, and environmental issues: trace metal and particulate emissions; new source performance and prevention of significant deterioration; water quality, use, and resources; hydrofracturing associated with nonconventional natural gas production; ash and nuclear waste disposal; and, of course, greenhouse gases. Furthermore, the EPA is seeking to replace the existing interstate trading protocols for nitrogen, mercury, sulfur dioxide, and nitrogen that would require the installation of scrubbers (or other technology) rather than emission credits trading. The agency will also review the need for new ozone rules.
Whether the origins of the new national focus on environmental regulation are federal legislation, state or regional regulation, EPA reinterpretation and enforcement of existing law, new state laws, or executive orders, the industry needs to gird itself for greater regulatory scrutiny, higher compliance costs, and elevated business risks in the new environmental milieu.
—Richard J. Rudden (ruddenrj@bv.com) is a senior vice president for Black & Veatch Corp.
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