At the opening ELECTRIC POWER 2009 plenary session, both the keynote speaker and the Power Industry Executive Roundtable participants kept circling back to the problems created by a public and lawmakers who seem to be promoting policies without an adequate understanding of energy realities. Most of the speakers acknowledged that the industry itself is partly to blame, but nobody offered a way forward.
As you’d expect, this year’s keynote speaker and roundtable panelists addressed issues of carbon legislation, renewables, and financing. Those were the subjects of the stated questions. But woven into the answers was a strong thread of what one conference delegate perceived as "frustration." Power industry frustration with the ways of Washington is nothing new, but this year the speakers also expressed frustration with the public.
Energy Education Gets a Failing Grade
A major subtext of the ELECTRIC POWER 2009 opening plenary session was the industry’s need to better-manage the message about the tradeoffs required for achieving a lower-carbon electricity portfolio.
Keynote speaker Jason Makansi (Figure 1) said, "We’ve been defined by our discharge — not our product." Makansi, president of Pearl Street Inc. and executive director of the Energy Storage Council, observed that everyone wants to know how to stop global warming. His answer: renewables plus energy storage, nuclear with fuel reprocessing, coal with sequestration, and electric vehicles. Note the multipart answer. Note that no single generation type can stand alone, without modification and without partnering.
1. Keynote speaker Jason Makansi. Source: POWER
"Industry doesn’t do a good job" of educating the public about the power value chain, Makansi said. There’s a need for better public understanding of everything from the difference between kilowatts and kilowatt-hours to the smart grid, because even discussions of the smart grid tend to be one-sided. Public focus is on the "smart" element: the software and end-user devices; as for the "grid" component — the hardware — it’s "the stuff nobody wants."
Makansi noted that the industry is in part to blame for the public’s poor understanding of its business. "Nobody puts a coal plant on the home page," he observed, though many now feature wind turbines, so the public gets a false impression of where their electricity comes from. And, while acknowledging that "nuclear is absolutely necessary," as is coal, the coal industry "needs a wakeup call," he said.
Makansi sounded another cautionary note when predicting that carbon trading could be the next Wall Street debacle — the new "financial engineering platform" — and his penultimate slide urged the power industry to "Invest in infrastructure engineering, not financial engineering."
From Makansi’s perspective, the industry is at a pivot point at which it’s favoring demand-side management over new supply. Nevertheless, this industry is "fortunate," he said, because it’s the centerpiece of economic recovery.
Though neither Makansi nor the executives offered a multistep plan for addressing the problem, at least the industry has taken the first step in admitting that there is a problem.
Energy Education Deficit
In his introduction of the Power Industry Executive Roundtable panelists (Figure 2), POWER’s editor-in-chief, Dr. Robert Peltier, PE, noted that different utilities and power generators have different problems, and the executives’ comments proved that point. But some common themes, including the cost of the energy education deficit, emerged that transcended regional and fuel type differences.
2. The 2009 Power Industry Executive Roundtable panelists. From left to right: American Electric Power Chairman, President, and CEO Michael Morris; Dynegy Chairman, President, and CEO Bruce Williamson; Edison Mission Group Chairman, President, and CEO Ron Litzinger; Exelon Corp. President and COO Chris Crane; Sempra Generation VP of Asset Management Michael P. Gallagher; Moderator Dr. Robert Peltier, PE, editor-in-chief of POWER. Source: POWER
Michael Morris, the first of the panel to offer opening remarks, set the theme by stating that the industry needs to educate Capital Hill about CO2. Morris, chairman, president, and CEO of American Electric Power (AEP), noted that Congress doesn’t understand that customers pay for the costs of production.
In the Q&A segment, Bruce Williamson — chairman, president, and CEO of Dynegy — commented that there’s a big difference between "old" and "new" pollutants — SOx and NOx vs. CO2. "The press," he said, "doesn’t want to deal with the fact that industry doesn’t know yet how to use CO2. We need to make sure CO2 will stay underground."
Later, when asked about their response to recent comments by new Federal Energy Regulatory Commission Chairman Jon Wellinghoff and Secretary of the Interior Ken Salazar about the potential for renewables to supplant fossil fuel and nuclear generation, Williamson hit the education theme again by addressing the need to educate the public about everything related to electricity, including the fact that "power moves at the speed of light" — faster than FedEx (which garnered one of the rare audience laughs).
Morris added later that such comments by officials (even if they’re intended to set a vision for 30 or 40 years down the road) give the general public the impression that achieving grand goals is simple.
Ron Litzinger, chairman, president, and CEO of Edison Mission Group (EMG), said he’s still amazed "how few people [outside of the industry] realize that you can’t store electricity. And that’s a very basic, fundamental principle that needs to be well-understood."
Most of the roundtable panelists generally expressed support for the Edison Electric Institute’s position on cap and trade (which recommends that 50% of the initial allowances be allocated free and that the power sector should be given 40% of the allowances) but said that the initial allocation of carbon allowances should be completely free. They also offered some individual thoughts about carbon regulation.
To some extent, these executives seem to welcome a decision on climate change legislation for its ability to remove at least one layer of uncertainty. By taking on climate change, "you do get some clarity," said Litzinger. Exelon’s president and COO, Chris Crane, added that "we lack clarity on a national energy policy. We’ve never looked at it holistically in terms of what the country needs."
Morris, whose company is undertaking a test of carbon capture and sequestration (CCS) at its Mountaineer Plant in West Virginia, said, "I respect Congressman Waxman and Congressman Markey. They’re tackling a very difficult issue." Yet he called for greater honesty in defining the terms of the issue. Of cap and trade, Morris said, if you auction off carbon allowances, "it’s a carbon tax. So don’t call it cap and trade; call it a carbon tax."
Williamson took up the baton by addressing the question of who would benefit from the revenue generated by carbon allowances: "Let’s do it for the climate and the environment — not for revenue generation [for some unrelated purpose]."
Michael P. Gallagher, VP of asset management for Sempra Generation, concurred and called for any cap-and-trade revenues to be reinvested in energy infrastructure and renewables.
Although these executives back the notion of cap and trade, they made note of the devilish details to be worked out in any carbon mitigation program.
Litzinger believes cost will be the big driver, and Williamson expressed the hope that any carbon regulatory system would be transparent so that "there’s not an Enron of carbon cap and trade."
Litzinger said he thinks there should be free allowances, as there were under the SO2 program, especially because there is no proven removal technology for CO2 now — as there was for SO2 when that program was initiated.
In the Q&A session, when asked what would be the most important issue for CCS by 2025, Morris said, "we know capture works," but he said he’s worried about parasitic impacts, and the systems need to be demonstrated on a large enough scale. He also hopes we’ll find a use for CO2 that could avoid the need to sequester it underground. Williamson mentioned a company in California (Calera, funded by venture capitalist Vinod Khosla) that’s using CO2 in cement, though that process has significant hurdles to overcome before the product is commercially accepted.
With its only visible action consisting of the hyperbolic efforts of the coal lobby to promote undefined "clean coal" as a currently available option for counteracting the climate effects of CO2, the power generation industry has essentially ceded the rhetorical battle to those pushing for more renewables and swifter action on carbon controls. Morris mentioned a company (ecoAmerica) that, in the company’s words, "uses psychographic research, strategic partnerships, and engagement marketing to shift personal and civic choices of environmentally agnostic Americans."
"If it’s a scam, it’s a scam. Let’s have an honest debate about [CO 2 and credit auctions]," Morris concluded.
The Future of the Power Industry
Williamson’s refrain (picked up by others) was that we "need to promote the future rather than punish the past." (In later iterations of this sound bite, he called for not punishing the present.) Though he never specified what lawmakers might want to punish, it seemed clear that he hoped Washington would assist utilities and other power generators in meeting whatever new climate change regulations are ahead rather than making fossil fuel – burning generators and their customers bear the brunt of the impact. (Dynegy’s fleet is powered by gas, coal, and oil.)
There’s "no quick fix for the industry," he said, because "it’s taken 100 years to get the infrastructure we have now." Renewables will increase, but change isn’t going to happen overnight. Hitting the education theme again, he emphasized that the industry needs the public and Washington to understand that "we need it all." Furthermore, because "development is pretty much at a standstill," existing plants of all types will have to "run hard" in the future.
Morris alluded to the potential danger of ceasing construction of new baseload capacity with a reference to the devastating effect that running out of power (in January 2008) had on South Africa’s economy when it had to shut down industry and commerce.
Although each executive mentioned something his company is doing to address climate change concerns, those Gallagher mentioned had the largest numbers attached: a thin-film photovoltaic plant in Boulder City, Nev., that could become the largest in the world and a wind project in Baja, Calif., that could reach 300 MW. Clearly, Sempra (mainly a gas-fired generator, with most of its 2,600 MW located outside California) is affected by California’s aggressive renewables goals.
To Peltier’s question, "What’s the next plant your company is bring on?" the executives answered:
Morris: the 600-MW ultrasupercritical coal-fired Turk Power Plant in Arkansas (the first plant of this type to be built in the U.S.). (See page 34 for more information on this plant.)
Williamson: a solar pilot plant next to an existing gas plant.
Litzinger: a wind plant.
Crane: 400 MW of additional nuclear capacity via turbine changeouts and efficiencies.
Gallagher: additions to the Boulder City solar plant.
Dealing with the Credit Crunch
Tight management of existing resources was the theme when panelists addressed the financial crisis. Dynegy’s current focus is on "liquidity, costs, and operating well." But Williamson expressed confidence that, "as the economy comes back, energy demand will come back."
Edison Mission Group, a primarily coal-fired independent power producer, is in "a cash preservation mode," yet it is looking to diversify into renewables and integrating biomass into coal plants as well as pursuing demand-side management, Litzinger said. His company faces very high investments in environmental controls and uncertainty about the price of carbon. EMG’s approach to this challenge is "technical innovation and changing mindsets," which includes exploring selective noncatalytic reduction for larger, older coal plants that remain economic to run.
Exelon’s nuclear fleet used to be inefficient, Crane noted, but now fleetwide capacity factor is over 93%. His company is also looking at transmission system efficiencies. "Looking forward, we need to continue to find growth opportunities," he said, but noted that new nuclear development "is very difficult" because of liquidity problems and gas markets.
In addition to the usual hoops that nukes have to jump through (including financial viability and public acceptance of a proposed site), Crane noted that today there are new uncertainties:
Regulatory uncertainty: The industry is getting mixed signals from various administration officials about nuclear power.
Leadership uncertainty: The industry is waiting to see who the new Nuclear Regulatory Commission chief will be.
Waste disposition uncertainty: The industry needs to know what path the federal government will take with regard to spent fuel, especially now that the Yucca Mountain repository is officially dead.
Multiple panelists hoped that the country would soon see a comprehensive, sensible energy policy. When an audience member asked if there were anything that the U.S. could learn from energy policy models in other countries, the answer was no — with various explanations appended.
Morris pointed to France choosing nuclear in the middle of the previous century because its next best option was sourcing coal from Germany, and to the EU, which is leaning toward liquefied natural gas because Russian natural gas supplies are unreliable. Japan marries nuclear power and energy conservation, "but these models don’t work in the U.S.," he said. "Americans react to financial incentives almost exclusively." (Coal provides 73% of AEP’s generation capacity.)
Based on his familiarity with power projects in Asia and Europe that his company previously operated, Litzinger concluded that "power policy is easier to do in smaller countries."
Who Will Win the Fuel Fight?
When Peltier asked the panel about a proposed national renewable portfolio standard (RPS), Gallagher voiced approval for such a standard but added that there also needs to be a price for carbon.
Crane wants to see a federal RPS that’s "reasonable" and takes into consideration that the Southeast is at a great disadvantage. Earlier, Crane had observed that in the ’70s and ’80s, the U.S. developed mainly nuclear resources. In the ’90s it was gas plants. Today the policy focus is disproportionately on renewables. What’s needed instead, is a blended generation portfolio for the nation as a way to protect prices for consumers, he said.
Morris, who is not in favor of one standard for all states, offered the notion of different low-carbon resources, including nuclear, for different regions plus tradable renewable energy credits as a better answer.
Gallagher added that "the answer may not be here today, but we’ve got to work on the technologies that are available to make it so that we can burn the coal that we’ve discovered. You know, I started out in the nuclear business. I think it’s fantastic. It’s just going to take a little while [to change the minds of those who don’t know] how great nuclear can be."
In response to an audience question about the optimal percentage of renewables that the grid can accommodate, Litzinger said that it varied but was probably between 15% and 20%, because of the intermittency. Above that level, more fossil-fueled capacity would need to be added, and for any notable amount, "a lot of transmission needs to be built" (a point Morris seconded). Crane answered that it’s going to depend on the area of the country you’re in.
One particular audience question elicited a round of pointed answers. When asked about the government basing renewable policy on estimates from the Energy Information Administration (EIA) that assume a 40% capacity factor for wind, Morris jumped in to say that "The EIA has never been right with any number they’ve ever forecasted." It’s not, he clarified, that they’re dishonest, "but they’re wrong."
Litzinger added that the EIA has "favored the high end of capacity factors."
In Crane’s view, "consumers are being sold a bill of goods" on high capacity factors that may not be achievable.
Gallagher made the point crystal clear by saying, "All our wind developers would be jumping off the roof [in excitement if they got 40% capacity factors]."
One More Worry: NERC Standards Compliance
One audience question concerned an issue that all power generators across North America have to grapple with: North American Electric Reliability Corp. (NERC) reliability standards.
Gallagher noted that Sempra in the past three years has probably spent five times as much on NERC compliance as it did before the Critical Infrastructure Protection program became mandatory — even though the company was in compliance before.
Morris asked, "They’re creating something they think is well thought through, but does it add to the stability of the grid?" Though he believes "100%" in audits, "I thought it was a great idea, but it’s getting out of control," Morris said.
At Exelon, the NERC compliance group grew from 3 to 17 people. Even if the audit phase goes well, Crane observed, there can be problems with interpretation.
Litzinger, too, identified NERC compliance as a cost-driver and added that it’s unclear if the standards have added to grid reliability. Yet, he noted that, given what’s happened in the financial sector, regulatory compliance is likely going to get stronger.
—Gail Reitenbach is POWER’s managing editor.