American Electric Power

The future of electricity? More of the same…

March 1, 2011

In the slow-moving, capital-intensive, heavily-regulated electric utility industry, the times they aren’t a-changin.’

Natural gas is the cheap fossil fuel of choice. Coal will be burned for as long as there is coal. The federal government will never–never–have a comprehensive energy policy.

Climate crisis? What climate crisis?

Those were the themes that emerged today as four of the power industry’s most powerful CEOs–Mike Morris of American Electric Power, Lew Hay of NextEra, Tom Fanning of the Southern Company and Tom Farrell of Dominion –spoke at the EnergyBiz Leadership Forum in Washington.

While the theme of the conference is “winning strategies for the next five years,” the CEOs mostly agreed that the next five or even 10 years are going to look a lot like the last five or 10 years.

“Five years out, it (the industry) will look exactly as it does today,” declared Morris, perhaps the grumpiest of the grumpy old men on the panel.

Ten years from now, he went on, the industry will still look very familiar, with one significant change: Old and inefficient coal plants will have been replaced by combined-cycle plants that burn natural gas.

Only Hay–whose NextEra is a leading clean energy company–argued that the declining costs of wind and solar energy, the appeal of electric cars and improving renewable-energy  technology could expand the share of low-carbon energy in the electric grid.

With AEP’s Morris to his right and the Southern Co.’s Fanning to his left–both are big-time coal burners–Hay quipped: “I feel like I’m the cream in the middle of an Oreo cookie, sitting between my coal brethren.”

But even he acknowledged that the availability of cheap shale gas, the after-effects of the recession which slowed demand for electricity, and the absence of a comprehensive federal energy policy had dimmed the outlook for renewable power.

Lew Hay

“Without a doubt,” Hay said, “the renewable business is not as robust as it was three years ago.” NextEra still plans to build 700MW to 1000MW of wind and solar generating capacity a year, more than most if not all other big utilities–but under more favorable conditions, it would be building even more.

None of the other CEOs expressed any enthusiasm for solar or wind power. (If the word “climate” was spoken, I missed it.) With that exception, the four power guys agreed much more than they disagreed.

All say we need a fully diversified energy mix–coal, gas, nuclear, wind, solar and efficiency measures.

All say more government investment should be steered towards so-called clean coal.

All support a ramp-up of nuclear power.

All lament the absence of a consistent, long-term federal energy policy.

Hay said: “We’re never going to have a comprehensive energy policy.”

Morris agreed: “Hoping for the U.S. to craft an energy policy is folly. It’s never going to happen.”

For good measure, he added:  “You have global issue that will never come to resolution, and that is carbon and CO2 emissions.”

If they’re right about that–and so far, they are—it’s hard to argue with the utility industry’s inclination to resist change. They’ve sunk vast amounts of capital into their current generation fleet.  Their regulators want them to supply low-cost reliable power above all else. So, it’s a safe bet, do their customers.

Without a price on carbon dioxide emissions–and with natural gas prices as low as they are today–that makes it difficult, if not impossible, for renewable energy generation to compete on a cost basis with fossil fuels. Of course, there are so many subsidies for both renewable energy and fossil fuels that straightforward cost comparison are difficult to make.

Still, all the market signals are pointing in the direction of natural gas. Cheap gas trumps eveything is the way one industry insider put it recently.

There will be a rush to gas,” Fanning said, for better or worse.

Afterward, I asked Lew Hay if this more-of-the-same approach to the future would get U.S. carbon emissions down to where they need to be in the next five of 10 years.

That depends, he replied, on where you think they need to be.

“If we shut down the least efficient coal plants and replace them with natural gas, there will be a pretty dramatic reduction in carbon emissions,” he said.

It’s not the carbon tax that he once advocated. (See my 2009 blogpost, FPL’s change of heart.) Nor is it the cap-and-trade scheme that leading environmentalists and some in the utility industry, including Hay, once united around.

But it’s all we’ve got for now.

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Your parents were wrong

February 7, 2010

The Sierra Club and American Electric Power, the nation’s largest coal-burning utility, don’t agree on much, but there is this:

Money does grow on trees.

Along with other big environmental groups and such businesses as Duke Energy and El Paso Corp., they are part of a coalition that wants to use markets to protect the world’s forests and curb climate change.

Jeff Horowitz

Jeff Horowitz

The coalition—called Avoided Deforestation Partners, a name that will never win a branding contest—is the brainchild of Jeff Horowitz, a 58-year-old architect and newcomer to the environmental movement who has quietly become an influential player as climate change legislation inches its way through a divided Congress.

Protecting forests “is our single most important strategy, with respect to solving the climate crisis,” Horowitz says. “If we don’t tackle forestry immediately, we can’t buy enough time to get at the technological advances we need and scale them.”

I met Jeff in December at the UN climate talks in Copenhagen, and visited him last week at his office in a lovely, hilly neighborhood of Berkeley. A mechanism to protect forests by steering millions of dollars from the developed world to poor countries, known as REDD (Reducing Emissions from Deforestation and Forest Degradation), was endorsed by governments in Copenhagen, so Horowitz felt good about the climate talks. “As far as we’re concerned, Copenhagen was a tremendous victory,” he told me.

Now he wants to make sure that forestry offsets are part of a U.S. climate bill. That will enable regulated polluters in the U.S. to offset their carbon emissions by paying to protect forests elsewhere. Protecting forests is a cheaper and quicker way to curb emissions than by switching from coal or natural gas to low-carbon energy sources like nuclear, wind or solar power. [click to continue…]

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