POWER September 2012 - 92

COMMENTARY
Fuel Diversity Is Critical in
Industry Transition
By George W. Sharp
S
uccess in life and business is all about seizing the right
opportunities at the right time. Opportunities abound
today in the electric utility business. Our industry is
in the midst of an extraordinary period of transformation
and investment that will affect how we produce and deliver
electricity-and what customers pay for it-for decades.
By 2020, electric utilities will spend an estimated $300
billion to comply with new U.S. Environmental Protection
Agency (EPA) regulations affecting coal-fueled power plants.
By 2030, the industry needs to invest an estimated $2 trillion
to upgrade, replace, and expand our power production
and delivery infrastructure. If managed correctly, this transition
can help support a U.S. manufacturing renaissance, grow
jobs, and help bolster the U.S. economy. But, if we barrel
ahead without ensuring that we can maintain fuel diversity
for electricity generation, we may do more harm than good
for our energy future.
Natural Gas's New Dominance
Utilities are making decisions today about power plants that
have 50-year lives, and these decisions are being shaped
by circumstances that favor just one fuel-natural gas. Low
natural gas prices combined with a surplus of supply are lowering
power prices and making other fuels less competitive.
Well-funded anti-coal campaigns and the EPA's aggressive
regulatory stance have essentially killed the prospect of any
new coal plants. The recession, high costs, and the Solyndra
fallout are dampening support for renewables. And the Fukushima
accident has largely taken new nuclear off the table.
Licenses for four new nuclear units in Georgia and South
Carolina have been approved, but no additional units are on
the horizon in the U.S.
New EPA regulations will shutter at least 20% of our nation's
existing coal-fueled power plants by mid-2015. According
to the U.S. Energy Information Administration's (EIA)
projections, coal's share of our nation's electricity production
will fall from 45% today to 39% by 2025. That coal will
be replaced largely with natural gas and some renewables.
Renewables are expected to increase by more than 50% by
2025 but still will remain only a small percentage of overall
power generation.
Directional drilling and fracking may be the game-changers
that everyone predicts, and our nation may be flush with domestic
natural gas for decades. The EIA forecasts natural gas
wellhead prices below $5 per thousand cubic feet through
2023. If that long-term price holds, it will mean significantly
more dependence on natural gas to generate electricity. Absent
a national energy policy that supports fuel diversity,
it will be difficult for utilities to propose any other type of
electricity generation.
92
The Risk of Overdependence on Natural Gas
Betting on just one fuel to power our energy future isn't smart.
Natural gas has a volatile price history. Six short years ago, spot
natural gas prices hit a high above $15 per thousand cubic feet.
Just four years earlier, the price had been below $2. Shale gas
may temper future volatility, but growth in demand could exceed
the availability of pipeline infrastructure and push up prices.
Environmentalists and others may successfully slow or stop shale
oil and gas production until they are satisfied that fracking is
environmentally safe and geologically sound. Higher gasoline
prices may convert natural gas to a transportation fuel. And surplus
U.S. supply could mean natural gas exports. All of these
scenarios could cause the same price swings that we have seen
with natural gas in the past.
The electric and natural gas markets also are not sufficiently
aligned, and issues like infrastructure investment, pricing, and
capacity and scheduling protocols need to be coordinated to
prevent reliability concerns. The Federal Energy Regulatory Commission
has recognized the need to address this coordination
issue and has opened a docket on electric and gas coordination.
As we depend more on natural gas to generate electricity, the reliability
of the electric grid becomes only as good as the natural
gas grid that supports it.
Absent comprehensive energy policy, it will be challenging,
if not impossible, to get beyond the near-term price appeal
of natural gas and advocate successfully for fuel diversity,
especially if it costs more. We must work to keep clean coal,
natural gas, and nuclear fuel in the mix for electricity generation
while supporting expanded renewable development
and energy efficiency.
As an industry, we also must embrace wider use of performance
benchmarking and share best practices to continually
improve the cost and reliability of energy production and delivery.
As our industry makes huge infrastructure investments
and moves to different competitive market modes, we run
the risk of becoming more insular and missing opportunities
to enhance how we generate and deliver power. Robust participation
in utility-led associations, such as EUCG Inc., the
Edison Electric Institute, the American Gas Association, and
the American Wind Energy Association, will help us continually
improve and demonstrate the benefits that fuel diversity
affords the U.S. economy.
Overdependence on one fuel for electricity production will put
our future economy at risk. Energy costs have long been a key
component of U.S. competitiveness. We must make the most of
this unique time in our industry to remain competitive and to
ensure that we continue to have access to affordable electricity
to power our economy. ■
-George W. Sharp (www.eucg.org) is president of EUCG Inc., a
global association of utility professionals and member companies.
www.powermag.com
POWER | September 2012
http://www.eucg.org http://www.powermag.com

POWER September 2012

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