Electric Power Executive Roundtable: Changes and Challenges in the Power Industry

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Researched by Industrial Info Resources (Sugar Land, Texas)--Fuel diversity and integration were the key themes at the Executive Roundtable session at this year's Electric Power Conference & Exhibition, held in New Orleans. The session featured executives from Entergy Corporation (NYSE:ETR), CPS Energy, Tennessee Valley Authority (TVA), NRG Energy (NYSE:NRG) and the American Wind Energy Association (AWEA). While members of the panel had various stances on the roles that renewables, coal, natural gas and nuclear should play in power generation, all agreed that a proper balance of diverse fuel types was absolutely necessary to help ensure power availability and delivery to end users.

Of course, one of the events that has brought this subject to the forefront of the Power Generation Industry is this winter's much-discussed polar vortex, which severely depleted natural gas supplies in the U.S. Northeast, driving up both gas and power prices. The operation of several coal-fired plants, some of which have been slated for retirement, kept the lights on in many parts of the country, leading the industry to question the safety of the rapid shift from coal- to gas-fired generation.

John Ragan, the president of NRG Energy's Gulf Coast region and executive vice president of NRG South Texas LP, said that while the build-out of natural gas-fired plants was good and was to be expected, developers needed to pay increased attention to the siting of these plants in regard to natural gas supply: "Do developers ever really take into account the infrastructure costs of natural gas pipeline and storage necessary to meet the swing demands of that combined-cycle facility? I would say in the past, 'No.' They assume Henry Hub price plus the basis differential and have some kind of assumption about what fuel costs will be, but when you have the load spikes that we had with this winter weather event, that all goes away," leaving operators questioning if and how they can physically get gas to a plant site.

James R. "Bob" Dalrymple, senior vice president for Coal and Gas Operations at Tennessee Valley Authority (TVA), agreed, slanting the dialogue toward the change in existing gas pipeline infrastructure. Dalrymple noted that TVA had experienced its highest winter peaks ever during the most recent winter. TVA experienced some gas availability issues due to changes in pipeline flows, after increased shale gas production caused pipeline owners and operators to shift gas flows to new markets and delivery points.

And as wind, nuclear and coal performed strongly over the winter, it was agreed that a mix of fuel sources was key in times of supply constraint and weather-related incidents. When moderator David Wagman suggested that despite all of the talk of a "balanced portfolio," conversations inevitably veered back toward investment in natural gas-fired plants, Cris Eugster, group executive vice president and chief generation and strategy officer for CPS Energy, made an important observation: "Natural gas is a bit of a game-changer because of shale, but I would say that it's not just natural gas seeing investment, it's natural gas and renewables. With coal and nuclear, we've got a lot of legacy out there that's already an important part of the mix."

There was agreement that wind was becoming an increasingly important part of the energy equation, with AWEA Chief Executive Officer (CEO) Tom Kiernan noting that no other fuel can provide a guaranteed price for 20 or 30 years at a time like wind, a long-term hedge that has been little quantified. "We have more wind under construction than we have ever had," Kiernan said.

Little surprise or drama occurred when discussing coal: older, inefficient units will be retired; those with adequate emissions-control technologies, or that are worth the investment to retrofit these technologies, will remain part of the fleet.

As this talk inevitably led toward future development, the latest technologies and ideas were soon put on the table, primarily involving smart grid technologies and distributed generation, which involves the use of smaller, regionally located generation facilities to supply nearby power in contrast to giant, centrally located stations providing power across hundreds of square miles through vast transmission and distribution networks.

Such development remains in its infancy in some ways. Data from smart grid technology can increase efficiency and smooth demand spikes if used effectively, but there has been consumer blowback regarding privacy issues. Judging by the tone of the panelists, distributed generation will be the next "big thing" demanded by consumers, and at the end of the day, power generators are going to have to listen.

"I think what we have to focus on is what does the customer want, and what will the customer want five years from now?" said John Ragan. "As these technologies continue to decrease in price, we're going to see more distributed generation. There's no question about that. And we have to very much focus on how we meet the customer's needs and, at the same time, continue to have a reliable system. It's a system that will transition over a period of time, and what we need to do is be as efficient as possible with the capital deployed to make that transition."

So change is definitely in the air. As utilities currently perform a balancing act of carbon reduction, renewables integration, natural gas build-out and more, one eye remains firmly on the future as the Power Industry seems on course for continued dynamic and rapid change.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and nine international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.