Released December 10, 2013 | SUGAR LAND
en
Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--The U.S. Power Industry faces huge and expensive challenges across its value chain, from fuel sources all the way to customer care. Its future success requires rethinking some long-held assumptions about the industry's business model, speakers told the recent Power-Gen International (PGI) conference.
The electricity business is going through "wrenching changes brought about by low natural gas prices, new environmental regulation and the public's demand for cleaner energy," according to Russell Ray, moderator of the event's keynote panel. "Overcoming today's challenges will require massive investments in new technology, more flexible generation, more conversions from coal to gas, and the complicated integration of emissions controls," he told attendees at the conference, which was sponsored by PennWell Corporation (Tulsa, Oklahoma). Success also will require companies to "rethink how they produce and deliver power."
Ray, who edits Power Engineering magazine, criticized the recent trend to regulate carbon dioxide (CO2) emissions as "essentially eliminating coal. We were hoping for a practical (CO2) standard, something that would keep coal in the mix. But that wasn't the case." In proposing an emissions standard of 1,100 pounds of CO2 per megawatt-hour of electricity produced by new fossil-fueled generators, the U.S. Environmental Protection Agency (EPA) (Washington, D.C.) "doesn't give coal a fighting chance," Ray said.
Other regulatory and legislative challenges facing the power business include storing and managing coal ash, stricter effluent discharge limits, and the potential need to modify water intake systems under section 316(b) of the federal Clean Water Act, he continued.
Natural gas has emerged as the "go to" fuel for new generation, largely because of regulatory and cost problems associated with new-build coal and nuclear plants, respectively, he observed. But amid the "dash to gas," the industry faces a vexing operational challenge: "Many of today's gas plants were built as peaking facilities," Ray told the attendees November 12. "These plants are being run longer and harder than ever before. Running peakers as base-load resources creates a whole new set of problems for the people who run these plants. The industry needs better maintenance programs and strategies."
"When I talk to utility executives, they can't say with any certainty how they will be operating their gas plants in five, 10 or 15 years," said Amy Ericson, president of Alstom U.S. (Washington, D.C.), the domestic affiliate of equipment manufacturer Alstom (OTC:ALSMY) (Paris, France). "That's why we're going to give our customers every last drop of flexibility they need as they adapt plant operations to long-term shifts in market dynamics." Gas-fired generation has garnered the largest single slice of Alstom's global research & development (R&D) budget, she added.
Ericson and other PGI keynote speakers agreed that diversity of fuels for electric generation should remain a fundamental part of U.S. energy policy: "In an uncertain business environment, we need to keep all options on the table." Technology investments have made the electric grid "smarter, stronger and more flexible," she said, encouraging the industry to continue making grid-related technology investments.
"Forethought today is the key to prosperity tomorrow," Ericson said. "Technology can lower the cost of electricity, reduce your environmental footprint, and increase flexibility and reliability."
In fact, one utility is relying on advanced technology that it says will reduce electric demand by more than 350 megawatts (MW). Oklahoma Gas & Electric (Oklahoma City, Oklahoma), a unit of OGE Energy Corporation (NYSE:OGE) (Oklahoma City, Oklahoma), is relying on demand response (DR) programs to reduce electric demand by 300 to 400 MW by 2016, Peter Delaney, chairman, president and chief executive at both OGE Energy and its utility unit, told PGI attendees.
"In 2007, we announced a strategy to not build any new generation until after 2020," he told the conference. "Our plan is to rely on DR and other ways to wring efficiencies out of our system."
The utility is well on its way. OG&E installed 800,000 advanced digital meters at its customers' homes and businesses. Those meters, combined with innovative pricing options, has reduced demand by 70 MW in the first year of OG&E's "Smart Hours" program. Year 2 savings were an additional 126 MW, he said.
"Our customers love the Smart Hours program," Delaney said. "Our customer satisfaction scores have never been higher, and complaints to our regulator (the Oklahoma Corporation Commission) have fallen by 50%."
One of the strategic benefits of DR programs is they insulate the utility from having to generate, or procure, that much electricity, as well as the environmental exposure from that. Hence some in the industry have referred to DR and other customer efficiency programs as creating "negawatts." About 40% of OG&E's 7,000 MW of generating capacity is unscrubbed coal, Delaney said, and the utility is facing potential environmental compliance costs of $1 billion or more. So reducing its reliance on coal-fired power is a strategic benefit to OG&E.
"We all need to rethink our approaches and strategies," Delaney continued. "Back in 2007, when we announced our goal of not building another power plant until after 2020, there was a lot of push-back from people who had spent their professional lives building power plants." But the OG&E executive feels that decision has been validated by market events in recent years.
"As an industry, we need to gain optionality as we go through transition," Delaney said. By insulating OG&E from the cost to build or buy new generation on the market, and thus the attendant environmental costs and complexities, DR programs have created optionality for the utility. Delaney said maximizing optionality is one of the strategic imperatives facing the utility industry--and thus its suppliers, contractors and strategic partners.
Electric utilities--particularly shareholder-owned utilities--are particularly concerned about the proliferation of distributed energy resources (DER), such as solar panels on customers' rooftops. DER allows customers to leave the grid, at least partially, and regulators have supported that trend.
"There's a lot of talk about people going 'off the grid' these days," Delaney said. "You see it everywhere--movie stars romanticize it and there's even a country song about how great it is to be off grid. All of that makes me nervous. I'd like to hear songs about being on the grid."
One reason the PGI keynote speakers said "optionality" was the goal these days is that the industry is facing rising costs, flat or declining load growth, and increased substitution risks from DER. The days of offsetting rising costs through increased customer usage are over.
"Energy efficiency standards will continue to tighten, and we're not living in the load growth environment of yesterday," Delaney said.
Looking forward, Delaney said the industry needs to "rethink our business model, our regulatory model and our customer model. In times of volatility, you'd prefer to sit it out, but we don't have that choice. The difference between a threat and an opportunity is readiness, which can turn threats into opportunities."
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.
The electricity business is going through "wrenching changes brought about by low natural gas prices, new environmental regulation and the public's demand for cleaner energy," according to Russell Ray, moderator of the event's keynote panel. "Overcoming today's challenges will require massive investments in new technology, more flexible generation, more conversions from coal to gas, and the complicated integration of emissions controls," he told attendees at the conference, which was sponsored by PennWell Corporation (Tulsa, Oklahoma). Success also will require companies to "rethink how they produce and deliver power."
Ray, who edits Power Engineering magazine, criticized the recent trend to regulate carbon dioxide (CO2) emissions as "essentially eliminating coal. We were hoping for a practical (CO2) standard, something that would keep coal in the mix. But that wasn't the case." In proposing an emissions standard of 1,100 pounds of CO2 per megawatt-hour of electricity produced by new fossil-fueled generators, the U.S. Environmental Protection Agency (EPA) (Washington, D.C.) "doesn't give coal a fighting chance," Ray said.
Other regulatory and legislative challenges facing the power business include storing and managing coal ash, stricter effluent discharge limits, and the potential need to modify water intake systems under section 316(b) of the federal Clean Water Act, he continued.
Natural gas has emerged as the "go to" fuel for new generation, largely because of regulatory and cost problems associated with new-build coal and nuclear plants, respectively, he observed. But amid the "dash to gas," the industry faces a vexing operational challenge: "Many of today's gas plants were built as peaking facilities," Ray told the attendees November 12. "These plants are being run longer and harder than ever before. Running peakers as base-load resources creates a whole new set of problems for the people who run these plants. The industry needs better maintenance programs and strategies."
"When I talk to utility executives, they can't say with any certainty how they will be operating their gas plants in five, 10 or 15 years," said Amy Ericson, president of Alstom U.S. (Washington, D.C.), the domestic affiliate of equipment manufacturer Alstom (OTC:ALSMY) (Paris, France). "That's why we're going to give our customers every last drop of flexibility they need as they adapt plant operations to long-term shifts in market dynamics." Gas-fired generation has garnered the largest single slice of Alstom's global research & development (R&D) budget, she added.
Ericson and other PGI keynote speakers agreed that diversity of fuels for electric generation should remain a fundamental part of U.S. energy policy: "In an uncertain business environment, we need to keep all options on the table." Technology investments have made the electric grid "smarter, stronger and more flexible," she said, encouraging the industry to continue making grid-related technology investments.
"Forethought today is the key to prosperity tomorrow," Ericson said. "Technology can lower the cost of electricity, reduce your environmental footprint, and increase flexibility and reliability."
In fact, one utility is relying on advanced technology that it says will reduce electric demand by more than 350 megawatts (MW). Oklahoma Gas & Electric (Oklahoma City, Oklahoma), a unit of OGE Energy Corporation (NYSE:OGE) (Oklahoma City, Oklahoma), is relying on demand response (DR) programs to reduce electric demand by 300 to 400 MW by 2016, Peter Delaney, chairman, president and chief executive at both OGE Energy and its utility unit, told PGI attendees.
"In 2007, we announced a strategy to not build any new generation until after 2020," he told the conference. "Our plan is to rely on DR and other ways to wring efficiencies out of our system."
The utility is well on its way. OG&E installed 800,000 advanced digital meters at its customers' homes and businesses. Those meters, combined with innovative pricing options, has reduced demand by 70 MW in the first year of OG&E's "Smart Hours" program. Year 2 savings were an additional 126 MW, he said.
"Our customers love the Smart Hours program," Delaney said. "Our customer satisfaction scores have never been higher, and complaints to our regulator (the Oklahoma Corporation Commission) have fallen by 50%."
One of the strategic benefits of DR programs is they insulate the utility from having to generate, or procure, that much electricity, as well as the environmental exposure from that. Hence some in the industry have referred to DR and other customer efficiency programs as creating "negawatts." About 40% of OG&E's 7,000 MW of generating capacity is unscrubbed coal, Delaney said, and the utility is facing potential environmental compliance costs of $1 billion or more. So reducing its reliance on coal-fired power is a strategic benefit to OG&E.
"We all need to rethink our approaches and strategies," Delaney continued. "Back in 2007, when we announced our goal of not building another power plant until after 2020, there was a lot of push-back from people who had spent their professional lives building power plants." But the OG&E executive feels that decision has been validated by market events in recent years.
"As an industry, we need to gain optionality as we go through transition," Delaney said. By insulating OG&E from the cost to build or buy new generation on the market, and thus the attendant environmental costs and complexities, DR programs have created optionality for the utility. Delaney said maximizing optionality is one of the strategic imperatives facing the utility industry--and thus its suppliers, contractors and strategic partners.
Electric utilities--particularly shareholder-owned utilities--are particularly concerned about the proliferation of distributed energy resources (DER), such as solar panels on customers' rooftops. DER allows customers to leave the grid, at least partially, and regulators have supported that trend.
"There's a lot of talk about people going 'off the grid' these days," Delaney said. "You see it everywhere--movie stars romanticize it and there's even a country song about how great it is to be off grid. All of that makes me nervous. I'd like to hear songs about being on the grid."
One reason the PGI keynote speakers said "optionality" was the goal these days is that the industry is facing rising costs, flat or declining load growth, and increased substitution risks from DER. The days of offsetting rising costs through increased customer usage are over.
"Energy efficiency standards will continue to tighten, and we're not living in the load growth environment of yesterday," Delaney said.
Looking forward, Delaney said the industry needs to "rethink our business model, our regulatory model and our customer model. In times of volatility, you'd prefer to sit it out, but we don't have that choice. The difference between a threat and an opportunity is readiness, which can turn threats into opportunities."
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.
