Congressional Quarterly
Wednesday 17 October 2007
America may be speeding toward power shortages and rolling blackouts, according to new studies and a host of experts, as the demand for power outpaces industry's moves to meet it.
One big reason, experts say, is an age-old investment chiller, regulatory uncertainty, caused by the prospect of controls on greenhouse gas emissions. The industry sees such regulation as inevitable and is concerned about making major capital commitments it could come to regret as new rules take effect.
In the next 10 years, peak U.S. demand for electricity is expected to grow by 17.7 percent, while supply is expected to increase by only 8.4 percent, according to a study released Tuesday by the North American Electric Reliability Corp., or NERC. In some parts of the country, reserve margins of electric capacity are expected to dwindle from a comfortable 10 percent to 15 percent down to two, one, or zero percent, says NERC, an organization federally appointed to monitor and improve the U.S. power supply system.
"The bulk power system is being operated at or near capacity," said David Nevius, a senior vice president of NERC. "Demand is projected to grow overall more than the resources available to serve it."
"I'm prepared to see many more blackouts occurring," said Charles Perrow, a Yale professor whose book, "The Next Catastrophe," discusses impending shortfalls in power supply. "It's really going to be a freight train running into disaster," he said.
"We're not at capacity load, but we're getting there. What you've got is this need for increasing power capacity, this need for expansion, but this uncertain future in terms of what the rules are going to be. The potential for a train wreck is definitely there," said Kenneth Richards, a professor at Indiana University's School of Public and Environmental Affairs.
"We could be looking at more rolling blackouts in a few years," he said.
Uncertainty About Climate Policy
Academic experts, research organizations and power companies point to an array of reasons for the slowing supply, but all agree that impending climate change legislation looms largest. As concerns about global warming grow, politicians and power companies say a law capping emissions of carbon dioxide is an eventual certainty. Such a law would have a tremendous impact on electric utilities, which produce 40 percent of the nation's CO2 emissions, mostly from facilities powered by coal.
Most major power companies say they are resigned to the ultimate passage of a climate change law, and have shifted from fighting carbon regulation proposals to helping craft them - and to pushing lawmakers to hurry up and enact something as soon as possible.
That's because, until clear new regulations are passed, electric utilities and the state boards that regulate them are unsure of what kind of new generation to build. While coal-fired plants have traditionally been the least costly form of new generation, utilities question whether they should invest today in cheap new plants - which typically have a lifespan of 50 years - whose operating costs may suddenly skyrocket in a carbon-constrained future. And some utilities that have tried to move forward with new coal plants have met with denials, cancellations and delays from state regulatory boards that want to wait for greater clarity on the future of federal regulations.
Plans for other coal plants have collapsed in the face of protests from environmentalists who express outrage at the prospect of new plants that will emit carbon dioxide for the next half century.
Utilities interested in investing in low-carbon generation say the landscape isn't yet clear enough there, either. Alternative power sources like wind and solar present one option, but they are pricier and less reliable than coal - and unavailable in some parts of the country. Investing in nuclear power, which emits no carbon dioxide, is one option, but it involves waste disposal and other concerns. And the promise of new technologies like carbon sequestration, which would capture and store CO2 produced by coal-fired plants, is still at least a decade away from realization.
That leaves power companies stalled in a purgatory of uncertainty and hesitancy, say experts.
"There's a concern about being a deer in the headlights. What direction do we go? If we make a decision that ultimately turns out to cost more money - that's a real risk," said Barry Moline, executive director of the Florida Municipal Electric Association.
But the deer may stay frozen in those headlights for some time, as most Congress watchers say a climate change law is probably still a few years off.
Cancellations and Delays
Across the country, there are more than 100 new coal plants in some stage of planning. But cancellations and delays are piling up. "Many of those will never break ground," says Dan Reidinger, a spokesman for the Edison Electric Institute, an umbrella group for investor-owned utilities. A study by the group found that this year, 29,937 megawatts of new coal-fired power have been cancelled, compared to 4,750 megawatts of coal-fired power set to go forward. The report noted that uncertainty about the future of greenhouse gas regulation was a key contributor to the slowdown.
"This is the biggest regulatory issue we've ever faced," said Reidinger.
Among this year's delays and roadblocks for coal-powered electric generators:
- In February, the North Carolina Utilities Commission denied a Duke Energy proposal to build an 800-megawatt coal-fired plant.
- Also in February, Texas power giant TXU agreed to cancel plans for eight coal-fired plants - which would have had a total capacity of 6,000 megawatts - as a condition of its $45 billion sale to a private equity firm, citing pressure from environmentalists as part of the reason for the cut.
- In July, a Florida power consortium pulled the plug on plans for a new 800-megawatt coal-fired plant that might have provided Walt Disney World with up to a quarter of its future electricity, citing growing public concern about global warming and protests from environmentalists.
- In August, Senate Majority Leader Harry Reid, D, declared he would do everything in his power to stop construction of three planned new coal-powered plants in his home state of Nevada.
- In September, New York Attorney General Andrew Cuomo opened an investigation into the plans of five major energy companies to build coal-fired power plants, questioning whether the plans could pose financial risks to investors, as the carbon dioxide emissions could be viewed as a financial liability.
- Also in September, the Oklahoma Municipal Power Authority nixed plans for a new 950-megawatt coal-fired plant in northern Oklahoma.
Timing Is Critical
In such an uncertain climate, power companies and the state boards that regulate them say it's only natural to want to wait until the rules are clear - and the clean technology to meet them is more readily available.
"The timing is pretty critical - there's arguments about whether the carbon legislation should be in place by 2020 or 2030," said Nicolas K. Akins, executive vice president of generation for American Electric Power. "What the regulations will be, and when they would kick in will make a huge difference."
But just how long utilities wait to find out what they have to do could prove crucial. If utilities wait two to three years for a new law to pass, and then begin construction of new plants, they could hit a sensitive overlap point where demand outstrips supply, say experts.
Kenneth C. Nelson, an Indianapolis-based consultant who works with electric utilities on strategic planning explained: "There are a growing number of producers that are already exhausting existing capacity for supply. And they are faced with long-term investment decisions on new generation. What makes this so extremely difficult as we sit down to make the decision on new generation is that there's a seven-year lead time on most new power plants - plus a tremendous build-up in construction costs. And changing technologies - clean coal, carbon capture - which ones do you invest in?"
He added, "Some utilities are asking, 'How long can we put off the decision? How long can we wait? What we can do is push the decision to build as long as possible, until we get a more clear picture from Congress.' I don't think average Americans realize how serious this problem is going to become until we have a clear idea of what the rules are going to be."
Instead of building new generation, utilities reaching the edge of their supply margins say they that while they wait for new rules, they are turning to other stopgap measures, such as increasing efficiency, contracting power from other companies, and keeping older power plants that had been set to retire running a few years longer.
"But there is a limit, past which it's no longer economically feasible to do all that," said Nelson. "It becomes an economic question: how long do we continue to operate a plant that has outlived its life span? How long can we put this band - aid on?"
Revis James, director of energy technology assessment center at Electric Power Research Institute, also questioned how far increasing efficiency and plant lifespans could go.
"Life extension is an essential part of the portfolio," James said. "But by itself it won't be enough to meet the demand. So there is going to be a day of reckoning. These techniques just help put the day of reckoning off a lot. Are we heading to a situation where there's a black hole, a blackout, because of uncertainty? I hope not."
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