Market Outlook 2013: Power Industry

As the U.S. and other developed nations are mandated to increase the percentage of power generated by renewables, the high cost and variable production levels of solar and wind generation mean that somewhat unrealistic demands are being made of technologies that simply cannot be considered viable for base load purposes, Geraghty explained. The passionate views that some politicians have right now with respect to renewables could be considered misdirected, and are harming the effective development of power right now. He added, “Renewables have a great future, but they are not today. Policy makers really believe it’s something that can happen right away, but it takes awhile to transition power.”

Geraghty pointed out that making electricity is really quite simple. With the exception of batteries and photovoltaic, virtually all bulk power comes from spinning a large magnet inside coils of wire. The only thing that’s changed over the last hundred years is that the magnets are bigger, and the energy used to spin the magnet varies.

What power companies choose as fuel to make the steam is determined by the cost of what is available. It is also determined by the footprint of the plant, and cleaner energy, like solar and wind, take up huge parcels of land. Partly because of this push to “clean energy,” and partly due to the economic downturn and because people in developing nations are trying to conserve more energy, general energy growth for developed nations is slowing as it increases for the developing nations. The developed nations, as they transition from coal to renewables, are willing to pay a lot more for electricity because, Geraghty says with tongue firmly planted in check, “We’re developed and smarter.”

For sheer volume, companies seeking a power market would be wise to turn to China, which is building the most from all sources, especially steam. Like other developing nations, they are looking for the lowest cost energy to provide to their people. The cheapest forms of energy: coal, gas and nuclear, will be built internationally while the developed nations will be spending much more for power. That will have an effect on competitiveness in manufacturing.

Coal

Contrary to popular wisdom, Geraghty says, the planet is not running out of coal, so a project planner in a developing nation will often opt for that fuel. The price of coal is also stable, unlike natural gas, which in the past has had price swings that make it difficult for producers to plan. That means that, while the U.S. is using less coal, it is exporting more. Geraghty wondered if pressure from environmental groups would push the government eventually to prevent coal shipments to developing nations.

Despite the talk of shutting down so many coal-fired plants, many of those being shuttered are low-use plants. It’s not the number of plants that have shut down, Geraghty said, but the amount of power being removed from the grid, and it is still relatively small. Still, more coal-fired plants will be retired from 2013 to 2035 than previously thought, but it is not as much about air quality or pollutants as the lower price of natural gas.

Natural Gas

Gas is a different story, and is being considered much more frequently as a fuel source for new plants. Today’s price is $2.50 per Mcf, and if producers can get a guaranteed price around $3 for a 10- year supply, then “that will be the death of coal.”

The future of gas is very strong, but it depends on whether we can continue to access it. Fracking is under attack and groups like the Sierra Club are moving away from the “beyond coal” strategy, which was funded by the gas companies. They have already stated they will be against any new combined cycle plants in the U.S. “We worry about that in the power industry,” says Geraghty.

Nuclear

At this time, Geraghty does not see nuclear growing to be a big part of the U.S. energy supply, although the first new additions to the nuclear fleet are coming up now. The success of nuclear will depend on how efficient and well run they prove to be. It is also important to control costs and scheduling. These new plants will be tests.

“We cannot have just one source of energy,” Geraghty stressed. “If coal really does go away, nuclear has to step in. Renewables are not a solution that works because the cost is just too high” Despite lots of policy and regulations, in 2010, renewables were 10% of all delivered energy. “By 2035, it might grow to about 16%”, says Geraghty, “and that takes into consideration the production tax credits. If those go away, the number will go down.”

He continued. “If somebody tells you that renewable energy is cheaper, they’re taking a holistic look. They view that if you’re generating power by solar and wind, your lungs will be better, you’ll be healthier. That’s the model. However, as energy planners, we can’t factor rainbows and bunnies into the cost of power.”

Policy and Regulatory Issues

Power producers are planning for CO2 taxes, which will hit sometime in the next 10 years. As of Jan. 1, 2013, California is adopting CO2 taxes on power generation, which will have an impact on production and cost. That will put added pressure on developed vs. developing nations. The developing nations will continue building coal and similar plants while the U.S. will be tracking CO2 emissions, making power more expensive and reducing the ability to be competitive while world-wide levels of CO2 will actually rise because of the new plants in other countries.

FORECAST: Watch what happens with natural gas. If it stays low in price, is really abundant and can be recovered in an environmentally acceptable way, it will take a larger share of power production. If it returns to its historical volatility… watch out.

Kevin Geraghty is vice president of Power Generation for NV Energy. He is responsible for all of NV Energy’s owned generating facilities. He came to NVE in 2008 with over 20 years’ experience in power generation. Geraghty has extensive knowledge of operations, maintenance, construction and management of coal, gas and hydro facilities. He has also prepared and/or directed the preparation of various reports and analyses to multiple state jurisdictions including EPA, NERC and FERC. He is active within many industry organizations and currently co-chairs the “Industry Trends/B Competitive Power Generation” Subcommittee for Power-Gen International.