2013 trends for the power industry

Even if the Mayans are wrong about the world ending, there isn't much left of 2012. So before we all rush off to relatives' houses or office holiday parties, let's take some time to consider the year ahead and what it might hold for the electric utility industry.

I had the opportunity recently to ask a few quick questions to Andre Begosso, managing director of Accenture's Utilities North America strategy practice. Thanks to Andre's expertise, we can flesh out what might happen in the coming weeks and months.

Trend No. 1: The "Dash for Gas" will continue, but don't count coal out

This year, hydraulic fracking and other developments in fossil fuel extraction have tipped the scales in favor of natural gas, thus leading power companies to exploit the record low prices of natural gas-fired generation. Andre said he expects this trend to continue into 2013.

"The price of gas will continue to fluctuate and there is a reason for that," he said. "Price is driven by marginal demand, which in turn is driven mostly by the power generation sector."

Along with the Dash for Gas, another phrase that gained notoriety was the "War on Coal." Energy lobbyists and politicians from coal-producing countries have been among those who claim that the president, the EPA and Congress have it in for coal and are putting the industry at risk deliberately. For his part though, Andre said he doesn't buy this hype.

"The price of gas is the single biggest pressure on the coal sector," he said. "Worse than any regulation or legislation from the government."

Regardless of why coal is feeling the pinch, though, there will always be a need for the baseload power it provides, he said.

"Even in the best case scenarios, we don't have enough gas to completely replace coal," he said. "Not only that, but we have some upcoming technologies currently under development that will allow us to use less coal. Coal will never go away."

Trend No. 2: Utilities get back to their bread and butter

With the American Recovery and Reinvestment Act funding spent and Congress not in a spending mood, I wondered where smart grid pilot programs and smart meter rollouts were going to get their funding. "The ratepayers," predicts Andre.

"In terms of the smart grid, there was a wave of construction, and now people are getting better at applying the technology. We will continue to learn more about how to apply it and how to keep the technology viable," he said.

Some of the more exotic technologies, such as energy storage, that have yet to be firmly proven in the field, utilities will take a rain check on — waiting to see how the technologies evolve over time.

"Utilities will continue to invest in their bread and butter technologies, like AMI. There is no reason for them not to invest in those," he said.

Trend No. 3: Has renewable energy deployment hit a peak?

FERC announced what I thought were some surprising numbers about renewable generation. Biomass, geothermal, solar, wind and hydropower, taken together, accounted for more than 41 percent of new generation put online in the U.S. in 2012.

This is thanks to a variety of factors, Andre said. Government support, in the form of the production tax credit, is one factor, as are state-level renewable portfolio standards.

"A lot of states have a looming 2015 deadline to meet their portfolio standards. Michigan is one of them. So they needed to meet those standards," he said.

In the absence of some major advance in energy storage, Andre said, he expects that renewable energy installation will probably start to slow as its shortcomings become more apparent to utilities and power companies.

"I would not expect these trends to continue because of the tremendous limitation that renewable technologies have. You cannot break the laws of physics or the laws of chemistry. The wind doesn't blow all the time and it never will, and the sun doesn't always shine and it never will," he said.

Trend No. 4: Energy back on the agenda

In my last blog post, I speculated about what it might take to get energy policy back on the agenda. When I asked about this, Andre said energy already is back on the agenda.

"Over the next 3 years, over $220 billion in new infrastructure will be built. But the problem with infrastructure is Rome wasn't built in a day. It takes time," he said.

This new wave of infrastructure upgrades will require a level of patience and understanding on the part of ratepayers that Andre wonders whether the average person is capable of. During Hurricane Sandy, for example, Con Edison had one of the most sophisticated electric grids available — yet it still failed, and people wonder why.

"As much as people hate outages, I don't think they understand them," he said. "If we had to build everything to withstand every possible disaster that could happen, it would never be built. It would be too expensive."

As far as utilities are concerned in this, Andre compares adopting new infrastructure improvements to how consumers usually approach the release of flashy new electronic gizmos.

"Remember when BluRay players were $400? Some people did pay for them, but the average Joe looked at it and said, 'Well, I can still watch movies on my old DVD player.' The infrastructure problem isn't much different from that."

Trend No 5: Growth opportunities will come from new start-ups

Maybe one of the biggest long-term changes the utility industry has ever seen is the reversal of the status quo of energy use. Energy companies are realizing they have a vested interest in getting customers to use less of their product, and this trend in turn is leading to a market for all kinds of consumer gadgets that will help people use less energy.

"The regulatory model of the U.S. was built around capital. The underlying assumption was we'd always have growth and we'd always consume more energy," he said. "What we may see in the future is that assumption might not be true... If you have a good understanding of the way the market works, you will be successful."

Small start-up companies that have a good idea and a way to market it might make a bigger splash in the energy sector with it comes to growth than the older, more established players.

"I just got a new smart thermostat called the Nest, and it's one of the coolest things I've ever bought," he said. "I installed it myself and I'm not a very handy person."

My thanks to Andre Begosso for his help with this post. Andre is a managing director in the Accenture management consulting practice and is focused on the resources operating group. He has more than seventeen years of experience in the utility and energy industries and advises clients in the alternative energy, power generation and oil and gas sectors. Andre has a B.S. in industrial engineering from the university of Sao Paulo, Brazil and an MBA from the Ross School of Business at the University of Michigan.

Obama, Romney talk about energy, with energy

President Barack Obama and former Gov. Mitt Romney faced off at New York State's Hofstra University October 17 with polls tightening and each man eager to make their appeals to the country's remaining undecided voters still available in the 2012 election's last few weeks.

While the first presidential debate saw little mention of energy as an issue — with Romney briefly mentioning government subsidies to green energy firms, like the bankrupt Solyndra — this debate had the candidates talking energy both frequently and early on in the proceedings.

Last night, a member of the town hall audience broached the topic of energy costs with a question about gas prices and plans to lower them. He said Obama's secretary of Energy, Stephen Chu, has said it is not the policy of the DOE to help lower gas prices, and asked Obama directly if he agreed. Obama responded to this question by talking about the production of oil, coal and natural gas.

The president said that while production of fossil fuels is up, the country must also invest in wind power, solar power and biofuels, as well as make vehicles that burn less gas.

On natural gas, Obama said, "We've got potentially 600,000 jobs and 100 years worth of energy right beneath our feet with natural gas. And we can do it in an environmentally friendly way, but we have got to continue to figure out how we can get efficient energy because that is how we can reduce demand and that is what's going to keep gas prices lower."

Both candidates tried to claim the mantle of an "all of the above" energy policy, which has become a bit of a catchphrase for both parties of late. Obama said Romney's plan is not all-of-the-above because he would let "oil companies write the energy policies."

"So he's got the oil and gas part, but not the clean energy part," Obama said. "China and Germany are making these clean energy investments, and I'm not going to cede those jobs of the future to those countries. I expect those new energy sources to be built right here in the United States."

"I want to make sure we use our oil, our coal, our gas, our nuclear, our renewables. I believe very much in our renewable capabilities. Ethanol, wind, solar will all be an important part of our energy mix," Romney said. "But what we don't need is to have the president keeping us from taking advantage of oil, coal and gas."

Building a coal-fired power plant in specific, Romney said, is nearly impossible to do under current regulations — hinting that this is by the design of Obama's EPA.

Obama countered this charge by saying that as governor of Massachusetts, Romney "took great pride" in shutting down a coal plant.

"You stood in front of a coal plant and pointed at it and said, 'This plant kills,'" Obama said.

According to the Tampa Bay Times' PolitiFact, the plant Obama referred to was the Salem Harbor Power Station, which was then owned by Pacific Gas & Electric. The four-unit coal-burning plant had been ranked as one of the "Filthy Five" plants by an environmental group and as the newly elected governor, Romney decided not to support a plan to grant the plant an extension to comply with emissions rules. At a videotaped press conference, Romney said, "I will not create jobs or hold jobs that kill people, and that plant — that plant kills people."

Obama went on to say that his administration invested in "clean coal" technology.

CNN reporter Candy Crowley, who served as moderator, asked whether the price of gas be meaningfully addressed by an American president at all, or are per-gallon prices hovering around $4 the "new normal," Crowley wanted to know.

The subject went back to oil production, where Romney said production on public land had dropped by 14 percent this year, which sparked a testy exchange and back-and-forth denials.

Apparently both men decided that the sure-fire winner was talking about gas prices — with Obama defending his record and talking about production, and Romney in turn saying the strategy hasn't worked because of the price you pay at the pump.

While there was occasional name-checking of wind or solar, this debate's energy talk was almost limited to fossil fuels, though. The energy we feed into the grid by burning fossil fuels wasn't talked about much by either candidate, and nobody said a word about energy infrastructure, grid cybersecurity or the smart grid.

It wasn't too much to hope for either. I have heard this president say the words "smart grid" before, even though many voters might not yet know what it means. Romney, I'm sure, is aware of these technologies too, having helped manage the finances of high-tech companies in his private asset management days.

I wish "energy" in the context of a political debate could occasionally mean something more than "gas prices" though.

It was a town hall style debate, and time was limited however. According to at least one report, Crowley had a question on climate change in her pocket that she never got around to asking. That could have potentially yielded some thought-provoking statements. Maybe if there had been a bit less crosstalk on the floor, she could have gotten to it.

There is still one more debate, but it will primarily concern foreign policy. This debate, then, was probably the last time energy policy could conceivably have been brought up in any great detail — at least with both the president and the governor in the same room.

If you want to know where these candidates stand on energy issues, it looks like you're going to have to do a little digging.

For more on Romney and Obama's respective energy plans, see Jennifer Van Burkleo's story from the September-October issue of Electric Light & Power magazine.

And please, don't forget to vote — Nov. 6, or earlier if your state allows it.

Land of the rising sun runs increasingly on solar power

UPDATE: Shortly after this blog was written, Reuters reported that Japan will shortly introduce a plan to wean itself off of nuclear energy entirely by as soon as 2030. This development will doubtless result in an entirely new energy policy and eventually an entirely new generation mix for the country.

In many spots around the globe, power producers and utilities are looking to deconcentrate their grids away from large, centralized power generators and steer them more toward distributed generation. There are cons to this approach, but the benefits are attractive, at least in theory.

While some countries have the luxury of carefully weighing these pros and cons, there is one country that's being forced by current events to decentralize, and rapidly, just to keep the lights on.

New research indicates that post-Fukushima Japan is now the world's third-largest solar energy markets, with nearly 5 GW of installed solar capacity. Germany and Italy, respectively, are the first and second. In some ways, though, this is a return to form for Japan rather than a new development.

In the 1990s and the early 2000s, Japan was the world leader in solar. Due to the cancelation of programs that backed solar (as a result of the government response to the "Lost Decade" depression in that country) and an accompanying shift toward nuclear power, Japan took its eye off the ball when it came to solar energy.

Then, of course, came the earthquake, the tsunami and the Fukushima disaster.

(Photo credit: Shutterstock)

Since then, Japan's government has taken a second look at solar, and added more than 1 GW of solar capacity last year. The majority of this new generation is grid-connected, with all the benefits and drawbacks that adds.

With the adoption of new solar-friendly regulations and generous tariffs, companies across Japan's economic spectrum have announced plans to set up solar parks and install rooftop solar arrays on their properties. To boot, Japan is also one of the world leaders in manufacturing solar cells, modules and other key materials that support the solar energy supply chain.

Can a country replace a highly productive nuclear fleet with solar energy? That question raises further questions, but it's certainly a daring strategy and it will be interesting to watch unfold.

Fukushima a disaster made in Japan

The Japanese government's official report on the Fukushima-Daiichi nuclear disaster hit the internet earlier this morning and now everyone is picking apart what it means.

The parliamentary report purports to assign some level of responsibility for the accident, and the part that is making headlines so far is the finding that it was "man made," which must be opposed to a natural disaster — even though it was a natural disaster that touched the meltdowns off in the first place. The report, by the way, took half a year to put together, and the commission who authored it had the authority to compel government agencies to surrender pertinent information whether they wanted to or not.

Man-made failures that occurred both before and after last year's earthquake and tsunami were chiefly to blame for the Fukushima disaster, the report holds. This is probably the strongest-worded rebuke that plant operator TEPCO has received through official channels to date.

The commission's chairman wrote that the triple meltdown cannot be regarded as a natural disaster, but went on to say that it could have been prevented with a more effective human response.

In a twist that might be hard for Westerners to understand, the report places blame on Japanese culture itself.

"Its fundamental causes are to be found in the ingrained conventions of Japanese culture: Our reflexive obedience, our reluctance to question authority, our devotion to sticking with the program, our groupism and our insularity," according to the preface of the report. "Had other Japanese been in the shoes of those who bear responsibility for this accident, the result might well have been the same."

It's sharply worded indeed, but it also comes right on the heels of the 1 trillion yen (or about $12.5 billion) bailout from the Japanese government that will both save the company and put the government in charge of it. At least temporarily, if all goes as planned.


It's interesting to note that this report, unlike some others, did not specifically say that the magnitude-9 earthquake did not damage equipment or structures at the Fukushima plant. Most other reports held that the plant withstood the earthquake only to succumb to tsunami damage.

These findings could challenge some of the design assumptions the Japanese nuclear industry and the Japanese government (which are, even now, regarded as especially cozy) have stood by over the past few decades.

The report devoted a good deal of attention to the relationship between industry and government in Japan, implying that TEPCO lobbied the government to slacken regulations. To build this case, the commission requested information from Japan's Nuclear and Industrial Safety Agency.

Government mismanagement of the situation as it evolved, the report also said, didn't help matters. The report's writers made it explicit that TEPCO can't and shouldn't try to pin blame on the government, however.

When Japan's government gave the nod to restart the first reactors to complete their required stress tests, those restarts were met with public protests. The public, perhaps understandably, thinks nuclear energy is too dangerous. A suite of new safety requirements — maybe passed in the wake of reports like this one — could create a new argument for protesters: That nuclear power is too expensive.

Why is coal in a slump — really?

By Jeff Postelwait
Online Editor

Everyone knows that with enough time and pressure, coal can turn into diamonds. What will become of the coal industry with all the pressure it is currently under, nobody can say.

The Wall Street Journal took a look at two of the top three coal producers, Arch Coal and Alpha Natural Resources, both of which are experiencing lower demand and falling profits. Peabody Energy, another top coal miner, predicted that demand for coal could drop by as much as 10 percent this year. But why?

Given the fact that everyone has their own politics concerning using coal to make power, it's tempting to point the finger at either EPA regulations or some draconian piece of legislation that came from Congress, but I think blaming any one culprit for this trend is short sighted.

One factor the Journal neglects to get into, for example, is the other fossil fuel we use for energy. Natural gas recently hit a 10-year low in demand, some estimates have it. We're sitting on massive new reserves of the stuff because of new extraction techniques, and so many utilities would much rather build a natural-gas fired unit than a coal unit right now.

You could well argue that natural gas, being a finite resource, is also subject to price swings back and forth, but based on all the generation news I handle every day, I'm definitely seeing a big trend toward natural gas to the detriment of other forms of generation.

To explore another possible explanation for this problem, just open a window. It's beautiful out, and it has been for several financial quarters. The almost freakishly warm winter that the U.S. experienced had people eating up less energy — from coal or from any other source. While the EPA has been flexing its regulatory muscles in the direction of coal power lately, you can hardly blame the weather on government bureaucrats.

To be fair, we are seeing quite a few new and proposed regulations that appear to have the coal industry in their sights, whether you'd call it intentional or not. There's the proposed Clean Air Act standard for carbon dioxide pollution for new power plants. There's the Mercury and Air Toxics Standards rule issued in February, which could require coal plants to retrofit and reduce emissions of arsenic, acid gases, nickel, cyanide and other toxins. And finally there's the Cross-State Air Pollution Rule from earlier in 2012.


When the new carbon standards were proposed, more than a few were saying that this was regulation meant to kill coal for good. But at that time, the Energy Information Administration listed only a single coal-fired unit in the pipeline to be built. So if there is a piece of regulation out there threatening to kill coal, this one wasn't it. 


If coal is dying off — still an alarmist thing to say for this multi-billion dollar a year industry — there isn't a single factor you can point to if you're looking for something to blame. The entire energy industry is changing, just as surely as the customers it serves are changing their minds and thinking more about how energy is produced. So while these may be challenging times, there is still time to make changes.


If these trends prove irreversible and it becomes impossible to sell coal in the same country where it is mined, then the U.S. coal industry needs to develop new markets. I can think of nowhere better to look than at China and India, the former of which is about to become the world's most coal-hungry nation. China generates nearly 70 percent of its energy from coal, but only has about 13 percent of the world's reserves. That's just one country that has "potential customer" written all over it.