Monday, February 9, 2009

Making Decisions at a local Utility.

It has become almost routine to glance over at Energy Shortage, and see the same names of places around the world where there is insufficient power to meet local needs. Parts of South Asia are a constant presence, usually Bangladesh and Pakistan, with occasional appearances in India. Yet it seems somewhat remote from our daily concerns, both in geographical distance and in the scale of severity of their crises. One of the reasons for that constant presence is that once a shortage of energy develops it is not something that can be fixed overnight. It is the same in Southern Africa where the shortage of electrical power from South Africa has led to load shedding (a euphemism for blackouts) in neighboring countries as their allocated levels of supply have been cut. Botswana, for example, has one power station, fed from the one coal mine in the country. When the South African situation forced them to rely on their own resources for power, they set out to build new power plants, and create the mines to serve them. But implementing such a plan takes time, as does reaching the agreements to move forward. So, for Botswana,
Subject to the conclusion of all project agreements and execution of loan agreements by the middle of next year, commercial operation of the 1 320MW power station was expected in 2012 or early 2013.
Part of the delay in having these agreements in place was that almost no-one saw the energy crisis that happened in South Africa last year coming. But now consider the situation of countries such as the United States or Britain. Surely, the general public will tell you, there is no way we can get into the same situation as Bangladesh, or Botswana. But in the same way that it takes a long time to solve the problem of a lack of power, so it takes some time, usually for it to develop.

The South African crisis came when the demand for power rose at the time when, as it then was, the economy boomed to new heights. But the lack of maintenance and planning had set them up for the crisis over a number of years.

So now the world is in a time of serious recession, and the amount of oil and natural gas that is required to make the wheels go around is reduced. The exact amount that will bring us into balance between supply and demand is still being worked out as OPEC tries to limit production as a way of raising price. But while that effort is going on there is another disquieting event, or rather non-event, since it is the stalling of plans to increase power availability downstream.

Remember that we can, simply, divide power into two parts. The first part is the liquid fuels part of the equation, and that focuses to a large extent on transportation, and that is where the attention is currently, since having more than enough fuel means that the price drops at the gas station. The other part of the situation is in the generation of power, mainly electricity. This is a lot less fungible a commodity, in reality, since there is only a limited capacity for importing electric power (depending on the country) when you fall short.

Electric utility companies have long understood this, and built a margin of excess capacity into their plans for the future. But to be able to do that effectively, and with responsible care for the well-being of their shareholders, they need to have a reasonable sense of what the market growth will be, and what will be the rules under which newly constructed power stations will operate. If the State is like China, then it becomes easier to decide to increase the number of nuclear power stations, as they have. In a more fragmented society, such as ours, the decisions fall to the (relatively) smaller market providers who provide power to the different regions of the country. These individual utilities must decide, based on projected demand, how they will expand to meet that need.

In recent days that decision making process has become more complex, with the emphasis by the new Administration being placed on Energy Efficiency and a reduction in demand, rather than an immediate growth in supply. At the same time there is talk of change in the rules on burning coal, and the need for carbon capture and sequestration, with little guidance as yet on how much this will cost, or how it must be done.

So where does one turn for answers? There is a fair amount of ideological fervor in some of the comments coming out of Washington at the moment, but for all that talk the utility must also consider that the lead time for plant permitting and construction is such that the current Administration will likely not be in office (at least with the present office holders) by the time the new plant is finished. The rational answer may well be to look at the advice that the Electric Power Research Institute (EPRI) provides. The Institute has just issued a report on this very topic, Assessment of Achievable Potential from Energy Efficiency and Demand Response Programs in the U.S. (2010 - 2030), and the summary conclusion reads as follows
The U.S. Energy Information Administration (EIA) in its 2008 Annual Energy Outlook (AEO 2008) projects that electricity consumption in the U.S. residential, commercial, and industrial sectors will grow at an annual rate of 1.07% from 2008 through 2030. Energy efficiency programs have potential to realistically reduce this growth rate to 0.83% per year from 2008 through 2030. Under an ideal set of conditions conducive to energy efficiency programs, this growth rate can be reduced to as low as 0.68% per year. EIA projects that peak demand in the United States will grow at an annual rate of 1.5% from 2008 through 2030. The combination of energy efficiency and demand response programs has the potential to realistically reduce this growth rate to 0.83% per year. Under an ideal set of conditions conducive to energy efficiency and demand response programs, this growth rate can be reduced to as low as 0.53% per year.

These estimated levels of electricity savings and peak demand reduction are achievable through voluntary customer participation in energy efficiency and demand response programs implemented by utilities or state agencies. The estimated cost of implementing programs to achieve realistic potential savings ranges from $1 to $2 billion in 2010, growing to $8 to $20 billion by 2020, to $19 to $47 billion by 2030. This analysis does not assume enactment of new energy codes and efficiency standards; more progressive codes and standards would yield even greater levels of electricity savings and peak demand reduction.
One of the implications of the above is that, if the right rules and standards are enacted, then it is quite possible not to see any growth in demand over the next 20-years, but rather that demand will remain static, as growth is met by increased efficiency. And this appears to be the goal of this Administration.

Unfortunately for the utility board, while this is a generalized picture for the country as a whole, it is less easy at the local level to pronounce that there will be no growth in power. Which makes it a little more difficult to change the mix of the power supply, if current plant can meet the demand. (Which may be why solar and wind farm operations are beginning to find it more difficult to make sales).

The down side to this encouragement to inertia is that should demand grow, as the economy also comes back out of the recession, then the new supply to meet any unanticipated demand for additional power will likely not be there. And oops! We, or some states perhaps, might find ourselves/themselves in the same sort of condition as Botswana is now in.

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