As I was scanning the news of the last few days I was intrigued by a headline featuring the CEO of the largest owner/operator of nuclear power plants in the US, Exelon Corp., extolling the virtues of natural gas and advocating an increase in its output. That might not sound earth-shattering, especially considering that Exelon also owns a fleet of natural gas-fired power plants with combined output equivalent to several nuclear reactors, unless you are convinced that nuclear and gas are engaged in a tooth-and-nail competition to supply America's future electricity needs. However, it's certainly attention-getting for Mr. Rowe, whose company recently acquired the substantial wind-generation business of John Deere, to go on record opposing clean-energy subsidies for a range of low-emission technologies.
The main message of Mr. Rowe's address at the American Enterprise Institute was apparently that Congress shouldn't interfere further with markets, regulations and technologies that he sees already being sufficient to reduce carbon emissions and clean up the air. Yet while I'm usually reluctant to read too much into remarks I wasn't present to hear, I do think it's possible to infer an alternative strategic dynamic to the nuclear vs. gas narrative that I have encountered in a number of blog postings in the last few years, particularly since shale gas production took off and the anticipated nuclear renaissance in the US encountered resistance. Because it's uncommon to hear CEOs touting their competition, I think it's safe to conclude that Exelon views nuclear and gas as complementary--a view I share--rather than competing for the same segment of the market.
It also sounds like Mr. Rowe sees gas and nuclear competing with coal, which makes eminent sense in the context of environmental policy and typical grid power-dispatch curves. Competition between nuclear and coal was especially obvious when both were viewed as enhancing energy security and before concerns about greenhouse gas emissions had become mainstream. And as recently as a few years ago, when most forecasts anticipated declining US gas production and rapidly increasing imports of LNG, yielding even more volatile natural gas prices, coal-fired power plants were the principal large-scale alternative to both new nuclear and gas-fired capacity. Today's emphasis on emissions, combined with next-generation reactor technology, gives nuclear an edge over coal in baseload for locations where communities are comfortable with the technology, while gas has a more than a 2:1 lead over coal in planned new generating capacity and seems likely to do even better in terms of capacity actually built, due to its substantial lifecycle environmental advantages.
It's also possible to envision a future grid relying mainly on nuclear for baseload power and natural gas for flexible power, without the need for any coal generation at all. Moreover, with the addition of smart grid technology and new long-distance transmission, that combination should provide a very hospitable environment for much larger increments of renewable energy. Gas-fired backup power remains the best enabler for incorporating intermittent generation from wind and solar power, particularly when these technologies are combined in installations such as Florida Power & Light's new hybrid solar/gas power plant in southeast Florida. That seems like a much more realistic approach than the notion of an all-renewable grid based on energy storage, even if storage technology were to become more effective and much cheaper. (Storage has a key role to play in the future grid, but I believe it will be used mainly for short-term buffering and for storing the cheapest off-peak power from any source, rather than as dedicated storage for renewable power.)
The biggest potential obstacle to this scenario is growth, or the lack of it. In a US electricity market that is barely growing at all, in contrast to the steady 2% or so per year expansion in demand from 1997-2007, and with renewables given the first shot at satisfying any growth in a majority of states, the only opportunity that looks big enough for both nuclear and gas-fired power to cooperate on is coal displacement. Yet if you agree with Mr. Rowe that "carbon legislation is dead", it's a lot less certain that coal would go away fast enough for the combination of gas and nuclear he is promoting to become the de facto future. It remains to be seen whether the market, together with an increased emphasis on local pollutants--excluding CO2--under the Clean Air Act will be sufficient to squeeze out a coal industry that, along with its numerous stakeholders, will not depart without a fight.
Showing posts with label exelon. Show all posts
Showing posts with label exelon. Show all posts
Thursday, March 10, 2011
Monday, October 19, 2009
"Feeding Frenzy"
An article in today's New York Times offers more detail on the manner in which Congressional climate legislation has fractured the energy industry into competing groups of haves and have-nots, based on how companies and sectors were treated under the Waxman-Markey bill and their hopes for receiving a better deal in the pending Kerry-Boxer bill in the Senate. Not only has it fragmented utilities along the axis of their emissions intensity, but it has also opened gaps within the oil & gas industry between companies that produce primarily natural gas and those that produce or process mainly oil. I don't know whether the authors of Waxman-Markey saw this potential in their design for allocating emission allowances, though some supporters are bound to see it as a beneficial feature. I regard it as a worrying symptom of the distortions inflicted on the basic concept of cap & trade, which remains the best option for guiding the economy toward a lower-emission future, but now seems likely to underperform its potential in a very costly way, as a result of these flaws.
As recently as a couple of years ago, few energy companies were enthusiastic about the prospect of cap & trade, because it was bound to raise their costs and reduce demand for their output, at least from energy sources with substantial emissions of CO2 and other greenhouse gases. If the bill passed by the House had treated all emissions from all sectors equally--a level playing field--we'd still see visionary companies diverging from the industry's stance, but their numbers would probably be a lot fewer for the simple reason that there wouldn't be nearly as much financial gain in it for them. When no-nonsense companies like Exelon and several of its utility peers break ranks with the US Chamber of Commerce on this issue, it's a good bet that they see a direct strategic advantage that will put money in their shareholders' pockets. Simply put, this is as good a deal as they're going to get. But while I find their support of cap and trade perfectly rational and even laudable, it should by no means be read as a sign that the Waxman-Markey approach is the best means of addressing climate change.
As I've noted in previous postings, Waxman-Markey was excessively generous in handing out emission allowances to the electricity sector, at the expense of the transportation sector. It also lavished allowances on non-emitting sectors and favored causes and groups in lieu of cash--a form of largess that fundamentally undermines the accountability of these benefits, because no one knows or can know what they will be worth when they are eventually received. Yet although this is bad policy on many levels, I see many people holding their noses and supporting the W-M approach, because they conclude that once the free allocations have phased out in 2030, we'll be left with a more or less pure cap & trade system enforcing a steadily tightening cap on emissions. The problems with this thinking lie in the enormous distortions and unnecessary economic hardship those uneven allocations will create over the next 20-plus years and the opportunity cost of the emissions reductions that could have been achieved more quickly and cheaply.
My strong preference has been for an even-handed cap & trade system that would include the broadest possible collection of emissions sources, providing great diversity of abatement costs and thus great scope for emissions trading to minimize the cost of achieving our emission reduction goals, and with most of the proceeds rebated directly from the government to taxpayers. Unfortunately, the ship has sailed on that approach--at least for now--and anyone supporting cap & trade for the elegant simplicity of its mechanism for squeezing out emissions is left hoping that the legislative excesses of one chamber of Congress will cancel out those of the other, and that somehow two bad bills will beget a good one.
As recently as a couple of years ago, few energy companies were enthusiastic about the prospect of cap & trade, because it was bound to raise their costs and reduce demand for their output, at least from energy sources with substantial emissions of CO2 and other greenhouse gases. If the bill passed by the House had treated all emissions from all sectors equally--a level playing field--we'd still see visionary companies diverging from the industry's stance, but their numbers would probably be a lot fewer for the simple reason that there wouldn't be nearly as much financial gain in it for them. When no-nonsense companies like Exelon and several of its utility peers break ranks with the US Chamber of Commerce on this issue, it's a good bet that they see a direct strategic advantage that will put money in their shareholders' pockets. Simply put, this is as good a deal as they're going to get. But while I find their support of cap and trade perfectly rational and even laudable, it should by no means be read as a sign that the Waxman-Markey approach is the best means of addressing climate change.
As I've noted in previous postings, Waxman-Markey was excessively generous in handing out emission allowances to the electricity sector, at the expense of the transportation sector. It also lavished allowances on non-emitting sectors and favored causes and groups in lieu of cash--a form of largess that fundamentally undermines the accountability of these benefits, because no one knows or can know what they will be worth when they are eventually received. Yet although this is bad policy on many levels, I see many people holding their noses and supporting the W-M approach, because they conclude that once the free allocations have phased out in 2030, we'll be left with a more or less pure cap & trade system enforcing a steadily tightening cap on emissions. The problems with this thinking lie in the enormous distortions and unnecessary economic hardship those uneven allocations will create over the next 20-plus years and the opportunity cost of the emissions reductions that could have been achieved more quickly and cheaply.
My strong preference has been for an even-handed cap & trade system that would include the broadest possible collection of emissions sources, providing great diversity of abatement costs and thus great scope for emissions trading to minimize the cost of achieving our emission reduction goals, and with most of the proceeds rebated directly from the government to taxpayers. Unfortunately, the ship has sailed on that approach--at least for now--and anyone supporting cap & trade for the elegant simplicity of its mechanism for squeezing out emissions is left hoping that the legislative excesses of one chamber of Congress will cancel out those of the other, and that somehow two bad bills will beget a good one.
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