Consensus proves elusive on power generation issues

At a time when there seems no federal consensus for a U.S. energy policy, agreement was also hard to find among industry speakers at a Las Vegas conference April 2 and 3 that focused on issues including $2 gas, expiring renewable subsidies and new environmental rules.

One area of debate during the Platts Global Power Markets Conference was how much the nation can count on cheap natural gas from shale and how this might alter the power marketplace.

Both a leading gas producer, Chesapeake Energy (NYSE: CHK) CEO Aubrey McClendon, and a leading gas power generator, Calpine (NYSE: CPN) CEO Jack Fusco think that new large supplies of domestic natural gas will reshape the generation sector.

McClendon thinks gas prices will stay below $5/mmBtu for years and will increasingly be seen as a baseload fuel.

Fusco wonders why everyone is so fond of developing a diverse power mix when simply banking more on natural gas produces cheap electricity and also cuts CO2.

The nation’s power fleet has been aging for a long time, it’s now between 40 and 45 years old, Fusco said. The Calpine CEO and others suggested that U.S. EPA regulation might push more of the nation’s aging coal fleet into retirement.

Other speakers were skeptical about viewing natural gas as a cure-all for power generation. Count SolarReserve CEO Kevin Smith in that camp.

Yes, technology has given us $2 gas, but not so long ago it was $14 mmBtu and nuclear was once thought “too cheap to meter,” Smith said. Smith was among those who questioned if U.S. natural gas prices will stay cheap if the nation starts to export it, or if it begins being used more as a transportation fuel.

Fusco didn’t appear worried that gas prices might surge if some of it starts being exported. Lots of countries have shale where natural gas can be extracted, Fusco said. The Calpine CEO expects the percentage of natural gas used for exports will be tiny.

Some renewable interests questioned how much gas can be considered a “clean” fuel when it still has half the CO2 emissions as coal. If a child only washes one hand before dinner he’s only “half-clean” one panelist asserted.

Much ado about government energy policy

Does the U.S. government really need an energy policy, or should policy be set by states or the market?

Overreliance on market factors favoring whatever is cheapest now has resulted in too many “six-month strategies,” Smith said. The SolarReserve CEO also predicted that Congress will eventually reauthorize the production tax credit and other renewable incentives. Lawmakers don’t want to see the wind industry decimated, Smith said.

Meanwhile, it seems all sorts of institutions are forming their own energy and environment policy, said Jerry Bloom, law partner with Winston & Strawn. For the first time lenders are doing their own sustainability analysis of energy projects before deciding whether to make a loan, Bloom said.

One clean energy source, nuclear power, faces a complicated future prior to the Fukushima disaster in Japan.

The world nuclear power outlook is not dramatically different now than it was before the meltdown– except in the United States where regulated markets are the only areas that have any chance of seeing new nuclear plants anytime soon, said EDF Inc. President and CEO Eric Bret. EDF Inc. is a North American affiliate of France-based EDF Group, an international nuclear power operator.

Bret and Bloom both agreed that coal power isn’t going away. But with natural gas less than $3 it’s hard to make an economic case for burning Eastern coal said Exelon’s (NYSE: EXC) Joseph Dominguez. Even some single unit nuclear plants could be threatened by long-term cheap natural gas, said Dominguez, a senior vice president for government affairs with Exelon Generation.

The conference featured many speakers from gas, renewable and independent power interests. There was much criticism of regulated “monopoly” utilities for not doing enough to scrub emissions from their coal fleet during economic boom years.

A lot of coal retirements are occurring in regulated states, said Dominguez of Exelon. Unregulated or merchant states tended to bring in more gas-fired generation, he added.

Electric Power Supply Association (EPSA) President and CEO John Shelk was critical of some state actions. Maryland first ordered companies to install expensive scrubbers on coal plants and now the same state seeks to boost new generation to compete with these coal plants.

EPSA represents independent power producers and has been critical of Maryland and New Jersey efforts to encourage building of new power plants when it appears the market forces won’t support such a move.

Also some regulated states are going the extra mile to ensure that regulated utilities “are made whole” no matter what’s occurring in the marketplace, Shelk said.

A panel headlined by FERC Chairman Jon Wellinghoff concluded that capacity markets are working but are in need of improvement. A couple of speakers during the conference expressed mixed feelings about distributed generation. Distributed generation is great flexible option but it should not result in overuse of “dirty diesel” technology, said Glen Thomas, president of the PJM Power Providers Group or P3 Group.

About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at wayneb@pennwell.com.