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Climate and oil supply worries will put electric utilities in the hot seat. Utilities face increasing pressure to slash their fossil fuel emissions on the one hand and find ways to significantly boost power supplies on the other.
Amid mounting scientific evidence of global warming, we see a consensus forming among politicians, consumers and businesses that the time is ripe to start tackling this problem. Utilities—the leading source of man-made greenhouse gases—will surely be forced to clean up their act. Apart from the expense involved, the prospect of tighter emissions rules will create huge uncertainties about what types of technologies and plants to invest in now.
Even if utilities are ready to go green today, the solutions available to them are few and far between. Clean-burning coal plants, the subject of widespread media hype these days, won't be ready for deployment until 2012 at the earliest. An expansion of nuclear power, which emits no greenhouse gases, probably isn't in the cards until sometime next decade.
Money is a problem. Financiers are still jittery about plowing money into large-scale power plants, despite recent federal moves aimed at speeding up regulatory approvals. Lenders remain very picky about closing a deal because many got burned in the electricity industry's near meltdown after Enron, says Jone-Lin Wang, senior director and head of research, North American Electric Power, at Cambridge Energy Research Associates. Often, financiers will consider a utility's proposal for a new power plant only if the company "has contracts to [sell] the additional power for years," guaranteeing a steady flow of income, she adds.
In addition, many utilities still suffer from feeble credit ratings, adding risk to the financing equation. And plenty of local communities continue to take a not-in-my-backyard approach to power projects, creating doubts about whether projects will make it off the drawing board.
Utilities have enough problems right now simply producing enough juice to keep up with growing demand. There are barely enough big power generators and transmission lines to meet existing needs, let alone even bigger draws on the grid in the future. Wang notes that a lot of older plants are being shut down these days because their owners don't think it's worth the money to install scrubbing technology that allows the plants to meet tougher emissions limits.
There's a huge risk of blackouts for years to come. The U.S. power supply cushion, currently 15% or 16% of daily consumption, on average, is the minimum to cover possible summer spikes in usage. The power cushion will likely shrink to a measly 11% or so by mid-2011. The regions most vulnerable to power shortages are the Rocky Mountain states, Texas and areas served by the Tennessee Valley Authority. In contrast, the Deep South, the Northwest and New York state enjoy the most plentiful power supplies in the country.
Moving power around the country is dicey because of transmission line constraints. Moreover, major upgrades to transmission lines are just getting under way, nearly four years after cascading blackouts in the Northeast and the Midwest illuminated the need for them.
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