Shifting Sands - Changes Ahead for the US Power Industry
- seeking input for a potential Multiclient Study
(copyright, 2014, Andover Technology Partners)
Not so ancient Naval History
Thirty years ago I was
an officer in the US Navy assigned to the engineering department of the USS Enterprise,
the Navy's first nuclear aircraft carrier that was placed in service in
1960. It was an impressive ship - nearly 1,200 feet long and nearly
100,000 tons in displacement with eight nuclear reactors - that could carry
about 100 aircraft and about 5,000 men (women didn't serve on combat ships back
then). I can't tell you the top speed because that was classified (you would be
surprised - aircraft carriers are about the fastest ships the Navy has).
The ship had participated in the blockade of Cuba during the Cuban
Missile Crisis and also participated in the Viet Nam War.
In 1983 the ship was
stationed in Alameda, CA, right across the bay from San Francisco.
Returning to Alameda from a nine-month deployment to the Indian Ocean and
the Western Pacific, the ship carried on board a group of dignitaries who were
flown out to celebrate the return of the famous ship from a successful
deployment. The dignitaries included then San Francisco Mayor, Diane
Feinstein, U.S. Senator Samuel Ichiye Hayakawa and even George Takei - from the
TV show Star Trek. Hundreds of sailors, at attention in their dress
uniforms, manned the railings of the ship as she proudly sailed under the
Golden Gate Bridge to return home - at low tide in order to help fit the tall
ship under the bridge. It was an impressive sight to be sure. On
the pier at Alameda Naval Air Station (since closed and turned into the
location for Discovery Channel's Mythbusters, among other things) a Navy band
was playing and families breathlessly waited to see their loved ones return
from the deployment.
On the final turn to
the pier, the massive ship leaned heavily to one side and slowed to a
halt. The ship had run aground. For hours, families who hadn't seen
their loved ones for close to a year watched the hulking ship - only a few
hundred yards away - as tug boats and the Enterprise crew feverishly worked to
dislodge the ship from the bottom. As the tide came in, the ship was
eventually floated off of the bottom. Of course, running such an
important ship aground is a serious event that gets the attention of the Navy's
top officials. One of the explanations given in the ensuing inquiry
was that unusually heavy storms over the winter had deposited silt on the
bottom, reducing the depth of the bay from that of nine months prior. The
Captain of Enterprise, unaware of the shifting sands, did not account for this
possibility when planning his approach to the pier. By the time he
realized that the water was too shallow, it was too late. The ship was
too massive to quickly change course and avoid running aground.
A lesson for the power industry
There is a point to
this story besides a little nautical history. The electric power industry
is experiencing rapidly shifting sands as a result of technology, policy, and
market developments. This creates risks and opportunities for the various
players in the industry. With so much invested in long term assets the
management of America's electric power companies and some of the companies that
serve them, like the Captain of Enterprise, cannot change course easily when
they see the water getting shallow, and they are therefore at risk of running
aground if they don't adequately plan ahead. Those power companies
that are prepared, and the technology suppliers to the industry that are
prepared, will benefit. On the other hand, those that don't account for
the shifting sand will find themselves high and dry, stuck on the proverbial
The shifting sands
became plainly apparent to me at the recent International Power Generation
Conference, aka Power-Gen,
in Orlando. Gone were the wind turbine suppliers (victims of a failure to
extend the PCT). The gas turbine suppliers were there, but were not as
visible as in the past. What surprised me the most was the presence of
distributed generating suppliers, including photovoltaic and engine generators.
Also surprising was the large number of Korean and Chinese companies.
The activity was generally subdued among the suppliers of traditional,
central station power equipment.
What is the cause of
the shifting sands? As I've mentioned in the past, growing supply of
natural gas is one thing, but, there are several other catalysts that are also
at work. Advances in energy efficiency that have reduced demand growth,
renewable and distributed generating sources that are cutting into traditional
fossil and nuclear power sales, smarter ways to dispatch power and potentially
store it, tightening environmental regulations on existing fossil assets and
aging nuclear units are all turning the traditional power sector business model
upside-down. The traditional power sector model of large, central-station
plants producing exactly enough power to meet demand just in time when it is
needed is at risk of major technology and market disruptions. I am firmly
of the belief that in 10-20 years the power industry is likely to look very
different than what most of us are accustomed to. There will be clear
winners and losers in terms of equipment suppliers, fuel suppliers, and service
suppliers. As recently reported in Financial
Times, Lynn Good, the CEO of Duke Power, stated that the low demand growth resulting from energy efficiency measures
will lead to more consolidations among America's power companies. In fact, it is my opinion that some of the catalysts occurring the electric sector today might collectively cause a reduction in total demand from the grid and even greater reductions in generating capacity.
Proposal for a study
I've been giving this
a lot of thought lately, and I'd like to get some feedback from you on how much
interest there might be in a multi-client study to examine each of these
catalysts and their impact on the electric power sector and various
technologies that may be used in the sector. In the past I've worked with
a few of you to develop forecasts for your business or analysis of one of these
issues, but I am considering a deeper and perhaps broader dive than I have in
the past because there are so many issues at play. I intend to examine the
various forecasts that are out there (such as from EIA as well
as others) and let you know where I believe these forecasts are vulnerable and
what I think could potentially happen. I will also show where the
forecasts for some equipment, such as gas turbines, will potentially differ
from what is being forecast.
No one has a perfect
crystal ball, but it is nevertheless important to consider all of the
possibilities and know what to monitor so that adjustments can be made to
business plans as information comes in. To do the job right, it will be
necessary to have an adequate number of clients to keep the cost of the program
per client at a reasonable level. And, if you have some thoughts on what
is important to you, please let me know so that I can try to incorporate it
into the program.
Major catalysts that I
intend to examine, along with their effect-
- Shale gas - New sources of natural gas have made it the
fuel of choice, not just for peak power and load following, but for new
base-load power. But, what is the outlook for gas - especially in
light of planned LNG and increased domestic demand?
- Renewables - Wind and photovoltaic power have had a
major impact both in terms of impact on total load and on dispatch.
New wind capacity installations have been comparable to new gas.
Although wind economics still rely heavily on incentives, photovoltaics
used "behind the meter" have become economical without
incentives in many markets.
- CO2 and other environmental regulations - These
regulations primarily impact coal fired generation. Future
regulation of greenhouse gases will have a negative impact for coal, which
has historically been the fossil fuel of choice for base-load
- Nuclear Retirements - America's nuclear fleet is
aging. Some of these aging units can have their life extended, but
in an increasingly competitive power environment with low gas prices and
incentives for renewables it is not economical to extend the life of many
units. Some units are retiring early because of currently
- Energy Efficiency - The stealth catalysts are energy
efficiency, distributed generation and energy storage. Energy
efficiency is contributing to lower power demand growth.
- Distributed generation - The combined effect of energy
efficiency and distributed generation (especially photovoltaic) is
stealing central station customers and reducing overall demand,
particularly from commercial and industrial customers - the most
profitable segment of the market.
- Energy Storage - This may be the most disruptive
catalyst. Energy storage technology, while still largely under
development, may have the most profound effect by making intermittent
sources like wind and solar much more viable and will cause the
traditional model of "just-in-time" generation to disappear,
dramatically changing the complexion of generating assets and the way
power is delivered.
- Electric vehicles - what is the potential positive impact on demand of increased use of electric vehicles?
These are the people
that I think should be interested in this report:
- Management in the electric power sector who want some
outside input to what the future may hold
- Companies that supply equipment, services or
consumables to this sector
- People interested in promising investment opportunities in this
sector - and what to potentially avoid
- Economists and modelers of the electricity and energy markets
I am looking for input. If you think this
project is likely to be of interest to your organization, I invite you to
contact me and provide me some input to what information you would like to see
in the report. This way you can shape the program to be as beneficial to
your organization's needs as possible. If there are specific catalysts that are of interest to your company, we can even perform a focussed effort on just those specific catalysts. At this point I am fairly flexible.
I will also reach out to experts
who may participate in this and round out the expertise. Who I ask to
participate will depend upon the feedback that I receive on what areas you
would like covered.
I look forward to your