Electricity Holds the Key to U.S. Energy’s Future

By Bob Shively, Enerdynamics President and Lead Instructor

As we enter 2013, it is clear that electricity is becoming the dominant form of energy that will drive society’s future. Exxon forecasts that between now and 2040, electricity will account for more than half of the growth of global energy demand [1]. And in the U.S., the Energy Information Administration (EIA) forecasts that electricity use will grow by 24% in that same period. Natural gas also is forecast to grow significantly, but much of this is due to growth of natural gas as a fuel for electric generation.

Source: EIA Annual Energy Outlook 2013 Early Release Reference Case

So with electricity destined to increase in importance, what can we expect to see in the electricity industry in 2013? We’ll explore various issues including the generation mix, energy efficiency and demand side management, infrastructure, the environment, and the slow but seemingly inexorable movement to more competitive markets.

Generation
The pace of change in the U.S. generation mix in 2012 was stunning. Coal generation dropped significantly to just 37% while natural gas generation increased to 30%. Renewables also continued growth driven by state renewable portfolio standards and decent economics for wind power.

Source: EIA Short-term Energy Outlook December 2012

Given this information, what should we expect in 2013? Much of the natural gas generation increase was due to low natural gas prices which pushed the variable cost of gas units below that of coal. So whether this trend entirely continues depends on the price of natural gas. As discussed in our companion natural gas Energy Insider article, current futures prices for gas indicate a market expectation of continued low prices. Also a factor will be permanent retirement of numerous coal units, a trend that is expected to continue in 2013 [2]. Despite the current uncertainty of whether production tax credits will be extended for wind power and the possible reduction in new projects, actual output for renewables will continue to increase as projects completed in 2012 come online.

And although newer technologies won’t have much effect on the overall generation mix, 2013 will be a good time to learn more about possible future electric supply options. Two IGCC (integrated gasification combined-cycle) units are slated to come online in 2013 [3], construction will continue on five new nuclear units, and numerous demonstration projects will test storage technologies.

Energy efficiency and demand side management
Energy efficiency (reducing demand across all usage) and load management (reducing demand during peak times) are increasingly important in the U.S. The result is that efforts on the demand side reduce the amount of generation that must be built. EIA data shows that by 2010, over 33,000 MW of generation construction was avoided due to energy efficiency and load management.

Source: U.S. Energy Information Administration, Form EIA-861, “Annual Electric Power Industry Report.”

Data from the North American Electric Reliability Corporation (NERC) indicates that this trend will continue in 2013 and beyond with just load management growing to almost 50,000 MW by 2017 (that means at least 250 peaking units do not have to built due to this resource). We expect that more and more utilities and ISOs around the U.S. will decide to rely on this low-cost resource especially as new technologies make it easier to implement programs and access controllable loads [4].

Source: NERC 2011 Long-term Assessment

Infrastructure
Infrastructure spending will continue at a high pace in 2013, with a focus on transmission expansion and distribution upgrades. Hopefully 2013 will be the year in which the term smart grid can be retired and we will simply begin talking about equipment upgrades (just like everyone talks about upgrading their cell phones!). Smart meter deployments will continue with the number of smart meters likely rising beyond 30% of all consumers.

Source: U.S. Energy Information Administration, Annual Electric Power Industry Report

But perhaps more important in the shorter term is the deployment of modern technologies in transmission, substation, and distribution facilities. While little noticed by the public, deployment of technologies such as Phasor Measurement Units (PMUs), Flexible AC Transmission Systems (FACTs), various transmission and distribution automation devices, and systems providing volt/var optimization, feeder load balancing, and dynamic outage response will fundamentally improve the efficiency and reliability of the electric grid.

Environment
With the re-election of President Obama and other “green” candidates in state races, we can expect that protection of the environment to continue as a key issue in 2013. We have already explored many of the key points in recent blog posts on Energy Currents [5], so won’t repeat the discussion here. But our expectation is that virtually all decisions in the electricity industry will be made in the context of how they impact environmental impacts and environmental regulation obligations.

Competitive markets
While certain areas of the country seem content continuing with the monopoly utility model, the role of competitive markets in electricity quietly grows. The amount of power trading in wholesale markets under an ISO — currently about two-thirds of U.S. power — will swell at the end of 2013 as the 35,000 MW of Entergy loads joins the Midwest ISO [6]. And although not an implementation of an ISO, the Western Energy Coordinating Council (WECC), which coordinates the western grid, is moving forwards with implementation of a competitive real-time balancing market [7].

Meanwhile on the retail side, markets in specific states continue to grow with significant activity in Texas, Maine, Pennsylvania, Illinois, Maryland, Connecticut, Massachusetts, New Jersey, Delaware, New York, and Ohio. And as reported by the Distributed Energy Financial Group (DEFG) [8], retail services have shifted focus from just providing the lowest possible rate to providing the most innovative services. As stated by DEFG in a recent e-mail, these include “fixed-price contracts, month-to-month pricing, time-of-use pricing with no-cost hours (or days), prepaid energy with daily notifications about usage, green power for electric vehicle charging, mobile applications to control thermostat settings, and advanced analysis of personal usage with customized suggestions about reducing electric bills.”

Conclusion
As we enter 2013, we can conclude that the electricity industry will continue to grow and evolve in interesting ways. And as we commonly remind our audiences, much of the future change will be driven by a new workforce as industry veterans hit retirement age. This means that for those of you on the younger side of the industry, there will be plenty of opportunity to help drive the retooling of a critical societal resource.

References

1. The Outlook for Energy, a View to 2040 http://www.exxonmobil.com/Corporate/files/news_pub_eo.pdf

2. For more information, see: http://www.eia.gov/todayinenergy/detail.cfm?id=7330

3. See: http://www.mississippipower.com/kemper/home.asp and http://www.duke-energy.com/about-us/edwardsport-overview.asp

4. See our earlier Insider, The Impact of Demand Side Management on Wholesale Electricity Markets http://marketing.enerdynamics.com/Energy-Insider/2012/Q2Electricity.html

5. See Climate Change and Greenhouse Gas Emissions Back on Agenda in the U.S. https://blog.enerdynamics.com/2012/12/07/climate-change-and-greenhouse-gas-emissions-back-on-agenda-in-u-s

and Uncertainty in Clear Air Rules Continues to Impede Planning https://blog.enerdynamics.com/2012/09/05/uncertainty-in-clean-air-rules-continues-to-impede-planning

6. See: https://www.midwestiso.org/WhatWeDo/StrategicInitiatives/Pages/EntergyInitiative.aspx

7. See: http://www.wapa.gov/rm/PMcontractRM/Meeting%20Transmission%20Challenges/11%20-%20Xcel%20Proposed%20West-Wide%20Energy%20Imbalance%20Market%20-%20Joe%20Taylor.pdf

8. See: http://www.defgllc.com/Assets/downloads/abaccus-2012-executive-summary.pdf