Energy policy is putting both electric reliability and the economy at risk
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Energy Policy is putting both Electric Reliability and the Economy at Risk. Frank Clemente Ph.D. Senior Professor of Social Science & Energy Policy Penn State University [email protected] 1. Reliable Electricity and the Economic Growth:.

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Energy Policy is putting both Electric Reliability and the Economy at Risk

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Energy Policy is putting both Electric Reliability and the Economy at Risk

Frank Clemente Ph.D.

Senior Professor of Social Science & Energy Policy

Penn State University

[email protected]


Reliable Electricity and the Economic Growth:

“Electricity use and gross national product [are] strongly correlated. The relationship … is so important that it should be considered in developing … energy and economic policies … to promote electrotechnologies … to lower the real cost of electricity ” National Academy of Science, 1986

Four Basic Premises

  • Reliable electricity at an affordable cost is the lifeblood of modern society

  • The U.S. has the most reliable system in the world and moderate prices have been our advantage

  • Both reliability and affordability are threatened as: (a) generation capacity erodes and (b) imported LNG looms as the default fuel

  • For the first time in history, the adequacy of our electric supply system will depend on decisions made in foreign countries

Reliability is Being Compromised Along Two Dimensions

  • Inadequate Generation Capacity

    • Planned baseload coal plants are being cancelled

    • Options to replace the scale of cancelled generation are:

      (a) limited, (b) expensive and, (c) vague

  • Emergence of LNG as the Default Fuel

    • NG comprises 90% of all new generation from 2000-2010

    • North American NG production has peaked so LNG will play an even larger role

    • Global competition for LNG is intense, supply is limited so costs far exceed anything predicted by EIA

  • The Steady Erosion of Electric Reliability in the United States

    By 2016, only one in four states will be in a reliability region meeting NERC’s minimum acceptable standards

    Number of contiquous states in reliability regions where available capacity margin meets minimal accepted level reliability -- 15%

    The Power of Ecowatts--More Electricity Means Less CO2 per GNP

    The Rising Tide of Electricity Demand in the U.S.


    Source: EIA, 2008

    The Reality of Energy Supply in the U.S.



    More Wells and Higher Prices Have Not Increased NG Production



    “North American gas production is inadequate to meet demand. We are in competition with other importing regions for LNG supplies. And we are not predestined to prevail in that competition”

    –Joseph Kelliher, Chair of FERC, 2007


    The Danger of Relying on NG for Electricity

    NG has 4 times the price and 20 times the price volatility of coal

    Using NG for electricity drives up the price of both electricity and NG for families and businesses.

    North American NG production has peaked. Thus, LNG imports from risky sources (e.g. Russia, Iran) must balance future supply—at high cost.


    Using More NG to Produce Electric PowerIncreases the Price of Both NG and Electricity

    From 1993-2007, the amount of NG

    for electricity increased 92%

    Source-EIA, 2008

    Price Matters

    The U.S. Bets On A Brave New World

    Where new supply is projected to come from 2006-2019

    Where new NG supply came from 1993 - 2006

    “Importing LNG from abroad opens the U.S. fuel supply to the global market and all the economic and political risks associated with it” –NERC, 2007



    • Source: EIA, 2008

    Risky Dependence:

    Emerging Competition for LNG



    Reality Sets In: The Steady Decline in

    EIA Forecasts of U.S. Imports of LNG in 2008

    2008 (June)

    Year Forecast Made For 2008 Imports


    The Long Run Price of NG/LNG

    in a Peak Oil World

    Source: Adapted from "The Relationship Between Crude Oil and Natural Gas Prices," Hartley et. al, Rice University, 2007


    EIA Under Forecasted 2007 Consumption of NG for Generation for 11 Straight years-including 2007

    Actual 2007 Consumption for Generation

    EIA’s forecasts for 2007 were off the mark every time in the same direction. Clear evidence of systematic bias.


    “Disruptions in the supply of natural gas could have a significant impact on the availability of electricity”

    –NERC, 2007


    Coal Is the Cornerstone Of Electricity Generation In The U.S.



    Coal has Buffered Millions of Consumers from Even Higher Electricity Prices


    When California’s Daily Peak exceeded 45,000 MW, in no case did wind provide more than 325 MW despite rated capacity of 2500 MW.

    Wind Generation’s Performance During 2006 California Heat Wave

    * Adapted and estimated from Dixon, U.S. DOE (2006)



    Nuclear Power: Four bottlenecks will significantly delay the construction of new nuclear power plants in the United States

    High Level Waste management, transportation and storage

    Entrenched Opposition at both national and local levels

    Supply chain issues

    (a) availability and cost of fuel,

    (b) expertise

    (c) global competition for nuclear grade components

    4.Societal inertia, litigation and bureaucratic creep –we have not built a nuclear plant for decades.

    Bottleneck: Competition with the rest of the world for nuclear grade components, fuel and expertise –we are behind the curve and falling

    New Reactors which will come online by 2015

    Source: World Nuclear Association

    Lest We Forget :

    US Coal Reserves vs. Oil and NG Reserves

    Source: EIA, 2008



    This Second “NG Dash to Gas” is Real, Risky and Expensive

    Source, Platts, 2007

    *Note: The Platts survey is the most recent available but does not include many recently proposed NG Plants or many recently cancelled coal plants


    EIA has Under Forecast the Price of NG to Produce Electricity for 12 straight years, including 2008 itself

    Actual 2008 Price of NG for Generation


    We were Warned of the Consequences of the first “Dash to Gas”---Construction of Over 220 GW of NG From 2000-2006

    • 1997: “if Lower-48 proved gas reserves are reported to EIA with reasonable accuracy, and inferred reserves as assessed by the Department of the Interior prove generally reliable…by early in the next century, natural gas will have become more of an energy problem than an energy solution”

      –Joseph Riva, Colorado School of Mines

    • 2008: “Construction of natural gas fired power generation in the last decade has placed an unreasonable strain upon the U.S. natural gas system. Natural gas must be used to meet new electricity load growth…this unfettered demand growth appears to have come at the expense of other consumptive sectors”

      -Credit Suisse Bank

    The Specter of Higher Electric Rates:A Few Examples

    • Pennsylvania: “estimated 8 to 63 percent increases

      loom on the horizon” (AP, 6/08)

    • Texas: “electricity-price spikes…consumers could face

      second prices this summer” (WSJ, 6/08)

    • New Jersey: “residents will see double-digit increases

      in electric bills this summer” (AP,2/08)

    • Florida: FPL requestsDramatic increases in the cost of fuel, the price of natural gas, which fuels 50 percent of FPL's electricity generation, has risen from $8.17 per million BTU to $10.75 per million BTU, a 32 percent increase.

    States Which Will Fall Below Minimum Capacity Levels by 2016

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