U.S. Energy Policy and Its Development Strategies - PowerPoint PPT Presentation

u s energy policy and its development strategies n.
Skip this Video
Loading SlideShow in 5 Seconds..
U.S. Energy Policy and Its Development Strategies PowerPoint Presentation
Download Presentation
U.S. Energy Policy and Its Development Strategies

play fullscreen
1 / 25
Download Presentation
Download Presentation

U.S. Energy Policy and Its Development Strategies

- - - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript


  2. Overview • The policy basis in the United States for restructuring its electric and natural gas industries to enable market competition to set prices • How well thus far –- or not -- this policy has worked to achieve its anticipated objectives • How this policy has led to fresh concerns regarding continued affordability and availability of energy • What is being considered in the U.S. to address these questions

  3. Basic Cornerstones of Current U.S. Energy Policy • Secure supply – generally maintained through diversity of fuel types and source locations • Safe – no threat to public health and welfare • Reasonably affordable • (For electricity) Always available (i.e., reliable and not subject to unintended interruption) • Clean (non-polluting to air or water)

  4. The Reality Today: • Some supply may become increasingly reliant upon foreign sources, making energy security even more important • Cost of fuel for energy (natural gas & electricity) will likely be volatile and rising • System could become less reliable as demands grow and necessary infrastructure investment deferred because of lack of regulatory certainty

  5. Projection Through 2025: The U.S. Thirst for Energy Will Continue Unabated • U.S. electricity demand expected to grow by 1.8 percent annually (from 3,600 billion kwh to 5,500 billion kwh) • Demand for natural gas expected to grow by 1.4 percent annually (from 22.8 Tcf to 31.4 Tcf) • Coal consumption will grow by 1.6 percent annually (22.2 quadrillion Btu to 31.7 quadrillion Btu) Source: Energy Information Administration / Annual Energy Outlook 2004

  6. U.S. Electricity generation by fuel, 1970-2025(billion kilowatthours) • Although coal use has numerous issues, discussion today will be deferred • Even with environmental challenges, it will remain the dominant fuel • With a 200-year supply, U.S. is the “Saudi Arabia of coal” • Major concerns center on natural gas because of supply availability and price volatility Source: Energy Information Administration / Annual Energy Outlook 2004

  7. Key Milestones Over The Last Half Century • For most of the last century, natural gas and electric power were highly regulated by government • These services were considered “natural monopolies”, unable to draw competition because of high costs of market entry • Natural gas wellhead prices controlled • Wholesale & retail power prices controlled • However, by the 1970’s, natural gas shortages occurred because of lack of financial incentives for producers • Also, electric power generation technology advances made efficient, affordable power from others more feasible • Eventually, policy makers chose to deregulate prices (in most areas of the U.S.) • Natural gas supplies grew and prices stayed level for almost a decade

  8. U.S. Natural Gas Markets Today: Issues Over Price • Higher spot prices and greater volatility than seen during the 1990’s when gas prices were around $2.00 – 3.00 per MMBtu • $6.50 – 8.00 per MMBtu in summer • $10.00 per MMBtu in winter • Allegations of market manipulation being claimed by some, and state and federal investigations were triggered • Role of traders/speculators questioned in driving up spot prices • But reason can be largely attributed to economic forces of supply (which is declining) and demand (which is increasing)

  9. Current U.S. Natural Gas Domestic Supply Forecast through Year 2025 • Higher wellhead gas prices no longer yield greater gas production, contrary to prior wisdom • More drilling necessary just to maintain production because of higher rates of production declines • Despite more drilling, higher prices expected because of greater offshore drilling, and use of technology intensive practices Source: Energy Information Administration / Annual Energy Outlook 2004

  10. New Sources Of Natural Gas Will Be Required to Meet U.S. Demand • Imported Liquefied Natural Gas (LNG) • Alaskan production • Nonassociated unconventional sources (tight gas, shale gas, and coalbed methane) Source: Energy Information Administration / Annual Energy Outlook 2004

  11. Will LNG be the Answer? • Three dozen LNG proposals being considered • Each faces daunting technical and permitting hurdles, slowing process of completion • Safety & security questions raised • Even if successful, raises reliance on imports thrusting U.S. energy security into global dependence akin to oil

  12. Electricity Generation’s Growing Dependence on Natural Gas • Natural gas has become the “fuel of choice” for new power generation • Environmental advantages • Shorter lead times of completion • Improved efficiencies • From 2000 to 2004, 200,000 Megawatts (MW) of new power plant capacity was added to existing capacity base of 903,000 MW • 94 percent of this new capacity was natural gas fueled • Currently, higher risks for power plant developers: • Exposure to higher fuel costs • Exposure to price volatility

  13. For New Electric Generation, Natural Gas is the Preferred Fuel Annual Additions To Electricity Generation Capacity By Fuel, 1950-2002 (Gigawatts) Source: Energy Information Administration / Annual Energy Outlook 2004

  14. Electricity Sector Market Reforms • Until 1990’s, electric utilities held monopolies for transmission, distribution and generation services in all markets • Early 1990’s: Federal government allowed creation of independent power producers, thereby creating a competitive wholesale power market and deregulating the generation sector; transmission and distribution remained monopolies • Mid-1990’s: states began to require unbundling of services or functional separation of services/ some generation was sold to independent power producers • Some states began allowing retail power competition

  15. But Notable Failures Have Occurred In Competitive Electricity Markets • California badly designed its deregulated retail market, resulting in an economic and political crisis • Wholesale prices surged when supplies were short • Customers were economically harmed by unreasonably high prices passed on at the retail level • One major utility underwent costly bankruptcy • Voters removed the Governor of California in special election and elected instead an international action movie star and aging bodybuilder

  16. California’s Current Governor: A Warrior to Tame the Power Markets . . . “Conan”

  17. Electricity Generation’s Current Dilemma: Overcapacity • Markets are overbuilt with 25-40% excess and some as much as 100% • Oversupply of generation capacity will last for at least five years in most regions. • Natural gas and coal will continue to supply the vast majority of generation growth • Natural gas price volatility will continue to affect electric prices

  18. But Undercapacity Plagues the Electricity Delivery Infrastructure System! • Disproportionate attention has been placed on generation • Transmission system investment has been declining for over 25 years by $115 million/yr in real dollars Source: E.Hirst, “Transmission Crisis Looming?” Public Utilities Fortnightly, September 15, 2000

  19. Policy Disputes And Regulatory Uncertainty Currently Discourage New Transmission Infrastructure Investment • Electric industry restructuring reform has resulted in diffusion of government oversight • Lack of clarity over which government entity (state or federal) regulates transmission system • Some states and federal government disagree over jurisdiction • Transmission-owning utilities unwilling to invest if cost recovery left uncertain

  20. Proposals to Reexamine the Role of Government Regulation of Power Generation • Basic Premises: • Fuel diversity is essential to maintain public policy goal of energy security • Electricity prices must be affordable and fairly consistent over time, allowing for periodic rate increases • Many question whether competitive markets will achieve this alone • Others propose greater government role to oversee or mandate electric supply portfolio: • Combination of long-term contracted supplies and spot market supplies • Diverse fuel sources • Others advocate full or partial resumption of government regulation over entire electricity industry, including power generation sector

  21. Lessons Learned from U.S. market reforms for natural gas and power generation • Markets tend to function in a cyclical manner, sometimes causing shortages and surpluses of traded commodities (effects of supply and demand) • Electric power and natural gas are no different -- if they are regarded as commodities, they will be subject to a “boom and bust” cycle • But the public’s unchecked exposure to these forces can cause political problems and reactionary responses • Opening natural gas and electricity sectors to market competition was not a mistake • Consumers benefited from greater available volumes of affordable gas for a lengthy period • Risk of failure remains on independent power providers, not utility customers

  22. Lessons Learned from U.S. market reforms for natural gas and power generation (con’t.) • But markets can be unforgiving • Consequently, the proper role of government regulation and oversight needs continued rethinking • Total reversal of market-oriented policy would be difficult, expensive, and likely discourage capital urgently needed for infrastructure investment • Need to properly balance market freedom with government regulation so that public is not asked to shoulder undue market risk • Government policy can play a constructive role so long as it is focused, coherent, and consistent over time, allowing for fine-tuning calibrations

  23. Some Lessons for China’s Proposed Energy Sector Reforms • Learn from mistakes of others such as the U.S. • There is no single “perfect” model for creating an energy market • Take best practices from other countries • Don’t delay reform to try to reach a “perfect” outcome, but endeavor to craft a workable scheme that avoids major, ex post facto corrections • Don’t overreact if something unintended occurs

  24. Thank You For Your Attention Xie Xie

  25. Robert W. Gee President Gee Strategies Group LLC 7609 Brittany Parc Court Falls Church, VA 22304 U.S.A. 703.593.0116 703.698.2033 (fax) rwgee@geestrategies.com www.geestrategies.com