LEGISLATION continued from 24 plant investments (new construction), new or renewal contracts with a term of five years or more, or major investments by the utility in its existing baseload power plants.

California has determined that AB 32 will provide substantial economic benefits to the state. State analysis shows growth in the economy of more than $4 billion, with 83,000 new jobs. According to the bill’s fact sheet, “By acting now California will capture significant economic benefits by securing a leadership position in the emerging worldwide clean energy market.”

Greenhouse Gases—GHGs

The most important GHGs are water vapor, carbon dioxide, methane and nitrous oxide. Other gases such as tropospheric ozone and ha-locarbons also contribute to the greenhouse effect. Human activity, such as burning fossil fuels and deforestation, increases greenhouse gases in the atmosphere. In 2004, the U.S. emitted more than seven billion metric tons of greenhouse gases. CO2 accounted for 83 percent, methane 9 percent, and nitrous oxide, 5 percent. Source: Pew Center on Global Climate Change.

Estimating the costs of compliance

Getting a handle on the costs of proposed climate change legislation is difficult, if not impossible.

A study commissioned by the American Petroleum Institute in November 2007 found that energy legislation pending in Congress would have significant adverse effects on the economy and consumers, including nearly 5 million lost jobs and $1 trillion in lost economic output. The study, prepared by CRA International, found that the combined effect of seven legislative proposals would restrict the supply of energy available to the U.S. economy and would likely increase the cost of energy supplies to consumers and businesses.

The other side of the economic coin is the creation of new “green collar” jobs and new clean tech industries. Ira Ehrenpreis, Clean Tech conference chairman, said clean tech is the fastest growing sector for venture capital and the greatest economic opportunity of the 21st century. “There’s a mania around green energy,” he said.

CRA International also prepared a report for the Edison Electric Institute but results from a draft report apparently caused a mutinee. One group of EEI-member utilities immediately suggested that revisions were needed.

Power News.com reported that the draft predicted economic shock from the Lieberman-Warner bill, with sharply increased electricity prices for consumers and a dash-to-gas for power generation. Eight utility executives immediately responded to EEI about the report’s findings, according to the Miami Herald, saying that the report had not accurately estimated the costs that would be associated with the Lieberman-Warner bill. The letter was signed by the CEOs of Avista, Constellation Energy, Entergy, Exelon, National Grid, PG&E, Public Service Enterprise Group and FPL Group. At the time this article was written, an EEI spokesperson said the report’s release was not imminent and that further analysis was being done.

Making it even more difficult to estimate the cost of controlling GHGs is the fact that besides not knowing the “when” or the “what,” the “how” is still unclear. “For climate change, current technologies will not get us to where we need to be,” said Jeff Sterba, PNM Resources president and CEO and EEI chairman, at the Clean Tech Summit. Clean coal technologies, for instance, are still in their infancy, especially carbon capture and storage. Nevertheless, legislation was introduced in the U.S. House of Representatives in March that would bar the licensing of coal plants unless they were equipped with carbon capture and storage.

 

The price of uncertainty

By most estimates, demand for electricity in the U.S. will increase by more than 40 percent by 2030. Where will the power come from?

Concern about climate change regulation is making it difficult to finance coal-fired power plants. JPMorgan Chase, Morgan Stanley and Citigroup developed a system called the “Carbon Principles” to help lenders evaluate the potential carbon risks associated with such investments. The federal government suspended a major loan program for coal-fired power plants in rural communities in early March. The Rural Utilities Service will not issue any loans in 2008 and probably none in 2009. Project developers will have to put construction plans on hold or seek private funding, which will increase costs.

The Electric Power Research Institute projects 64 GW of new nuclear capacity by 2030 in order to make a significant reduction in CO2. Can we construct almost 50 nuclear plants in 21 years? Commissioner Peter Lyons of the Nuclear Regulatory Commission told CERA conference-goers that the NRC is expecting 15 more applications for 22 new reactors and projects a four-year timeframe for construction. The application process has been improved although recently reports of delays have surfaced.

Securing parts for new nuclear power plants in a competitive global market will be tough, too, and capital costs are skyrocketing. Progress Energy estimated the cost of two nuclear reactors in Florida at about $3 billion per reactor several years ago, but in a recent filing with the Florida Public Service Commission, the company said the price tag is now $17 billion.

If a generation pinch comes, natural gas will be the fuel of choice. That’s an expensive choice and one that will create another dependence on foreign imports, exposing the U.S. to a risky security situation. At CERA Week, American Electric Power President and CEO Mike Morris said he is very concerned. “There is no question that there is a technological answer [to GHG emissions] that will bring us through, but it will be a half a decade to a decade,” he said. “The peril is if we don’t do enough we will find ourselves in an electric shortage and we’ll come up with a terrible answer. The dash-to-gas is a reckless conclusion.”

Putting a lid on CO2 and keeping our economy humming along is a challenge. Besides the other issues U.S. utilities are facing—an aging workforce, an aging infrastructure— there’s a whole new world of people who want to live as comfortably as we do, vying with us for resources. Electric utilities will build the bridge to the future but it will probably take more time and money than we think.