The Coming Electricity Crisis

cornbread

cornbread

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The Coming Electricity Crisis

Nightmare situation in my opinion.

I am so glad that the democrats will be embracing bi-partisanship when BO wins.;-)

http://www.dailyreckoning.com/index.html


THE COMING ELECTRICITY CRISIS
by Byron W. King

OK, so I don’t have a copy of the Sunday business section from next March. But I think I know what at least one major issue will be within the next 24 months. The headlines will scream, “Power Failures, Price Spikes Plague Northeast U.S.” And the same thing will also hit the Western U.S. And the Southeastern U.S. And parts of the Midwest.

They sure did not talk about power failures in the presidential debates, did they? I don’t know why not. All the insiders know about it. Indeed, power failures and price spikes are baked into the national economic cake. People who follow these things are quite sure of it. It’s just a question of when, exactly, the lights will start to flicker.

We already had one experience with a regional blackout. Do you remember the power failure of Aug. 14, 2003? Almost the entire Northeast U.S. went dark, except it occurred in the middle of the day. The effects were immediate on over 50 million people in the U.S. and Canada.

Skyscrapers just stopped working – no elevators, no lights, no water, no nothing. Hospital operating rooms went dark. Traffic signals stopped functioning and people were in the midst of instant gridlock. If you ran out of gas, there was no power for the pumps at the gas station. Refrigerators stopped humming and large amounts of food spoiled. Rail systems stopped running – from streetcars in Toronto to subways in New York and Amtrak and freight trains in the middle of nowhere. FAA flight controllers had to communicate with airborne pilots via battery-powered walkie-talkies. Sewage systems shut down, and a lot of you-know-what backed up in many low-lying areas.

The 2003 power failure was bad news, although short in duration. And then it was back to business for the U.S. Things became (if you will excuse the expression) “normal” again. Just like in Amity.

Looking back, the utility companies got the power back up and running, right? And the experts investigated the origins of the problem, right? The people who know all about power grids fixed the problem, right? It could not happen again, right? The U.S. power grid has ample electricity-generating capacity, right? And there’s plenty of transmission to move power from one region to another, right?

Well, no.

Earlier this week, I attended a privately sponsored presentation on U.S. energy policy. The main speaker was a senior faculty member from Carnegie Mellon University. This guy has been “doing electricity” for about 40 years or so. He has written reports for the National Academy of Sciences. When the people at the U.S. Department of Energy have a question about electricity, they call this CMU professor.

The news is not good. In 2007, there were about 144 new coal-fired power plants on the drawing boards of the U.S. energy utilities. But, said the professor, “We will probably build none of them.” Indeed, “The electric industry in the U.S. is in terrible shape,” said the CMU man. So we should expect local and regional brownouts and blackouts to become common occurrences “within five years.” But the first isolated instances of brownout and blackout will hit us much sooner than that.

Why is there such a gloomy forecast? Because essentially, the deregulation of the 1990s was botched. According to the CMU electricity expert, botched deregulation “slowed investment, raised prices and led to more and more uncertainty.” So now few utilities or their executives want to take political, regulatory, technical or financial risks. Hence, the entire long-range planning cycle has broken down.

It’s almost impossible to decide what to build, and at what scale. Costs are exploding, particularly for new construction. It’s safe to say that most power plant construction cost projections have doubled within the past 18 months. The prospect of fast-changing environmental regulations also adds to the uncertainty. No one wants to build a power plant and learn in five or 10 years or so that environmental regulations are going to shut it down.

Even the alternative energy industry – with wind, solar and geothermal as the poster children – has formidable challenges. The biggest issue is cost competitiveness. That’s because alternative systems provide power at costs that range from slightly higher to much higher than traditional power from, say, coal plants. Then there are issues of reliability, due to the intermittent nature of wind and solar, and the still-novel nature of geothermal power. And other issues include the lack of transmission from the usually remote sites of wind and solar facilities.

Overall, U.S. power producers face the prospect of many different forms of investment uncertainty. What will be the availability of different fuel mixes? Will coal still be useable? Or will natural gas be available at a cost they can afford? Can power producers invest in nuclear systems when there is still no definite program for disposing of the waste stream over the next 50 years? Or should the utility companies go all out for alternative systems?

But the next question is how much can consumers afford to pay? And what rates will the regulators allow? If utilities invest in alternative power systems (like wind or solar) that produce electricity at, say, 20-30 cents per kilowatt hour (kwh), will the regulators set those relatively high costs as the level of reimbursement? And for how long? What if the regulators permit the higher costs for only a few years and then penalize the utilities because some “better” technology comes along? At the end of the day, the base line cost of electricity is set against the cost to produce comparable coal or natural gas-based electricity. And this cost setting occurs even though there is a growing bias against burning carbon in the U.S. political and regulatory culture. One attendee at the discussion commented, “When you’re in a ‘no-win’ situation, guess what? You can’t win.”

The CMU professor has looked at historical trends for power in the U.S. His best estimate is that over the next decade or so, the price for electricity will about double on average throughout the nation. “This would put the cost of electricity about on par, as a percentage, with where it was back in the 1950s.” But that is only if people keep making investments in new power systems and the nation adopts conservation and efficiency measures on a large scale. Absent that? It’s lights out.

So you might not see it in your daily life – not yet, anyhow – but the power industry is currently paralyzed by the uncertainty of lopsided risks. And as old power plants age and go off stream, there will be less and less reserve power. Costs are going to rise. And reliability will fall. It’s inevitable.

So one investment sector that ought to do well over the next five years is power and backup power systems. And particularly, the companies that should do well are involved in power systems that are off the drawing boards and in some phase of construction, or near completion.

Best wishes, until we meet again...

Byron W. King
for The Daily Reckoning

P.S. Although many of the geothermal companies have been mauled by the market lately, if you are ready to deploy some investment funds in these risky times, the geothermal companies and the battery storage and microturbine companies offer a beaten-down mini-portfolio that is well-positioned for the coming age of brownouts and blackouts.


Editor’s Note: Byron King currently serves as an attorney in Pittsburgh, Pennsylvania. He received his Juris Doctor from the University of Pittsburgh School of Law in 1981 and is a *** laude graduate of Harvard University. Byron is also co-editor of Outstanding Investments , and editor of Energy & Scarcity Investor .
 
Crofter

Crofter

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I dont think there is much question that a lot of that is accurately forecast. More expensive and less dependable. Dont know about in the States but the condition of the transmission lines (brushing and tower and pole maintenance) has really deteriorated. I have worked construction on quite a few Nukes and hydro generation projects but there has been very little in the way of new starts.I am getting myself rigged up with enough standby power to keep my freezer going and minimal circuits. If you are stuck in the city though and the grid dies, there is no more gas for your vehicle and all the stores have to shut because they cant operate without power. Without traffic and street lights it quickly becomes a jungle. It is not going to make a heck of a lot of difference what party is in power; If the ship is taking on water you have to bail or swim.
 
clearance

clearance

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Good article

True, things are getting worse, not better, here as well. Money has not been put into replacement and up keep, its more like keep running the old stuff and pray it holds together.

And the do-gooders/enviro-nazis are to blame as well. Can't biuld new dams, new nuclear, new coal, new nothing, anywhere. But they use power as well. Can't cut down pos trees either, but when they rip down the powerlines, they whine bigtime.

People are going to have to wake the f-up and realize that you cannot make an omellet without breaking some eggs. And the time to get cracking is fading rapidly.
 
Slvrmple72

Slvrmple72

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http://columbus.bizjournals.com/columbus/stories/2008/09/22/story3.html

I bought a generator this year after Ike blew through. It has come in handy for my tree business! I keep enough gas on hand to help us weather any issues. My uncle has been an electrical lineman for years and his comments reflect the same concerns over the infrastructure. Electricity is going to cost more as money is spent reworking the old lines and building new plants (coal, alternative, hydroelectric, etc )
I would like to tap into wind/solar for some of the needs in our own house but see how the intial upfront costs are prohibitive for a lot of households.
 
Labman

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I've got a 6250 watt generator connected into a transfer switch. It can easily run stuff as long as I watch using the A/C and kitchen range. In a prolonged, widespread outage, gas would be the problem. I have looked at a natural gas conversion kit, but it is over $100. I don't know how much electricity the gas company needs to keep the gas flowing.

McClain talks building atomic power plants. Nobody listens. After Obama is elected, the smart money will be invested outside the US.
 
Labman

Labman

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As I said, a transfer switch. Actually I have an interlock that prevents having the main breaker and the back feed breaker both on at once. Code requires something to make it impossible to connect the generator to the incoming lines.
 
slowp

slowp

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Not a worry here. We have mostly hydropower. Our region voluntarily cut power usage 10% when we had a drought a few years ago. But we also have to send some to Collyfonia. Our Public Utility guys do an excellent job of keeping it on, and I live in the far corner of the county. The PUD (which is us) owns a dam which raised our rates some, but it is still lower than other parts of the country. Unfortunately, the greenies want the dams torn down.
We also have Tacoma Light trucking salmon around the dams on our river and up into the tributaries. Makes for some expensive salmon.

The areas that I lived in that have private utilities, well the service was worse and there were frequent brownouts and blackouts in N. CA. I'm happy to be back in the land of public, government run utilities, and I shudder when somebody decries it as "socialist" and wants to sell it to a private company.
 
ray benson

ray benson

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Wind power - the turbines are going up across the U.S.

OREGON TO GET WORLD'S LARGEST WIND FARM 07/25/2008
The Oregon Energy Facility Siting Council (EFSC) today approved a site certificate for the 909 megawatt (MW) Shepherds Flat Wind Farm. Located in Gilliam and Morrow counties, Shepherds Flat will double Oregon’s current wind operating capacity of about 889 MW.

“This is a tremendous day for renewable energy in Oregon,” says Michael Grainey, Director of the Oregon Department of Energy, which is staff to the EFSC. “With the Council’s unanimous approval we have taken a large step toward meeting Governor Kulongoski’s climate change goals by developing clean, renewable energy and reducing greenhouse gas emissions. This also helps meet the Renewable Portfolio Standard requirement of 25 percent renewable electricity by 2025.”

The project is being developed by Caithness Shepherds Flat, LLC of Sacramento, Calif., which proposes 303 wind turbines with a peak capacity of 909 MW. Caithness says Shepherds Flat will be the largest single wind farm in the world. The project area is between Highway 19 and Highway 74 on privately-owned land, about five miles southeast of Arlington. The power output of the facility would enter the Federal Columbia River Transmission System through Bonneville Power Administration’s Slatt Substation.

EFSC Chair Bob Shiprack says, “This facility is expected to employ 250 to 300 people during construction and have up to 25 operational jobs. This is a boost to economic development in rural Oregon.” Annual lease payments to the landowners help supplement farm income, and the wind farm will also provide property tax revenue to Gilliam and Morrow counties.

Other renewable energy projects currently be reviewed by the Oregon Department of Energy include the 400 MW Golden Hills Wind Farm in Sherman County and the 143 MW Newberry Geothermal Project in Deschutes County.

Currently, the largest operating wind farm in the U.S. is Horse Hollow in Texas at 736 MW. Businessman /Investor T. Boone Pickens plans to build the world’s largest wind farm by 2014 at 4,000 MW. It would also be located in Texas.
 
ray benson

ray benson

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January 24, 2008
Dominion to Partner With BP on Indiana Wind Power Project
Partnership covers 650 megawatts of 750-megawatt project
RICHMOND, Va. – Dominion (NYSE: D) announced today that it has acquired a 50 percent interest in the Fowler Ridge Wind Farm from BP Alternative Energy Inc. The facility is in Benton County, Indiana, about 90 miles northwest of Indianapolis.
The Fowler Ridge facility is expected to be built in two phases and generate a total of 750 megawatts. Dominion and BP are partners for 650 megawatts, with BP retaining sole ownership of 100 megawatts. The first phase of approximately 222 turbines producing up to 400 megawatts is expected to be operating by the end of this year. Dominion has entered into a long-term power purchase agreement for 200 megawatts. Construction of the second phase of 350 megawatts could begin as early as 2009. Terms were not disclosed.
The entire facility will be in PJM Interconnection, the independent operator of the electric transmission system and the wholesale energy market in 13 states and the District of Columbia. PJM’s regional grid stretches from Chicago to the Mid-Atlantic.
The Fowler Ridge Wind Farm is Dominion’s second wind-to-electricity project. The company is a 50-percent partner in a 264-megwatt facility in Grant County, W.Va. Dominion has another 413 megawatts of renewable generation already in place, providing enough electricity to power more than 100,000 homes during times of peak demand.

About BP Alternative Energy/BP America
BP Alternative Energy, launched in November 2005, combines all of BP’s interests in low and zero-carbon energy including wind, solar, hydrogen power with carbon capture and storage, natural gas-fired power generation, biofuels for low carbon transport and distributed energy for emerging markets. BP Alternative Energy is one of the leading wind developers in the US and has portfolios in Europe, Asia & Latin America. BP’s US wind portfolio includes the opportunity to develop almost 100 projects with a potential total generating capacity of 15,000 MW.
 

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