Investing in America's Electric Future

By Dennis Wamsted

For more than a century and a quarter, technological innovation has kept the U.S. electric system strong. Innovation has increased efficiency and reliability in generation and delivery, and even has changed the ways we use electricity. It has helped cut air emissions and improve environmental quality. It has helped meet soaring demand in an increasingly technological world. For shareholder-owned electric companies, technological innovation is where energy, climate and the national economy meet.

The Price of Success
The industry keeps investing more in the system: Edison Electric Institute (EEI) estimates that the industry invested approximately $69 billion in 2007 to meet the nation's rising electricity needs.

Looking forward, EEI projects that environmental compliance costs just for the federal sulfur dioxide (SO2), nitrogen oxides (NOx) and mercury reduction rules currently in place will cost the industry roughly $48 billion through 2025. In addition, says EEI, investments in the high-voltage transmission system will top $37 billion from 2007 to 2010. Even more significant, it also projects that spending on local distribution upgrades will average at least $15 billion a year for the next decade. Rising construction and commodity costs may push all of these figures higher.

The driving force behind these investment needs is simple: Electricity use has skyrocketed. Indeed, it is arguably the most successful “product” ever introduced. Consider that from 1950 to 2000, while the population of the U.S. grew by about 90%, electricity use soared by some 1,315%. And the growth shows no sign of slowing—in 2007, total electric output hit 4.1 million gigawatt-hours (GWh), topping the 4 million GWh mark for the first time.

Long-term forecasts by the U.S. Department of Energy’s analytical branch, the Energy Information Administration (EIA), peg growth at roughly 1.1% annually through 2030. While that may not sound like much, it adds up quickly. At that rate, EIA says an additional 240 gigawatts of new generating capacity will be needed to supply the new demand and replace older units that will be retired. If EIA is right, one 400-megawatt (MW) generating plant will need to come on line somewhere in the U.S. every two weeks for the next 22 years.

The Right Path for CO2 Legislation
Mounting concerns about greenhouse gas emissions — particularly the carbon dioxide (CO2) emitted during the combustion of fossil fuels —and the potential for long-term climate change have introduced a significant degree of uncertainty into utility planning efforts.

The support of the presidential candidates for CO2 reduction measures will likely push legislation targeting greenhouse gases in the next several years. Such carbon constraints would create even higher costs for electric companies, which must install new (and as yet unproven) CO2 emissions technologies while maintaining balanced fuel supply options and meeting surging electricity demand.

One of the keys that will differentiate any CO2 reduction legislation, according to Tom Kuhn, president of EEI, is how it treats technology. New technologies are going to play an absolutely essential role in meeting future greenhouse gas reduction mandates, he says.

“Realistic carbon reduction targets that give industry the time to develop and deploy a full suite of climate-friendly technologies to achieve them” are going to be crucial, Kuhn toldWall Street analysts earlier this year. “…[T]hese technologies include an expanded role for energy efficiency, plug-in hybrid electric vehicles, renewable energy sources, greater nuclear capacity and advanced nuclear designs, clean coal technologies and carbon capture and storage.”

“Some of these technologies are available— although at a higher cost than conventional generation sources — but many are not. All have different time horizons, but all are critical to reducing greenhouse gas emissions. The goals for these emissions reductions must be harmonized with the development and commercialization of the technologies.

“This is a critical point,’’ he continued. “The consequence of not harmonizing emissions reduction goals with technology will be massive fuel-switching that will result in tremendous price pressures on natural gas, higher consumer prices and heavy burdens on the competitiveness of U.S. industries.’’


Advanced nuclear technology is one aspect of that harmonization. Currently, nuclear energy produces roughly 20% of the electricity used in the U.S. — and it does so without greenhouse gas emissions. Advanced nuclear units are smaller, more efficient and more standardized; and several companies already have applied for licenses to build and operate new units, the first of which could be on line by 2016.

But nowhere will this harmonization be more important than for coal, which currently supplies about 50% of the electricity consumed annually in the U.S. Enacting mandates that effectively preclude the use of coal for electricity generation simply doesn’t make any sense—it is too important an energy source for that. The truth is, canceling coal-based electric generating plants likely would leavemany of us in the dark.

What does make sense, however (in addition to making any carbon legislation economywide), is to harmonize reduction targets and timetables with the development and deployment of advanced coal technologies. It won’t be easy or cheap, but companies in the utility industry already are looking for cleaner ways to use the nation’s abundant coal resources. They’re intent on developing technologies like highly efficient supercritical and ultrasupercritical coal-based plants, integrated coal gasification and combined-cycle plants, and carbon capture and storage.

In an earlier era, concerns about SO2 and NOx dominated the environmental debate. Since the 1970s, electric companies have produced technological progress in systems to control those emissions, with spectacular results. A transformation similar to that is possible with CO2, according to EEI’s Kuhn, but it will take time, money and common sense.

Part of that common sense is to realize that while some low- or zero-emissions technologies are currently available, such as wind and solar, they are not “baseload” generation. They also have cost realities, in both production and siting. For example, the best sites for both of these technologies are frequently located far from traditional load centers, requiring the construction of new, or the upgrading of existing, transmission lines to get the green power to market. These lines are costly and often generate strong local opposition, particularly when the power is being shipped across state lines. Easing those concerns and reducing construction delays will help keep costs down, which in turn benefits everyone.

Energy Efficiency, Smart Grid: Keys to the Future
Energy efficiency is another area long supported by the utility industry because it can at once lessen strain on the system and play a major role in meeting greenhouse gas reduction targets. From 1989 to 2005, utility efficiency and demand-side programs saved almost 860 billion kilowatt-hours of electricity, which is roughly the amount of electricity it would take to meet the power needs of 76 million households in the U.S. for an entire year. As a result, the industry was able to avoid building some 110 power plants (each rated at 800 MW).

This is just the beginning of what is possible, however. Increasingly, industry executives see energy efficiency and “smart grid” technologies as means of generating power for their customers without any harmful emissions.

“The consequence of not harmonizing emissions reduction
goals with technology will be massive fuel-switching that
will result in tremendous price pressures on natural gas,
higher consumer prices and heavy burdens on the
competitiveness of U.S. industries.’’

- Tom Kuhn, President, Edison Electric Institute

The smart grid clearly is an area of intense utility activity, with programs under way—from boosting transmission capacity to upgrading customer meter technology across the country. Two-way meters will enable utilities and customers to transfer data in real time, and from there a dizzying array of options is available.

Electric companies need all the technologies —from plug-in hybrid vehicles to carbon capture and storage to renewables — to meet climate goals and rising demand. The industry can make it happen. Exactly how these various technologies and supply options will play out is important, but so is getting the ground rules right — and assuring we will have the technologies and supply options we need. The industry is set to transform itself, so that it can continue to innovate and to produce the economical, increasingly clean electricity on which the nation has come to rely.