Energy: New Plants, Old Problems

Feb. 17, 2006
Hundreds of new power plants are in the works in the United States, but they won't make energy cheaper or more reliable.

Hundreds of new U.S. power plants are planned in the next few years. They include coal-fired, gas-fired, a solar electric power plant in Nevada and others fueled by renewable resources. Even nuclear has rejoined the conversation when it comes to power generation, although when and whether it ever translates into new power plants in the United States remains uncertain. (Start-up construction of a new nuclear power plant hasn't occurred in this country in 32 years.)

For manufacturers and other electricity consumers, the impact of these planned additions also remains uncertain. In fact, what is not likely to happen is clearer than what is likely to happen. For example, new generation likely won't lead to lower electricity costs for consumers. Nor will it, by itself, absolutely improve reliability. It's not even likely that all of the currently planned projects will reach fruition. A spokesperson for the Edison Electric Institute, a trade association of U.S. shareholder-owned electric companies, says that as a rule of thumb, "30% to 35% of announced plants get built. There's quite a few variables involved." And others knowledgeable about energy say you can't discuss electricity generation without examining the bigger electric picture, which includes both transmission and regulatory issues.

Will There Be Enough?

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That said, given the importance of electricity to U.S. manufacturers -- and some estimates indicate manufacturing may account for nearly one-quarter of electricity consumption -- all actions impacting the U.S. electricity infrastructure bear manufacturers' continued scrutiny.

Where there's little debate is that U.S. demand for electricity will increase. Total electricity consumption, including both purchases from electric power producers and on-site generation, is projected to grow by 40% between 2004 and 2025, according to the Energy Information Administration, the statistical agency of the U.S. Department of Energy (DOE).

Some regions already are concerned that growing demand won't be met by adequate supply. The California Energy Commission, for example, says the state could face "severe" electricity shortages in the next few years. Its recently released 2005 Energy Report concludes that maintaining adequate reserves will be difficult. Progress Energy, on the other hand, recently broke ground on a new natural gas-fueled generating unit in Florida and identified a North Carolina site to evaluate for possible development of nuclear generation -- all to meet the needs of what the Raleigh, N.C.-based energy company identifies as rapidly growing customer bases.

However, in most areas current generation capacity is adequate for current needs, says Mary Novak, managing director, energy services, for Global Insight Inc., a Boston-based research and consulting firm. In fact, she says, there's overcapacity of natural gas-fired generation in nearly every region, with average utilization of most natural-gas fired generators at 18% between 1997 and 2005.

Clinging To Fossil Fuels

And therein lies one big element of the electricity story. Despite much talk about finding alternatives to fossil fuels, DOE projections are that they will continue to be the mainstay of electricity generation for years to come. Coal will remain the primary fuel for electricity generation (it accounted for 50% of generation in 2004, followed by nuclear, at 20%), while natural gas is fueling much of the short-term planned increases. Indeed, 80% of the new generators scheduled to start commercial operation between 2005 and 2009 are natural gas-fired and dual-fired generators (capable of burning either natural gas or petroleum), according to the DOE. Natural gas also has fueled a majority of capacity increases in recent years. It also largely sets the fuel cost of electricity, Novak adds.

Facts And Projections

The average delivered price of electricity is projected to decline from 7.6 cents per kilowatt-hour in 2004 to 7.1 cents in 2015, before rising to 7.5 cents in 2030.

Nuclear generating capacity is projected to increase from 100 gigawatts in 2004 to 109 gigawatts by 2030, two-thirds of which will be provided by new plants.

As of November 2005, some 129 coal-fired power plants were under consideration.

Sources: Energy Information Administration, DOE

The continued reliance on fossil fuels brings with it a long list of well-documented concerns: With coal, while U.S. supply is healthy, emissions continue to be a problem; with natural gas, global demand is high, U.S. supply is limited, and as a result, prices have skyrocketed. (Global Insight's Novak predicts that those high costs will put a halt, at least for a while, to construction of planned natural gas-fired plants that have not already progressed too far to rein in.)

Inadequate Transmission Infrastructure

While power generation requires attention, both electricity users and consumers say the transmission system requires equal, if not greater, attention. Indeed, "Ensuring a fully adequate transmission system and a regulatory system that allows consumers to benefit from lower-cost generation are more important to most American manufacturers than generation, which is adequate in most areas," says Marc Yacker, vice president, government and public affairs for ELCON, a national association of large industrial users of electricity. "Prehistoric" is how Yacker describes the transmission system in some parts of the United States.

In a 2002 study of the transmission infrastructure, the DOE identified "growing evidence that the U.S. transmission system is in urgent need of modernization." The study went on to note that investment in transmission lagged well behind that in generation. In August 2003 a blackout that impacted some 50 million people in the U.S. and Canada brought added attention to the reliability of the national transmission grid.

The Edison Electric Institute says investment in transmission systems is increasing; a report issued by the Consumer Energy Council of America predicts that such investment will remain at an "historically low level" of about $3 billion to $4 billion per year over the next decade. That transmission systems cross state borders, making them subject to both state and federal regulations, only adds to the complexity of transmission planning, both report.

Powering Its Own FutureOne large industrial user can spell out precisely how it expects to benefit from one of the crop of power plants set to provide electricity in the next several years. Denver-based Newmont Mining Corp. announced in January that it had completed the permitting process for a 200 megawatt, coal-fired power plant that it says "will provide long-term, reliable electrical power" to the majority of its Nevada operations. The $450 million project will reduce Newmont's cash operating costs by about $20 per ounce, the company said.

About the Author

Jill Jusko

Bio: Jill Jusko is executive editor for IndustryWeek. She has been writing about manufacturing operations leadership for more than 20 years. Her coverage spotlights companies that are in pursuit of world-class results in quality, productivity, cost and other benchmarks by implementing the latest continuous improvement and lean/Six-Sigma strategies. Jill also coordinates IndustryWeek’s Best Plants Awards Program, which annually salutes the leading manufacturing facilities in North America.

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