Cover Story. 2007 Industry Forecast: Investment in generation is heavy, but important needs remain

Power, Jan 2007 by Maize, Kennedy

face= Italic; Forecasting the direction of the U.S. electric power industry for 2007, much less the distant future, is like defining a velocity vector; doing so requires a direction and speed to delineate progress. In this special report, POWER's first stab at prognostication, the editors look at current industry indicators and draw conclusions based on their more than 100 years of experience. To borrow verbatim the title of basketball legend Charles Barkley's book: I May Be Wrong but I Doubt It.face=-Italic;

By Kennedy Maize

Many consumer magazines make their annual forecasts at this time of year on a variety of topics, such as politics or celebrity shenanigans. The prognostications, though seldom correct, are entertaining but not to be taken seriously. POWER's purpose here is to gauge where we as an industry have positioned ourselves for future growth, to define the characteristics of that growth in generation resources, and to suggest a few key indicators to watch during 2007. We always strive to give readers the best data available. In this case, we'll also give you our opinions, with a reminder that your own careful consideration of the data should guide your decisions.

The power industry's spectrum of interests is wide and its information needs divergent. In preparing this 2007 industry forecast, we chose to explore a few hot topics that have seized center stage in the debate over America's energy future. We delve into the details of these debates in every issue of POWER. But in this article we take a "helicopter view," to define the direction and speed of progress on a front--and to comment on whether both are appropriate.

I don't expect every reader to agree with our studied perceptions of the industry. If you have a different perspective, we want to hear from you. Make your case with facts and statistics, and we'll publish the best comments in a future issue. Remember, this industry is unique for its users' expectations (instant gratification with a flip of a switch), the inability to store the manufactured product, and the industry's reality-based stance on issues shaping short- and long-term national energy policy.

face= Bold; The future is nowface=-Bold;

The Edison Electric Institute (EEI) has made the industry's growth priorities, and the obstacles to them, abundantly clear:

Strengthen and expand the delivery system (with 12,500 miles of new transmission by 2014) to lessen congestion costs and meet reliability requirements and market realities.

Build more than 50 GW of new supply by 2014 (and 347 GW by 2025) to meet growing demand, which is expected to increase 2% annually until then.

Promote energy conservation.

Cover environmental mandates ($50 billion worth for air emissions alone by 2025).

face= Bold; Speed of response lagging need for change.face=-Bold; Transmission and distribution (T&D) upgrades happen slowly. T&D system constraints are slowly being unraveled, but action on major improvements had to wait for the August 8, 2006, release of the DOE's National Electric Transmission Congestion Study, mandated by the Energy Policy Act (EPAct) of 2005. The study provides analysis of generation and transmission capacity across the U.S. and identifies critical areas that need attention to meet growing demand.

"Completion of the National Electric Transmission Congestion Study is an important step on the path to modernizing our nation's aging electric power infrastructure and is a crucial step toward realizing President Bush's goal of a modern, more efficient electric power delivery system," Energy Secretary Samuel Bodman said. "I am confident the Department's actions will help facilitate the infrastructure growth necessary to meet the demands of our growing economy."

The report identifies three groups of congestion areas that merit further federal attention. The most severely congested areas--called "Critical Congestion Areas"--are Southern California and the Atlantic seaboard from the New York City area to northern Virginia.

Comments on the study were accepted from the public through mid-October, and volumes were submitted. The DOE is now working with the North American Electric Reliability Council (NERC), transmission operators, and others to improve the quality of the data required for their detailed analysis and decision-making. It appears that when sufficiently persuasive data are accumulated and all the stakeholders have been given time to make their case (one way or the other), then the DOE makes some decisions. Naturally, any decision made by the department is bound to offend more than one special interest and will undoubtedly end up in federal court. What happens next is anyone's guess.

An official statement from the DOE notes that it "will designate a National Corridor when the information needed to shape a Corridor appropriately in relation to a known congestion problem is available. DOE recognizes that designation of National Corridors is intended to facilitate construction of new transmission capacity where it is needed, so DOE is not looking for ways to prolong the process." But don't look for a quick solution, as the meal has so many cooks that it's not clear what's going to come out of the oven.