hot topic I ENERGY OUTLOOK
14
EXPECT THE
UNEXPECTED
I N THE FUTURE OF ENERGY..
Q
CL
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The crystal ball is murky when it comes to
predictions about energy consumption, markets
and future trends.
Consider hydraulic fracturing, for example.
Ten years ago, the U.S. Geological Survey
estimated resource potential in the Marcellus
Shale region was off by 70 times, according to
current federal surveys.
"I think it's essentially impossible to antici-
pate what energy markets are going to look like
in 20 or 30 years, because the rate of change in
technology and potential for climate change are
so great and so disruptive that the world is go-
ing to be fundamentally different than it is now,"
said John Petersen, the founder of the Arlington
Institute, a nonprofit research organization that
focuses on future global trends.
Howard Gruenspecht, administrator of
the U.S. Energy Information Administration,
echoed similar thoughts about the future.
"Predicting a particular game-changing
technology is difficult, if not impossible, to do,"
he said.
Despite this limitation, Gruenspecht said
his analysts spend a significant amount of time
thinking about how technological change might
occur in North American energy markets, where
crude oil prices have exceeded natural gas
prices by a 4-to-l ratio on an energy-equivalent
basis—converting the current price of crude oil
to its natural gas equivalent rate.
"Tlie implication is that there currently exists
a four-fold price advantage for substituting
natural gas for oil-based products," he said. This
price disparity could potentially last for some
time, triggering the deployment of natural gas
vehicle infrastructure because of favorable
market signals to investors.
Futurists like Petersen believe the electric
grid and energy markets are especially suscep-
tible to wild card events like drastic changes
in consumption, geopolitics, solar flares and
changing societal values.
"There is a new generation of young people
who see their relationship to the environment,
to the Earth and their social relationships with
one another in a really different way than all of
us old guys," he said.
Their strong reaction to a wild card event
could galvatiize them to say "never again" in the
same way that Three Mile Island impacted the
nuclear power industry.
"Industries and policymakers need to be
sensitive to this," Peterson said.
Expect the Unexpected
State policymakers can prepare to deal
with this unpredictable future in several ways,
Petersen said.
"Resilience is extraordinarily important,
not only for physical shocks to the system,
but there also needs to be resilience in terms
of technology," he said. Decision-makers also
need a "mechanism for anticipation, as well as
a commitment to use foresight in planning."
That's true, also, for utilities.
"I know this sounds antithetical to many
utilities, but they need more agility, even in
such a capital-intensive industry," Petersen
said.
Capital-intensive industries w.
hot topic I ENERGY OUTLOOK14EXPECT THEUNEXPECTEDI .docx
1. hot topic I ENERGY OUTLOOK
14
EXPECT THE
UNEXPECTED
I N THE FUTURE OF ENERGY..
Q
CL
<
The crystal ball is murky when it comes to
predictions about energy consumption, markets
and future trends.
Consider hydraulic fracturing, for example.
Ten years ago, the U.S. Geological Survey
estimated resource potential in the Marcellus
Shale region was off by 70 times, according to
current federal surveys.
"I think it's essentially impossible to antici-
pate what energy markets are going to look like
in 20 or 30 years, because the rate of change in
technology and potential for climate change are
so great and so disruptive that the world is go-
ing to be fundamentally different than it is now,"
said John Petersen, the founder of the Arlington
Institute, a nonprofit research organization that
focuses on future global trends.
2. Howard Gruenspecht, administrator of
the U.S. Energy Information Administration,
echoed similar thoughts about the future.
"Predicting a particular game-changing
technology is difficult, if not impossible, to do,"
he said.
Despite this limitation, Gruenspecht said
his analysts spend a significant amount of time
thinking about how technological change might
occur in North American energy markets, where
crude oil prices have exceeded natural gas
prices by a 4-to-l ratio on an energy-equivalent
basis—converting the current price of crude oil
to its natural gas equivalent rate.
"Tlie implication is that there currently exists
a four-fold price advantage for substituting
natural gas for oil-based products," he said. This
price disparity could potentially last for some
time, triggering the deployment of natural gas
vehicle infrastructure because of favorable
market signals to investors.
Futurists like Petersen believe the electric
grid and energy markets are especially suscep-
tible to wild card events like drastic changes
in consumption, geopolitics, solar flares and
changing societal values.
"There is a new generation of young people
who see their relationship to the environment,
to the Earth and their social relationships with
one another in a really different way than all of
3. us old guys," he said.
Their strong reaction to a wild card event
could galvatiize them to say "never again" in the
same way that Three Mile Island impacted the
nuclear power industry.
"Industries and policymakers need to be
sensitive to this," Peterson said.
Expect the Unexpected
State policymakers can prepare to deal
with this unpredictable future in several ways,
Petersen said.
"Resilience is extraordinarily important,
not only for physical shocks to the system,
but there also needs to be resilience in terms
of technology," he said. Decision-makers also
need a "mechanism for anticipation, as well as
a commitment to use foresight in planning."
That's true, also, for utilities.
"I know this sounds antithetical to many
utilities, but they need more agility, even in
such a capital-intensive industry," Petersen
said.
Capital-intensive industries with large
sunk-costs—things such as construction and
overhead that are difficult to recover—that
are heavily rehant on energy prices can create
opportunities for unconventional solutions,
4. such as the development of electric cars.
"When you get a breakthrough in battery
technology, it will create a dramatically differ-
ent energy landscape with vehicles that not
only run on electricity, but can also produce
electricity that can be sold or managed on the
grid," Petersen said.
But David Wright, vice chairman of the
South Carolina Public Service Commission
and president of the National Association of
Regulatory Utility Commissioners, believes the
ability for electric cars to change the energy
landscape is still far off until more advance-
ments are made in battery storage technology.
Wright said more research and development
funds in this area are needed and states must
make complex regulatory decisions to develop
the battery charging infrastructure.
Increasing amounts of distributed genera-
tion from solar power on homes would allow
people to charge their electric cars and gener-
ate more power off the grid. Petersen said that
indicates changes coming to the system.
ENERGY OUTLOOK hot topic
Skyline Innovations last year
installed solar thermal systems
on a number of buildings in
6. "We have $4 (trillion) to $5 trillion in investments, maybe
more, that need to be made just in the utility sector over the
next 15 years," he said.
Those investments, he said, are needed to upgrade and
replace the electric grid, water systems, pipelines and telecom-
munication infrastructure. Investments in new technology
have to compete with the same capital resource pool as basic
infrastructure maintenance, which is a difficult balancing act
for independent voices like state commissions—especially in a
weak economy.
But that doesn't mean states shouldn't invest in incentives
for alternative energy, Wright said.
"I'm a free-market guy and it's not that I'm opposed to re-
newable energy; where ifs available, states should go for it,'" he
said, noting regional differences in the availability of resources
like wind and solar.
He used his home state as an example of the difficulty regula-
tors face in promoting alternative energy and new technology
through the rate-making process.
"By and large. South Carolina is a poor state," said Wright.
"Our median income levels are below the national average and
we have lots of housing with old, inefficient heating and
cooling
systems. Many of our residents don't have insulated windows.
MARCELLUS FRACKING
CLAYSVILLE, Pa.—A local contractor doses a valve on his
tanker truck after watering the dirt roads to keep the dust
8. and rapid implementation will not only impact
an industry's bottom line, but the consumer as
well," he said.
State Innovations
The absence of a comprehensive federal
energy policy, however, isn't stopping states
from trying to innovate.
"When conducting EIA's (Energy Informa-
tion Administration) analysis, we attempt to
reflect the impacts of state policies as much as
possible," said Gruenspecht.
Key state policies include renewable portfolio
standards, electricity efficiency standards, state
and regional carbon dioxide cap-and-trade
programs, industrial energy-efficiency rules and
clean energy regulations.
"Together, these programs are slowing
electricity demand growth, and together with
federal tax incentives, stimulating increased use
of renewable fuels for electricity generation,"
he said.
"States are also leading the way in several
appliance efficiency standards for residential
and commercial products. Eleven states and
the District of Columbia have adopted energy
efficiency standards for products not currently
covered by federal standards, " said Gruen-
specht. "Recent history has shown that several
product types covered by state standards are
eventually addressed by federal standards."
10. Proposed legislation by Gov. Dannel Malloy
would direct the department to develop a plan
for promoting distributed power generation
through connected microgrids at critical facili-
ties across the state. The Connecticut initiative
could potentially create a shift to small, local,
distributed, clean power generation that oper-
d
''Ultimately, I think an all-of the above
strategy (for energy policy) is the best way
to go/'
—David Wright, vice chairman
South Carolina Public Service Commission
ates independently and uninterrupted, even
when the power goes out.
In South Carolina, Wright sees nuclear power
playing a big role in the state's clean energy
future. Two new reactors are scheduled to go
online in 2016 and 2019 respectively.
"One of the benefits of the new nuclear
plants coming online will be the retirement of
older, dirty coal plants that will bring significant
clean energy and improved air emissions
benefits," he said.
He also suggested that states may want to
look at small, modular nuclear reactors as a way
to avoid the large expenses associated with new
nuclear power plants, which often cost several
11. billion dollars. Some nuclear engineering firms
are designing concept reactors that could be
about the length of a bowling lane and could
power tens of thousands of homes for a fraction
of the cost of building a large, conventional
nuclear plant.
But nuclear power takes time. "You can't
have a renaissance in nuclear power without
a federal license," he said. The Nuclear Regu-
latory Commission takes nearly four years to re-
view a new license and only recently approved
the construction of the nation's first new nuclear
power plant in 33 years.
State and federal policymakers will need to
embrace creative solutions to regulatory or
policy challenges as they plod their way to the
future of energy in the U.S.
"Ultimately, I think an all-of-the-above
strategy is the best way to go," said Wright. H
ENERGY OUTLOOK | hot topic
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WIND-POWERED BASEBALL
CLEVELAND, OHIO—Workers at-
tached a wind turbine to the top of
the southeast corner of Progressive