In this blog we are going to talk about trends in the power industry and how they may affect utilities. One of the ongoing themes of this blog is that to be leaders in the field, we need to be cognizant of what others are doing and how those actions might affect utility operations. Power is a big cost for utilities – often 10-15% of the total operations costs where a lot of pumping is involved. In most communities, the utility system is among the largest consumers of power, which is why many utilities have load control agreements in place – power companies can off-load power demands by having the utilities go to onsite generators. Our community’s building account for 70% or more of local energy use.
The need for power is expanding, albeit at a lower rate that population growth in many communities. This is because new building construction measures tend to insulate better and install more energy efficient equipment. Power companies often will subsidize these improvements to reduce the need for more expensive plant expansions. Where expansions are needed, purchase/transfer agreements or renewables are often a convenient answer.
But long-term we are seeing that the power industry is changing in other ways too. Already we see a migration away from coal for power generation. This was occurring before the new regulations were in place for carbon dioxide. Certain utility companies like NextEra, the largest wind and solar power generator in the US, and the parent of Florida Power and Light, have reduced greenhouse gas emissions from their plants by converting to other sources like combined heat and power (CHP), and increasing efficiency. The typical oil or coal power plant is 30-35% efficient, while the newer gas turbine systems are up to 45% efficient. That makes a big difference in costs as well as emissions when gas emissions are half the coal and oil emissions. NextEra is well placed for carbon trading, a concept some fight, but the US had been emission trading since the early 1990s, so carbon trading markets are already in place. The only thing needed is the regulations to put them into play. Buy that NextEra stock now and hope for carbon trading!
But NextEra is not the only likely winner under this carbon trading scenario. ExxonMobile is big into gas, Exelon is big in the nuclear power industry, Siemens and General Electric, which make wind and gas turbines, are also likely to see growth. All have poised themselves years ago as the impact of carbon dioxide becomes more apparent. Most of the industry executives acknowledge climate issues and recognize that people will expect the industry to do its part (the Koch brothers aside). Many power generators like ConEd and FPL are making changes as well, in advance of the regulatory requirements to do so. They see it as good business. They also see it as a means to make more power at a given facility (by increasing efficiency) while reducing water use. Water use can be a limiting factor, so we will discuss that in a couple days…