SPEAKER

Lawrence J. Makovich CERA Vice President and Senior Advisor

In his introduction to the Welcome and Opening Address for CERAWeek's Power Days, CERA Chairman Daniel Yergin cited three themes that tie the week’s events together: energy security, which is vital to reliable power supply; carbon and climate change; and the US economic slowdown and its effects beyond the United States.

Lawrence J. Makovich, CERA Vice President and Senior Advisor, recalled themes from the past decade of CERA Executive Conferences, which he said offers a sense of interconnection between past and present concerns, lessons from the past, and preparation for the future landscape. The “tremendous challenges that [have] confronted the power business” have reshaped business strategies over the years. Among the lessons learned, the most important is that “success in the power sector came from anticipating these shifts … and then aligning strategy with the new contours of the business landscape.”

Of the new challenges shaping the power business landscape, “first and foremost” is the intersection of a new wave of global power sector investment with increasing costs to develop and deliver power. Year-on-year double-digit increases in infrastructure costs are particularly daunting in this capital-intensive industry, and these cost pressures will test market structures all over the world. Second, the power business is becoming more global in its focus. Fuel sources are increasingly imported, and exchange rates affect the costs of infrastructure sourced from other countries. Carbon dioxide reduction is also a global challenge and relates to the third issue: climate change. The power sector will be a key part of carbon policy, though the timing, scope, and cost remain uncertain. As a result, government will be more involved in the power sector than in the past. Technology is the fourth challenge: understanding the current state and future development and costs of power sector technologies—e.g., renewables, carbon capture and storage, and the next wave of nuclear power. What will it take to develop these technologies sufficiently to make an impact on carbon emissions? And how can technology aid in conservation and efficiency? Finally, energy security is key to the reliability of power; for example, greater reliance on natural gas as a cleaner fuel leads to greater exposure to gas’s dramatic price cycles.

These issues put the power business at a critical juncture, Dr. Makovich said. One of the lessons that we can take from the past is that the power business has weathered tough issues before. In the face of these new, difficult challenges, he concluded that “aligning strategies to this landscape will again separate winners from losers in the power business in the years to come.”