GLOBAL POWER DAY 2 HIGHLIGHTS

The expanded CERAWeek 2008 program includes a second day of power sessions to focus on investments, new technologies, and the impact of renewables that are transforming the electric power industry globally.

CERA Chairman Daniel Yergin opened Power Day 2 of CERAWeek 2008 by thanking Alstom, the CERAWeek Global Energy Partner, and Lazard, the CERAWeek Global Financial Partner.

Dr. Yergin welcomed the Opening Address speaker, the Hon. Joseph T. Kelliher, Chairman of the Federal Energy Regulatory Commission (FERC), and acknowledged Chairman Kelliher’s distinguished career in both government and the private sector.

After offering a disclaimer that the views he was about to express were his own, Chairman Kelliher said that competitive US wholesale power markets are working very well, although pressures driven by higher fuel prices are a significant concern. The FERC’s goal is “perfect competition” in US wholesale power markets, or at least a perfect mix of competition and regulation that offers the best qualities of both. The character of regulation has changed significantly in the past 25 years, and the FERC now has the authority to police market manipulations and to impose penalties for violation of tariffs, violation of markets rules, and market manipulation. Despite higher fuel and power prices, it is “important to resist the siren song of re-regulation,” he cautioned, emphasizing that the current US competition policy was a very deliberate choice based on the “comprehensive failure of the old regulatory regime.” The United States is poised on the verge of a large generation build, he said, but significant investment in transmission and distribution is needed. The prospect for change in US climate change policy has created greater uncertainty about the role of coal in power supply. Given concerns about coal and the limits of wind power, the US power sector will rely primarily on natural gas over the next ten years, putting upward pressure on power prices; he believes that nuclear must play a larger role. Chairman Kelliher concluded by asserting that US competition policy will not change, that competitive markets are best suited to meet climate change and security of supply challenges, and that the FERC will continue its policy to strengthen these markets.

The Plenary for Power Day 2 looked at the promise and the peril of clean energy investment, introduced by CERA Chairman Daniel Yergin, who promised a 360 degree perspective. Michael Morris, Chairman, President, and CEO, American Electric Power, said that technological answers “can bring us clean energy no matter what fuel we select.” The country must “have the political and regulatory will to answer this problem” or be stuck with a costly and reckless energy policy. Jim Barry, Chief Executive Officer, NTR, called for a dynamic, not history-constrained, view of a world with multiple solutions, moving beyond “systematic delusion and misinformation.” Efficiency can contribute substantially; water might be the industry’s new problem. Tim Healey, Co-Founder, Chairman, and CEO, EnerNOC, Inc., said demand-side efficiency and management can meet up to 50 percent of future resource and infrastructure needs, controlling consumption in response to real-time price and supply signals quickly, cleanly, and reliably, using the existing infrastructure and communications network. Philippe Joubert, Executive Vice President, Alstom, said rapid development and deployment of a mix of technologies and improved efficiencies are needed. Industry is forming cross-business partnerships. “If we want the world to benefit from the huge collective effort and enthusiasm” behind these solutions, “government must create the conditions for best technology to come forward.” John Deutch, Institute Professor, Massachusetts Institute of Technology, was intentionally pessimistic about nuclear’s costs, the uncertainty of government action on carbon constraints, the lack of carbon capture and sequestration (CCS) demonstration projects, “new” coal’s drawbacks, US dependence on gas imports, and renewables limitations. Political leadership must demonstrate the missing commitment and direction. Panelists shared views on government and consumer support, CCS infrastructure costs and design, first mover benefits, the need for a more market-conscious use of government funding, and how to speak to politicians about the energy picture.

In Friday’s Special Address, the Hon. Peter Lyons, Commissioner of the Nuclear Regulatory Commission (NRC), said his principal message was that “a strong nuclear regulatory authority is not only necessary but valuable for any country that uses nuclear energy in its quest for energy diversity and security.” Prospects for future plants require public assurance that existing plants are being operated safely and securely, he said. Timely licensing requires NRC diligence but also depends heavily on the quality and standardization of the applications. The globalization of the nuclear supply chain requires that regulatory bodies and industry standards organizations coordinate to ensure consistency; accordingly, the NRC is seeking to monitor the global supply chain through international collaborations. Commissioner Lyons emphasized the NRC’s commitment to protecting public health and safety and the environment.

The Critical Issues Forums for this day looked at the impact of rising capital costs on power and the decisions to be made, the future for plug-in hybrids, strategies for global power investment, and how new policies across the global energy value chain globally are providing challenges and opportunities in renewable energy.

Power Day 2—and CERAWeek 2008—concluded with a luncheon presentation of CERA’s Electric Power Insights. James Lang, CERA President and Chief Operating Officer, thanked the CERAWeek delegates for their participation throughout the week.

To panelists Jed Bailey, CERA Managing Director, Emerging Markets Group; Matt Brown, CERA Director of European Power; Jone-Lin Wang, CERA Senior Director and Head of the Global Power Group; and Chi Zhang, CERA Director, China Energy, Lawrence J. Makovich, CERA Vice President and Senior Advisor for Global Power, posed questions on the convergence of issues globally, including carbon regulation, development costs, the role of efficiency, and electricity for transportation. Panelists responded that carbon controls are a less pressing issue in emerging markets. Europe’s cap-and-trade program continues with stable prices, as the United States faces a patchwork of state controls, and China looks to other countries for new technologies. The capital cost escalation trends constrain development in Europe but are less important than fuel costs in emerging markets. Panelists noted the high interest in clean coal during the week, talk of energy efficiency but few compelling examples, interest in the developing liquefied natural gas markets, and a sense of resignation regarding a likely year-long economic slowdown globally. Efficiency is essential if Europe is to reduce energy use and emissions but remains a huge but elusive opportunity in emerging markets. Chinese policy is looking to the Clean Development Mechanism as a promising avenue. On plug-in hybrid cars, underdeveloped power sectors in emerging markets make their use less attractive, as do Europe’s shorter driving distances. The Chinese transportation sector, however, has a vision of an electric superhighway, tapping into remote hydro and coal resources. Looking to future CERAWeeks, the panelists cited likely topics of global warming and carbon control, and frustration at the continuing slow progress in mitigation; a possible return to regulation in electric power; and the next wave of development and the role of the globalizing market.