GLOBAL POWER DAY 1 HIGHLIGHTS

Thursday of CERAWEEK 2008 began our expanded focus on global power covering issues across the value chain regionally and globally. In the Welcome and Opening Address for Thursday, Power Day 1, Lawrence J. Makovich, CERA Vice President and Senior Advisor, recalled themes from the past decade of CERA Executive Conferences. Of lessons from the past, he said the most important is that “success in the power sector came from anticipating shifts … and then aligning strategy with the new contours of the business landscape.” The five new challenges reshaping the power landscape are the intersection of a new wave of global power sector investment with increasing development and delivery costs, the increasingly global focus of the business, climate change policy, understanding the current state and future development and costs of technology, and energy security.

After describing the challenges likely to alter the power business landscape in Thursday’s Welcome and Opening Address, CERA Vice President and Senior Advisor Lawrence J. Makovich chaired a plenary panel that explored The Changing Face of North American Power. The Hon. Donald L. Evans, Chairman of Energy Future Holdings Corp., asserted that “the ability to provide affordable, available, clean-burning energy to the world is the number one challenge of our time, and it is a daunting challenge.” He expects the industry to change to address the global increases in demand, prices, and concerns about climate change. Deryk I. King, Chairman and Chief Executive Officer of Direct Energy, said that “flourishing competition” works well in providing customer choice, improving conservation, driving innovation, and making decisions on new generation capacity. James E. Rogers, Chairman, President, and CEO of Duke Energy Corporation, described his “burning platform”: Duke is a significant emitter of carbon dioxide, and Duke, the country, and the world need to solve the climate change problem. He also shared his vision of a new model for the power business in which technology and new supply sources play prominent roles. Jone-Lin Wang, CERA Senior Director, Global Power Group, described three “defining features of the North American power business [that] are beginning to take shape.” Power price escalation will continue, with serious consequences. The vast majority of no- and low-carbon supply options are in electricity; the burden of reducing the carbon footprint will therefore weigh heavily on the power sector. And to provide reliable power and simultaneously reduce carbon content, power companies will need to make huge capital investments in the coming decades.

Thursday Critical Issues Forums sessions addressed issues from low carbon business strategies, to water use by energy, a hidden becoming a hot topic topics, including power generation’s shifting center of gravity to Asia, innovation in power industry structure, capital costs of fossil generation, power finance and investment, renewable power, and US CO₂ policy.

CERA Chairman Daniel Yergin opened the Power Day I Luncheon with thanks for the three breakfast sponsors, AEI, Mintz Levin, and Ormat. The Keynote Luncheon speaker, Greg Boyce, Chairman and Chief Executive Officer of Peabody Energy, called clean coal the sustainable fuel to meet fast-growing global energy demand, secure energy supplies, and serve climate concerns. Saying, “Black is the new green,” he emphasized three themes—an era of energy and coal convergence, coal’s preference over increasingly scarce and expensive alternatives, and carbon capture and storage (CCS). Coal demand has soared 30 percent over five years; US exports supply more of the world’s coal needs. He described a greater linkage of coal, oil, and natural gas pricing; coal beats oil and gas on a supply and fuel-per-generation basis. He asked how the United States, with 27 percent of the world’s coal resources, will use its coal position. “We hold the resources to help oil and gas crises and energy independence.” In a climate-conscious economy, emissions have dropped while coal use has increased; an economywide energy fee and a national organization may be necessary to launch an aggressive CCS program.

In a Special Plenary on “The New Energy Challenges,” Joan MacNaughton, Senior Vice President, Power and Environmental Policies, with Alstom, and the Hon. Clay Sell, Deputy Secretary of Energy, US Department of Energy, discussed policies that can meet the energy security and climate change problems, together with David Hobbs, CERA Vice President and Managing Director of Global Research. Ms. MacNaughton led the United Kingdom’s 2003 energy white paper policy that made climate change a central issue. Today, public opinion must be nurtured, solutions must ramp up quickly, and government must incentivize innovation and with industry input bring workable choices to market. Strong action on carbon capture and storage (CCS) is needed, as is a stable carbon dioxide price. Mr. Sell call the new energy reality “the great challenge of the twenty-first century,” characterized by energy infrastructure more disbursed, vulnerable, and aging; increased commodity prices; a limited labor supply; and a carbon-constrained environment. More than supporting R&D dollars to invent things, government “must intervene in the marketplace to help shape the solutions in a timeline and scale that is relevant to what we face.” Energy independence is not realistic in a world of energy interdependence.

The afternoon Power Plenary, led by Matt Brown, CERA Director, European Power, featured discussion on new strategies in power. Mr. Brown remarked that the electric business is regional, and that local knowledge is critical for success. But increasingly, global issues such as climate change, capital cost escalation, cost of capital, workforce shortages, and fuel availability are converging and putting pressure on prices. Lars G. Josefsson, President and Chief Executive Officer, Vattenfall AB, considers secure access to supply and climate change to be the most critical issues facing the industry. The upside is that “everybody needs your product”; the flipside is that “political masters like to show command and control over supply.” The solution is a combination of market forces and intelligent policies. “These are the best of times to be in this industry,” he concluded, “but this is not business as usual.” Bruno Lescoeur, Senior Executive Vice President and Member of the Board, EDF, offered another European perspective, in which nuclear figures prominently. The company is working on nuclear initiatives in a number of countries and lists the prerequisites for development as safety, public acceptance, and competitiveness. Under Alfredo Elias Ayub, Director General, Comision Federal de Electricidad (CFE), since 1999 the company has built 32 power stations and has nine under construction. Mr. Elias discussed global trends, environmental challenge, long-term fuel supply security, and the financing of expansion. When asked about market forces versus regulation, Mr. Elias commented, “Monopoly isn’t good for anyone.” Alexander Landia, Chairman of the Board of Directors at the Siberian Coal and Energy Company (SUEK), offered comments from a coal and power generation perspective. SUEK welcomes engagement with international companies and the exchange of technology and expertise. “Scale is the success factor,” he said, as it ensures financial muscle. Questions from the audience covered carbon capture and sequestration versus nuclear for carbon reduction and the concept of “equity uranium,” among other issues.