POWER January 2015 - 29

2015 INDUSTRY FORECAST
Grant Grothen Block Andrews
Opportunities to Thrive
in Evolving Power
Market
T
he power generation market continues
to evolve due to fundamental changes
in market forces. Ongoing opportunities
exist to partner with utilities to support
this evolutionary process.
Leadership Is Key for U.S. Market
Players
A strategic leadership vision will be critical
to thriving in the U.S. power generation
market over the next 10 years. Utilities can
no longer follow market trends and expect to
be successful. Long-term financial success
will only be achieved through implementing
strategies that optimize operational and capital
spending to capture market opportunities
and hedge against market upsets.
Utility executives must choose a strategy
of engaging the market either as a " marketmaker, "
owning generation resources, or as a
" market-taker, " exposing ratepayers to both
the benefits and whims of ever-evolving
power markets. While power markets have
proven their ability to realize efficiencies by
incorporating larger and more diverse generation
resources, the risk of financial and political
exposure due to reliability challenges
or an event similar to the California energy
crisis continues to pose significant risk. Planning
has always been part of the regulatory
process; however, due to the Environmental
Protection Agency's (EPA's) proposed Clean
Power Plan, state regulators, regional transmission
operators, and utility executives are
now being forced to engage in a more comprehensive
discussion of all aspects of power
generation and delivery.
Smaller utilities must no longer rely on the
strategies of larger utilities, but must learn to
operate within power markets by hedging
existing portfolios, balancing operational
issues against environmental constraints,
and managing capital projects in an industry
landscape with questionable long-term returns.
Any utility, regardless of size, lacking
a strategic leadership vision will be subjected
to market pressures that may eventually lead
to acquisition. Today, even identifying market
trends is more difficult, as numerous loJanuary
2015 | POWER
cal drivers-such as fuel mix and renewables
integration-are resulting in seemingly conflicting
market strategies.
Asset Optimization Is Critical
Identifying more-efficient strategies to derive
value from existing assets is necessary
for every utility, but it has never been more
challenging than it is today. As existing fossil
capacity retires, power markets appear
oblivious and fail to reflect the change via
price signals to ensure continuous investment
in new and existing assets. Instead,
generation plants must operate reliably even
with minimal power sales revenue. Most
generators are considering options for reducing
operational costs through creative
measures such as exploring alternative fuels,
using more contract staff, optimizing
plant efficiency, and benchmarking performance
against top performers.
Without power market pricing signals to
support longer-term investments, many utilities
are now focused on short-term methods
for delaying large capital investments in their
generation fleets. The rapid growth in transmission
and distribution spending in the U.S.
market is a result of efforts to redirect investment
away from generation assets while eliminating
transmission constraints and realizing
the benefits of a larger, more-efficient power
market. Even with these additional benefits,
the markets remain challenged with accommodating
new intermittent renewable wind
and solar generation, additional environmental
constraints limiting plant operations, fuel
delivery challenges, and integrating nuclear
power as a baseload resource.
Many plants have been operated for years
primarily as a source of baseload megawatthours.
Utilities now face the need to meet
stringent new emissions regulatory requirements,
leading to integrating complex air
quality control, water treatment, and solid
waste treatment systems into existing facilities.
The consequence of an emission
exceedance is significant and can risk the viability
of an asset's continued operation. The
EPA continues to march forward with many
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regulatory initiatives, most of which are unlikely
to be dampened by the recent change in
political direction, with the potential exception
of the regulatory approach to addressing
climate change.
GDP Growth Fuels International
Markets
Many international markets continue to experience
accelerated gross domestic product
(GDP) growth, leading to expansions of power
generation and distribution systems. While
renewables will play an expanding role in
U.S. and European markets, the vast majority
of capacity additions in the rest of the world
will be new fossil fuel or nuclear generation.
Coal will remain the economic fuel of choice
for larger facilities, supplied through substantial
growth in mining capacity, particularly in
China, India, and Indonesia.
Air quality has degraded significantly
in many international markets over the past
20 years with the rapid expansion of manufacturing
and fossil generation facilities.
Consequently, the market for incorporating
lower-emissions environmental technologies
in both new and existing facilities continues
to expand. Technological successes that led
to significant improvement in U.S. air quality
are being implemented in numerous international
markets. New generation will focus on
the most efficient fossil fuel generation technologies
that not only reduce greenhouse gas
emissions but also reduce fuel costs. While
nuclear remains an economic choice in many
markets, its future is uncertain.
The World Energy Outlook finds that
almost 18% of the world population lacks
access to electricity. That translates into
huge market expansion potential for the
entire power industry and requires a diverse
array of generation technologies to
meet the challenge. ■
-Grant Grothen (ggrothen@burnsmcd.
com) is principal, Energy Global Practice,
and Block Andrews (bandrews@
burnsmcd.com) is strategic environmental
solutions director, Energy Global Practice
at Burns & McDonnell.
29
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POWER January 2015

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