POWER July 2013 - 58

ELECTRIC POWER 2013: FLEXIBILITY AND ADAPTABILITY
press reservations about gas supply and price
volatility but said the problem was deliverability.
The resource " looks robust. "
Mohre also observed that a $1 shift in gas
prices moved the PJM market by $4/MWh.
What happens to price if the country, as some
have forecasted, starts to export up to 5 tcf
annually? Bottom line, according to Mohre:
The industry is not properly valuing longterm
firm capacity, which is necessary to support
power plant and pipeline construction.
Joe Nipper, senior VP, government relations,
American Public Power Association
(APPA), made the same point as Mohre but
in a different way. APPA's members represent
9% to 10% of the country's generating capacity.
The historical 70:30 split between coal
and gas is now flipped. Nipper argued that
gas-electric integration doesn't necessarily require
legislative changes, noting that the Senate
Energy & Natural Resources Committee
was holding hearings on the issue, but it does
need changes from FERC. He called the storage
piece for gas " critical. "
Enter Renewables Advocates
After Nipper concluded, gas issues took a
back seat to renewable energy during the
roundtable. While Mohre noted that his
member utilities own and operate substantial
renewable energy facilities, the really vocal
advocates were yet to come.
Michael Polsky, president & CEO of Invenergy
LLC, took a decidedly contrarian tack,
stating that " renewables are stable. " They may
be subsidized and high cost, but they have to
be judged fairly, which is to say " the electricity
comes free in the long-term. " On that basis,
he argued, even discounting the production
tax credit (PTC)-he omitted the investment
tax credit (ITC) and the renewable portfolio
standards (RPS) imposed by the majority of
states-wind energy still imposes the lowest
cost on the system. As an example, he said
Illinois ratepayers have saved $177 million
because of renewable energy. " Recognize that
renewables are here to stay, " he said.
In a sense, Ron Binz of Public Policy Consulting
and former chair, Colorado Public Utilities
Commission (PUC), split the difference
between gas and renewables. The only panelist
to claim that the primary industry driver will
be carbon regulation, not gas prices, he called
wind energy " a fuel hedge with probably no
equal. " He also proposed that building a wind
farm and a gas plant is better than building a
wind plant alone. Colorado has 16% renewable
energy, and its dominant utility, Xcel Energy,
has become expert in balancing the system.
The Value of Long-Term Planning
In a moment of irony, Polsky, who referenced
his time at the University of Chicago-known
58
for its unwavering and unapologetic defense
of free market principles-said it flat out:
" The free market does not work for long-term
planning; electricity is not an open market. " If
you don't have policy decisions, you gamble
every day, he said. One could argue that the
free market is risk-informed gambling.
It is also true, as Mohre pointed out, that
just because the government mandates something,
it doesn't mean it will stick. Mohre
cited the Fuel Use Act, passed in 1979 and
repealed in 1987, which barred the burning
of natural gas in power plants. In that context,
and to illustrate the paradox of government
policy, it is also worth mentioning that
the Public Utilities Regulatory Policy Act
(PURPA), passed in the same year, allowed
natural gas firing for cogeneration, but because
the requirement for thermal output was
minimal, many gas-fired power plants came
to be known as PURPA machines.
Many of the questions from Dr. Peltier and
the audience had to do with long-term planning.
Peltier asked about the utility business
model, the strategy, for the next two decades.
McCullough again repeated that renewable energy
doesn't bring capacity, and so " how do we
recover the cost of the capacity? " Technical advancement
in storage is one route, he said, but
he noted that AEP's " experiments in home and
community storage have not gone so well. "
Mohre also alluded to the discrepancy
over renewable energy costs: " We [cooperatives]
know a lot about the cost and operational
issues with wind. " Later, Polsky tossed
out the number $25/MWh as the typical cost
for wind. Mohre shot back, " We know what
wind costs, and it is not $25/MWh! "
Polsky continued to bait the utility leaders,
saying, " utilities fight everything, but it's a losing
game; they're in denial. " Binz called the
utility of the future an " orchestra conductor, "
referring to the need to balance the variations of
supply and demand. Utilities have always had
to " conduct, " but Binz appeared to refer to the
need to do this with ever-greater variations on
shorter and shorter time scales. Binz also cited
the need to " think beyond the five years of low
natural gas pricing " and return to long-term gas
supply contracting, while Mohre stressed the
need to value long-term firm resources.
Innovation is often part of a long-term business
strategy. Peltier noted the collapse of the
venture capital market for cleantech, which he
said dropped 54% last year. " What is the prospect
for long-term return? " he asked.
Polsky insisted that the cleantech venture
capital sector did not understand the industry.
" High tech is not like electricity, " he said. It
takes much more capital to commercialize, and
it's difficult to scale to the needs of this industry.
He and Binz agreed that utilities will likely
innovate on the customer side of the meter.
www.powermag.com
" Utilities are looking to get into the rooftop PV
business, " Binz said. Moeller mentioned storage,
but that FERC is limited by jurisdiction on
what it can do with new technologies.
What Value Coal?
Most of the panelists addressed coal-fired resources
indirectly by lumping them into the
need for a balanced resource mix. But in response
to a direct question from the audience,
" What is the ongoing model for coal to stay in
the business? " Polsky said coal " faces extinction. "
Binz referred to " cap and innovate, " implying
that capping carbon dioxide emissions
will force innovation in carbon capture and
storage (CCS), which he said " is key " to coal's
future. McCullough, based on AEP's direct experience
with CCS demonstration, agreed with
Binz but added the caveat, " at what cost? " The
parasitic load for a 1,300-MW unit with CCS is
300 MW. Polsky countered that coal with CCS
will not be the low-cost option.
Mohre offered the issue that everyone was
happy to ignore. McCullough noted that the
coal industry is exporting lots of coal, making
up for lower consumption in the U.S.
Mohre later asked, " How right is it to ship
100 million tons of coal and burn it in other
countries? " That lower consumption is occurring
because, stressed McCullough, 60
to 70 GW of coal will be retired because of
MATS. Much of that coal capacity, he added,
is providing ancillary services, in part to address
renewable energy integration.
The Real Enemy?
It's always easy to skewer the option that isn't
represented at the table. Rooftop photovoltaics
(PV) certainly took some hits. At the top,
Wagman noted that " DG [distributed generation]
and microgrids are disrupting the industry, "
while Peltier referenced one utility CEO
who said that companies installing solar panels
are going directly to the customers and another
utility CEO who considers this a threat
to the utility business model. Polsky advised,
" utilities should deal with the real threat,
which is rooftop PV. " " CHP [combined heat
and power] and rooftop PV will grow significantly, "
Binz echoed, adding that utilities need
to be compensated and share in the rooftop PV
revenues. Moeller called the $30,000 solar tax
credit to install rooftop PV " poor ratepayers
subsidizing affluent ratepayers. "
Polsky called the solar tax credit " unfair. "
For a CEO of a company developing wind
farms with a $23/MWh PTC (along with
ITCs), that was an interesting characterization,
to say the least. Binz added that the wind
PTC is roughly equivalent to a carbon value
of $30/ton. No one ventured an estimate of
the value of a state-level RPS to a wind farm
developer.
POWER | July 2013
http://www.powermag.com
POWER July 2013

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