|The Maginot Line was backwards thinking on a grand scale|
I see a similar situation in the US energy sector today. While at a recent energy conference, I learned that utilities fear two major disruptive forces that have hit the energy market in the last few years--impending carbon emission regulations and the collapse of natural gas pricing. EPA regulations will force power plants to operate cleaner but added costs may be mitigated by reduced operating costs and/or offset by short term government incentives to switch. Natural gas prices fell dramatically due to the unexpected rise in hydraulic fracturing and has made the economics of power generating technologies using other fuels hard to justify. Because of the long timeline for power plant construction and operation for cost recovery, the precipitous fall in gas prices puts utilities in a dilemma since quickly switching fuels is not easy. On the bright side though, we already see natgas generation beginning to displace coal generation both saving money and reducing pollution in a win/win scenario ("clean coal" is also officially dead). While these two effects throw utility forecasts for capital expenditure and price prediction into turmoil, they are being planned for and even have potential upside benefits to the utilities and ratepayers.
|Clinging to centralized power generation may be as backward as the Maginot Line|
Distributed generation of electricity for utilities is the Blitzkrieg that the French did not anticipate. I talked about this in previous article about how solar PV (and CHP) represent a mortal threat to the utilities. Unfortunately it seems that not all utilities recognize it as the existential threat that it is. Progress happens and outdated technologies get replaced with better ones. Unlike with the transition from regulated, wired telephone service to deregulated, wireless service, electricity infrastructure has safety (nuclear plants and superfund sites) concerns that can't be overlooked. If fewer people are paying for the same grid infrastructure, where will the money come from to keep it working? How will keep electricity both reliable and affordable if the utilities can't keep up with the trends?