The 1st panel discussion of the Edison Electric Institute's (NASDAQ:EEI) Financial Conference was held on Thursday morning, May 19, 2005. The panel participants were supposed to discuss in what areas the electric utility and power sector was expecting to make capital investments, and in what size. The participants included Paul Portney (basically an academic, and a policy consultant) of Resources For The Future, Jose Delgado of The American Transmission Company, and Mark McGettrick of Dominion Generation.
Interesting points that were made included:
1) The US will definitely be a increasingly carbon-constrained economy in the near future, whether done voluntarily by industry, or mandated by either Federal or State regulations and laws. This will increase the importance of nuclear, gas, and alternative energy sources.
2) Even with a transmission-oriented company, building transmission lines is very difficult ... but important. To successfully build transmission lines, a company must basically mount the equivalent of a massive and persistent political campaign. But the effort will be very necessary in many areas of the country due to significant transmission constraints.
3) The investment environment for generation-related projects is much more stable and predictable than just 1 year ago ... though the rules are tougher, at least many are now in place, making the rules more predictable.
4) Generation-related investment are occurring, but mainly NOT new generation (except in certain very specific regions, and mainly by regulated utilities). Where are generation-related investment being made, in what generation areas? There are several: a) To improve maintenance and reliability of power supply (this can help maintain and increase output even as the generation fleet ages, and is possible due to good price signals); b) To increase generation flexibility, especially to match generation production with electricity use, or to increase the ability of power plants to cycle (ramp up and down) more quickly, or to switch from oil to gas and back; c) Environmental compliance (many billions of dollars are expected to be spent around the US in the next 3-5 years); d) Upgrade of the capacity of existing base-load generation, especially nuclear (the US nuclear generation business has probably averaged 200 MW per year expansion the last few years, a pace which should continue) ... coal base-load upgrades and expansion of existing units also offer very good returns.
5) New base-load generation, especially coal generation, is getting easier to approve by the regulators ... but mainly if it is under contract. About 30,000 MW of new coal generation has been discussed or is in planning ... 15,000 MW has been permitted (legal permits obtained) ... 3,000 MW are already under construction. And coal generation WILL have to be built, as the natural gas fired generation IGCC's are not yet quite fully economic, and even when they reach that state, will take 5-6 years per plant to build. Therefore, the base-load generation that needs to be built by 2010 to 2013, will almost necessarily have to be coal. Alternative energy sources will help on the margin, but are mainly tax-advantaged, or not always available when you need it (like wind).
6) Nuclear generation will likely be built again, but there are a lot of hurdles still. There is not even a plant design available that has been approved by the Nuclear Regulatory Commission (NRC). And the industry is still 3-4 years from having a design approved. So it would be at least 3-4 years before a nuclear plant is even planned. And the 1st 2-3 plants will almost certainly need some Federal guarantees (financial) to ensure adequate financing.
Summaries of the next 2 panel discussions will follow over the next several days.