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Financial Times US Energy Business Conference

|Includes: BP p.l.c. (BP)
The next 18 months will be a very important time for the US energy industry, regardless of the outcome of pending energy/environmental legislation.  Changes in funding mechanisms and dynamics, a potential market with new financial instruments for pollution trading, and the promise of new, world-changing energy generating technologies on both the supply and demand side are among the issues that have the industry buzzing.  To explore some of the current issues, the FT sponsored the first FT US Energy Business Conference on Thursday 24 Sept in midtown. While some of the hype surrounding smart grid was tempered, there was much cause for enthusiasm, accompanied by speculation, regarding early adopters and long term winners.  Some of the highlights of the event are discussed below.  The conference was pretty well attended, and unlike many other cleantech/carbon market events that I have been to lately, I was very pleased with the range of speakers who had something new to say. The pending state of the Waxman-Markey bill was top of mind for most in attendance, and it is clear that whatever the direction that the legislative process finally produces, the major players in the energy industry will be prepared not only to minimize their risks, but also to at least attempt to capitalize on the opportunities that many hope will be provided.  Following the opening remarks, which were largely predictable, made by Lamar McKay, the Chairman and President of BP America, the conference really did generate some interesting discussion on the future of energy regulation and management, the potential role of the utility, scalability, and the urgency on passing a comprehensive energy bill by the end of the year. McKay did however highlight a few points that are underscoring where BP believes their opportunity lies: natural gas.  Without downplaying the potential for clean coal, hydro and solar, BP clearly is betting on natgas, which produces 60% less CO2 per kwh than coal, to play a much more prominent role in the energy spectrum through 2030.  
 
Moving to the panels, it became apparent very early in the first session that one of the biggest challenges involved with a carbon market, ie., putting an appropriate price on carbon.  The last thing a fledgling market would need would be a repeat of events seen in the EU market over the last year (price collapse). McKie Campbell, the Republican representative from the Senate Energy and Natural Resources Committee, argued effectively that much of Waxman Markey addresses short term goals, but even if passed, still will contribute to a meaningful CO2  reduction until 2030. I was also finally glad to hear McKie mention a source that has been overshadowed as of late: nuclear.

The panel on alternative energy growth was probably the one which was most lacking in substance, most notably evidenced from the comments by the representative from the House Energy Committee.  This was fortunately followed by a lively session on smart grid. Ralph LaRossa, the head of PSE&G is clearly bullish on the potential transformative capacity of smart grid, without overselling. For smart grid to truly work, it will require more than utilities, but also a very heavy dose of cooperation from both the communication sector, as well as a huge shift in mindset of homeowners. LaRossa described a pilot that was undertaken where the implementation of smart meters reduced peak time energy consumption by 40%, but when the same homeowners who participated in the pilot were offered installation, only 1% of customers accepted. Clearly, for smart grid to reach its potential, the non-technical challenges will be no less daunting than the technical ones.  Regarding carbon risk measurement and management, a few software providers (namely that of Enviance) clearly have a significant head start, based on the description of their platforms as well as the list of clients who have already signed up to track and measure on a voluntary basis. While market regulated exchanges such as the Chicago Climate Exchange will certainly play a part, as with weather derivatives, I anticipate the lion’s share of the transactional volume to take place OTC. This underscores the second main point of the conference: while the new energy economy will be distributed among many different sectors, none of the ideals will come to fruition without an underlying market…..again, placing a proper price on carbon will be the cornerstone of the market’s success.  
 
All in all, it was a very worthwhile conference, and a good prelude to what may be in store for the energy sector over the next year. Based on many of the conversations that I had with other attendees, I would anticipate a second conference next year.

Thanks to SeekingAlpha for providing access to the conference.