Decentralized generation trends to watch in 2012

David Sweet

With the arrival of 2012, it is timely to examine a few of the trends and issues that will impact markets and opportunities for decentralized generation (DG) in the coming year.

The increased production of natural gas from shale is not just the story of the year, it is the energy story of the decade as new technologies have unlocked a resource that has been trapped in tight formations and led to not just a decline, but a thumping crash of natural gas prices in the US ” to levels not seen in over a decade. Declining natural gas prices, coupled with increasing power prices, have produced market fundamentals that make gas-fired decentralized generation highly competitive again.

However, the hydraulic fracturing production process has attracted numerous opponents who have raised concerns over threats to health, water supplies and even claim that it causes earthquake damage. If the natural gas industry is not successful in resolving these issues, it could lead to loss of production, higher gas prices and reduced opportunities for DG.

Even if the global economy avoids a double-dip recession, it is still in a precarious place. The collapse of the Euro and the European debt crisis, stubborn unemployment numbers in the US, and even slowdowns in red hot Asian economies will be a challenge to energy markets in general and DG, particularly those projects that rely on government programmes and subsidies that may evaporate until the economy improves.

While globalisation has led to a rapid expansion of developing economies, there are challenges ahead as developed nations with economic problems at home look to compete more vigorously for industries and markets. The trade dispute between the US and China over dumping of solar panels, in the wake of the collapse of the US solar manufacturer Solyndra soon after it received a $500 million government loan guarantee, will be a key case to watch.

The Kyoto Protocol was adopted in 1997, went into effect in 2005, and some key provisions of the agreement that require reduction in the emission of greenhouse gases expire at the end of 2012. There is no clear successor in place, even after intense negotiations at the COP meetings in Copenhagen, Cancun and, most recently, Durban.

There is the need for substantial investment in power generation technology to meet new demand, to replace inefficient older plants and to provide the system with the flexibility and integrity needed to handle the introduction of intermittent renewable resources, such as wind and solar power. In the US alone, it is projected that up to 65 GW of coal-fired generation could be retired in the near future. In the aftermath of the Fukushima Daiichi nuclear disaster, the future of nuclear power is also in doubt.

Large energy infrastructure projects continue to be challenged ” just look at the political ping-pong being played over the Keystone Pipeline that is proposed to bring Canadian oil to the US. DG is a natural solution to the energy and infrastructure needs and challenges going forward, but the key is to follow the money and see where the investment capital is directed.

Population shifts ” the move of the world’s population from rural to urban areas ” has been a steady trend, with most of the global population now living in cities. This urbanisation will have implications for power generation and grids, and create more opportunities for local power to serve concentrated populations and industries.

This is an election year in the US and the outcome could have a dramatic impact on environmental regulation, economic growth and energy policy. The Arab Spring, sabre rattling in the Persian Gulf and growing concerns over Iranian nuclear development could also lead to price shocks and major disruptions to global oil and energy supplies. The decoupling of oil and natural gas prices and the need for energy security will help drive the move to natural gas for power generation, transportation and industrial and commercial uses.

David Sweet
Executive Director, WADE
dsweet@localpower.org

More COSPP Articles
Past COSPP Issues

No posts to display