Keeping the lights switched on

On May 17, US President George W. Bush presented the details of the long-awaited report by the National Energy Policy Development Group (NEPDG). Not known for his pro-environmental stance, Bush’s new energy plan contained no real surprises; it was sharply criticized by environmental groups and applauded by the fossil fuel industry.

In publishing the report, Bush is attempting to address the problems that are plaguing the USA’s energy industry. The long-running issue of power shortages in California is compounded by escalating natural gas prices in what Vice President Dick Cheney described as “the most serious energy shortage since the oil embargoes of the 1970s”.

The causes of this crisis are clear: a lack of investment in energy development, infrastructure and power generation, and poor government policy (see PEi February 2001, Vol 9 Issue 2, p14, and PEi March 2001, Volume 9 Issue 3, p16).

A crisis in the making: the US needs more power generating capacity.
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“Crisis” is perhaps too strong a word to describe the situation, but it is clear that investment is needed in the US if problems are to be avoided in the future. The NEPDG report estimates that over the next 20 years, US oil consumption will increase by 33 per cent, natural gas consumption by over 50 per cent, and demand for electricity by 45 per cent. Not enough is being done at present to meet these projections.

Perhaps most controversially, the report proposes increasing nuclear power production by expediting the licensing process for new nuclear power plants, facilitating efforts to expand existing nuclear facilities and encouraging the relicensing of existing facilities. The report also suggests that reprocessing nuclear fuel should be considered.

Bush does not want to rely too heavily on foreign imports of oil and so wants to open up eight per cent of the Arctic National Wildlife Refuge (ANWR), as well as other areas, to “environmentally friendly oil exploration”. This would yield around 600 000 barrels/day of oil for the next 40 years.

Coal is the USA’s most abundant resource. The report recommends that greater regulatory certainty relating to coal-fired power generation should be provided, and has also earmarked $2bn of funding for clean coal research.

The report also notes that between 1300 and 1900 new power plants will need to be built over the next 20 years to meet projected demand, and that an inter-state power grid should be developed to alleviate regional power shortages.

Conservation measures suggested by the report include $10bn in tax breaks over the next ten years to encourage conservation. On the renewable side, the report recommends that permitting processes for renewable energy projects are expedited, tax credits for residential solar energy property are implemented, and that $1.2bn from the leasing of ANWR land is used to fund research into renewable and alternative energy technology.

Conservationists and environmentalists criticized the plan for its lack of attention to renewable energy and for encouraging nuclear and fossil energy sources. Utilities and oil companies applauded the plan, however; it gives the green light for investment in areas of the US energy industry that would otherwise decline.

Analysts and consultants believe that Bush’s willingness to encourage nuclear power will result in new nuclear facilities being built, mostly through the expansion of existing nuclear sites. Entergy, the second largest nuclear generator in the US, stated that it would aggressively pursue acquisition opportunities. The company already owns and operates eight nuclear units and commended the Administration’s openness to developing nuclear resources.

Opportunities also exist for European nuclear energy companies, including Cogema, Framatome and BNFL – which owns Westinghouse Electric Company. Hugh Collum, chairman of BNFL, said: “We are very pleased with the Bush Administration’s proposals. BNFL will be well positioned to provide nuclear reactor technology and associated fuel, equipment and services through Westinghouse.”

British Energy, which operates three nuclear plants in the US through its AmerGen joint venture with Exelon, the USA’s largest nuclear generator, said that it is considering further purchases in the US and would participate in new build projects if the opportunity arose.

Other companies set to benefit include IPPs and power plant developers. The revelation that over 1300 new power plants will be needed over the next 20 years is nothing new; the power plant construction market in the US has been booming for over two years, and equipment manufacturers’ order books will remain full for at least another two or three years to come. What is important is that the report has addressed the need to increase upstream exploration and production, combat transmission bottlenecks and encourage coal-fired generation.

The report certainly made the future of brighter for PowerGen. The company has agreed to a takeover by Germany’s E.ON and owns Kentucky based LG&E, and intends to focus on its UK and US business.

International Power is close to completing 3900 MW of new capacity in the US and intends to develop another 5100 MW of gas-fired plants. The company said it hopes the report will mean that the approval process for its new plants will be faster.

ScottishPower, owner of PacifiCorp, also welcomed the proposals having recently announced its intention to restructure and focus on its UK and US business units (see p13).

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