My New Year’s Energy Scenario for 2011

New Year’s scenarios are a lot safer than New Year’s resolutions since they don’t actually require me to do anything new or different.  But when I look back over 2010 at least in the energy space it is easy to see the signposts of what might be ahead for us in 2011 and beyond.

Generally, I am optimistic about the future because we see a stirring among shoppers, voters and business enough to suggest that we are, at last, emerging from our Great Recession funk.  Yes unemployment is still high but it caused us to be mad enough that we threw out the politicians spending our money like—well, drunken politicians.  We’re not sure the new Congress will be better than the ones we just threw out but we have scared those up for re-election in 2012 enough that they might actually do no more harm for the next two years.

What does this have to do with energy?

My New Year’s Energy Scenario is based more upon a hope rather than a forecast for 2011 that we could see the Democrats and Republicans find reasons to work together to actually advance our national strategic interests in energy and avoid a full rout of remaining incumbents in 2012. And since I believe it will be another year until we really ‘feel’ recovery setting in, all these politicians will be running scared.

Here is my New Year’s Energy Scenario for 2011:

1.      Return to Historic Electricity Load Growth.  The US EIA Annual Energy Outlook forecasts a return to the historic 1-2% annual load growth in electricity consumption as GDP recovers and the economy swings back to growth.  This is good news both for the economy and for energy markets.

2.      Growing Demand will Lead to Growing concerns about Energy Reliability. The corollary to the return to historic load growth is that regional markets will face tightening supplies starting first probably in ERCOT by 2013, then WECC with the diverse Eastern Interconnect seeing spot problems but more opportunity to move power around.

3.      Renewable Energy is not enough.  The sum of all of California’s renewable energy since its RPS was adopted is 1,049 MW or about the size of one typical nuclear power plant or—bite my tongue—one typical Midwest coal plant.  I have nothing against wind and solar energy or other forms of renewables but they can’t be the ONLY thing we build if we want to have reliable affordable energy support to meet our needs.

4.      PHEV game changer accelerates load growth.  As the economy improves, employers start hiring and consumers spend more, vehicle sales will increase and plug in electric vehicles will be a big hit.  They will also have unintended consequences of changing load profiles and increasing demand.  Since most PHEVs will be recharged at home off-peak demand will increase causing pressure on off-peak baseload resources.

5.      Unconventional Oil & Gas Production Grows.  An improving economy leads to higher oil prices.  Perceptions of electric generation tightening leads to high demand for natural gas for power generation.  Higher prices results in expanding domestic unconventional oil and gas production convincing Congress America can secure its energy future.

6.      National Energy Policy Convergence. The new Congress adopts a “comprehensive national energy policy” that combines the goals of protecting America’s energy security while assuring a balance of environmental responsibility and adequacy of energy resources for sustainable economic growth. The policy combines the following:

a.       Domestic Energy Production support for unconventional gas and oil E&P on shore and in selected off-shore tracks on the East and West Coasts and Alaska.  States that agree to participate in the program (many are desperate for tax revenues to balance their budgets) will realize severance tax payments from the production over the life of the leases.  Those that do not—like New York with its moratorium on Marcellus shale development—get nothing. Auctions are held for rights to the tracks with awards to the highest responsible bidders among energy companies.  Congress assigns to FERC the responsibility to fast-track regulatory and environmental approvals stripping it out of Interior Department and directs FERC to optimize America’s domestic energy production to meet national goals and balance competing economic and environmental interests.

b.      Balanced National Energy Portfolio policy supporting a balance of baseload energy from coal and nuclear, renewable energy and load-following resources primarily natural gas to assure America’s strategic energy security and to keep America competitive in energy technologies used in global markets.

c.       National Clean Energy Standard is adopted setting the 2020 national goal of 33% of electricity consumption from clean sources including hydropower (all sizes); nuclear power, and renewable energy, and energy efficiency/demand response.  Congress also adopts a substantial tax credit for PHEV purchase for five years or until PHEV are 20% of the transportation fleet.

d.      National Energy Efficiency Standards. Congress orders the adoption of national standards generally equivalent to those now in effect in California which have reduced energy intensity to 50% of the national average.

7.      EPA Endangerment Finding Fizzles.  I predict EPA will be unable to implement its GHG emissions rules or an endangerment finding because it will be unable to own its burden in the rulemaking process and because Congress in the new session aided by Senator Rockefeller and other coal state Democrats will put a stop to it.

8.      Coal Rehab.  Coal is still a major fuel for power generation and will remain so but there is a growing government policy bias against using coal at home even while it is sold to other nations with far worse environmental records. Growing exports of US coal not able to be used for power production or met coal for steelmaking at home sold to China and other large emitters is a signpost of domestic decline. If EPA switched its policy focus from shutting down coal to cleaning up coal by adding scrubbers and investing in clean coal R&D and technology a substantial share of America’s energy security foundation can be preserved.

9.      States will Declare RPS Victory.  A growing number of states with renewable portfolio standards nearing achievement of their goals will be reluctant to follow California’s lead and go further because they fear risking utility rate impacts, the growing uncertainty of Federal tax grants, the cost of state subsidies and the need for a prudently balanced energy supply portfolio.

10.  NIETC Clean Energy Corridors.  In response to the Congressional mandate for clean energy standards, the Department of Energy launches a new round of National Interest Electric Transmission corridor studies designed to create broad interstate markets for clean energy that bridge the electric power grid inter-connections to get West Texas Wind into WECC and Eastern Interconnect; export Nebraska-Kansas-Iowa wind to the Southeast; and enable natural gas fired power production in the unconventional shale producing Upper Midwest, Rockies and Texas to be exported across the grids.

If the new Congress wants to show us all they are paying attention to our needs they will quit bickering long enough to put in place a new national energy policy and the strategy direction to implement it to secure America’s energy future, meet our expected energy needs and encourage our economy to grow and create jobs.

OK OK I know I’m dreaming. . .