This is the first in a series of discussions focused on America’s energy sweet spots. These “sweet spots” are the places where America’s energy future is being shaped and defined. They are points of convergence where markets, policies, regulation and a can-do spirit come together to breathe life into our recovering economy by supplying the “juice” to power it forward.
It is tempting to start with the obvious energy supply sweet spots such as North Dakota’s Bakken Shale; Texas wind, America’s unconventional oil and gas plays; nuclear uprates at Exelon; scalable solar power growth in California or the Marcellus Shale revival of Appalachian energy future, but Nebraska is a place where America’s energy future converges as it is rationalized across markets, fuels, technologies.
Nebraska is an ideal laboratory for America’s energy future and it has tremendous potential as an energy hub unlike any other because of its access to markets and its ability to leverage both traditional and emerging technologies and fuels. A “sweet spot” in business is that place where all the essentials of a great deal come together creating opportunity and growth from collaboration, ingenuity and good old fashioned hard work—that is the Nebraska Cornhusker convergence today but it is playing out in energy supply and demand fundamentals, technology and fuel choices, and access to markets to leverage it to power America’s recovery and energy security.
America’s Energy Business Cycle is moving from Recovery to Rebuild
If you think the economy is uncertain today, take a closer look at the energy business. During the last boom stage of the electric power business cycle the fuel of choice was natural gas and the technology most often built was gas-fired combined cycle. We built a lot of it to keep up with demand for power generation. Advocates for renewable energy pushed their states for renewable portfolio standards and railed against anything baseload for fear it would drive out the renewable potential.
As we climb out of the bust in both the economy and the power business cycle, we are learning all over again that fundamentals matter in both. For the past several years as the recession bore down on global markets about the only power generation projects that could be financed were renewable energy because the government supports and subsidies dramatically reduced risk while the renewable portfolio standards (RPS) among the states built a floor under the market. The recession saw electricity demand fall to match the falling GDP and that is where we sit today slowly climbing out of the hole.
What does this after to do with Nebraska?
While the rest of the country chased energy fads or exploited unsustainable energy subsidies, Nebraska stuck to energy fundamentals—and in the long term that will make all the difference. Today as the Nebraska Public Power District updates its Strategic Plan it finds a solid foundation of low cost coal and nuclear power, a strong electric transmission system, expanding access to broader regional markets through participation in the southwest power pool (SPP).
The Cornhusker Convergence: Nebraska’s Strategic Geography of Place in Energy Markets
But Nebraska also has the strategic advantage of geography working for it. What, you say? Have you ever driven through Nebraska—on purpose?
Nebraska’s strategic advantage is that its geography of place puts it in the sweet spot as a cross roads for both supply and demand. Unconventional oil and gas needs to move south from the Bakken play to markets just as Texas oil and gas moves north and east and west.
Nebraska wind resources are prime for development offering advantages over West Texas wind because they are more easily developed and delivered in the Eastern Interconnect not locked into ERCOT. Those same wind resource sit at the edge of the WECC and offer the potential for vast western markets with national interest electric transmission corridors (NIETC) of the future to create the energy equivalent of Interstate 80 linking up with the wind resources of Iowa to create a gigantic “woosh” as wind is sucked into the Southeast through SPP or moved East to PJM.
Are you getting my point about the Nebraska sweet spot?
Not only can Nebraska serve as a supply exchange and conversion sweet spot but it has the baseload resources to back it up and the geography of place to send it forth in all directions.
The business and strategy problem for Nebraska is that it underestimates its full market potential. The decisions it makes have consequences far beyond its own local needs. Those choices shape Nebraska’s energy and economic future making it more or less competitive in the regional, North American and global markets.
The key player in Nebraska’s energy future is the Nebraska Public Power District (NPPD). How it responds to the industry and market opportunities it faces across a wide range of key strategic questions either enhances or restricts Nebraska’s potential as a significant player as a gateway to America’s energy future.
No pressure, right?
NPPD’s Board of Directors and the new CEO it now seeks face challenges not only from changing industry structure, our uncertain economy, and new regulations on greenhouse gas emissions, nuclear power operations and renewable energy resources. Their strategic plan process now underway must both inform and educate NPPD stakeholders involved so they can make better choices.
Build upon Nebraska’s Strengths
I don’t want to turn Cornhuskers into frightened deer in the headlights, but I hope they see the genuinely good opportunities they have in the midst of all this change and uncertainty to position Nebraska for strategic competitive advantage.
What are those strengths?
- Stable, Reliable, Low Cost Power Generation Portfolio. The NPPD portfolio of 3,157 MW of power generation has a solid base of low cost coal fired generation and efficient nuclear power that together make up almost 85% of its energy supply. It recently secured a life extension relicensing for the Cooper Station nuclear plant and it get about 9% from power purchases including low cost WAPA power.
- Strong Backbone Transmission Network. NPPD is blessed with more than 5,000 miles of transmission and the capability for access to the wider SPP grid.
- NPPD is Nebraska’s largest Electric Utility covering 91 of the 93 counties giving it influence and responsibility for meeting the long term energy needs of the state.
- Strategic Geography of Place. Nebraska is strategically positioned at the seams of the WECC and Eastern Interconnect with access through SPP to ERCOT. This strategic importance of geography is likely to be more important in the future as National interest Electric Transmission Corridors, Smart Grid, access to key wind and other renewable resources become critical to the clean energy economy emerging. Exploiting its geography to strategic advantage should a key consideration in the NPPD strategic plan.
- Wind Potential. The National Renewable Energy Lab says Nebraska has almost two times the wind energy potential as Iowa. NPPD is a key to Nebraska’s ability to develop its wind potential. Not only does it have its own portfolio potential to grow share from renewable energy and natural gas to meet mid merit or peaking needs and still keep its energy costs low, but NPPD is the key to wind exports with its ability to leverage its transmission system and SPP access.
- Public Power Tradition. Lastly, Nebraska is an ideal laboratory for emerging technology, product strategies and business model options given its consumer-ownership traditions.
Leveraging these strengths, from its secure low cost portfolio position, NPPD can explore the potential from emerging technologies such as power electronics and synchrophaser technologies in transmission and grid operations, distributed energy resources including renewables, distribution automation, uses for natural gas from unconventional sources transiting the state, smart meters, meter data management, home area networks and constant energy management solutions reshaping both the utility-side of the meter and the options for customers.
In the froth of change is opportunity in both NPPD’s traditional lines of business and in the emerging needs of its stakeholders for NPPD to do something new to secure Nebraska’s energy future.
The real strategy challenge for Nebraska is to work collaboratively with stakeholders to proactively define an energy future that lives into the full potential. NPPD is the keystone of Nebraska’s proud public power tradition and an important new market participant in the wider SPP regional power market so a lot is riding on the strategic vision and plan of action it adopts. Its public purpose is to serve the present and future needs of those customers and the State prudently, affordably, and reliably.
Facing the Competitive Threats Ahead
That Nebraska does not have investor owned utilities does not insulate it from competition in wholesale power generation, in merchant transmission, in fuels, in access to renewable energy resources. The seductive and yet threatening power of new technologies we often lump together as ‘smart grid’ is that it enables vastly more efficient power operations and distribution automation to gain access to markets and customers. This is good if you are doing it—but can be life threatening if a competitor is doing it to you!
What are some of the competitive threats ahead for Nebraska’s energy sweet spot?
- The competitive risks from falling behind in using new technologies like renewable energy, natural-gas fired combined cycle plants that can be load following, power electronics, distribution and grid automation, enterprise software, business intelligence, and customer relationship management capabilities to do more, faster, better, cheaper for customers.
- The competitive risk of new entrants offering smart grid-enables solutions. To succeed smart grid technologies require scale, interoperability and ubiquitous access to customers. For traditional utilities accustomed to defined service territories smart grid can turn the industry market place on its head. These new entrants are likely to be big global players like GE, ABB, Siemens, Johnson Controls combining communications, security, and other services with energy.
- The competitive risk from third party aggregators offering optimization services. Energy efficiency, demand response, and sustainability through emissions reduction are the seductive attractions that are being offered by aggregators using the convergence of information technology and operations technology to help large scale energy users and buyers reduce cost, manage their carbon foot print and assure consistent, constant energy management across their facilities. The new entrant competitors include IBM, Oracle, SAP and fast growing start-ups like EnerNOC, Comverge and Constellation/CPower scaling their business going after big wholesale and retail users and buyers of energy by getting in between NPPD and its biggest customers.
- The competitive risk of a falling sword of new laws and regulations. The change of control in Congress likely stalls cap and trade legislation but the Administration still seeks to use Federal regulations to reduce carbon emissions, tax carbon use, sets national renewable portfolio standards and take other regulatory actions that can diminish the value of Nebraska’s existing power supply or raise the costs of marginal additions. The more power over the energy markets that moves to Washington from the states the more vulnerable NPPD and its public power traditions become to changes beyond its control. Since these are issues faced by all The Energy Authority (TEA) of which NPPD is a joint owner and all the large public power council members, NPPD is not alone in these challenges and has natural but it must keep the District actively involved in Congress, in APPA, in SPP and other venues where its strategic interests are affected.
Nebraska must learn to compete in a market of bigger, faster, richer and more technologically astute giants. Those competitors are not likely going to be other public power utilities. While NPPD may deploy many tactics to address the issues it faces, the key to long term success is staying true to its values, articulating a vision of Nebraska’s energy future that is consonant with the values of its customers—and making sure those customers truly believe NPPD is on their side—and is protecting Nebraska’s back!