Power Industry – Power Play a PCE Companies Perspective

America’s power sector is at a crossroads. Rising demand for clean forms of power is now juxtaposed against the growing need for inexpensive energy, creating a situation that is increasingly conflicted. Recent economic challenges have made decisions even more difficult for electric power producers. In 2009, electricity generation decreased 4.1 percent, settling at its lowest level since 2003, representing the largest decline in six decades. In addition to the recent economic downturn, expanding environmental policy and increasing prices of certain fuels have forced electric power producers to invest in alternatives to coal such as natural gas. Investment decisions also have been impacted by the recent accident at a nuclear power plant in Japan that, at least temporarily, diminished renewed enthusiasm for nuclear power expansion.

Alternatively, renewable energy has been fully embraced by some for its clean energy benefits, federal production and investment tax credits and cash grants, as well as help electric power producers comply with state Renewable Portfolio Standards (RPS). Even in the face of uncertainty about future tax and energy policies, investment in renewable and conventional forms of power is expected to remain strong as older, less efficient power plants are retired and demand continues to build. The U.S. Department of Energy projects that demand will increase approximately 24 percent by 2035, rising roughly 1 percent per year. Which source of power will benefit the most is uncertain. What is clear is that all of these sectors have characteristics that will ensure future investment.

Power Sources

Key factors facing the power industry include:

  1. Nuclear power, while experiencing a setback, is still viewed as one of the only large-scale clean resources that can help satiate the demand for clean power in the U.S.  Investment in this sector might slow as safety concerns are addressed.
  2. Natural gas is undergoing a boom due to abundant supply and low prices.
  3. Renewable energy such as wind and solar have attracted impressive investment levels as developers leverage production and investment tax credits or cash grants, which offset a significant portion of development costs.
  4. Coal faces a challenging future as it competes with the demand for clean energy and cheap natural gas, but it will retain a significant position in the power landscape for the foreseeable future.

Outlook

Electric power producers are currently forced to navigate dynamic, evolving markets with capacity plans that are constantly developing. The long-term need for inexpensive, yet clean, forms of power has created an interesting dynamic. The market seems to be dictating a diversified approach that leverages inexpensive, clean resources such as natural gas that are used in combination with traditional forms of power (i.e. coal and nuclear) as well as renewable energy (i.e. hydro, wind and solar), with decreasing dependence on coal. As federal and state environmental, regulatory and tax policy comes into sharper focus and the economy begins to steadily grow, electric power producers will be able to make long-term investment decisions that encompass these resources and lead to a period of sustained growth.

If you have any questions or comments on this article please contact Mike Rosendhal of PCE Companies at 407-621-2136 or by email at mrosendahl@pcecompanies.com.

To read Mike’s complete article, “Power Play” that includes more in depth analysis of power options and sources, from the November issue of American Cranes & Transport magazine click here.

Debbie Stephenson

Debbie Stephenson is a former Content Marketing Manager at Firmex.