While you’ve been out chasing energy efficiency within your own operations, you probably haven’t been keeping up with the state of the power gen industry and how its growing problems are bound to impact your company. Get ready for a big shock.
The power industry is at a crossroads, faced with environmental requirements from the federal government, unprecedented power demands from the consumer, an aging fleet of power plants and the all important antiquated transmission system.
The way in which the power industry responds to this “crisis” will impact every person in the United States. The profitability of industry will be dependent on how industrial sector management responds to the inevitable rising energy cost necessary to support massive power plant and transmission construction.
It’s interesting that a majority of attention regarding the energy crisis is focused on oil and gas when electricity is what impacts almost every part of our lives. Could it be that people treat electrical service as a right, and that electricity is only noticed by its absence? This is a far cry from the early days of power generation, when electric lighting was only for the well-to-do. To paraphrase Tom Bodett’s Motel Six mantra, “We’ll keep the light on for you,” it may not be very easy for any of us to keep our lights on in the not too distant future.
Electricity demand is expected to increase by approximately 30% by the year 2030. At the same time our reserve is declining, due to economic expansion, growth of electrical technology, population growth and our aging power plants. Over 60% of the power plants in North America are at least 40 years old. The last base-loaded coal-fired power plant was commissioned in the 1970s. Nothing lasts forever—especially power plants. Eventually a plant is too costly to maintain and requires replacement or major rebuild. Alas, that is the situation with a majority of the power gen plants in North America. Add to the equation our antiquated power grid, and you have an even more complex issue. How did we get into such a mess? To answer that question, we need to go back into history.
Since the beginning of modern electric power generation in the 1880s, the power industry has seen relatively steady growth:
The late 1980s saw increased generation by non-utilities. In fact, by 1991 a significant shift had occurred. Non-utilities now owned about 6% of the electric power generating capacity and produced about 9% of the total electricity generated in the U.S.
Major issues in the power industry surfaced in the 1990s due to structure changes that impacted reliability of the electric power supply and bulk power trading. The Clean Air Act of 1990 also took effect during this time, raising even more issues within the industry.
In 2000, for the first time in the history of the power industry, retail customers were given a choice of electricity suppliers. To date, 24 states and the District of Columbia have passed laws or regulatory orders to implement retail competition. The introduction of wholesale and retail competition to the electric power industry has produced and will continue to produce significant changes in the industry.
The power industry evolved based on demand within a local utilities service territory—this included the transmission lines. Over the years, a utility and/or investors would build a power plant, then add transmission lines to service customers. Therefore, the transmission lines are owned and maintained by the utility.
Transmission between service territories typically has been built to accommodate utilities that co-owned plants and to share reserve power between utilities and regions. To that end, today’s transmission system can be defined as a group of networks covering the service territories of the major utilities separated by weak connectors limiting interconnectivity.
Transmission constraints are a major concern. The antiquated grid prevents utilities from routing electricity long distances, thereby feeding areas that require additional power. In the early days of the power industry, the typical power plant would push power approximately 50 to 75 miles. Fast forward to our deregulated industry today; it is not unusual to transmit power 1000 miles. This longdistance transmission comes at a price—line losses that are absorbed by the utility generating the power.
Over the past eight to 10 years, transmission construction has declined. (I suspect this is due to deregulation and the increase in investor-owned utilities otherwise known as “merchant” plants.) Whatever the reason, this lack of investment has impacted our life styles by way of blackouts.
It is well known that we have issues with our transmission system and that they must be addressed as we add further generation. Unfortunately, no one seems to have an answer. How do we get every generator to contribute dollars to upgrade the North American power grid? (Investment in transmission, however, will increase over the next 15 or so years, primarily due to new plant construction.)
Figure 1 shows how power generation in North America is broken down. Given the abundance of coal in the United States, it is only natural that coal is the largest source of our power (48.9%).
The first modern (1890s) power plants were coal-fired. Coal plants from that era on into the 1940s required approximately three pounds of coal to generate 1 kW of electricity. Advanced-technology coal plants of today require less than one pound of coal to generate 1 kW of electricity—yet, the average power plant uses 100 rail cars of coal per day. Even with the state-of-the-art upgrades and engineering, today’s coal plants are still based on 50- to 100-year-old technology.
Unfortunately, coal has its drawbacks: pollution, thermal efficiency and waste disposal, to name a few. Contrary to popular belief, coal-fired generation is no longer the lowcost option—and hasn’t been for several years. Natural gas combined cycles still are the lowest-cost source of new generation (i.e. total costs for a new plant, not operating costs for a fully depreciated plant), and wind is now the next-to-lowest cost source. With capital costs running over $2000/kW and coal at $3/mmBtu, coal plants simply are not competitive now.
Once the fuel of choice, coal is becoming a point of contention. Add its rising cost to the scrubber system required to meet federal regulations and it is clear why coal is no longer the least expensive fuel source for power generation.
Further complicating the matter, however, is the fact that many North American coal plants in operation today have reached the end of their useful lives. By the year 2025—just 17 years from now—62 gigawatts of power will be removed from service. This does not include the nuclear fleet of power gen plants that is up for relicensing, either; many of these facilities are almost 50 years old. How long will they last—perhaps another 10 to 15 years? That’s simply not enough time to build the additional generating capacity necessary to meet future/ current demand and replace retired capacity.
Good news/bad news
Despite all these power gen industry problems, electricity remains a good value. Unlike other consumer goods, electricity has not kept pace with inflation. From 1985 to 2000, electricity prices rose on the average of 1.1% per year. Even with recent price increases due to fuel cost and price cap corrections, the price for one kilowatt-hour of electricity has increased by just 27% since 1985.
Now the downside: we need more power plants to meet additional consumer demands. We need to build plants to replace the retired units. We must add and update transmission lines, industry infrastructure and meet new environmental regulations.
From 2002 to 2005, the electric utility industry as a whole spent at least $21 billion on compliance with federal environmental laws. State and local rules drove that total even higher. According to the U.S. Environmental Protection Agency, complying with two new federal regulations—the Clean Air Interstate Rule and the Clean Air Mercury Rule, aimed at further reducing power plant emissions of NOx, SO2, and mercury—will cost the electric utility industry $47.8 billion between the years 2007 and 2025. Consider:
The overall picture is that the electric power industry faces a situation in which significant investments are needed, and rate increases will be necessary to finance them.
First line of defense
Why write about the power industry and energy costs in a magazine focused on maintenance and reliability? Readers like you are the first line of defense when it comes to energy use. You are the people working to keep the plant on line, performing day-to-day maintenance and replacing failed equipment.
Motor driven equipment typically fails or experiences frequent maintenance for several reasons:
All three of these failure modes have an impact on energy use and could be corrected by maintenance.
So what can we do to minimize the “pain” while the power industry makes the necessary adjustment? The only way we can control the impact on our economy and way of life is to conserve energy.
Did you know the U.S. comprises 5% of the world’s population, yet consumes 25% of the world’s energy? We are energy hogs!! We must change the way we live and do business! We can begin by realizing that energy conservation is our #1 fuel source!
If your equipment is operating efficiently it will be reliable. Remember that reliability and efficiency are complimentary.
The North American power grid is faced with a serious problem and every person on the continent will be affected by it—sooner than later. Electric bills will continue to rise in order to subsidize construction. This increase will affect our paychecks and our employers’ bottom lines.
Keep in mind that it will take at least 30 years to stabilize the North American power grid. Stabilization will succeed only if the industry has the cooperation of both federal and state governments and—most importantly—the consumer.
New plants and transmission lines must be approved and built at a rapid pace. The industry should move to nonpolluting, efficient power generation, including wind, solar and nuclear. The power industry and our country can no longer afford inefficient power plants. The days of the 35%- efficient coal plant and 65%-efficient gas plant are over.
Rising energy costs will continue to impact industry’s profitability; this will not change. We can, however, minimize future economic pain and business interruptions by reducing energy consumption now. Despite the problems in the power generation industry, you and your company really can make a difference. You can start by looking to and leveraging energy conservation as our #1 fuel source.
For more information on pumping system optimization and life cycle costing, visit the Hydraulic Institute (HI) at www.pumps.org and/or Pump Systems Matter (PSM) at www.pumpsystemsmatter.org
U.S. Department of Energy
Electric Power Research Institute
Edison Electric Institute
Hydraulic Institute (HI)
Pump Systems Matter (PSM)
Editor’s Note... Working To Ensure Our Future
It’s clear new fuel sources and means of generating and transmitting electricity must be found sooner than later. Industry can take a giant step in this direction by looking seriously to energy conservation as a form of fuel—our #1 fuel source! To assist your company along this path, the U.S. Department of Energy’s Industrial Technologies Program (DOE/ITP) has initiated the concept of Superior Energy Performance (SEP) to encourage improved industrial energy efficiency and environmental performance.
The DOE/ITP mission is intended to provide a mechanism to help corporations assign greater value to energy efficiency improvements, independently verify resulting energy savings, receive public recognition for achievements and “raise the bar” for industrial energy efficiency overall. Thus, a standardized framework for conducting energy improvement assessments for industrial steam, compressed air, process heating and pumping systems is expected to be developed. Stay tuned!