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The Choice of Fuel in Competitive Generation

Fortnightly Magazine - June 15 1995

attended one of these conferences in 1975 (em in Portsmouth, NH. The participants (em of whom only a minority were government officials (em thought that we were dealing in a frightening but possibly inescapable reality. We, and the agencies and experts that guided us, were, of course, wrong (em wholly misguided. But a belief in the need for nuclear power, as well as anxiety about its impacts, is what concerned agencies and "interested" citizens 20 years ago. And the electric utility industry itself certainly held no contrary view. Almost everyone (em not merely "government" or "management" (em entertained these ideas. Yet, after all that, we now view nuclear power, not as the energy giant on the horizon, but as the most obvious candidate to become a "stranded asset" in the new era of competition.

The Natural Gas Turnaround

Presumably, combined-cycle gas-turbine generation will establish the marginal cost (em and hence the market price (em of electricity under a competitive regime.12 Natural gas plants are both the cheapest and the fastest plants to build (em and the costs of fuel are currently favorable. I have heard no one predict that the output of these plants will be too cheap to meter, but, considering the enthusiasm of some prophets of a new order in electricity, I expect some such prediction any day now. Natural gas has, of course, always been a highly desirable fuel (em environmentally benign, yet chock full of energy. The only questions in the past have been "How much of it is there?," and "Can its price remain competitive?"

At the time nuclear power parks were drawing the attention of the "interested" community, popular thought placed natural gas on the endangered species list. The then current wisdom suggested that the supply of gas was shrinking and that prices were mounting in the face of all government efforts to suppress them. Natural gas was a "premium" fuel to be saved for home-heating or agricultural use; using it at a power plant was thought to verge on criminal behavior.13 In any event, the price of natural gas was rising so rapidly that the thought of competition with nuclear generation was absurd. Gas turbines were as cheap and as fast to build as they are now, but certainly no one saw them as a major factor in fashioning the energy future. All the emphasis was on coal and nuclear generation as best comporting with national security objectives (em not to mention cost. Almost everyone thought that dependence on Middle Eastern oil put the nation at risk (em if not of an actual embargo, at least of an exorbitant price. Then, all estimates of oil and gas prices for the future assumed a rising trend. In light of the bleak outlook for gas and oil, Congress passed the Powerplant and Industrial Fuel Use Act of 1978, which aimed at converting natural gas- and oil-burning power plants to coal, or to some other fuel with a future.14 These pessimistic views of the prospects for oil and natural gas were rather generally held by the electric power