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An analyst looks at prospects for emerging power technologies in light of the recent turmoil over deregulation.
Fortnightly Magazine - January 15 2003

in the right direction.

At the height of the Internet technology bubble, it became popular among analysts to believe that demand-side forces alone were strong enough to pull emerging power technologies into the marketplace. The need for high quality and highly reliable power to support the digital economy would necessitate investment in new power technologies, particularly technologies like fuel cells and microturbines that could provide distributed solutions to generation and power quality, irrespective of the fate of utility deregulation. Thus, according to Peter Huber and Mark Mills at the time, the digital economy already absorbed 13 percent of all power consumption and was headed toward a 50 percent share of the market in 10 to 20 years.

Subsequent work at the Department of Energy's Lawrence Berkeley National Laboratory and Arthur D. Little came to more sober conclusions: Electricity consumed by computers and network equipment accounts for 3 percent of consumption, and, while growing, will not likely claim 50 percent of the market any time soon.

Even if the digital economy were to exercise the advertised demand pull on the power market, without deregulation this demand must be accommodated within the existing framework of the regulated industry. This would do nothing to remedy the defects in today's marketplace and would lead, in fact, to a round of investment decisions aimed at circumventing, not correcting, the current inefficiencies in the marketplace. In other words, it would add, rather than subtract, from the overall consumer disadvantages of the status quo in power.

In short, what looked rosy for the power sector in 1997 doesn't look so rosy now. The bullish case for power technology, in particular, was predicated on deregulation of the power market and on the economic consequences of deregulation. Demand-side forces may add to the stimulus to power technology provided by deregulation, but these demand-side forces alone are insufficient to ensure the success of new technologies.

There are two big "if and when" questions that could alter this pessimistic view for power technology. The first is the green thing-the inevitable shift, at the point of a gun or voluntarily, toward environmentally sound technologies. Many emerging power technologies have positive environmental characteristics. The green thing probably will not force rapid change in the power infrastructure, but it will contribute toward the long-term growth of the market for technologies such as solar, wind, and fuel cells.

The other big "if" is national energy policy. The Bush administration's proposals appear (to this writer) to be nothing more than a rehash of ideas that have been around for decades, and they have a decided bias toward the short term. Few elements of social policy are as critical to our long-term health and prosperity as energy, and what is needed is not a five to 10-year plan, but a 50- to 100-year view.

Staying the course on deregulation may be one of the best investments we can make in energy for the long-term. A national commitment to deregulation would go a long way toward a rational reawakening of investor interest in power technology.

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