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Energy Technology: Winner Take All

A review of which technologies and companies stand to win and lose as a result of the 2003 blackout.
Fortnightly Magazine - October 15 2003

and most obviously, there are the transmission equipment manufacturers and engineering firms who build and maintain the grid, such as ABB, the Shaw Group, and Quanta Services. Note that even though about 58 percent of expenditures in transmission and distribution networks is for capital rather than operating expenses, approximately 60 percent of total expenditures are for ongoing testing and maintenance rather than for the major equipment (towers, transformers, substations) and construction projects often associated with grid upgrades. As a result, a plethora of smaller engineering and construction firms and highly specialized testing and diagnostics firms would benefit from a grid overhaul as well as the better known names. Second, the emerging set of pure-play transmission system owners or operators-as well as private investors such as KKR and Berkshire Hathaway that are acquiring positions in power transmission-are likely to benefit from increased investment and focus on the grid, including names such as National Grid, TransElect, and American Transmission LLC.

Owners of more efficient but remotely located generation (i.e., baseload coal and nuclear units), are likely winners in this scenario, displacing higher-cost, strategically located units. We also would expect that large-scale wind, which can now be produced at 2.5 cents/kWh (inclusive of 1.7 cents/kWh federal tax credits), will become highly competitive with gas plants, since wind power prices are far less volatile, and wind-hydro combination create an equivalent firm power. The Dakotas have a technical potential of more than 600 GW in wind energy that is trapped because of lack of transmission capacity. Finally, improved interstate transmission capacity and pricing could result in a shift of rents to Powder River Basin (PRB) coal players such as Peabody and Arch, which may be able to use wire rather than rail to transport PRB coal to their customers, at the expense of BNSF and Union Pacific. Intuitively, the net impact on natural gas-the preferred fuel of the smaller peaking and load-following units that currently profit from transmission constraints-in this scenario likely would be negative.

Implications of the Distributed Resources Path

Proponents of the distributed resources path argue that it costs less and is inherently more reliable. Without arguing the merits of this claim, if it were true, are there enough potential distributed resources to achieve the same result as the proposed supply side response? What might such a distributed system cost?

Demand response signals customers when power is scarce, so they can choose convenient ways to trim or defer power use. Smart meters coupled with two-way control technology, along with time-variant price signals, are needed to enable demand response. EPRI has estimated that demand-response programs could reduce peak demand in the United States by an additional 45,000 MW, or about 6 percent of peak baseline usage. 3 Such a demand response capability could cost $200/kW to $600/kW to install.

The most recent comprehensive study of national energy efficiency, Clean Energy Futures, performed by the five national energy laboratories, found energy conservation could deliver a 6 to 10 percent national electricity demand and would cost an average of 2-3 cents/kWh. 4

Proponents of the distributed resource path