Public Utilities Reports

PUR Guide 2012 Fully Updated Version

Available NOW!
PUR Guide

This comprehensive self-study certification course is designed to teach the novice or pro everything they need to understand and succeed in every phase of the public utilities business.

Order Now

The Widening Technological Divide

Increased business and regulatory challenges have utilities lagging in investments to meet energy demand a decade from now.

Fortnightly Magazine - April 2005

supply function preceding it will be under relentless cost pressure, only moderated by the value that each consumer receives.

This transformed electricity infrastructure and business model also will catalyze entirely new capabilities for consumer participation in the electricity marketplace, while significantly reducing the parasitic costs of power disturbances characteristic of today's system. Technological innovation finally will break open the commodity box currently constraining both the electricity enterprise and consumers, and will usher in an era of ever-higher-value energy/information services even beyond our imaginations. The payoff from this economic progress easily could exceed $1 trillion per year in additional GDP by 2015. This accelerated economic expansion is essential to meeting the nation's growing debt, security, and aging population costs.

How to Deal With Cost Pressure

Above all, this modernized electricity system would provide greater functionality and service value for consumers. This additional value is increasingly necessary to compensate for the expected rise in the cost of electricity. A number of upward cost trends are likely to increase electricity cost by at least 30 percent during the coming decade ( see Figure 1 ). Alternatively, there are no significant supply side silver bullets available or on the horizon that can compensate for these upward cost pressures. There is also no evidence that "competitive" markets have been able to deliver on their promise of cost reduction in the absence of innovation.

These upward cost pressures largely occur because of forces beyond the control of the electricity sector, including fuel price, environmental protection, and protection of the physical and cyber infrastructures against potential incursions. The prices of fuels—natural gas, coal and uranium—are rising, and are likely to remain significantly elevated. As a result, fuel costs are expected to account for at least half of the net increase in the price of electricity over this period.

Similarly, the cost of compliance with steadily tightening environmental regulations also continues to increase. In addition, there is a growing possibility that mandatory carbon control requirements will be instituted, possibly in the coming decade. This would have significant additional impact on electricity costs, including the need for major, strategic investment in replacement generation facilities using gas and nuclear, Integrated Gasification Combined Cycle (IGCC) for coal, and renewables.

Security improvements, both to discourage terrorist attacks and to recover from them, may further add to the cost of electricity. A fully functional security program would, for example, combine enhanced physical security systems with self-healing grid capabilities and cyber tech security advances. Cyber security would focus on increasing the security of communications, data monitoring, and automated system control functions, plus provide vulnerability assessments supporting the self-correcting grid and related adaptive islanding capabilities. Rising fears of terrorist attacks also may fuel political pressure to further escalate infrastructure security measures, irrespective of their value-added. On the other hand, a modern digitally monitored and controlled power supply system comprehensively and automatically would address these concerns.

The need to improve the reliability and quality of power is another important reason the cost of electricity likely will increase through 2015. Mandatory reliability standards have been endorsed widely and were