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Power-Plant Development: Raising the Stakes

Duke Energy’s Jim Turner and other utility executives weigh the odds on billion-dollar bets.

Fortnightly Magazine - May 2007

to be hoping that there is going to be one solution to all of this,” Rice said.

Rice, who also holds the title of president and CEO of GE Infrastructure, said he has met many in the industry who are either all for nuclear, all for wind, or all for coal. “The fact of the matter is it isn’t going to be all of any one thing. It is going to be a portfolio of options,” he said. He stressed that coal, nuclear, natural gas, wind, and other renewables would all be part of the solution.

Efficiency: The Safe Bet

The Art of War , penned in the 6th century B.C. by Chinese general Sun Tzu, states that “every battle is won before it is fought.” Given the escalating costs of power-plant development, many executives are trying to find ways to win more capacity without having to build. What can you achieve on demand-side management and efficiency?

“I’m not sure we have ever thought about energy efficiency in the way we are all about to think about it—not just the technology, but the rate-making treatment associated with that,” says Duke Energy’s Turner. This may be an oversimplification, but the idea is that utilities could book base-load energy-efficiency investments at something slightly below the avoided cost of generation, he says.

“Isn’t that a good thing for customers because it’s saving the need for new generation, and lets the utilities essentially earn on rate-basing energy efficiency and demand-management investment the same way that they would in building a power plant?” asks Turner. He proposes that energy efficiency be part of the integrated resource plan so such programs do not fall by the wayside after power-plant development is complete.

“We’re not waiting like last time, where we build generation and then got into an oversupply situation, and then tried to look at energy efficiency and demand-side management. It is going to be awfully hard to make any of those investments look cost-effective when you have an excess generation build,” he says.

That’s why he believes that investment in energy efficiency and demand management should be done in concert with evaluations of new generation resources so only those plants that are needed get built.

Turner proposes that utilities should “economically be indifferent as to whether they build generation or invest in energy efficiency.” And he has considered the possibility that utilities could become too reliant on energy efficiency and renewable alternatives.

“You might see companies look to expand their reserve margins so that you can count on these resources. It may well be that utilities look at increasing that 17-percent reserve margin to 20 percent,” he says.

In the near term, Turner says Duke Energy has been encouraging its commercial and residential customers to adopt compact fluorescent light bulbs and more efficient appliances in homes.

In the longer term, he says the utility is looking at installing new metering technology and is installing controls in appliances that customers “actually have in their homes, so that we have the ability to cycle on and off their appliances