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When Two Worlds Collide

Energy guru Joseph A. Stanislaw explains how the battle between government and the marketplace is changing.

Fortnightly Magazine - August 2007

with learning and experience. They have a regulator in place that can deal with anomalies and can interpret and adapt the rules to change and drive it to make it more competitive. It depends on how to embed adaptability and flexibility. And to instill trust in an independent regulator to help not regulate, but to make sure the market works. In the UK telecoms and power sector it is really the regulator that is entrusted to make the market work better.

Fortnightly: What if we pass the point of no return with respect to climate change? Some believe we will not be able to contain greenhouse-gas emissions. In your mind, does the policy change if climate change cannot be reversed?

Stanislaw: I’m a realist. It is going to be hard to put a dent in to the carbon levels that produce the effects on climate change in 10 years, 20 years, even in 50 years. You can’t do much in 10 years because of the buildup already in place, and the reality of China, which will replace the United States as the number one emitter this year or next year. China is building one coal power plant a week. So, it is pretty hard to change that system.

We haven’t passed an effective CAFÉ standard change in the United States, and we are talking about the year 2020 for the implementation of more stringent measures Europe has recently agreed upon.

So, being realistic, we are not going to do it in 10 years. Is that disaster? I don’t believe it is a disaster if we start and accelerate the changes needed. If you are effective in establishing changes in that direction in the next 5 to 15 years, you’ll begin to eventually see a reversal.

Fortnightly: Can competitive power markets co-exist with government mandates for more renewable energy? What is the point of locational marginal pricing (LMP), which offers market price signals at thousands of points on the grid, if regulators will simply mandate a fixed market share for renewable energy, without regard to price?

Stanislaw: Most important of all is to put the cost of carbon into the system so this becomes easier. Then you can look at the competitive nature of coal versus windmills, coal versus solar. They are competing on the same playing field because the cost of carbon is being included in the equation. That would allow a utility then to make a more competitive choice. The second would be to put demand into the power-company energy portfolio. Allow the power plant to help you use less electricity as well as building alternative forms of providing electricity, and finding very effective ways in making money by helping the customer use less energy.

The utility will do that so that electricity demand will go down, and the utility will be paid a little more to cover the capital costs. So, put the cost of carbon in to the system, then the company can make economic rational decisions on conventional power plants versus alternative energy.

Fortnightly: You say the ultimate