It’s tempting to attribute the recent slowdown in electricity demand growth entirely to the Great Recession, but consumption growth rates have been declining for at least 50 years. The new normal...
The Big Build will test the industry’s access to Wall Street.
building programs. The $1.6 trillion figure for infrastructure construction likely will prove an underestimate. Next year’s IEA schedule of forecast investment for the coming decade could be very much higher due to these skyrocketing raw-material costs.
What can we expect in the future? Realistically, it’s possible we could see some demand destruction, either because of rising prices or slowing economies, or both—but if so, this is likely to be a temporary dip rather than an extended trend. Long term, the assumption is that world economies will continue to grow, and growing demand will keep prices up.
The current uncertainty about forthcoming environmental regulation on carbon emissions puts power and utility companies on shifting ground in terms of business planning and investment decision-making.
In the run up to November’s election, the key political parties all have said they believe in some form of carbon control. If the Democrats win, broadly speaking, most Americans believe there probably will be a quicker response and attempt to instigate more stringent regulations than if the Republicans win. We will have to wait until after the November election to see what will be the concrete effects on the industry as a whole, and on investment in particular.
State by state, the current picture is patchy. One major movement has been the introduction of renewable portfolio standards (RPS), which currently are in place in 26 states plus the District of Columbia, 9 and require utilities to supply a certain (in some cases sizeable) percentage of power from renewable sources. Some tax credits and other incentives are available to help create this new renewable supply, but the ultimate effect has to be an increase in the cost of power, simply because renewable power sources like wind are more expensive on a kWh basis than are coal or a combined-cycle plant.
We are still guessing about the price of carbon, and waiting to see what the federal government will do about carbon regulations. Ten Northeastern and mid-Atlantic states plan to implement the Regional Greenhouse Gas Initiative, or RGGI. Effective starting next year, this will put a cap-and-trade program in place around carbon, with customers ultimately bearing the cost. The real cost of carbon will become evident to customers for the first time.
How they react, and whether the system is effective or not, will depend on how the system is put into action—and at what level RGGI sets the cap. California is set to implement a similar program.
The big issues for the politicians are what tolerance exists among consumers ( i.e., voters) as a whole to soak up price increases, and what will be the societal effects? After all, there is more at stake than a clean environment. In the midWest, where manufacturers need to be competitive on a worldwide basis, industrial electricity customers are currently paying around 5 cents per kilowatt hour for their electricity. What happens to those manufacturers if the price of carbon pushes electricity up and suddenly the economics of manufacturing in the Midwest don’t make sense any more? As to the effects on