Today the energy buzz largely revolves around the rapid growth of renewable energy sources such as wind and solar, smart grid and the use of new information technologies for demand response, energy efficiency and automation.  Clearly energy technology is playing a dramatic role in transforming the energy future to meet key public policy goals of reducing greenhouse gas emissions, expanding the market penetration of cleaner, renewable energy resources in our portfolio mix, and making more efficient use of the energy we consume in our homes, businesses, and in transport.

The International Energy Agency is set to release a new report called Energy Technology Perspectives 2010 as part of its ongoing review of the advancement of technology applications in the energy industry.  It was not surprising to see all these new energy technologies represented in the report focused on optimizing the reduction of carbon emissions by 2050.  But what was interesting is that the IEA says that a least cost, best fit approach to achieving the carbon emissions reduction requires cleaning up our use of coal—not eliminating it from the mix.  It requires much more focus on optimizing our use of energy through technology, policy incentives and energy efficiency programs that integrate them.  Nuclear power is covered in the report but seems to represent the poor step-child to the dynamic duo of coal with carbon capture and sequestration (CCS) and energy efficiency.

According to the IEA report the key technologies offering the best potential for carbon emissions reduction by 2050 are:

  • 38% from end-use fuel and electricity efficiency
  • 19% from carbon capture and storage  from coal plant operations
  • 17% from expanded use of renewable energy resources
  • 15% from end use fuel switching
  • 6% from nuclear power expansion
  • 5% from additional power plant efficiency.

This IEA ‘Blue Map’ proposal in the report depends heavily on new technology such as carbon capture and sequestration, biofuels, fuel cells and electric vehicles to achieve its carbon emissions reduction goals.  The blue map proposal suggests that coal fired generation would need to fall by 36% by 2020 in order to reduce carbon emissions, but that goal ignores the reality that China and India alone are building far more new coal fired power plants than the rest of the world are retiring.

This is the COP15 dilemma writ large across the global marketplace. The demand for energy particularly electric power while dampened by the effects of the global recession is expected to return to historic averages.  In the US this means 1-2% demand growth per year, but in the faster growing economies of China, India, Brazil and other emerging markets it is multiples of US demand growth.  Meeting that energy demand will trump emissions reduction every time.

Meanwhile, beyond embracing energy efficiency and demand side management options, the IEA report seems to undervalue the more mature technologies such as nuclear power generation, repowering existing coal plants to improve efficiency and reduce emissions even as bridges to its energy future.  This may be politically correct but it understates the potential for real, tangible benefits in emissions reduction and energy efficiency.  Proactively managing the market with feed in tariffs, stimulus grants, renewable portfolio standards, procurement requirements and other regulatory or industrial policy techniques has succeeded in growing the market penetration of renewable energy resources, but it is global and inter-market competition that has had the most profound effect on improving energy efficiency in an effort to lower the overall total cost.

So what?

Optimizing our energy future requires a least cost, best fit choreography where carbon emissions are reduced, renewable energy market share is expanded, and energy efficiency improves in a marketplace where energy supply is reliable at prices we can afford. State public utility regulators should keep their focus on integrated resource planning policies that transparently force decisions that balance these competing interests to the surface for all to see.

Competitive energy markets cost effectively achieves these goals forcing both supply and demand side options to compete for a place in these integrated portfolios.  Doing so uses the ruthless forces of the market to drive down costs, sweat out inefficiencies, and deploy new technologies that offer competitive advantage.  Because the right answer for achieving that optimal balance is not the same for everyone means that policymakers and regulators should focus on creating a competitive marketplace where utilities, suppliers and vendors, business and end use customers shop for choices that meet their needs from among available supply and demand side options.

I was part of one of the definitive studies of the impact of wholesale power competition called “Putting Wholesale Power Markets to the Test” which assessed the performance of divested coal and nuclear power plants in the Eastern interconnect to compare their performance before and after divestiture.   We found more than $15 billion in customer savings resulted from the work of competitive wholesale power markets in the 1999-2003 period studied.  More importantly, we found that the efficiency of those divested power plants improved enough from competitive market forces to provide the electricity needs of more than 35 million average American homes for a year.

Creating a competitive market for smart grid enabled demand side choices would unleash the forces of wholesale competition on the demand side to compete head-to-head with supply side choices integrating advanced information and energy technology, engaging customers to be active participants competitive markets and attracting investment in start-ups and scalable solution companies across the cleantech space. Smart grid must be about more than smart meters.  Smart grid must bridge the boundaries between the WECC, ERCOT and Eastern interconnect to enable wind from Iowa, Wyoming and West Texas to seek the highest prices in markets across the North American power grid.  Large industrial and commercial customers should be able to shop across markets for vendors who bundle demand side and supply options to fit their needs and deliver those products and services through networks of utility energy delivery companies and energy management suppliers.

Putting it all together will require information technology companies of scale, breadth and depth to integrate the parts, optimize the back office, and create solutions to manage the energy demand, energy procurement, and energy management to achieve those least cost, best fit green and clean energy goals for the company, for its customers and for our nation.

The job of the government at both the Federal and state levels is to create this competitive marketplace setting level-playing field rules of engagement for all market participants—-then get out of the way and play referee.  As long as the Government’s focus is choosing winners and losers, subsidizing one group but not another or tilting the rules to favor one strategy over another the results much less likely to be sustainable or satisfying.

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