Energy diversity critical to U.S. economy
July 28, 2014 | By
Barbara Vergetis Lundin
The uncertainty around the future prices of natural gas, oil, coal, uranium, and others means uncertainty regarding the cost to produce electricity. A diversified portfolio is the most cost-effective tool available to manage the inherent production cost risk involved in transforming primary energy fuels into electricity, and a diverse power generation technology mix is essential to cost-effectively integrate intermittent renewable power resources into the power supply mix -- IHS Energy explains in a new report called "The Value of U.S. Power Supply Diversity." The current diversified portfolio lowers the cost of generating electricity by more than $93 billion per year, and halves the potential variability of monthly power bills compared to a less diverse supply, the study says, and produces lower and less volatile power prices compared to a less diverse case with no meaningful contributions from coal and nuclear power, and a smaller contribution from hydroelectric power. In this less diverse scenario, wind and solar power make up one-third of installed capacity and 22.5 percent of generation; hydroelectric power capacity decreases from about 6.6 percent to 5.3 percent and represents 3.8 percent of generation; and natural gas fired power plants account for the remaining 61.7 percent of installed capacity and 73.7 percent of generation. Power supply in the reduced diversity case increases average wholesale power prices by about 75 percent and retail power prices by 25 percent. Diversity enables the flexibility to respond to dynamic fuel prices by substituting lower-cost resources for more expensive resources in the short run by adjusting the utilization of different types of generating capacity. This will remain critically important to managing fuel price risks because of the relative fuel price dynamics between coal and natural gas, according to IHS. "The new IHS Energy study further reinforces the critical importance to the U.S. economy and to electricity customers of a diverse portfolio of fuel sources for the production of reliable and affordable electricity," said David Owens, executive vice president of Business Operations and Regulatory Affairs, Edison Electric Institute (EEI), who is currently working with policymakers to preserve fuel diversity and flexibility. "The study finds that a less diverse U.S. power supply would increase electricity prices, lead to roughly one million fewer jobs, and decrease the typical household's annual disposable income by around $2,100. According to IHS, several factors -- including tightening environmental regulations and depressed wholesale power prices -- are having a significant impact on the nation's power supply diversity." In the next decade, the need for power supply to meet increased customer demands, replace retiring power plants, and satisfy policy targets will require fuel and technology decisions for at least 150 GW -- about 15 percent of the installed generating capacity in the United States, IHS contends. However, current trends in energy policy could push that power plant turnover percentage to as much as one-third of installed capacity by 2030 -- so power supply decisions made in the next 10 to 15 years will significantly shape and impact the U.S. generation mix for future decades, IHS warns. For more:
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