Power generators place uncertain bets on CO2

John W. Schoen Senior producer • Profile • E-mail

As business gets serious about reducing greenhouse gases, its biggest hurdle is the uncertainty over which approach to cutting carbon emissions makes the best financial sense. Nowhere is that more evident than in the utility industry, where companies that produce electricity account for 37 percent of all carbon dioxide produced in the United States.

As they continue to build new, cleaner generation capacity to meet growing demand while working to clean up existing plants, power companies are placing long-term bets with billions of dollars of shareholders' and ratepayers' money. That’s why many in the industry are pushing the government to set mandatory caps on emissions with consistent rules for all players. Without them, these bets on cleaner power generation are turning into a bigger gamble than they would like.

“Business is moving at light speed compared to the federal government because they want market certainty,” said David Yarnold, executive vice president of the non-profit group Environmental Defense.

Until rules are established, no one can even begin to estimate the price tag to cut carbon emissions as much as 60 percent from current levels by the middle of the century. The Europe Union, whose combined economic output is roughly that of the United States, has set mandatory caps and is targeting cuts of greenhouse gas emissions 20 percent by 2020. Hitting that goal could cost between $1.1 trillion and $1.5 trillion, according to a recent report by McKinsey & Co.

“The way the companies are beginning to see it, and I think the way policymakers are very much seeing it is it’s a ‘pay now’ or ‘pay later’ situation across the board,” said Angela Anderson, vice president for climate programs at the National Environmental Trust. “We either do something now to get us on the path to reducing emissions or we’re going to have to do really dramatic changes in the 2020 time frame. And we're going to pay for the impacts we’re going to feel.”

There are also economic benefits on the other side of the ledger. Money spent to reduce greenhouse gases by power generators will give a major profit boost to the makers and suppliers of new technologies that can produce clean power more cheaply. Widespread adoption of these technologies is expected to further reduce the cost. But until the details of a U.S. carbon cap are settled, companies looking to provide solutions are unable to forecast demand accurately and improve the odds of getting a return on their investments.

Though the utility industry shares a common goal — making more power while producing less carbon dioxide — there is no single “magic bullet.” So the industry is pursuing a variety of strategies that collectively offer a solution to cutting greenhouse gases.

Among the key fronts they’re working on:

Renewables
Power generation from wind and the sun has been expanding rapidly as new advances in solar panels and photovoltaics make these zero-emission sources more cost-effective. Government incentives — to both power producers and consumers — have helped boost the role renewables are playing. But they’re still not competitive with fossil fuels, dollar for dollar, watt for watt.

And for a variety of reasons, renewables can’t provide anywhere near enough power to replace fossil fuels in time to reverse the environmental impact of greenhouse gases. For one thing, solar and wind generation are not available during all hours of the day and in all regions of the country.

Conservation
Consumers and companies are increasingly turning to a variety of conservation measures to cut costs — and help cut carbon emissions. In many cases, these technologies — from “green” construction methods to squiggly fluorescent light bulbs — more than pay for higher upfront costs.

“With a little bit of incentive, that can done immediately,” said David Crane, CEO of NRG Energy, which operates power plants in Texas and the Northeast.

Some $3.3 billion last year was spent on green office and retail construction; that number is expected to grow by up to 10 percent a year — to $20 billion by 2010, according to a study by McGraw-Hill. Green construction designs are also rapidly taking hold in new residential, government and educational buildings.

Existing power plants
Conservation and renewables won’t be able to cut greenhouse gases fast enough to make a difference in the ongoing impact on climate. That means finding ways to cut emissions from existing power plants — more than half of which burn coal. The solution is investment in technology to burn coal more cleanly and in capturing and storing carbon dioxide underground — a process known as carbon sequestration.

A few power companies could even make money — by selling CO2 to oil producers who inject it in the ground to force more oil to the surface. Most utilities, however, will have to find secure underground formations suitable for holding waste carbon dioxide in perpetuity. And it's not clear whether individual power generators are set up to handle the task by themselves.

"It’s sort of like garbage collection,” said Crane. "Someone has to own these underground reservoirs where the carbon will be stored. It would be very difficult for the private sector to even get the rights to that. These underground reservoirs are fairly large. Are you going to go house to house to ask people if you can buy the rights to store carbon 3,000 feet below them? It’s a classic public sector thing to do.”

New power plants
If they hope to keep up with growing demand for more electricity — and avoid future brownouts and blackouts — U.S. power companies can’t wait for new rules on carbon emissions to begin investing in new capacity. Demand for power is expected to grow 17 percent from current levels by 2020 and by nearly 30 percent by 2030, according to Department of Energy forecasts. To meet that demand for more “baseload” power, utilities have three basic choices: natural gas, coal or nuclear.

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