Electronics [Dec 5, 2008]

Electricity will be the main shortage of the future.
– Dr. Richard Smalley, Nobel Laureate

The electric industry in the United States is in terrible shape. We should expect local and regional brownouts and blackouts to become common occurrences “within five years,” reports a senior faculty member from Carnegie Mellon University. Few utilities want to take political, regulatory or financial risks. In such an environment the long-range planning cycle has been broken. It is almost impossible to decide what to build and at what scale.

Power Grid
The dirty secret of clean energy is that while generating it is getting easier, moving it within the power grid is not. The grid today is a system conceived 100 years ago. Today, the basic problem is that many transmission lines and connections between them, are simply too small for the amount of power companies would like to squeeze through them. The difficulty is most acute for long-distance transmission, but shows up at times even over distances of a few hundred miles.
The power grid is balkanized, with about 200,000 miles of power lines divided among 500 owners. Transmission upgrades often involve multiple companies, many state governments and numerous permits. These barriers mean that electrical generation is growing four times faster than transmission. “We are operating the grid closer to the edge than ever before,” says Richard Sergel, president of North American Electric Reliability.

Car makers are preparing to introduce plug-in electric cars in 2010. To recharge the battery, drivers will plug it into a standard electric wall outlet. But the cars will need ready access to inexpensive, plentiful electricity. That means the new vehicles will make utilities more important than oil.

Future demand for electricity improvement is great. Total worldwide energy investment required until 2030 by some estimates is $16 trillion. Of this, $9.6 trillion is for electricity and only $3 trillion for oil.

A Company
ITC Holdings owns nearly 15,000 miles of high-voltage electric transmission lines in Michigan, Iowa, Minnesota, Illinois and Missouri. Unlike traditional utilities, which generate electricity, transmit it at high voltages across long distances and distribute it at lower voltages to homes and business, ITC only transmits electricity. Earnings have surged at a 94 percent five-year growth rate and revenue at a 31 percent rate. The goal of ITC is to rebuild and fortify the nation’s electric transmission system or grid.

Electricity is generally made with coal. While U.S. coal prices are down from July peaks, with the export market softening, the current price is still about 30 percent higher than last January. The use of coal, which generates more than half the nation’s electricity, tends to remain fairly constant even when economic activity slows. Electricity demand never really changes, therefore demand for coal does not change that much.
Coal is an international commodity. China is facing its worst power shortages since 2004. More than a dozen provinces are rationing power to industrial users. Coal stockpiles in China are low.
At a time when the world’s top climate experts agree that carbon emissions must be rapidly reduced, Italy’s major electricity producer, Enel, is converting its massive power plant from oil to coal. Over the next five years, Italy will increase its reliance on coal to 33 percent. Specifically, power generated by Enel from coal will rise to 50 percent.
In terms of cost and energy security, coal has all the advantages. Coal reserves will last for 200 years, rather than 50 years for gas and oil. Coal is relatively cheap compared with oil and natural gas.

Caveat: In late November 2008, the unexpected happened. There was a surprise drop in U.S. electricity consumption. Numbers are trickling in from several large utilities that show shrinking power use by households and businesses. Such a development in the current deep recession could delay the future demand for electricity.

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