Energy and the Future
From The Executive Suite
Bill Grigg is executive vice president of the customer group at Duke Power Co. His responsibilities include participation in the development of corporate policy and strategy as a member of the board of directors and its management committee; oversight of all areas of Duke's operations related to customer service, including transmission, distribution, marketing, system planning and customer services; purchasing, materials and facilities management; and management of Duke Power's unregulated subsidiary, Crescent Resources, Inc.
He served in the U.S. Marine Corps from 1954 to 1956 graduated from Duke University with a bachelor of arts degree and a bachelor of laws degree “With Distinction.” He was editor-in-chief of the Duke Law Journal from 1957 to 1958.
Grigg practiced law in Charlotte, N.C. from 1958 to 1963. He joined Duke Power Co. in 1963 as assistant general counsel and has held several positions in legal and finance. He was elected to the board of directors in 1972. In September 1988, be was named executive vice president, customer group.
Will we have adequate supplies of electricity as we begin the 21st Century to maintain the prosperity we've enjoyed for most of the 20th Century?
It's a tough question to answer. And the answers we come up with will have a profound effect on the economy of the United States, our children's standard of living, and our country's position as a competitor in the global marketplace.
An ample supply of competitively priced energy will be essential for American industry to be competitive. Electricity is a good news/bad news story in our country and in our region.
The good news is that the demand for electricity is not growing as rapidly as it did in the 1960s and 1970s. In the decade of the 1980s, nationwide power demand grew at slightly over 3 percent per year. Commercial demand grew at about 4.7 percent, industrial at 3 percent and residential at slightly below 3 percent. And the rate of growth is not expected to change significantly through the balance of this decade.
Incidentally, there is an almost perfect correlation between growth in consumption of electricity and growth in GNP. Since 1973, GNP has increased 51 percent and electric power demand has increased 53 percent. Total energy consumption—nationwide—has increased only 8 percent, which indicates that electricity as a percentage of total energy consumed is growing, while nonelectric energy sources are declining. Today, electricity accounts for about 40 percent of total energy use in this country.
So, the good news is that growth in demand for energy is not as great as it was a decade or two ago.
The bad news is that while projected growth in demand for electric power is a relatively modest 3 percent per year, new power plants currently under construction across the nation will support growth in demand of only about 1 percent per year through the balance of this decade.
Base load capacity demand is expected to grow by 101,000 megawatts by the year 1998. To put that in perspective, it is the equivalent of building 40 power plants the size of the Oconee Nuclear Station in eight years. Balanced against the need of 101,000 megawatts is the fact that only 72,000 megawatts are in the planning stages, and less than 30,000 megawatts are actually under construction.
So it appears that we are approaching a potentially serious power supply problem in many parts of the country. Problems have already surfaced in the Northeast. which endured nine brownouts in 1988 and ’89, Another five brownouts were experienced in the mid-Atlantic states in those same two years. And very serious power problems were experienced in Florida with unsually severe weather last winter.
The challenge of increasing power supply involves a fundamental dilemma. On the one hand, growth in GNP (and, therefore, growth in the standard of living) depends upon growth in consumption of electric energy. On the other hand, there is no way with existing technology to generate significant quantities of electricity without an impact on the environment, Electricity is made by burning fuel, splitting the atom, or converting the natural energy of wind, sunlight, falling water or heat from the earth. Each source has its own array of environmental interactions. There is no, as yet, undiscovered magic way to produce power that will help us in a major way in the time frame that we're concerned with here. So the challenge is: How do we provide the energy that is necessary to sustain an acceptable standard of living for our people while at the same time preserving—as we must—the earth's environment?
Nuclear energy provides 20 percent of the electricity consumed in the United States, and 17 percent of the world's energy. On the Duke system, two-thirds of our electricity comes from nuclear. The advantages of nuclear are substantial. It has virtually no impact on the atmosphere. Unlike fossil-fueled plants, nuclear emits no sulphur dioxides or nitrous oxide-and it does not contribute to glolal warming or add to the concerns about acid rain and the “greenhouse” effect.
Since the Arab Oil Embargo in 1975, American nuclear plants have saved four billion barrels of oil at a savings, in 1988 dollars, of $115 billions in foreign oil payments. Those plants have reduced utilily emissions of carbon dioxide by 20 percent and they are currently reducing national emissions of sulphur oxides by five million tons a year. That's where we would be if the nation's 112 nuclear units were fueled with coal instead of uranium
Those nuclear plants also have an enviable record of safety. They have accumulated more than 1,350 reactor years of safe operation and are measurably more reliable and safe than they were a decade ago.
Despite these substantial advantages, however, new nuclear generation is not a viable option in our country today. The financial risk is simply too great. A nuclear plant can take more than a decide to license and build. It is capital-intensive, and during construction is very vulnerable to swings in interest rates and inflation. And, once built, there is no assurance that it will be licensed to operate or that a competitive return will be allowed on its investment.
There is also the issue of waste disposal. The technology is here to deal with disposal. Vitrification—a binding of waste in an impenetrable, insoluble glass—is currently in use in France, which depends on nuclear prower for most of its electricity. A 1,000 megawatt coal-fired generating plant will produce annually 3.5 million cubic feet of ash; 35,000 tons of sulphur oxide and 4.5 million tons of carbon dioxide. A similar size nuclear unit will produce only 70 cubic feet of high-level radioactive vitrified waste. It can be stored in a deep underground repository in a stable geologic formation. We can monitor it, and we can control it.But we don't know where the gaseous waste from coal-burning will go or what will be their long-term effects. Yet, nuclear power remains paralyzed by concerns over waste disposal.
Nuclear will not be a viable option to meet the growth in demand for electric power in this country until it gains a greater degree of public confidence and trust, and until a regulatory system has been put in place that shortens the licensing process (probably through the approval of standardized designs) and reduces the risk that, once built, a plant will not be permitted to operate or its investment lost in the regulatory process.
Another option for the future is fossil fuels—combustibles. The world is relying less and less on oil and natural gas for generating electricity. Instead. these fuels will be increasingly used for transportation and chemical feedstocks. Coal is the earth's most abundant fossil fuel, and it must play a major role in increasing the supply of electricity. New technology, involving fluidized bed combustion with limestone, enables coal to be burned with de minimis sulphur emissions and much reduced nitrogen oxides. As yet, however, we do not know how to control carbon dioxide. This is a problem that we need badly to solve.
A major uncertainty concerning future use of fossil fuels is clean air legislation now pending in Congress and almost certain to pass in some form in the very near future. The objective is to reduce sulphur oxide emissions by 10 million tons and nitrogen oxide by two million tons by the year 2000. The Administration's proposal would require utilities, nationwide, to invest over $77 billion to retrofit currently operating fossil-fueled plants and would increase annual operating costs by an estimated $17 billion a year.
Everyone agrees that legislation is needed. The debate is over who will pay. Should customers. whose power supplier has invested in nuclear and low-sulphur coal—and therefore has relatively lower emissions—be required to reduce by the same percentage as utilities with much greater emissions? Or, should so-called “dirty plants” be required to reduce emission levels to those already achieved, at substantial cost, by others? Until these and other questions are answered there will be a great deal of reluctance on the part of utilities to invest in new coal-burning plants.
One appealing idea to solve a number of societal problems is to burn our solid waste to produce electricity. If we burned all the waste we produce, it would generate about 5 percent of electricity. But there are uncertainties about the acceptability of emissions when the chemicals in waste fuel are unpredictable or unknown. Moreover, biomass for electricity is not economically competitive with other alternatives. At this point with some exceptions recycling waste is preferable to using it for power generation.
Hydroelectric power—currently less than 5 percent of Duke's total output—could be tripled in the next 50 years. But we will have to be willing to accept more lakes in order to do that—and hydroelectric facilities aren't cheap. One hundred thousand people demonstrating in a 100-mile-long human chain of protest last February in eastern Europe, expressing their concern about a proposed new hydroelectric facility in that part of the world, illustrates that a hydro solution would not be easy.
A final option is renewables. Harnessing more energy from wind, water, sun and earth holds some promise. So far, wind power has generated more tax shelters than electricity—and its only significant use beyond remote, isolated locations has been when it has been subsidized on a large scale. There is hope, however, that with improved technology wind energy can help us more in the future.
Solar power is another environmentally-appealing solution. To date, however, solar energy's best application is not making electricity, but displacing it by direct use of the sun's energy to heat space and water. Energy can be stored for later use more efficiently as heat than as electricity. Passive solar design of homes, schools and other buildings is and should be encouraged—let sunlight in during the winter, hold it out in the summer, and reduce electricity used for water heating. This is fundamental and we know how to do it well.
On the other hand, converting sunlight to electricity is very capital-intensive, and in the foreseeable future, we will have only remote and incidental applications. We need to vigorously pursue research into solar—and into improved storage batteries— but near-term they should not, with environmental zeal, be proposed as solutions that tempt us to duck the harder choices.
What all of this adds up to, of course, is that there is no easy solution to the power supply problem. Cogeneration and independent power production will provide part of the answer. But difficult decisions involving value trade-offs will have to be made—and soon-by utilities, their regulators, by our elected officials.
Fortunately, on the Duke system, plans and facilities are in place to enable us to meet our customers’ needs through at least the balance of this century, We enjoy a balanced mix of nuclear, coal and hydro generation so that we are not totally dependent upon any one fuel source.
We normally experience a peak demand for power during hot summer weather when every air-conditioner is running full blast. A power generating reserve margin of almost 20 percent above the anticipated summer peak demand has been built into the Duke system, This margin was instilled to compensate for unanticipated outages of power plants as well as a prolonged period of unusually hot weather.
In addition, Duke Power is interconnected with neighboring utilities. Arrangements are in place which enable us to buy, or sell, power if an emergency should arise anywhere on the interconnected system.
Load reduction strategies are also available to significantly reduce demand on the Duke system. These include temporarily interrupting service to certain industries and to residential water heaters and air conditioners of customers who have interruptible power agreements with us. These load reduction strategies, if employed, could displace the need for the output of a large generating station.
So—barring a totally unforeseen catastrophe— we will be able to supply all of our customers’ near-term power needs.
As we look to the future, our plans include an even wider variety of load rmanagement and conservation alternatives, new generating plants and additional power purchase arrangements, We will be working with industries and other customers to develop new cost savings programs to encourage reduction in consumption of power during the periods of time we are experiencing the most demand.
In addition, we have plans for new generating plants to help us meet the growth in peak demand.
One of these, the Bad Creek pumped-storage facility near Clemson, South Carolina, should be complete around the end of next year, Pumped-storage plants use electricity generated at our most economical power plants during times of lowest demand to pump water uphill into a reservoir. The water is then used to generate electricity during peak demand times, This process is as close as we can come to “storing” electricity.
We also recently announced plans for a combustion turbine site in Central North Carolina. Combustion turbines are “peak-load” plants that will use either fuel oil or natural gas, They, too, can begin generating electricity very quickly. Construction at this site could begin as early as October of next year and be finished in the mid-to-late 1990s.
Finally, several years ago, we removed several older coal-fired plants from service for substantial renovation and overhauling. These units are being brought back on line as they are needed.
We believe that the Facilities and programs now in place, together with firm plans to meet growth, will enable us to provide the power our customers need, We also recognize that we now live in an international] economy and that our industries compete worldwide. That means that power must not only be available, it must also be available at a competitive price in the world market.
Today, the rates our industrial customers pay for electricity are half those in West Germany and 30 percent below those in the United Kingdom. The margin is even greater in Japan—which must import its fuel, The average electric rate in Japan is 14.9 cents per kwh for industrial customers compared to 4,4 cents for a Duke Power industrial customer. A Japanese homeowner pays an average of 21 cents per kwh, three times the price paid by a Duke Power residential customer.
We are committed to maintaining an adequate power supply at competitive prices. As I said at the outset-there will be trade-offs, and the challenge will not be an easy one.
The challenge for project managers to bring new capacity on line will, indeed, be demanding.