Some Retiring Power Plants May Not Need to be Replaced

Distributed Generation and New Technologies Are Improving Energy Efficiency, Reducing Need to Replace Generation Capacity

Black & Veatch‘s 8th annual Strategic Directions: U.S. Electric Industry report shows that many retiring nuclear and coal power plants may not need to be replaced on a megawatt-to-megawatt basis. New technologies and distributed generation (DG), coupled with soft energy demand growth, enable utilities to replace retiring plants with ones that produce less
energy.

“This year’s Strategic Directions: U.S. Electric Industry report finds many utilities at a crossroads,” said Dean Oskvig, president of Black & Veatch’s energy business. “The influx of new technologies, new energy sources and new generation approaches, create immense challenges and opportunities for utilities. What has not and will not change, however,
is the mandate to deliver the ‘always on’ reliable electric service the industry has provided for more than 100 years.”

The Black & Veatch report found that the rise of DG in particular creates unique challenges for utilities. DG requires rapid changes to the power grid in order to integrate new assets and resources. Utilities must also be able to ramp up capacity to account for varying renewable energy output. Where DG reduces demand, utilities will have to revisit their current revenue structure in order to ensure continued reliable service.

“Every kilowatt that is now being produced by a third party or a consumer is a kilowatt not being sold by the utility,” said John Chevrette, president of Black & Veatch’s management consulting business. “At the same time, utilities still carry the burden of building, maintaining and operating the bulk of the power delivery system. Given the high cost of maintaining these assets, we expect to see more utilities making the case with regulators to adjust their business models.”

The report also found that concern for cyber and physical security is growing. Today, cyber security is among the top five industry issues, as ranked by utility survey participants. Cyber security did not make the industry top 10 list as recently as 2012.

Based on data collected by industry professionals across the United States, the report tracks utility leaders’ views on a range of major issues. Some key findings include:

— Half of the respondents stated their company is planning to replace
retiring coal and nuclear power plants with gas generation. Natural gas
will also be used as backup power for renewable generation.
— Nearly 60 percent of utilities are updating emergency response plans in
order to improve resiliency to weather and unanticipated events.
— Utilities are working to provide consumers with resources to better
manage energy consumption. Almost one-third of utility respondents stated
their organization is offering Home Area Network solutions, such as smart
thermostats, to support demand response programs.
— More than 60 percent of utility leaders believe DG will grow beyond its
current 5 percent market share of U.S. power generation by 2020.

The full Black & Veatch report is available as a free download at www.bv.com/reports.