Examining the Industry’s Challenges

Issue 1 and Volume 120.

By Russell Ray, Chief Editor, and Tim Miser, Associate Editor

Nearly 4,000 power professionals attended the keynote session Dec. 8 at POWER-GEN International 2015 in Las Vegas, Nevada.

The global power market is in flux, marked by rapid changes in generation mix, skewed power prices and conflicting policies from state and federal governments. That was the message emerging from POWER-GEN International 2015 in Las Vegas, Nevada, where more than 300 speakers gathered last month to discuss the future of power generation.

Nearly 4,000 power professionals attended the keynote session on Dec. 8 to listen to some of the industry’s biggest decision makers. The keynote panel featured Joe Mastrangelo, president and CEO, Gas Power Systems, GE Power; Steve Berberich, president and CEO, California ISO; Stuart Hemphill, senior vice president, Power Supply and Operational Services, Southern California Edison; Steven Edwards, chairman, president and CEO, Black & Veatch; and Robert Flexon, president and CEO, Dynegy Inc.

GE’s Mastrangelo pointed to the dangers of making predictions about the future of energy in a constantly changing world. Ten years ago, everyone was talking about $200 per barrel oil, he said. If we’d made predictions back then, we would have been very wrong today.

Mastrangelo compared the future of power generation to cellphones.

“I know what the future of energy will look like,” he said. “It’s in my pocket right now.”

Holding his phone in his hand, he said the hardware devices we carry around are essentially the same, noting that what differentiates them from one another is the apps users place on them according to their individual needs and preferences. The future of power generation will be like that, he said. Customers will want to be very connected, yet independent.

Mastrangelo also noted the need for flexible power that can respond quickly to changing market and usage trends. Additionally, he said the industry needed more modular construction capabilities to reduce construction times and costs.

Speaking about GE’s acquisition of Alstom Power, Mastrangelo assured the crowd that GE did not intend to become an EPC company. Rather, he said, GE is becoming a more industrial company, focusing on its OEM capabilities.

Joe Mastrangelo, CEO, Gas Power Systems, GE Power
Steve Berberich, CEO, California ISO

California ISO’s Berberich noted that California has on occasion met 40 percent of its electricity demand using renewable resources, and that the state targets 33 percent renewable penetration by 2020. Berberich’s presentation highlighted the problem of a “significant oversupply” of power in the state, and the need for power plants to start and stop more quickly to not exacerbate the problem.

He said plants must push down system generation to accommodate oversupply or find somewhere to store that power. He also said thermal power generation must supplement renewable resources, not the other way around, noting that in this respect California was acting as a laboratory for the rest of the world.

Berberich said California’s high usage of renewable power and distributed generation would become the norm for every state in the nation.

“People consider us to be crazy,” Berberich said. “But I would say to you it’s really a laboratory for a movie that’s coming to a theater near you.”

Southern California Edison’s Hemphill said 85 percent of his company’s generation comes from contracts rather than utility-owned assets, representing a departure from earlier business models.

He also noted that “customers don’t know what they want, but they do want choice,” suggesting the industry must offer customers “plug and play” options if they are to succeed. Referencing Uber and Napster, Hemphill also observed that “technology does not wait for regulation,” and that the industry must continue pushing ahead to build a grid on which technology can anticipate users’ needs.

“The question is how will technology change what we’re doing in the industry today?” Hemphill said. “We see technology as a bridge.”

Black & Veatch’s Edwards addressed perspectives on the global power market, citing three overarching trends: Growth, interconnectivity and uncertainty.

Placing global demand for electricity at 20 billion GWh, Edwards said power plants must work to reduce water usage as demand for drinking water grows in step with world population. When it comes down to it, he said, the need for drinking water will trump the need for power.

“About 10 to 15 percent of fresh water use is for power. As the world grows and the demand for water increases, it will be incumbent on the power sector to find ways to deal with ever increasing shortages,” Edwards said. “That amount of usage for the power business is enough to support the entire drinking water needs of North America.”

Noting that 3.2 billion people currently have access to the Internet, and that 8.7 billion are projected to be interconnected by 2050, he said consumers will demand greater access to transparent data.

Stuart Hemphill, senior vice president, Power Supply and Operational Services, Southern California Edison
Steven Edwards, chairman, president and CEO, Black & Veatch
Robert Flexon, president and CEO, Dynegy

He also pointed out that the cloud, which will make this interconnection possible, will itself consume huge amounts of power. Finally, he noted that “uncertainty in the power industry is unlikely to decrease, given the pace of technology.”

Dynegy’s Flexon spoke about a power market that is in flux.

Citing significant coal retirements, he said 2015 saw more natural gas-fired power generation than ever before. This period of transition, he noted, will result in a dramatically different generation mix.

“What we haven’t seen yet is the impact on volatility in the marketplace,” Flexon said. “Nuclear and coal run a lot. If they come out of the grid, they’re going to be replaced by higher cost units. But we haven’t seen that test yet because we haven’t hit those type of peak demand periods.”

Flexon pointed out that competitive markets provide customers with choices, adding that more competitive markets like PJM and New England ISO are easier to work with than quasi-regulated markets like Midcontinent and California ISO.

State and federal policies can interfere with proper price formation, he said. “State regulators are picking winners and losers, and it’s very disruptive to the market.”

Arguing that regulated markets should not be mixed with unregulated markets, he argued that subsidizing certain types of generation and not others unjustly affects market outcomes.