U.S. power supply inadequate for economic recovery

U.S. utilities withstood one of the hottest summers in a decade without major blackouts, but the country might not have all the generation it needs if the U.S. economy rebounds quickly.

U.S. electric use jumped 4.2 percent in the first half of 2010 from a year earlier, as the economy began to improve. The Energy Information Administration said July and August heat — especially across the Midwest and Northeast — may push second-half 2010 power use 5.2 percent above a year earlier.

“Weather certainly was one of the biggest drivers of demand growth this summer,” said Maria Scheller, a vice president at consulting firm ICF International.

After several mild summers, “we saw a return to several regions getting hot, hot days for a number of days in a row and that tended to drive demand up,” Scheller said.

The extra-hot summer actually led to record electric consumption even as the economy sputtered, which should provide a wake-up call to utilities that have delayed plans to add expensive new nuclear and coal-fired plants during the recession.

For utilities, the recession only added to uncertainty about the timing for new generation and decisions about whether to build generators using nuclear, coal, natural gas or renewable resources. Other factors include the lack of U.S. carbon regulation and high nuclear construction costs at a time when expanded natural gas drilling activity offers the prospect of lower, less volatile gas prices.

The Texas power grid broke all-time hourly use records when August temperatures soared while monthly consumption records were set in the mid-Atlantic/Midwest region and the New York and New England grids.

In New York City, Con Edison delivered more electricity to customers in July — 6.9 million megawatt-hours — than in any month in the utility’s history.

In PJM, a 13-state power region stretching from Delaware to Illinois to Tennessee, electric use in June, July and August set a new record. The region used 12 percent more power than it did last summer, consuming more power over the summer than Mexico uses in an entire year, PJM said.

In 2008, utilities pared forecasts for future demand by more than 3 percent as the global recession took hold, according to the North American Electric Reliability Corp (NERC), the reliability watchdog for the U.S. and Canada.

The most dramatic revision in projected demand was seen in Florida “where demand previously projected in 2010 is now not expected until 2015,” NERC said in a special report issued in August.

NERC said it was concerned lower demand projections and the prospect of retirements of older power plants could result in a generation shortage if the economy recovers quickly after 2014.

Less generation means tighter reserves margins, the excess power supply needed to avoid power blackouts.

“Maintaining adequate reserves is vital to sustaining reliable electric service,” NERC said.

NERC’s analysis showed the tightest reserve margins could occur in Florida, parts of the Rocky Mountain region and the upper Midwest.

The recession has not altered the EIA’s long-term forecast, which calls for power demand to grow a steady 1 percent per year through 2035.

The commercial sector will lead growth in power demand, while residential use will rise with population growth and the population shift to warmer regions with more air conditioning needs, the EIA said.

Power use by U.S. industry is expected to rise only about 3 percent by 2035, thanks to energy efficiency gains and slow growth from companies that consume the most energy, EIA said.

ICF expects the U.S. power sector will add 340 gigawatts of new generation by 2030, not only to meet growing demand, but to replace 75 GW of coal-fired generation that will be forced to shut due to stricter air, water and waste regulation.

Reuters