Utility Executives Hold Contradictory Views About Energy Prices & Renewables

What utility executives think matters. They make key technology, capital investment, and fuel decisions for their investors, public owners, and consumers. They have energy distribution monopolies, though they increasingly operate in competitive electric generation markets or are buffeted by them.

According to the 4th annual survey of utility executives conducted by Black and Veatch (www.bv.com), 70% of 700 utility executives believe electricity prices and commodity prices will increase significantly in the next 5 years.

Despite the large majority that believes large electricity price increases are ahead, only 34% of utility executives believe renewables will be cost competitive within 5 years. Another 18% are not sure and 48% think that they will not be economic.

I agree with the 34% of utility executives that believe renewables will be cost competitive in 5 years and I am doubly sure of that result if large electricity price increases take place in the next 5 years.

There are clear reasons to think electricity prices may go up, though I have my doubts that the increases will be large or "significant." Interest rates are likely to rise from historic lows and the utility industry has high capital costs; substantial upgrading of utility infrastructure is needed in many service territories; and a case can be made that coal and gas prices will go up over the next 5 years. All those are real reasons to believe electricity prices will increase and perhaps significantly.

The counter case would focus on burgeoning demand-side resources, energy conservation, booming distributed generation, and the shale gas revolution.

I tend to think there are conflicting price pressures; some pushing down and others pushing up, with the result being modest electricity price increases. A big X factor is the economy.

Policies are being successfully advanced in Congress that would bring another economic contraction, and were that to happen, electricity demand will fall, putting further downward pressure on generation prices.

But I am sure that if significant electricity price increases do occur within 5 years, then solar will be at grid parity by 2015. That will occur without major grid electricity price increases as solar is on the way to $2 per watt fully installed. Wind energy, biomass, hydro, and geothermal would all be cost-competitive within 5 years given large electricity price increases.

Utility executives that are not preparing to take advantage of or navigate safely in an energy world where renewables are cost competitive within 5 years are making a significant strategic business mistake.