Wednesday, June 19, 2013
For nearly 130 years, utility monopolies have built large-scale power plants fueled by hydro, coal and oil and later nuclear and natural gas; while blocking non-utility generators offering cogeneration fueled by wood, coal and natural gas. Originally, most power was produced at decentralized industrial plants using cogeneration fueled by wood and later clean coals. In 1881, centralized providers started building eventual utility monopolies with exclusive transmission networks around large-scale power plants fueled by hydro and coal. Since government regulation slowed and eventually stopped the growth of hydropower, the typical 1900 electric utility plant became fueled by coal or oil. Coal continues to fuel about half of generation, but growth has slowed due to environmental problems caused by shortages of clean coals. Oil became too unreliable after the 1970s crises and was replaced by natural gas. In 1958, nuclear power started rapid growth to 20% of generation, but that ended in 1979 at Three Mile Island. In 1973, the Supreme Court ruled that utility monopolies must share their transmission lines. A 1978 Federal Act, which required utilities to buy power from independents using cogeneration and renewable energy at avoided costs, was enforced in 1984. By 1989, non-utility generators, using about 80% cogeneration fueled by half natural gas, and a quarter coal and biomass each, added more capacity than utilities. But regulatory battles resulted in overcapacity in some regions and too little non-utility generation in others. State regulators ordered the setting of avoided costs through competitive bidding, but utilities manipulated the reform to just build their own plants, fueled mostly with natural gas, often in combined cycle turbines. During the 1990s, about half the states attempted deregulation, but it failed to result in competition, because politicians allowed utilities to write rules that favored their old coal and nuclear plant spinoffs with many advantages over new natural gas plants (including excessive stranded cost payments, grandfather exemptions to environmental laws, market power and preferential transmission access). Many states mandated that monopolies add windpower and many chose to procure much through competitive bidding from non-utilities (likely because they didn’t believe in it), but they still generally rigged the bids to favor their own company, affiliates and friends. By the late 2000s, over 90% of new generation was obtained from nearly equal amounts of windpower and natural gas. Governments failed to conduct any cost-benefit analysis, even though a private study indicated wind increases generation costs by more than twice, while reducing greenhouse gases by a mere 11%, because the intermittent supply must be inefficiently backed up by natural gas. Since the Energy Information Administration expects biomass will be the only fuel that will gain much market share after 2013, the U.S. should adopt feed-in tariffs from Europe to provide fair prices to independents using cogeneration fueled by biomass and also natural gas (so both can be burned more efficiently), and also other renewable technologies to encourage innovation. After the addition of new power suppliers reduces market power, deregulation should be used to fully open competitive markets.
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