Energy Markets:

Power companies promote sustainable approach to meeting increasing demands

As global power demand steadily increases, energy companies are trying to address the new demands while taking into account the environmental risks of increased energy production. During today's E&ETV Event Coverage, a World Business Council for Sustainable Design (WBCSD) panel discusses the implications of providing power to a growing population. Representatives from eight major energy companies discuss the newly released report, "Powering a Sustainable Future." The report includes a broad set of recommendations for energy companies and governments to ensure that energy is provided in an environmentally sound, socially responsible and economically viable way. Panelists include Gary Serio of Entergy Corp., Bruno Lescoeur of Electricite de France S.A., and Gail Kendall of China Light and Power.

Transcript

Lloyd Timberlake: I'd like to turn the microphone over to Teruaki Masumoto, who is director of the Tokyo Electric Power Company, TEPCO. Dr. Masumoto?

Teruaki Masumoto: Good morning, ladies and gentlemen. Thank you, Lloyd. I'm going to speak about the energy efficiency and the role of the utilities.

First of all, I'd like to express my deep thanks. Okay, thank you. I'm not enough tall up to the microphone. I'm sorry. And I would like to express my gratitude to all so distinguished journalists. And it's my pleasure to be here to present the show to mark on this agenda.

Let me start at its arrival. In the late 19th century electricity considerably changed the way of life in Japan, as you know. Electricity brought the people not only the light, heat, and power, but also civilization in the society. Affordable energy in ample quantities is the lifeblood of industrial societies and a crucial driver for development, as you know. Electricity is a highly efficient energy careers, providing an array of services to consumers with a high degree of flexibility and no environmental impact at the point of use, as you know.

Along with the sophistication of societies consumption is growing faster than that of any other forms of energy. Advanced electrification is recognized as a general tendency required by sophistication of industries, modernization and urbanization of society and the consequent economic growth. On the other hand, now the circumstance surrounding resource availability has been rapidly changed.

The days of cheap and plentiful oil are over. It's generally known. In other words, realized end-use energy efficiency is regarded as valuable as the discovery of a new oil or gas field domestically. We are aware that what the consumers want to do is not conserve energy itself, but to which enjoy services such as heating, lighting, air-conditioning, mechanical power, computing, and telecommunication. If the same services are provided using less energy and more efficiently it will benefit consumers from a lower energy bill.

The primary benefits of energy efficiency is, however, the mitigation of resources and investment challenges. Rapid economic growth naturally leads to the need for more resources and investment in infrastructure on the supply side. Once end-use energy efficiency is considered as an investment alternative it could help overcome capacity constraints, improve affordability and reliability of the supply and also secure future access. From this slide you can find a clear upward trend of electrification of each country.

Technologies are ready for end-use energy efficiency and huge carbon dioxide emission reduction potential exists. Opportunities are there for the electric technologies to provide solutions for energy and climate issues and accelerate the highly advanced utilization of energy. Electricity brings various conveniences to customers in the form of light, telecommunication, measures in heating, heat and use. For heat, in particular, we already have the advanced heat pump technologies which became competitive and even preferable in certain markets, such as high efficient heat pump chiller, heat pump washer and dryer, and some office machines. The CO2 refrigerant heat-pump water heater and induction heater cooking machine enable fuel switch from the direct fossil fuel combustion to the electricity while it contributes energy efficiency in the residential sector.

Further opportunities, such as plug-in hybrids, whose battery can be loaded from grid and the electric vehicle in application to the mobile sector, have been emerging and help diversify fuel options in mobile sector in the near future, we believe. Moreover, decarbonization in the supply side would further ensure the capability of these technologies with energy and carbon constrained future in mobile sector. Electricity utilities are often linked direct to the consumer through their network, and probably better positioned themselves to engage stakeholders and promote sustainable consumption and end-use efficiency.

It is our expectation to the policymakers, who design and regulate the competitive electricity market, to keep in mind not only competition and lower prices, but also other drivers for sustainability and clarity on the question, who takes the overall responsibility for portfolio and system arrangements? There will not be any one-size-fits-all solution. The policymakers also are highly recommended to provide worthy opportunity for consumer education and environmental education too.

Moreover, they are invited to provide the consumer with information of the products and services, from environmental aspects. And also invited to establish and maintain the conditions so that less carbon and environment friendly products or services can be competitive in the market and selected by the consumers. We expect policies and support for the investment for the technological improvement and the innovation of the enterprise to set a reasonable target in each sector based on the state-of-the-art technologies and the prospect of technological developments in concentration with relevant business sector and also to enhance the investment from capital market for the enhancement of advanced energy utilization.

I would like to briefly introduce the development and deployment of CO2 refrigerant heat-pumps water heater called Eco Cute. We Japanese -- this was -- the outlooking is not so cute. But we call it Eco Cute, which achieves 30 percent savings in primary energy and 40 percent greenhouse gas reduction in Japan. The Eco Cute was introduced in Japan in 2001 as the world's first commercial product of its kind.

TEPCO, Tokyo Electric, started a joint study with the Denso Corporation, a leading car air conditioner manufacturer company and Center of Research Institute of Electric Power Companies, just to repeat in 1998. The government officially has recognized its effectiveness and has started a subsidy system at the end of March 2006. About 480,000 of the system have accumulatively forwarded it to the whole market and now it continues to spread around. Rapid progress in the improvement of the performance is still going on.

This electricity driven heat pump water heater is giving revolutionary change in residential heat demands in Japan. To conclude this, I would like to quote the message from our manifesto of our report, "The power industry can deliver higher energy efficiency to the customers or the society by presenting new appliances and systems through cooperation with appliance manufacturers and building industries. The power industry can contribute for realizing high-energy efficient society and the low-carbon society I believe."

Thank you for your listening.

Lloyd Timberlake: Thank you very much, Masumoto, and I would recommend that you look at the part in a report on the heat pumps. It's one of the more interesting aspects. I'd like to now call upon Bruno Lescoeur, who is senior executive vice president of International Industrial and Public Affairs of the very international company EDF. Bruno?

Bruno Lescoeur: Thank you very much, Lloyd, and good afternoon everybody. First of all, I would say that EDF has been very pleased to be part of this work with eight other electricity companies, because electricity companies are quite active in the fight against climate change.

We work on creating sustainable deployment conditions for zero or low-carbon technologies. For instance, my company, EDF, which is, by the way, a leader in Europe for carbon-free power generation, because the generation it makes is 70 percent carbon free with 50 percent nuclear and 20 percent renewable, including hydro. We will invest 3 billion between now and 2010 in wind power. And I know there are 3.3 billion in building a new large-scale nuclear power plant in France.

I can also assure you, from my experience, past experience, at the head of my company generation business, that we take particular care when we operate our plants of biodiversity, water usage, and, of course, population relationship. And when we build new plants, for example, like the plant we built in Laos, a large dam of 1000 megawatts, we pay of course very special attention to the displacement of the population.

Well, however, we recognize that electricity utilities cannot meet the climate change challenge by themselves alone. And at the moment we consider that we run the risk to lose the battle. We need to use all the seven wedges for stabilizing carbon emission in the world. And electricity can contribute to at least two of those wedges. But we consider that we run the risk to run the battle.

Why? Of course electricity could make a substantial contribution to mitigating climate change because precisely we will have to face huge investments in the coming decades. Not only in energy efficiency, but also in increasing or replacing power generation plants. Efficiency is certainly crucial along the whole chain, but it is not enough.

We also need to decarbonize power generation, and this is the bad news, because it will not be easy.

The good news is that we do have the technologies to start doing it right now. However, the market alone is currently not moving into this direction. This is because the technologies themselves are not fully competitive yet, for example, non-hydro renewables, or because the adaptions is hindered by non-cost barriers and, of course, large dam in the hydro-generation or nuclear plants are facing sometimes those non-cost barriers.

We can only reverse this trend through clear decisions and new policy frameworks that provide investors with long-term visibility of all the rules of the game. We are dealing here with very long life investments, 100 years typically for hydropower plants and at least 60 years for a nuclear power plant. And those rules should provide adapted incentive and remove barriers to promoting zero or low carbon emitting technologies.

We have the technologies, as it is shown on the diagram, non-hydro renewable, of course, is not the panacea, but it should be further supported through massive ZD schemes in order to accelerate their deployment. Two-thirds of economic hydro potential remains unexploited. This is obviously a zero carbon emission technology, but large hydro projects are very difficult to develop. And governments must ensure stakeholder participation and promote public product partnership in order to make use of this large potential throughout the world.

Nuclear energy is definitely part of the solution to energy security and climate change provided the governments of countries that master the technology and envisage using it in the coming decades takes the steps required. In countries with successful past experience maintaining the existing nuclear regulatory framework and allowing utilities to use valuable industrial model, diversified business portfolio, long-term contract with customers, or rate sharing industrial consults here should be sufficient.

In countries with less successful experience, governments should ensure that those success conditions previously mentioned are met and might also consider giving investors initial financial support and/or accept some rate transfer schemes. Of course the other technologies will be part of the fuel mix and some progress will continue to be made, but they will not contribute as much as the previous technology I mentioned to the decarbonization of the mix of the industry.

Taking the example of Europe, this diagram shows you what could happen, depending on the scenario Europe will follow. If we do not accept to replace the current nuclear power plant already working in Europe, we will have a huge reduction of the share of nuclear energy in the generation mix. And as a consequence a big increase of the carbon emission index of this industry, which means a much larger contribution of the electricity generation mix to the emission of carbon.

On the contrary, if Europe accepts to have the same proportion in the future as the nuclear has today then we will be able to maintain the contribution of the electricity industry to the carbon emission at the same level as it is today. But to achieve the huge reduction, the emission reduction we need by 2050, at an acceptable cost, we also need to accelerate now research and development on promising technology like, for example, third-generation photovoltaic, fourth-generation in nuclear power plants, and of course carbon capture and sequestration.

In my company, for example, on a good level we dedicate yearly around 400 million to research and development, half of which being dedicated to zero or low-carbon generation activities. As we know, collecting vision plays and incentive national policies is not enough. We also need increased international cooperation. The clean development mechanism, which is a very interesting tool to transfer a clean technologies to developing countries and get them into the world reduction effort, deserve to be streamlined and to be rapidly given perspective for reduction beyond 2012. Governments also need to agree on the long-term emissions goal and an international framework that recognize both marketable devices, like the European emission trading scheme and technology push initiatives in favor of lower carbon technology, like the AP6 agreement, a very ambitious but necessary program. And we, as a company are happy to take part.

Lloyd Timberlake: Thank you very much Bruno. The World Business Council sees as keys to climate and energy management the reduction of carbon and a turn to much more efficiency. And you've heard both of those topics covered. The electricity utilities group benefited from a wide spectrum of membership from Africa, Asia, Europe, and the United States. I wanted to call upon three more people to say something briefly about where they're coming from in several senses of that word. I would like to ask Dr. Gary Serio, vice president of Safety and Environment of the Entergy Corporation to say a few words to us. Gary?

Gary Serio: See that Masumoto, you pull it here. Thank you, Lloyd. It's a real pleasure to be here today. It's an honor to be a member of the World Business Council for Sustainable Development and to share their vision of future sustainability. It's also been a real honor to work with seven other companies in putting together this report.

We're really enthusiastic about this report because it's not talking about things we have to wait on. This report will take you through and show you that we have clean energy technologies that are available today, that we can use and implement to not only manage the increasing demand of energy that we foresee in the next 25 years, but also to help us manage and reduce greenhouse gases. For over a decade Entergy Corporation has looked at greenhouse gases, the impact they're having on the environment. And we've been very concerned about that.

In fact, in the year 2000 we voluntarily set a goal to stabilize our greenhouse gases to year 2000 levels for the next five years. We aggressively worked on those goals for five years and found success in that. And in 2005, when we set our next five-year environmental strategy, we actually ratcheted that down and chose to set that goal at 20 percent below 2000 level, which puts us almost at 1990 levels. No sooner had we realized that that we actually saw the concern manifested itself in 2005 through two hurricanes that came into the United States, Hurricane Katrina and Rita. Both of those really put a face on what physical damage we could incur if we do not properly manage greenhouse gases. Looking back over the past year and assessing some of the damages at all levels, we looked first at our customers that we serve. At peak times during those hurricanes we had over 1.1 million customers without electricity. If we looked at our company, our company incurred over $1.5 billion in costs for restoration purposes. And if we looked at the community at a whole, is now at estimated that over $200 billion will be needed to repair all the damage across that stretch of territory that went between Texas and Florida. Of course, all of the data that I'm giving you right now does not even come close to assessing the personal human resource damage that was done during those storms.

I mean if we look back on that, I mean you can't put on paper what price you can put on a person's life or on the separation of families that went on during those storms, or the dreams that families have recovering from those storms. Those storms were certainly a wake-up call for the US electricity sector. The wake-up call is these climate events are real. They're going to happen. They're going to happen more frequently, more intensely, and they all seem to have a high correlation back to greenhouse gases. I mean we see polar ice caps melting.

We see the severity of storms increasing. We see the erosion of coastal wetlands, which are our buffer zones for these huge hurricanes, disappearing. All of these are taking us to a place and time where the customers we serve and the company itself, it's really challenging. Do we really have a future sustainability as we march forward? So there's a real urgency here. The bottom line is sustainability is not possible for us in the future unless we manage climate change.

The second thing that the utility industry, especially in the United States, besides urgency, needs to look at is we need to really look at certainty, as far as regulations and legislations, on sending the proper price signals for carbon into the energy prices. Without that certainty the investments that we're getting ready to make for the next 30 or 40 years that Bruno was talking about, they're going to be the wrong decisions. They're not going to be the optimal decisions.

We need to build new power plants to take care of the increased energy demand. We have just had some very stringent US Environmental Protection Agency regulations passed in 2005, which are going to call for increased control equipment. All of those investments in power plants and control technology are not addressing CO2 at this particular time. So we could go forward making those tremendous investments and leave out CO2 and greenhouse gases.

We can always go back and retrofit, but you know what retrofitting is like? It's like me just building a new house and the builder said, you know, you ought to put an elevator in your house because as you get older you might need that elevator. He says it will only cost you $25,000 now. Well, I went on and put the elevator in, not thinking. I think I can still climb those stairs. But it's really interesting, a house three houses down did not put an elevator in and now they're putting that elevator in. It's almost cost them $100,000 for the elevator and revamping.

Now that's only a small miniscule portion, but a power plant's the same way. You put in the wrong technology, you put in the wrong type of power plant and the technology now, if you try to go retrofit it later it's not going to be as efficient. It's going to cost you a lot of money. So the second thing we need to do is we, as a US utility sector, really need to push our congressional representatives, we really need to push our legislation to give us that certainty that would allow us to manage greenhouse gases properly as we go forward.

Let me say that the theme that I'd like to leave you here for the US utility company that we're looking at it is that, one, we have the technology, as shown in this report, to address greenhouse gases. Number two, we cannot afford to stay on the sidelines anymore. We need an urgency to move forward with this. And number three, we need to get the backing of both the regulators and the legislators to make sure they realize the priority of this important issue to move forward on, so we have certainty as we make these large investments.

I'd like to end my brief comments this morning by, again, I started off by recognizing the World Council, but I'd also now like to recognize one of my colleagues from Entergy, Jeff Williams. He's sitting in the back. Jeff is one of the authors that put together this paper. Every day he lives, breathes, and eats sustainability and really moves our company forward and the industry forward in making this happen. So I want to give him appreciation and recognition today for making us a part of this process. Thank you.

Lloyd Timberlake: Thank you very much, Gary, for that gripping account of where the situation is in the United States. I'd like to call on Dr. Gail Kendall. I'm very glad she's here. She's come a long way and she's come at the last minute. Dr. Kendall is the director of Group Environmental Affairs, a managing director of CLP Research Institute. And we insist on calling her company China Light and Power, in fact, it's officially CLP. Have I done that right, Gail?

Gail Kendall:Thank you, Lloyd, thank you very much. Yes. I'm with CLP. We operate a vertically integrated electricity business in Hong Kong for more than a hundred years, a non-government organization.

We are also the largest external investor in the Chinese electric power sector and we also have operations in Australia, under the brand name of TRU Energy, probably the fourth or fifth largest provider of electricity in Australia, also India, Taiwan, Thailand, and some other countries in Asia.

One of the activities of our project, here with the World Business Council, has been to take our ideas out into the region, various regions around the world, to our stakeholders and to get their views and to reflect those views in our report. So in our report you'll see a number of quotes from various meetings we held to gain input on this subject.

And one of the meetings we held was in Beijing this March, and we engaged the members of the electric industry there as well as government and NGO and other experts in China. And I know there's a huge interest in development on energy in China. So I'm just going to give you a few of the perspectives that we gained through that meeting and through our own business in China.

First of all, the electric power sector in China is growing very fast. Annually China builds 65,000 megawatts new capacity every year. That's like building the whole capacity of the United Kingdom in a year, every year. Coal, as a fuel, dominates this new capacity for a variety of reasons and most particularly because it's the quickest way to keep up with the growing energy demand in China.

In China there is also a target of 40,000 megawatts of nuclear by the year 2020 that will represent 4 percent of the national total electricity in that year. And China's also set targets for renewable energy at 10 percent and beyond by the year 2020. Energy efficiency is also recognized in China as a high priority. The 11th Five-Year Plan has set a goal for a 20 percent reduction in the energy intensity of the entire economy. Air pollution is still a big issue in China and elsewhere in Asia. And China's set goals to reduce total emissions of sulfur dioxide and oxides of nitrogen.

The new power plants in China have emissions controls. In contrast, in India the 10,000 megawatt so-called ultra-mega projects, new projects for new capacity in India, are being bid, but do not require flue gas desulphurization emissions control, so this is going to be an issue going forward, how to maintain air quality in the rapidly developing country of India.

Throughout the region innovation in technology will be important to address issues like air pollution and global climate change. Given the role of coal in India, in China, and elsewhere in the region, clean coal technology development is critically important. And yet that still leaves us with a very important question.

A question I will end on, and that is the question of how large-scale deployment of the more expensive clean coal technology is going to be funded in developing countries. Thank you.

Lloyd Timberlake: Thank you, Gail. I'd like to call now on Mandy Rambharos of ESKOM. ESKOM has not only been important in this project, but has been a leader in the World Business Council in our development work. Mandy is chief adviser for Corporate Sustainability of ESKOM in South Africa.

Mandy Rambharos: Thank you, Lloyd, and good afternoon everybody. Like Lloyd said, I come from ESKOM and we supply about 95 percent of the electricity in South Africa and about 40 percent of Africa.

And it's been a pleasure being involved in this work, giving the African perspective, because 60 percent of the population of Africa lives on less than two dollars a day. And so, of course, for developing countries, specifically in Africa, poverty eradication is at the top of the minds of most people. And if you look at energy demand it matches economic growth very, very closely.

So, obviously, economic growth is the key for most developing countries. And for this, access to electricity is the most crucial point. And for example, in South Africa, we went from 30 percent of electrification in South Africa to about 70 percent from 1994 to 2003. And we now have a universal access target by 2012, so we want to get the whole of South Africa electrified by 2012.

But just to put that in perspective, ESKOM produces the cheapest electricity in the world. And there are still people in South Africa that can't afford it. So balancing producing electricity, balancing that with cost and what that means for greenhouse gas emissions is a huge question for us. And in doing the work on this report the three key areas that I would like to highlight is innovation is required, development of all sorts of technologies, so not closing your mind or closing the door to any of the technologies, but looking at all sorts of technologies, and also looking at local business development.

You'd find it in developing countries local businesses are very involved in the mainstream value chain of the bigger businesses. And looking at local business development in the electricity industry is a crucial point for us as well.

Let me leave you with this thought, and that is that developing countries, people that live in developing countries have the same aspirations as everybody else. And this is directly correlated with electricity demand that is predicted for the future. If you read any of the scenario planning work for future electricity demand, it's astounding. And meeting this demand sustainably is crucial, not just for us as businesses, but also for society to succeed in the future. Thank you.

Lloyd Timberlake: Thank you very much, Mandy. Now before calling on our last speaker, I'd like to introduce two other people who I think are in the room. Masahiro Izumi, is he here? Masa, please stand up, thank you. Just so people can see you. Masahiro is chief manager of the Global Environment Group of Kansai Electric Power Company.

And we also have with us, Curt Henricson. I think we -- Curt? In the back of the room, thank you. Curt is head of Sustainability Affairs for ABB. Now as Bjorn said in his introduction, each of our sector projects has what we call an advisory group or an assurance group.

And to be very frank, we choose a group of eminent people to keep us honest. And if the sector group that's involved in green wash is not doing the best work they can, is fudging it, the assurance group is meant to blow the whistle and get them back on track.

And we were very fortunate to have a good assurance group headed by David Victor, and what better head of an assurance group than a lawyer? David is a professor of law at Stanford Law School and director of the Program on Energy and Sustainable Development at Stanford University. David, it's appropriate that I give you the last word.

David Victor: Well, thank you very much, Lloyd.

Just a small correction, I'm not a lawyer, so you can all stop reaching for your wallets. I teach Energy Law at Stanford and much of what we teach about is the interaction between the regulatory environment and investment and innovation. And I think this report, and I've had a great pleasure of being involved with this as chairman of the assurance group. This report emphasizes the really important role of innovation and change inside this industry.

Here you have an extraordinary and very diverse group of companies from all around the world, all different kinds of fuel mixes, who are unified in their vision for the role of electricity, which has played an extraordinary role in the organization of our societies over the last century and also in the growth of the economy. And also are unified in their diagnosis of the challenge that's in front of the industry.

And I can say it used to be that people thought the electric power business was a dull business; that you knew what to do when you woke up in the morning. You'd build more plants. You kind of knew what technology to use. It was a marginal change from what was done before. And I think one thing that this report underscores so well is that this business is anything but a dull business, and especially now, given the challenges that are in front of the industry.

We're tight on time and so I just want to talk about two of these challenges that are mentioned in the report and I think really are going to be fundamental to the way the industry moves in the future.

The first challenge relates to the business model. What's very interesting about the industry, and all the companies represented here in one way or another have experience with this, what's interesting about the industry is that it has moved from a traditional, integrated, either regulated utility or, in most cases, state-owned company into something that is not like that, and yet also not like almost any other industry that we have in the world. On the one hand it's highly regulated by government. Almost everything the industry does has to pay attention to what is happening in government.

And yet, on the other hand, investors in this business have to pay especially close attention to the long-term financial consequences of their industry. There is, to put it bluntly, chaos in the world in the organization of the industry. And a lot of this chaos comes from half-baked and ill-considered schemes by governments to try and restructure the industry. In most of the world that's only happened partially, and much of that has not happened well at all. I come from California. We've had some experience with that. This business model is not only in flux for the traditional grid connected industry, but it's also in flux, as the report makes very clear, for the provision of the electric services in extremely rural and poor areas of the world, where we see an incredible innovation of traditional utility models for electrifying the 1.6 billion people who don't have access to electricity right now. And all kinds of other private, bottom up, start up operations and so on. It's really very, very impressive.

The second thing I'd like to mention briefly is the challenge for the industry that comes from climate change that so many of the other speakers have mentioned. In my view this is a game changer for the business. Because in so far as we take the problem very seriously we have to completely rethink the way we generate electricity. And this is where I think the business is now really rising to the challenge, because you see an extraordinary -- just a hot bed of innovation.

It's not clear on the generation side what the right responses are going to be, what's going to prove to be most effective. You have new generations of nuclear plants. ESKOM is involved, for example, in an extraordinary design, a pebble-bed reactor. We have the new European reactor that EDF and Ariba are playing central roles in developing. We have new coal plants. I was just, last week, at a coal plant in Shanghai, an incredibly efficient coal plant, arguably one of the most efficient in the world, now being built in China. And all kinds of new innovations with coal gasification. We have renewable power.

And then, of course, we also have the resource of energy efficiency. And I think what's interesting is you start to scratch the surface in any of these areas and you see an enormous potential for innovation. Take just energy efficiency, the report makes very clear that if you rethought the way the grid is organized and you made smart grids, that actually the power system could be even much, much more efficient than a system that we have today.

So I live in the middle of Silicon Valley and normally in Silicon Valley everyone is talking about the latest gazillionaire, who's made money by selling their web site now to Google, it seems to be buying everything. I think what we're seeing in the energy business is a similar infusion, not only of capital, but also ideas. I see it in my own students, that they are increasingly interested in going into the business. Nuclear engineering departments around the country are now re-opening.

It's an interesting time to be in the business. The challenges though are extraordinary. And this report I think is most notable for the clarity in which it lays out those challenges. Thank you.