OPERATOR: This is a recording for the Atlantic Council of the U.S., Wednesday May 26, 2010 scheduled for 11:00 a.m. Eastern Time.
Excuse me everyone, we now have General Richard Lawson, Vice Chairman of the Atlantic Council and Chairman of the Energy and Environment Program; David Garman, former Under Secretary of Energy and former Assistant Secretary for Energy Efficiency and Renewable Energy, and currently Principal at Decker Garman Sullivan and Associates LLC; and Mrs. Blythe Lyons, the Author of the report and Consultant for the Energy and Environment Program at the Atlantic Council on the line.
Please be aware that each of your lines is in a listen-only mode. At the conclusion of the opening statements from our speakers, we will open the floor for questions. At that time, instructions will be given as to how to proceed if you would like to ask a question.
I would now like to turn the conference over to Mrs. Blythe Lyons who will be followed by remarks from General Richard Lawson and Mr. David Garman. Mrs. Lyons, you may begin.
BLYTHE LYONS: Good morning. Blythe Lyons. On behalf of the Atlantic Council’s program on energy and the environment, I’d like to welcome you to our discussion today.
As background, I’d like to tell you that on October 26th, the Atlantic Council convened a workshop of about 50 experts in the energy industry, and we were discussing how to transition the U.S. energy industry to provide a more secure and sustainable structure. We were trying to develop a realistic electricity generation portfolio that would protect the U.S.’s energy, national, economic and environmental security.
This morning, General Lawson and Mr. Garman will prepare brief remarks, and then we will turn it over to the questioners. Thank you for participating. General Lawson?
GENERAL RICHARD LAWSON: Thank you Blythe. General Lawson here. For about 25 years, the Atlantic Council has participated in energy dialogues, discussions and studies both on a national and an international basis. It’s been our interest in contributing to this program in order to foster a better understanding, both nationally and internationally of energy policies, programs, procedures, and perhaps most of all technologies, because as we proceed into this 21st century, it’s becoming increasingly apparent that energy issues are among a more formative problems faced by all nations.
This particular study is the product of a workshop carried out here at the (unintelligible) with a number of representatives from both government and industry, and it was intended to contribute to the process of developing a common understanding of the United States electricity outlook and the energy related challenges and related national policy. Our effort was aimed at providing some non-parochial discussion regarding the issues involved in the development of our electrical grid in the years to come, and hopefully a useful product for the use by the Congress in a development of their energy policies. We entitled it “Perspectives on Developing a Realistic and Balanced United States Electric Power Generation Portfolio 2010 to 2050”, and I would like to assure you that we had an absolutely impressive set of discussions in the development of the document itself.
I’ll be anxious to hear questions from all of you, but right now let me turn over my thoughts to those of David Garman.
DAVID GARMAN: Thanks General. And, at the outset, I should stress that I’m not an author of the report but I did participate in the workshop that brought people together to hash out some of these issues.
But having said that, when I had a chance to read the report and react to it, I found it to be a very useful and instructive framework of principals and recommendations that deserve serious attention from policy makers and congress and the administration. And, I would summarize the report as follows.
First, we need to look at energy efficiency as a legitimate energy source. Energy efficiency is generally the cheapest and fastest way to have an impact, but energy efficiency is often difficult to optimize due to institutional barriers and legacy business models. So, a little creativity is in order here. We need to look at financing options such as clean energy—property assisted clean energy bonds, and allowing certified energy gains to count toward RPS requirements and other opportunities such as these need to be tested.
Second, even if we do a good job on energy efficiency, we can still be fairly certain over time that we will need large base load sources of virtually emissions free power. So, we have to invest heavily in the development and deployment of coal with carbon capture and sequestration, and in nuclear energy. Both are expensive, and utilities can’t finance nuclear power plants on their balance sheets without rate recovery or loan guarantees, and risk of those utilities aren’t really going to do what’s really needed in large-scale demonstrations of carbon capture and sequestration. So, while discoveries of shale gas and this pause in our economic growth have given us some breathing space, that’s an opportunity that we shouldn’t squander. In my own view, we need to start demonstrating frontier carbon capture and sequestration and demonstration plants at scale with the understanding that there won’t necessarily be economic at the outset. And, we have to build a few new nuclear power plants to understand their all-in costs while test driving the NRC licensing process and beginning to rebuild the nuclear workforce. And, while we are at it, and the report does mention this, we should consider a clean portfolio standard that includes nuclear and carbon capture and sequestration. I’m a former assistant secretary for renewable energy and a renewable energy advocate, so some may regard this as heretical, but instead of technology-based standards such as renewable portfolio standards, we need performance-based standards such as a clean energy standard. It doesn’t matter that the environment and the climate which technology is used as long as it curtails net emissions.
Third, as mentioned earlier, shale gas is a great advantage, and we should feel free to use it to generate power while we develop, demonstrate and deploy the low carbon and no carbon generation portfolio. That shale gas should not become an excuse to do nothing, because complacency in this realm is a trap.
Fourth, just as a good investor would seek to rebalance an investment portfolio, we have to rebalance the U.S. electricity portfolio by pursuing a broad strategy. The Electric Power Research Institute’s prism model really underscores this, given the need to de-carbonize our power generation over time, failure to invest in the front end, in nuclear and coal with CCS and advance renewable results in substantially higher costs in the long run.
And fifth, leadership is needed, both in the public and private sphere. We need to be candid and frank with the American people that we face some tough but surmountable challenges. We need to invest more in R&D. We need to accelerate the energy innovation process.
Sixth, we need to come to grips with the transmission siting challenge. Page 37 of the report talks about some of the things that we ought to consider in that regard. They aren’t necessarily sexy and shiny like the silver bullet technologies that we tend to fantasize about, but they constitute a significant portion of the hard work at hand.
Again, I didn’t write this report. I just moderated one panel of the workshop, but I think the Atlantic Council has done an extremely good job in a collaborative and non-partisan manner to fashion this balanced framework that maps out weigh points for the past (inaudible). Thanks.
BLYTHE LYONS: Thank you very much for these opening statements. General Lawson and Mr. Garman will be happy to take your questions.
General Lawson, do you have any further comments you would like to add?
GENERAL RICHARD LAWSON: Well, I think that following Dave’s remarks, that it is a time for action. There’s been a lot of political debate over various facets of our energy program, and while that debate certainly must go on, it is critical that we move forward with many of the projects that we’ve outlined in the study. I think the one statement that came to mind and was sighted throughout the course of the day was one that an individual brought up and said, you know, the more you look at this energy portfolio, the more you realize that we need all of the energy that we can find. We need to use it in the most efficient manner possible, and probably and most importantly, we need them to find out what technologies are needed to make that energy use environmentally acceptable.
And, that was kind of the underlining theme that we used in the development of the study.
OPERATOR: Thank you. Ladies and gentlemen, at this time, I would like to open the floor for questions. If you would like to ask a question, please press the star key followed by the one key on your touchtone phone now. Questions will be taken in the order in which they are received. If at any time you would like to remove yourself from the questioning queue, please press star two. Once again, to ask a question, please press star one on your touchtone phone now.
Our first question will come from Michael Hogan.
MICHAEL HOGAN: Hi, good morning General Lawson and Secretary Garman. Michael Hogan from European Climate Foundation. General Lawson, we met last spring in Brussels at one of the Atlantic Council events there. I run the European Climate Foundations power program, and part of that have spent 30 years in the utility industry developing large power projects in various parts of the world.
And, I wanted to first applaud the Council for the report. I think in four areas, it’s incredibly useful and constructive. Certainly the recognition of the need for transition to de-carbonize power supply, number one; number two, the urgency around energy efficiency as the lowest cost and most immediate option available to us; third, the urgency of investment, of beginning to make the investments now given the amount of time that would be required and the capital intensity of all of the various options that are outlined in the report; and fourth, the emphasis on the role that transmission will play in any of the transitions that have been described.
The one area that I would take some issue with—and based on the study, I know John Lyman and I have had exchange of messages over this or about the study that we’ve just sponsored with McKinsey and Company, KEMA, which is probably the leading transmission grid consultancy in the utility industry and Imperial Palace London (sp?), along with the Dutch, the energy research centers in Netherlands, looking at a European, the options a for European de-carbonized power supply, and for the first time ever actually, the study took on the challenge of actually asking—modeling a 15 minute by 15 minute European wide grid solution for all of the various scenarios studied, which ranged from 40% of electricity from renewables by 2050 to 80% of electricity from renewables by 2050, in each case with the balance coming from nuclear and carbon—are possible with carbon capture and storage.
And, I would emphasize first of all that we acknowledge nuclear as an option. We are not opposed to nuclear as a foundation or was the core working group that worked with us on the study, and we are also very aggressive supporters of the commercialization of carbon capture and storage technology. However, one of the key findings of the study, and again it was done by very mainstream consultancies and the findings were broadly endorsed, although not necessarily endorsed in every detail by a group of some of the largest energy companies in Europe and including (inaudible), E.ON, Vattenfall, National Grid and others. What we found was that in fact the contention that it is not possible to transition to a zero carbon or very low carbon power supply in this timeframe without reliance on a significant amount that have come out of nuclear and large coal plants for CCS, that contention turns out not to be true. It’s a very, very commonly repeated piece of received wisdom, and like many commonly often repeated pieces of received wisdom, it turns out actually not to be supported by a robust analysis of what the options are for a wide area balancing of a transmission system.
So, if you look at the U.S., the—just to hold at 20% of supply coming from nuclear would require the construction of something like 100 to 125 new nuclear plants in the U.S. over the next 20 years. And, while that certainly is practically feasible, it’s no less courageous an assumption than to assume that we can get to 20% renewables by 2030. So, to characterize the 20% target for renewables by 2030 as an outstanding achievement, and to widely assume that we can achieve a significant amount of nuclear is both unnecessary but also exhibits a certain bias towards a solution that is certainly an option but it is not an indispensable option.
And, the other thing that distinguishes nuclear from CCS and renewables is that while CCS and renewables will continue to improve in cost and performance with further investment, nuclear is a mature technology and is unlikely to ever be weaned off of its need for government subsidy. Whereas the other technologies should—support programs should be designed such that by definition, within a certain period of time or after a certain volume of investment will be—subsidies would be removed.
So, I would ask whether or not the Council has considered the analytical work that would be required to test the contention that significant amounts of nuclear are indispensable to the solution and point you towards the study by McKinsey and KEMA and the (inaudible) London that would indicate that that contention is not supported by analysis. But, I’ll leave that—I’ll leave my question and take it off line.
GENERAL RICHARD LAWSON: So, thank you Michael and it’s good to hear from you. I can see that you’ve been aggressively involved, and we’ve had some of this discussion on our previous meetings, but let me just make a couple of observations.
I have not yet seen the report, and I will look at it with great interest, especially the analytical portion, because as you know, there is probably nothing that’s more complex than establishing an analysis which takes into account all the variables associated with electricity production in a particular area with a particular set of energy support capabilities.
We did do some analysis in the preparation of this study for the U.S. The U.S. electric grid of course is really about seven electric grids, and each of those grids has a great number of variables producing electricity in Texas and North Dakota; producing electricity in Maine and Washington; producing electricity in California with some of the political ground rules that are there. All of those issues are very specific, unique kinds of requirements, and it was a compellation of the results of our analysis of those various areas and considerations that led us to the conclusions that you see in the study.
As you suggest and we certainly will take that suggestion, we will examine carefully the analytic methods that you used in the study that you referenced, and if there is some opportunity to apply those to situations that exist here in the country, we will certainly do that.
We hopefully have eliminated as much as the bias as possible, but we’ll be anxious to take another look. David?
DAVID GARMAN: Yes Michael. I think, just to applaud your observation that dispatch models can be very useful in getting a sense of, you know, what the art of the possible is, and I would just though, I would push back a little bit, and again, I’m speaking for myself here, there are some fundamental differences between the U.S. and European grids and renewable energy resources. There are distance to load centers, costs and other factors.
You know, as you know, we have our load centers, they’re pretty distant from really where the renewable energy centers are, or renewable energy resources is. And, as General Lawson has pointed out, when you look at the regional realities and the cost structure, our electricity costs, retail costs tend to be lower in the U.S. in most regions. You know, it suggests to us that we’re going to have an evolving situation where different regions are going to opt for different solutions, and what we’re really seeking is a rich set of solutions and options. My own guess is that the south is going to opt to have a lot of nuclear, because frankly, they don’t have much renewable energy resource to count on. I think we’re being realistic about the difficulties that we face in the United States with, you know, 50 sovereign states each having something to say about an interstate transmission line that’s going to traverse their area. It just takes us a long time to build transmission lines.
And, we don’t have the density of Europe. We have a lower cost structure. Other factors, I think is probably what led this group to conclude that we need a pretty rich set of options. We’re not going to—and plus, we have so many different policy makers in the United States and de-centralized authorities, state public utility commissions and others that probably was—a European nation might have a luxury of some, you know, cohesive strong federal planning that can try to achieve an optimal solution for an entire nation. We’re a little more balkanized in our policy making, and so we need this rich set of options that really is in all of the above solution sets if we want to be successful in de-carbonizing over any reasonable timeframe.
BLYTHE LYONS: Thank you. I would love to encourage each of the participants in this phone call to ask questions. And, I will now turn it over to Mr. Pierson from the Eurasia Group.
DEVIER PIERSON: I’m not sure that’s my category, but I am a Director at the Atlantic Council and interested in energy issues, and it’s—congratulations to you General Lawson on another fine job in this area, and good morning to you.
I have two related questions. One is in—and, I’ve not had an opportunity to read the report and look forward to doing it. The—have you considered in the report the other use of some of the fuels that arguably would be either a permanent or transitional component of the electric power base such as natural gas. Plans such as Boone Pickens plan that would use a substantial quantity of natural gas for transportation use as a transitional fuel, and one could argue competitive with electricity in that area. But, just in terms of availability of the resource, both geographically and from a production standpoint, was that considered in the report?
And, the second question is, did you give consideration to the problems in the operation of the electric grid in terms of supplemental sources of energy for peak loads when they—some of the non-renewable sources such as wind and solar may have more erratic generation of electricity and was some kind of bridging capacity. I know there are a number of them out there to deal with that problem. Was that a part of the scope of the report?
GENERAL RICHARD LAWSON: Well, I’ll just say a couple of words. Yes to both of your observations. Gas does play and we believe will continue to play a larger role in electricity generation. Indeed, the report suggests that looking at the availability of gas over this timeframe and the increasing reserves that appear to be on the horizon, that gas could be very, very useful as a bridging fuel for virtually all the electrical generation requirements as we proceed into the future looking for low carbon responses from an environmental standpoint. So yes, I think you’ll be very pleased with the report when you get it.
DEVIER PIERSON: Thank you.
BLYTHE LYONS: I would like to ask Mr. Lyman for his question from the Atlantic Council.
JOHN LYMAN: Good morning. This is John Lyman. I’d like to take advantage of having David Garman on the stand here to ask David if he could give us some reaction to the challenges of actually increasing energy efficiency and installing some of the new technologies like carbon capture and storage and the reworking of the grid in terms of their funding requirements. And, in terms of the difficulty of making a transition to a new energy structure, we are finding that it is increasingly difficult to put in the projects, and while there’s been a lot of projects started and talked about, the magnitude of the funding and the magnitude of the support for these projects has been increasingly difficult to realize. We’re seeing this on carbon capture and storage, and we’re also seeing this in the ability to expand the transmission group edit. And David, I would just wonder, based on your past and your current experience, if you could give us some reaction as to what are some of the most productive steps that we might take going forward to try to move both the new technologies and the whole area of energy efficiency forward?
DAVID GARMAN: Well, it is a, I think a bit of a sad commentary that we as a nation for this with truly, I think a $2.8 trillion electricity business. I may have that revenue figure wrong, but we spend in applied energy research somewhere around 2 to $3 billion a year, which is insufficient to the task. And, when you look at the scope of effort that would be needed to say field frontier carbon capture and storage fossil plants, you probably need a $20 billion effort scaled out over the next decade or so.
And, you know, adding a further complexity of subjecting this kind of a program to an appropriations process, and the usual, Senator Bingaman calls it “Technology Attention Deficit Disorder” that plagues various administrations and congresses as they come and go, it is very difficult to get a sustained ongoing dependable program of R&D, just as it’s quite difficult to get a sustained, enduring policy framework in place so that people and the private sector can make investments and can understand that the rules of the game won’t be changed on them halfway through it. So, it is a daunting disconnect between the amount of money that we’re spending and the challenge that faces us. And, let’s be honest. The political environment in Washington right now is not inclined to spend a lot more money, and I understand that because we don’t want to add to the debt issue that we’re also confronting.
But, that’s the nature of the challenge. We’re going to have to find a way, whether it’s through rent payer dollars or whether it’s through taxpayer dollars, but to fund a reengineering and upgrade of the grid to incorporate smart technologies that can enhance energy efficiency. We’re going to have to again spend a lot of money. You know, I’m throwing the figure out of 20 billion over the next decade or so to do some frontier CCS plans using a variety of different technologies. IGCC, oxy combustion and post combustion capture on pulverized coal plants, just to name a few, to really understand how that technology portfolio can develop and be deployed in a cost effective manner over time.
And, you know, but it’s not just money. It’s also institutional barriers. Let’s face it, a lot of electricity utilities are designed to sell electrons. Not necessarily deliver efficiency energy services. So—and, the way that we lease buildings, we’re tenants, not owners to pay the electricity costs, and though you have split incentives, these are the source of institutional barriers that exist to really optimizing energy efficiencies. So, it’s not just a money issue. It is a—you know, we have a lot of inertia in a system that was built on a premise of cheap energy. And, if we want to retain—if we want to have cheap and clean energy, we’re going to have to make some investments across the board, and currently we are not doing so. And, it’s going to be very difficult for us to do so in the fiscal environment that we face.
OPERATOR: Thank you. Once again, as a quick reminder, ladies and gentlemen, if you would like to ask a question, please press the star key followed by the one key on your touchtone phone now. Again, that is star one on your touchtone phone to ask a question.
BLYTHE LYONS: I would like to ask a question here. If we are unable to pass legislation at the national level, what in your estimation are the things that the United States can do today to move us towards a more secure and sustainable electric power generation portfolio? General Lawson?
GENERAL RICHARD LAWSON: Well, I think one of the things, and we’re hoping that this effort before us will help contribute to the dialogue, but one of the efforts that I’m trying to suggest is that the private and the public sectors get together using the available bureaucracies in order to get ahead with some of the programs that David was discussing.
It’s quite clear that there are a number of agencies, both in the government and in the private sector that are, well for a better phrase, sitting on their hands awaiting some form of government decision on various aspects of climate change legislation. I think that there are a number of issues that could be put forward on the agenda, despite inaction on that kind of legislation, which would be very useful in supporting the kind of a future that we’ve outlined in this particular effort. And, I’m hopeful that we can generate that kind of support among both the private and the public sectors as they realize the importance of actions now and the dangers of inactions.
DAVID GARMAN: This is Dave Garman. I think it’s very, very important if, you know, if we’re unable to move forward with a comprehensive energy and climate policy. One thing that we can do is undertake that process that builds confidence among policy makers and among tax payers and rate payers, that we can deploy low carbon technologies at reasonable costs. And, a way that we can do that, let’s go ahead and this is underway, you know, issue those loan guarantees to build the first nuclear plant, to see what their cost structure is, to understand that, to understand the regulatory issues, test driving that NRC regulatory process really for the first time, understand what issues are going to arise, and understand what it’s going to take construction time to revenue for those first early new generation three plus nuclear plants that come on line.
And secondly, we need to demonstrate carbon capture and sequestration at scale so that we can begin to start that process of reducing costs for the end plant. And, there should—it is—we have to flog through that process to begin to build those things, and I think once—assuming we can demonstrate reasonable costs, de-carbonization with reasonable cost, and again, to amplify everything that’s been said before, in the interim we’re doing energy efficiency, we’re using the gas resource efficiently and promoting renewables at every opportunity, then over time, we can build confidence among policy makers, rate payers and tax payers, that we can do this at reasonable cost. And then, that will help us break through the policy sale make that we face.
BLYTHE LYONS: Mr. Hogan would like to ask a follow up question. He’s from the European Climate Foundation. Mr. Hogan?
MICHAEL HOGAN: Yes, just to follow up on the comments that David and General—and the General made about the challenges of dealing with gaining public approval for some of these investments. And, the one area that we see some basis for very cautious optimism in tackling is the area of transmission. And, we are in complete agreement that a restructuring of the transmission system in an investment and smart transmission and distribution technologies is key to unlocking a reliable and affordable transition.
The basis optimism we see is that for many of the environmental NGO’s, the large environmental NGO’s, at least in Europe who have traditionally provided much of the money and organization behind the opposition to new transmission, we’re beginning to see some movement among them in the recognition of the fact that they want to see a transition to a low carbon or zero carbon power system or energy system that is in their preference based largely, primarily in some cases exclusively on renewables which is not necessarily a vision we endorse, that transmission is critical. And, while getting them on side does not eliminate the difficulties in building new transmission because of course, they’re not the only groups that tend to oppose these things. Getting them onside, the main environmental NGO’s, getting them on side is a huge step towards removing a lot of the money in the organization behind the opposition to these investments. And, we see some movement towards doing so, as long as they can be satisfied that the transmission that is being proposed can be seen in the context of a plan and a commitment to move towards a fully de-carbonized power sector in the next 30 to 40 years. And, we have been sponsoring a group called the Renewables Grid Initiative, which is a joint venture or a coalition between the largest environmental NGO’s in Europe and virtually all of the transmissions of some operating companies in Europe to begin to endorse a long-term plan for transmission expansion to support de-carbonization. And, I guess, the question is, has there been any—have you seen much progress in a similar vain in the U.S., because I think there’s a lot of potential there to begin to chip away, at least at that part of the opposition to some of these solutions, which again is—the key one in many ways which is transmission expansion.
GENERAL RICHARD LAWSON: Well, in our last meeting, there in Europe with you, there was some discussion about this phenomenon. And, we came home and began to kind of search around among the various media outlets, various reports that were being issued around the country, and found that there was some dialogue along the same lines. I think that in order to precipitate and hopefully help along that kind of thought process within the environmental NGO’s, it is critical, as you suggest that the information programs associated with such subjects fully define both the nature of the project itself, the new capabilities that are to be brought forward by the project, but also the long-term plans for the generating energy and so on.
I believe that this business of energy information is absolutely critical. And, hopefully, a dialogue, even such as we’re having here today is the kind of a stepping stone that will perhaps lead to a better understanding on both sides and contribute to what you’re beginning to see there in Europe. And, hopefully it’s growing and we will hope that it gets started here.
DAVID GARMAN: Michael, it’s Dave Garman. I think we’re beginning to see some elements of this kind of collaboration on a regional basis, and again, this is anecdotal. I have not analytical underpinnings to say what I’m gong to say, but you know, I see these discussions happening out west under the offices of the Western Governors Association and others to try to build a consensus to help people see the big picture, as I might put it, it gets people to rise above nimbyism to see the advantages on a system wide basis of building new transmissions.
At the same time, and I hope I have my timeframes correct, you know, we’re still trying to build a new transmission line in PJM. My understanding, it’s taking about 12 years to build it. Actually, three years to actually build it, nine years to permit it. So, we still have real challenges in dealing with some of the bottlenecks that we have in some of our interconnects because nimbyism is deeply rooted and it’s going to take a long education process to help people, you know, get by that. But, I’m encouraged that you’re seeing—you’re exhibiting cautious optimism looking at the European situation, and I would hope we can emulate you in that regard.
BLYTHE LYONS: Thank you very much. Today General Lawson and Mr. Garman discussed many of the difficulties regarding development of a safe, secure, balanced electric power portfolio out to the year 2050. The Atlantic Council’s report concluded that the U.S. needs a new strategy to transition to a low carbon future. We should first start with efficiency measures, and at the same time, we must build on currently available natural gas renewables and nuclear power. We must also improve our electric infrastructure to bring in the improvements in energy efficiency and integrate more renewables into the grid. And finally, the Atlantic Council report calls for significantly ramping up RD&D on clean energy technologies such as carbon sequestration, nuclear and renewables.
In conclusion, I would like to thank General Lawson for his leadership of the Council’s program on energy and environment. And, I would also like to thank Dave Garman for his expertise and his participation in this endeavor. I hope you have enjoyed this discussion and we’ll continue to consider the analysis and the recommendation in the Council’s report Developing a Realistic and Balanced U.S. Electric Power Generation Portfolio.
Finally, please check the Council’s website in a few days for a transcript of today’s discussion. Thank you for your participation and good bye.
OPERATOR: Ladies and gentlemen, thank you for joining us today. This conference has now ended. You may disconnect your phone lines and have a great rest of the week. Thank you.