Energy efficiency is no longer the “polite” thing to do but rather is “starting to become a cultural imperative” the COO of Pace Global Energy Services said last week.

Pace, an energy consultant headquartered in Fairfax, VA, hosted an energy forum in Houston, and the company’s top analysts offered their perspective on what’s ahead for the power and natural gas markets in the United States.

“The signals are all pointing toward regulation of carbon” and other greenhouse gas (GHG) emissions, said Pace COO Gary Vicinus. No one is sure how strict the new regulations may be, but in any case, he said the energy industry should begin preparing for the “inevitable” rules now. “The Supreme Court raised the stakes…and sent a strong message to the Bush administration,” Vicinus said, referring to the U.S. Supreme Court’s unanimous ruling earlier this month that the Environmental Protection Agency (EPA) was in error when it rejected a request to initiate a ruling to regulate GHG emissions (see NGI, April 9).

TXU Corp.’s decision to pull back on its plans to build new coal-fired plants in Texas and the significant amount of California environmental legislation are “clear evidence of change,” Vicinus said. “It will be critically important to begin positioning for the coming months and years.”

The Pace executive said significant carbon dioxide (CO2) regulations could be in place as early as 2010.

“There is a clear energy mandate gaining momentum for actually taking action,” Vicinus said. “The auto industry will lead…followed by the utilities and then the rest of the industrial sector.”

The Supreme Court decision created “momentum for the EPA and Congress to act, but this could be delayed until this administration is over,” he noted. “That’s the only question. We do expect some form of carbon regulation,” which he said will have some effect across the energy sector. “It could be five to seven years out in the future…But in any case, it’s considerably shorter than we thought only six months ago. We cannot separate energy from the environment any longer.”

Art Holland, who directs energy forecasting for Pace, said the “over-arching assumption is that carbon regulation won’t be overly onerous. But it will be something in the order of $8-10/ton in compliance costs. We’ll see an increase in the price of power, changes in the margin…The timing is what’s tough.” (Holland will be discussing key market fundamentals at GasMart in Chicago on May 10.)

Tenaska’s Bart Ford, vice president for development, said that in his view, utilities need to “position themselves for climate change opportunities. It’s difficult with uncertainty,” but “there is a momentum for carbon regulation.” Tenaska “certainly assumes that there will be some kind of carbon regulation…trying to predict it, though…I won’t place any bets. It could be in the next year, two, three or longer.”

In his view, a national GHG regulatory program is likely — and optimal, said Ford. “It would be rational to have an overall policy or we’ll see continuing uncertainty.”

Ford said that in any case, “it’s pretty difficult to place a bet on pulverized coal” because of the uncertainty over carbon regulations. Even though they are more expensive to develop, Tenaska has been eyeing more integrated gasification combined-cycle (IGCC) power plant development because it provides “optionality value in an uncertain world…”

IGCC technology is a variation of a natural gas-fired combined cycle plant that uses either coal- or petroleum-derived gas in a gas turbine to generate electricity. The plant then uses the hot gas as it leaves the turbine to heat water that produces steam to power a steam turbine and generate more energy.

What makes the IGCC concept especially appealing to a growing number of utilities concerned about possible carbon regulations is that IGCC technology now allows pollutants currently regulated in the United States — nitrogen oxide, sulfur dioxide and mercury — to be separated before the gas is burned. Researchers are now studying ways to capture CO2 emissions for sequestration.

By Pace’s calculation, conventional fossil fuels will continue to be the dominant energy source for several years, but “there is angst and uncertainty in the fuel community about the uncertain future…questions about which fuel to use…natural gas, coal, nuclear…All signs point to the United States investing in new technology for carbon and greenhouse gas,” Vicinus said.

Two “major forces” are on a collision course, Vicinus noted. Global energy demand is expected to grow 25% over the next 10 years, but at the same time, this increasing energy demand is clashing with the growing momentum to clean up the environment.

“We are convinced that the United States will be a leader and will meet the demand in an environmentally acceptable way,” Vicinus said. “But there are regulations coming, and industry should consider them as an opportunity instead of a constraint.”

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