Obama administration could trigger a new "dash for gas"

29 January 2009

The next US president has already put his weight behind the creation of a country-wide transmission grid. But his favouring of gas as a bridging technology will have worldwide implications. Michael Roston reports from New York.

Energy policy has been at the front and centre of American politics, and played a major role in the 2008 presidential election. The candidates, Senators Barack Obama and John McCain, skirmished often on the best ways to deal with the cost of energy and global climate change, with Obama making the creation of millions of green jobs a centerpiece of his appeal to American voters.

Now as President-elect Obama steps back from the campaign trail, electricity producers are looking hard at how his policy agenda will be adapted to the reality of the current state of the American power grid. Current suppliers of coal- and gas-based power and would-be suppliers of electricity from renewable sources are struggling to adequately meet demand for electricity owing to bottlenecks in transmission capacity. Many producers are therefore expecting Obama to take deliberate action to make it easier for new transmission lines to be built across the United States.

‘[President-elect Obama] has been more specific than you'd see most candidates on such an arcane issue, the need for a more robust grid to support new and alternative electricity facilities’ said Christopher Guith, the vice president for policy at the US Chamber of Commerce's Institute for 21st Century Energy, which was until recently led by Obama's pick to serve as National Security Advisor General James Jones (retd.). ‘He didn't say there was a need for federal preemption [of state and local barriers to building new transmission lines], but he understands that, and to have his leader in the Senate say it's essential, you have to imagine that it's already been co-ordinated.’

Guith was referring to Obama's interview on 30 October, 2008 on the MSNBC television network, where he pledged government involvement in expanding transmission capacity, reasoning ‘if we're going to be serious about renewable energy, I want to be able to get wind power from North Dakota to population centres, like Chicago.’

While Obama's legislative agenda as a senator focused heavily on biofuels like corn-based ethanol, a key concern in his home state of Illinois, he began to address improvements to the nation's power grid more specifically on the campaign trail. His campaign identified investment in a ‘smart grid’ as one of a set of mid- to long-term energy policy priorities. He pledged to establish a ‘Grid Modernisation Commission’ that would work with his Secretary of Energy to help utilities adapt technologies that would improve electric grid reliability and security, boost renewable generation, and afford customers more choice and affordability in selecting their energy providers.

Now the candidate is working directly with stakeholders in the industry to develop his policy on electrical power generation and transmission. Mark Crisson, the chief executive officer of the American Public Power Association, which represents over 2000 community-owned utilities, planned to attend consultations on 4 December, 2008, with Obama's transition team, as well as other power industry representatives.

‘The focus is to talk about the power industry, and we don't expect it to be all energy issues, it'll focus on electricity issues’ he said.

With progress expected by some on the construction of transmission lines, a more thoroughgoing discussion about the kind of power production facilities used to generate energy in America may be next. But while some environmentalists had hoped for rapid action to reduce greenhouse gas emissions, such moves might be postponed in the light of growing economic woes in the United States.

‘The economic situation is the 800 pound gorilla that is eating up the intellectual attention of the transition team’ said Tim Brennan, a senior fellow at Resources for the Future, a Washington-based environmental organisation. ‘If the economy was in the same situation as it was a few years ago, controlling carbon would be high on the list, but I'd be surprised if that's what they're worrying about now, it's probably been shoved onto the back burner.’ Instead, many utility watchers are expecting Obama's early policy agenda to focus on stimulating the economy.

‘There is a great interest on the part of the president-elect to see energy policy as well as energy jobs at the front and center of his economic recovery plan’ said Susan Tomasky, president of power distributor AEP Transmission. ‘Energy jobs need stimulus and support for new technology or investment in cleaner production resources.’

Tomasky and others said that Obama's stimulus package could support investments that would create jobs in building cleaner energy resources such as wind and solar power generators, implementing energy efficiency and weatherisation measures (eg insulation) and the development and installation of smart energy metres across the country.

Whether or not foreign players in power production will be able to get involved in the opportunities afforded by a forthcoming stimulus package could well depend on the state of the economy itself.

‘To the extent that credit is hard to come by because there's all these doubts in the financial system regarding the solvency of borrowers, the same things that will slow down everything else will also slow down electricity investment because that very important thing they need, credit, has become scarcer’ said Timothy Brennan senior fellow at think tank Resources for the Future.

But if credit gaps can be bridged, foreign producers of renewable energy technologies could play a major role in America's energy future.

‘Companies that build renewable technologies: they're probably going to do well, and we're seeing more and more investment in this country from large multinational companies like Gamesa and Iberdrola,’ said Douglas Biden, a distant relative of vice president-elect Joseph Biden and the president of the Electric Power Generation Association, which represents electricity generating groups in Pennsylvania and surrounding states. ‘A lot of that can be attributable to the Obama administration and their espoused energy and environmental plans.’

Obama's pursuit of clean energy sources could also spur production of renewable technologies overseas by lowering costs.

‘As we shift to non-fossil-based energy, that will have an impact worldwide because it's going to spur technology development by making prices go lower’ said Christopher Guith of the Institute for 21st Century Energy. He claimed that Germany’s subsidising of solar and wind power for 20 years has not made the impact that its government might have wanted (although there have been recent significant increases in capacity). However, ‘as soon as the US hits the 1% mark for solar, it's going to have a pronounced impact on the costs around the world’ he said.

Furthermore, as world environ-ment ministers and officials discuss the replacement for the Kyoto Protocol in Poland this month, the more multilateralist Obama administration is expected to respond by shaping its energy policy frameworks accordingly.

‘There's no question that he's going to engage the international community actively in looking at solutions on climate change, and there will be another look at the Kyoto treaty, that's going to change the dynamic dramatically’ Tomasky of AEP Transmission said. She added, ‘We'll see an engagement of energy issues and recognition of the world's interconnectedness in this administration.’

If the regulatory climate for coal-fired power plants becomes unfavourable in the United States, as some of Obama's campaign rhetoric implied it might, the expanded short-term use of natural gas as a ‘bridge fuel’ to a renewable energy future could also have international implications.

‘Continued constraints on emissions, whether it's greenhouse gases or other emissions, that will result in an increase in the use of natural gas in the immediate term’ said Art Holland, the vice president for utility and risk strategies, at Pace Global Energy Services, a Washington, DC-based advisory firm. ‘We'll be required to import more gas sooner, and we'll be competing with the Asians and Europeans for liquefied natural gas, which could produce pressure on the price of gas internationally, and give rise to enhanced development of gas resources globally.’

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