Energy Round Table April 2010

Power players discuss how changes in the energy industry generate business.

Energy’s economic impact on North Carolina has become a major issue as utilities try to develop cheaper, cleaner ways to generate and distribute power and companies emerge to tap nontraditional sources such as the wind and sun. Discussing those and other trends were George Baldwin, managing director of legislative and community affairs for Charlotte-based Piedmont Natural Gas Co.; Tim W. Holder, vice president of sales and economic development for Statesville-based EnergyUnited Electric Membership Corp.; Phil Mintz, manager of continuous improvement services for N.C. State University’s Industrial Extension Service; Ewan Pritchard, program manager for the Advanced Transportation Energy Center at the Future Renewable Electric Energy Delivery and Management (FREEDM) Systems Center at N.C. State; and Larry Shirley, N.C. Department of Commerce director for development of the green economy. Business North Carolina Publisher Ben Kinney moderated the round table, held on N.C. State’s Centennial Campus in Raleigh and sponsored by Industrial Extension Service, EnergyUnited and Piedmont Natural Gas. Following is a transcript, edited for brevity and clarity.

What is the state of the energy industry in North Carolina?

Shirley: 2010 is going to be a banner year for energy efficiency. It is imperative that we undertake a strong energy-efficiency program so that we don’t have to construct as many expensive plants. A lot of our power plants are aging and going to have to be replaced. It’s very important to stretch out our needs by having an efficient infrastructure. We also need to generate and use renewable energy resources. We’ve seen great growth in the solar area, and there will be an increase in wind energy as well.

Mintz: As a part of our extension and outreach mission, we are meeting with business owners and leaders to discuss their needs for top-line growth and bottom-line improvements — the role energy plays in the bottom line, how companies can improve on energy use, understanding new technology and methods. There are a lot of programs funded by the federal and state governments, but often times they need a connection. Businesses are ready to test the waters on utilizing new technology. We have just got to help push them forward with the incentive programs available.

Holder: The whole approach has to be balanced. If we push too hard, we end up staggering an economy that’s already at the brink of an unsettled future. Obviously, there is an upside to renewable energy. But it has to come in a steady-growth method versus an influx, which is what we’ve seen in the last few years since the implementation of the Senate bill. Efficiency is the biggest opportunity out there. With the current state mandate, we’re allowed to reach our goal through about 25% of energy-efficiency projects. So it’s a huge push for us. The cost is obviously lower than putting together a solar project. The only reason solar works today is because there’s a tax credit, but we still don’t see a lot of people doing it. Prices have to go down. And in time they will. But in time, those federal and state incentives will disappear. So at the end of the day, I don’t think you’re going to get away from paying 14-plus cents a kilowatt hour for solar power. Until we see a dramatic change in the cost of our fossil fuels or nuclear energy, it’s going to take some time to blend that into our mix of power.

Baldwin: As a local distribution company, Piedmont Natural Gas takes gas from the Gulf Coast, West Virginia and Canada and moves it across the state to our customers. Supply is important to us, and the situation has changed dramatically the last three years. Prices have been volatile in the past because there is a tight relationship between supply and demand. Demand increased when the economy was doing well. Whenever the supply was down and demand remained the same, the price spiked. We were operating on a 40-year supply of gas. The discovery of shale gas and new drilling and extraction techniques have increased the 40 to 100 years. Prices are stable because supply has increased. Piedmont Natural Gas reduced its rates in the middle of the winter. That doesn’t happen often.

"Economic development is the lifeblood of utilities. If we don’t have new customers, we’re going in the wrong direction."

But with the recession, demand certainly must have decreased.

Baldwin: Even though the economy is down, supply is the major reason prices are down. Even with residential and commercial demand off, there’s one sector that has increased consumption consistently — deliveries of natural gas to power generation. We expect that to increase because if you’re a power company you have an obligation to serve. We are fortunate to live in a part of the country where, absent the down economy, people are thriving and relocating — residential, commercial and industrial. So utilities have to grow — they’ve got to install facilities to meet those growing needs. There’s policy pressure to decrease their use of coal and, until recently, there wasn’t any activity about adding nuclear. So their hands were tied, plus they need a balanced portfolio. Their increased consumption of natural gas at some point may affect price. It is an interesting position for Piedmont Natural Gas. We are a proponent of electric companies having a full portfolio of options.

Pritchard: We’re coming off of a 20-year revolution in the computing industry, and I see a giant energy revolution over the next 20. It’s inevitable that we’re going to change the way we use energy, and it’s going to be a very diverse portfolio. We see a lot of infighting between different sources — the truth is that diversity in your energy portfolio gives you stability. And the more we give ourselves the capabilities to share among platforms of different sources and consumptions of energy, the more stability we get. On the electric side, there are significant hurdles. Unlike some of the traditional fuels, the way electricity works is the second you generate it, it has to be used somewhere. Also the second you flip on a switch, electricity has to be generated somewhere. The generation side has to be closely coupled with the use side. To really take use of some of these technologies and capabilities, we have to be able to develop some slack in that system. Solar is only available when the sun is shining. Wind is only available when the wind is blowing. One of the benefits that natural gas or nuclear or any of those other fuels have is the ability to ramp up and down and to meet demand. We want to make some of the renewable energies that do have that demand profile just as available.

Is the state positioned to embrace new technologies?

Holder: We have done a great job as a state to ensure there is training and opportunities available to clients or potential businesses that may locate here. So with the intellectual ability and the available manpower, I think we are uniquely positioned. And with extremely competitive electric rates and gas prices in the Southeast, what better time than now?

Shirley: The seven regional partnerships are aggressive in recruiting companies that are part of this new green economy. We now have more than 10,000 jobs in the green economy, and that will increase quickly over the coming years. One example is coastal wind energy. We’ve watched what Europe is doing. Over there, they have a fair number of turbines out in the sea. That is going to happen in the United States up and down the East Coast. The states are in a race to get positioned for the infrastructure that will be developed to serve that industry. North Carolina has just completed, through UNC Chapel Hill, a study of its offshore wind resource. It is among the best on the East Coast. The U.S. Department of Energy sees North Carolina as a real cornerstone of its effort to get 20% of electricity from wind by 2030. Our universities are a key asset in the effort to create the infrastructure and all the jobs that go with it.

Baldwin: Existing utilities have needs as well in this area. The average age of our employees is mid-40s. Not only is it an age issue, it’s a skill-set issue. They have to be much more savvy with technology than 20, 25 years ago, and if we can’t hire them here, we’ve got to go outside North Carolina. As technologies are developed that use our fuel, we have to upgrade our personnel as well.

What role does energy play in economic development?

Holder: Ten years ago, the question was what’s the rate in North Carolina? In the last three to five years, we’ve seen a dramatic change. Obviously, the rate is still a big issue. But there is a huge difference today in a customer or a potential client who asks: What do you offer in the auspices of green or environmentally friendly? And what do you do as a supplier to support this move? What does your sustainability program look like? What are you doing to ensure that we’ve got energy 20 years from now?

Baldwin: Economic development is the lifeblood of utilities. If we don’t have new customers, we’re going in the wrong direction. We partner at the state and regional-partnership level and with local developers. They’re the professionals, and we want to make sure that they’ve got the tools they need to be successful. The other thing that we’re doing is workforce development and making sure that the educational needs of our children are met. We’ve got to focus on K-12 education, with a particular focus on science, technology, engineering and mathematics. We want to make sure the right workers are here to hire.

Shirley: You’re going to see workforce development become a bigger issue in this field. Companies in the smart-grid cluster said that they don’t have the training they need for the workers. They’re hiring. And if somebody is hiring, you want to support them. But those programs are not out there right now. In the green area, there is a high proportion of small companies that have come on the scene in the last five years. They need support to make it through that valley of death that occurs and commercialize their products and flourish and grow.

Pritchard: A major portion of the National Science Foundation Grant that the FREEDM Systems Center got focused at N.C. State targets training from K-12 through the Ph.D. level. In the electronics field, we’ve been training people on small microelectronics. We’ve really neglected this power industry. We have had to go through a revolution in the way that we train electrical engineers.

Mintz: Many companies have developed what they call “green jobs” within their organizations. We help them recognize what they have and how to expand that throughout their workforce. We develop programs, bring in training to help companies develop internal green programs and efficiency programs and to help their workers understand what they can do in terms of energy efficiency and improvements.

"The whole approach has to be balanced. If we push too hard, we end up staggering an economy that’s already at the brink of an unsettled future."

What impact will all this have on the environment?

Shirley: Big challenges are going to be global warming and climate change. North Carolina is susceptible and vulnerable to sea level rising on our coast. We need to look 20, 30, 40 years down the line in terms of where we put roads, where we build schools, how we deal with bridges — all the infrastructure issues. And you also need to consider impacts on forestry and agriculture. In 2002, the state passed what has been referred to as the Clean Smokestacks Act, requiring coal-powered electric generators to reduce their emissions of nitrous oxide and sulfur dioxide by 70% over a period of years. You’re seeing the effect in a recent decision by Progress Energy to switch to natural gas or, maybe in one case, a wood-fired-system power plant rather than put scrubbers on some very old coal plants. That decision will lead to a cleaner environment in the state.

Baldwin: These decisions by Progress Energy are based on policy direction by the state because we want cleaner air. Piedmont Natural Gas will have to build a natural-gas pipeline to serve the new power-generation facilities Progress will be installing. It’s jobs. It’s tax base. It’s not just busy work. It’s work where we are going to get some real results. It is prudent to evaluate all our assets whether it’s technology, emerging technology, utilization of our university system and the unique opportunities. Wind is an opportunity. Certainly solar is an opportunity. Perhaps we have natural gas off the coast. We don’t know. The governor has said let’s learn more about it so we can make an informed decision. The last thing we want is to do anything that would be detrimental to the coast. So we are evaluating this opportunity, and the other states around us — South Carolina and Virginia — are doing the same. The same benefits of the infrastructure being developed for wind would result if natural gas was discovered off the coast of North Carolina. There would probably be an energy cluster on the coast next.

Transportation is an important component of our — of any — economy. What do you see coming down the road?

Pritchard: Vehicle electrification is very important to the state — the linkage between climate change and emissions and energy. Ten years ago, we were weighing: Do we put exhaust-gas recirculation on vehicles, which costs a lot less than vehicle electrification? EGR reduces nitrogen oxide, but it doesn’t do anything for carbon or many of the other pollutants. We have a very strong driver to start electrifying our vehicle fleet from an environmental standpoint. When you buy a conventional vehicle, it gets dirtier over time. You go in for inspections one year, it’s got a certain emission level. You go in the next year, it’s higher. With an electric vehicle, the electricity that you buy today is going to be cleaner next year. And the year after that, it’s going to be even cleaner. That first kilowatt hour we made in the 1800s was the dirtiest ever — every one since has been cleaner.

Holder: The electrification of the vehicles will be both an issue and an opportunity for the utility industry. You start adding a component of demand for energy at a different time of the day. If you go back to the old mentality of trying to eliminate the peaks and valleys, it makes sense to try and move to that point. Many people who are against that haven’t taken a look at the full impact. I’m not saying it is right or wrong, but I think at this point it presents an opportunity. The electric vehicle also presents an opportunity for storage. And one of the things we’ve looked at is the ability to utilize a fleet that may be at rest at a certain time during the day. The capacity that sits there is an opportunity for influx into the grid at any particular point. Electrification sounds great, but there are a lot of nuances to that whole process.

Baldwin: If you look at the pie chart for greenhouse gas emissions, the transportation sector is the largest culprit. Anything that we can do — technology for electric vehicles, natural-gas vehicles, propane vehicles — natural gas seems to have a better fit with fleet vehicles and larger vehicles than with passenger cars.

Pritchard: I worked on a plug-in hybrid, natural-gas refuse vehicle in California. So, it’s possible. We can combine these concepts and start turning the corner. And I think turning the corner is an important concept here because industry can’t take sharp right-hand turns. We have to find transition technologies and the capabilities to make these transitions. The reason electric vehicles failed in the ’90s was because they were this sharp right-hand turn. We need to find transition technologies to hybrid vehicles. As a transition technology, plug-in hybrids are yet another transition for farther down the curve. And then all-electric vehicles farther on down the road.

What role does regulation play?

Shirley: The state is leading by example, and that’s making a difference. On energy efficiency, we passed the strongest law in the South for state buildings — a 30% reduction in energy use by 2015. If you build a new state-owned building, it had better be 30% more efficient than conventional standards. That’s very aggressive. We’ve passed a portfolio standard requiring 12½% renewable energy, a component of which can be energy efficiency, by 2021. As the only Southeastern state to do this, it is like putting a sign up saying we’re open for business for the green economy.

Holder: The elephant in the room is still federal legislation. Everything right now is very contingent upon what happens with both cap and trade if the Environment Protection Agency steps in to regulate emissions. So assuming this goes through, as most people think it will, I think we will see an increase in North Carolina of what’s required of those utilities from a perspective of renewable resources, from a perspective of energy efficiency. It took us 90 years to get in the situation we are in today. We’ve utilized coal forever because it was easy. It’s not something you can turn a switch and be out of. But with what the state has done, we are leading more so than most states.

Pritchard: I’m going to counter a bit of that and say that I think the target is on the state. North Carolina has done a tremendous job already. And a lot of the landmark decisions that we are kind of heralding here in this group have been challenged by businesses in North Carolina. The Clean Smokestacks Act was huge. Our incentives for renewables are huge, and that’s helping drive our economy. The creation of Senate Bill 3, the renewable-energy portfolio standard, has had a huge impact The creation of N.C. Green Power, which allowed for Senate Bill 3 to take place, was a huge step. The creation of the Advanced Transportation Energy Center here at N.C. State University, which is helping stimulate growth of local companies related to the electric-transportation industry — all of these steps taken by a state government are having a huge impact on making us a leader in the energy industry. I hope that some of the businesses in North Carolina see that a majority of the energy-related programs working through the legislature are proving to be our strongest assets.

Baldwin: At the federal level, I hope that the legislation will keep in mind the impacts to residential and commercial customers. Because this legislation is very expensive, I’m not sure that our customers are going to be in a position to pay for the energy. The increased prices for electricity, natural gas and propane are going to fall on the shoulders of the largest number of customers we have: residential customers. At the state level, I would like to see policy continue to encourage technology development and commercialization, and not pick winners and losers but consider our entire portfolio and look for opportunities to promote those. The market will take care of itself. We do need to provide incentives. We do need to promote this technology. And we need to support businesses coming into our state if we want to be the energy clusters we say we want to be.

Mintz: From a manufacturing perspective, I would like to see continued momentum in embracing energy-efficiency efforts. There are international and national efforts such as the Save Energy Now initiative out of the Department of Energy in which manufacturers sign a pledge to commit to 25% reduction over 10 years. The development of the international energy management system standard is almost complete, due to be released in 2011, and that will give guidelines for manufacturers and other industry organizations to develop and manage their energy program.

Shirley: I fully endorse the balanced approach. It is off base to think that there is a single silver bullet to solve our power, heating or transportation needs. From the state perspective, we will need to plan for federal action but continue to take action on our own. We need individual industries to step up and realize that this is good for their bottom line. The big issue is financing. The money is not flowing, whether it be for new green businesses, for manufacturers or for homeowners. We are the second-largest financial center in the country. We need to get our financial people together and figure out exactly how we are going to make capital more available to these businesses and homeowners and others trying to be part of a green economy.

Holder: A lot of that comes from rebates — programs like that have been designed for energy efficiency. We have recently seen an increase in commercial/industrial customers asking us to walk through their facilities, tell them what the problems are and how to reduce consumption. The state mandate and the energy-efficiency programs are hopefully the springboard to financing. For our larger customers, we offer that financing to move these energy-efficiency programs forward. It’s more difficult though on the residential side. I think the business side of it is an easier market to tackle and see more significant instant reduction. But on the whole, the residential side is the larger market, the bigger opportunity and the challenge.

Baldwin: If it were easy, some of the others would have already done it.

This article originally appeared in the April 2010 issue of Business North Carolina magazine.