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There's no "Free Lunch" with U.S. energy plan

by John W. Rowe 

Over a century ago, Mark Twain said that everybody talks about the weather, but nobody does anything about it.

The same could be said about our nation's energy policy.

Recent events, however, are at last compelling us to seriously address the issue.

Concerns about climate, concerns about our energy security, and more recent concerns about the very foundations of our economic order, compel us to consider a comprehensive plan.

There are many competing ideas about what that plan should look like.

My own views are grounded in the 125-page report published in 2004 by the bipartisan National Commission on Energy Policy, entitled "Ending the Energy Stalemate."

We found that there is no single technological or policy answer to our continued energy security and climate change challenges.

Government and industry, working together, must promote energy efficiency, renewables, clean coal, and nuclear if we are to make a difference.

In terms of infrastructure, a term that is on everyone's lips these days is "smart grid."

What that means is less clear.

In its most straightforward form, smart grid refers to a suite of technologies that will give consumers and utilities greater information about their power consumption and cost, and the overall reliability of the distribution system.

But it's also sometimes used to refer to transmission investment, particularly transmission to deliver renewable generation to market.

We have even reached a point where a smart grid commercial appeared amidst the potato chip and beer ads during the Super Bowl.

Not surprisingly, both smart grid and energy efficiency have attracted great attention in the ongoing stimulus debate in Washington.

In December, Exelon prepared an economic analysis for President Barack Obama's transition team on the impact of a $75 billion federal investment over four years in smart grids and transmission.

Our analysis indicated that such an investment could generate roughly 250,000 jobs per year for that four-year period.

Federal support of these efforts is both needed and welcome.

There is much to be encouraged about, but I do want to share with you a few observations based on my 25 years as a CEO in the electric utility industry.

First, meeting our future energy needs in the least carbon-intensive way will be a very expensive challenge, one best sorted out through market forces and not by government picking winners and losers.

Those needs are great-the Department of Energy estimates that energy demand will increase 26 percent between now and 2030.

There is a great deal of interest in renewable energy, particularly wind and solar.

We share that interest, but we also recognize that renewables are neither cheap nor easy.

Existing subsidies at the federal and state level together make wind an economically-competitive form of generation.

Absent these subsidies, however, our analysis suggests that wind can cost three or four times as much as natural gas to displace a metric tonne of carbon.

Solar subsidies are even larger, particularly at the state level, where they can reach 40 cents or more per kWh.

And then we must also invest in back-up generation for the times that the wind doesn't blow or the sun doesn't shine.

There is no free lunch here.

But our past experience with the Public Utility Regulatory Policies Act and government mandated least-cost planning demonstrates beyond a doubt that market

forces, rather than governmental mandates, will ensure that customers get the cheapest lunch possible.

Clearly, there is much work to be done. We know that it will not be easy, it will not be cheap, and it will not be fast.

But we all must do what we can, where we are, with what we have-we cannot afford to wait.

For the Record is an edited excerpt of a speech by John W. Rowe, Chairman & CEO of Exelon Corporation, to the National Governor's Association in February 2009.


May/June 2009