AEP CEO Michael Morris: Four challenges renewable energy faces

NEW YORK -- The energy industry is ready for renewables, but it faces significant hurdles to succeed, said American Electric Power CEO Michael Morris on Tuesday.

"We believe very strongly in the benefits of renewables," Morris said. "However, we also believe that the challenges are immense, mostly technological. They will be met and they will be conquered."

In a keynote speech at the seventh annual Renewable Energy Finance Forum–Wall Street at New York City’s Waldorf Astoria Hotel, Morris acknowledged four challenges the industry faces in the transition to renewable power sources.

The first challenge: Location of renewables relative to their peak consumption.

Using the Dakotas as an example -- people don't really want to live that far out, but the location is "great for power," he said -- Morris said the Midwest and Plains states of the U.S. are optimal for energy production but far from the load centers that need the power.

"The central part of the U.S. [has] an incredible amount of wind which allow for economic realities that make a lot of sense," he said. "How do we move the energy from its point of creation to its point of maximum consumption?"

Morris said that moving all that power isn't really a technical one so much as a regulatory one -- that is, getting across several states' borders becomes prohibitively time-consuming, adding that his own company spent 16.5 years building one transmission line because of the red tape along the way.

"The transmission issue is not the technology of moving [power], but the regulatory process that one needs to go through to get that done," he said. "The FERC is moving in the appropriate direction, as are the members of Congress. Transmission will be a single entity controlled by the FERC."

Transmission and distribution issues primarily affect wind power, but affect solar power, too, Morris said.

"Solar doesn't have exactly the same issues though you saw the great concentration of [installations] in the great Southwest," he said. "[Perhaps] Toledo, glass capital of the world, becomes solar panel capital of the world."

The second challenge? The intermittent nature of wind and solar power.

"Wind has the idiosyncrasy of being an off-peak power," he said. "Solar has the benefit of being an on-peak benefit."

The industry has two ways to combat this challenge, Morris said: by using natural gas and electrical storage.

"We have stored electricity in the form of water for years and years and years," he said, citing the nuclear power industry as an example. "Companies like American Electric Power are working diligently toward batteries. It's extremely expensive today but very effective in dealing with intermittency."

These means are necessary to deal with an aging energy infrastructure, he said.

"Make no mistake, the way the electricity moves on the grid is a very historic concept," Morris said. "Breaking down those technological barriers of intermittency is something that we think is very easy to handle."

The third challenge? Price points.

"This is a technology whose price points will get better," he said. "It's a curve that continues to come down. How low it comes down is [unknown] to you and me."

Citing wind power, which is a capital-intensive energy source, Morris said that even though the price of wind power is dropping, it's still not at the point where it's competitive with other sources of power.

"Commissions denying wind projects because price points are too high," he said "That's a very real barrier for those of us who have to deal with an in-state [regulator]."

One wild card: the discovery of more domestic deposits of shale natural gas. Morris called shale gas a "game-changer."

"The natural gas supply model was a dwindling resource base that was going to price itself out of the electrical generation market," he said. "The impact of shale gas [is] on everything that we do in the energy production business."

The fourth challenge: the "green tape" that tangles up project development.

"The green movement is running into itself," Morris said. "The regulatory maze lengthens, walls stack up. We're getting tangled up in green tape."

Morris recalled the 16.5 years his company took to build one transmission line.

"The American population is eager for these advances, but they don't want to see anything of how it's made, where it comes from" he said. "Americans are a very unique people, we all know that. We all want to get to heaven but we just don't want the inconvenience of dying."

Morris said it becomes frustrating to stand in front of people and declare the intention to build solar projects but can't find a price to make such projects financially feasible for the company.

"We have a barrier in our way, and it's ourselves," he said.

Noting the Gulf of Mexico oil spill, he added, "If there's ever been a time, this is a time when the American population has at long last awakened to the impact of what we do."

A few more takeaways from Morris' keynote speech:

• On power outages: "Now it's 2010, and we have not moved that ball one inch [forward]."
• On feed-in tariffs: "I grew up in the independent power business, and I marvel at the feed-in tariff business. What you don't want to do is become an enemy of your potential customer" by forcing consumers to buy energy at a higher-than-market price point.
• On rolling Vermont and Oregon's feed-in tariffs across the nation: "That really is an untenable undertaking. That's a public policy issue that we ought not push much further across the country, where we're enemies rather than colleagues."
• On issues of trust: "The challenges are in front of us, they are easily understood, and they can be taken care of so long as American ingenuity can take care of the American psyche."
• On industry leadership: "I do not know a single CEO that doesn't believe that renewables are the way to move forward. This is an industry that's ready to move forward."
• On future energy executives: "In 2035, you'll look like the telecommunications industry. You'll be serving distributed generation to customers in a very unique and different way. I believe power stations will be in the mix, I believe coal will still be in the mix. But you will be interfacing with your customers in a very unique and different way."
• On the future of the grid: "I don't think we'll ultimately unplug from the energy distribution system [like the mobile phone industry]."
• On when CO2 sequestration becomes cost-effective: "I don't know when those points will cross over. Simply shuttering those plants prematurely is a great disadvantage to the states where they're located."
• On the climate change argument: "The climate aspect is a tangential benefit."

This post was originally published on Smartplanet.com