US Energy at a crossroads

This month's McKinsey Quarterly contains a wonderful helicopter-level anaysis of America's energy crisis. In a nutshell...

July 5, 2004

This month’s McKinsey Quarterly contains a wonderful helicopter-level anaysis of America’s energy crisis.

In a nutshell, the argument is this:

The USA has an energy crisis. Blackouts are just the beginning.

Energy produced by Gas power stations will be too expensive within 5 years due to excessive demand and insufficient production capacity. Abig increase in non-gas capacity is needed.

However, a deregulated and federated marketplace has left a plethora of state-level producers with insufficient capital to fund long-term building programmes.

And even if they could afford investment:

Nuclear power is politically unacceptable.

Hydo-electric resources (dams) are already ubiquitous.

Wind and Solar power supply is too variable and financially unfundable from private sources.

So what’s left?

Financially, coal-fired stations are the most cost-effective alternative, but carry an enormous environmental burden.

In the words of Chandler Bing. “Rock. Hardplace. Energy producers.”

So what should producers do?

1. Buck the free market; keep out of Kyoto and subsidise coal-fired power, meanwhile making the case that US emissions are low compared to the costs of energy importation and off-shore power generation in less developed countries?

2. Embrace the free market – with its rising energy prices and decreasing industrial competitiveness, accepting that jobs will go offshore, and unemployment will rise?

3. Belatedly embrace Kyoto; assert national-level subsidies, invest heavily in off-shore wave technologies, accept that agressive demand-side as well as supply-side measures are necessary; and use emissions trading as a means of off-set in the short-term as a bridge to sustainable growth levels?

The decision…is ours.

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