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The Math Does Not Lie

Factoring the future of the U.S. electric power industry


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What will the U.S. electric power industry look like in the future? Discussions with senior electric power company executives suggest a lot has changed over the last four years that is challenging the conventional wisdom about where the industry may be heading.

Recent Deloitte research supports these executives’ views, and highlights important emerging trends which suggest power and utility companies reassess their business strategies and explore new business models. This paper provides a straightforward approach to examining the future through a simple framework using a mathematical equation.

Rising Capital Costs

  • New generating plant, transmission, and distribution investment
  • Environmental compliance
  • Renewable portfolio standards
  • Post–Fukushima nuclear safety standards

Escalating Operations Costs

  • Fuel for electricity generation
  • Emissions retrofits

Decreased Demand for Electricity

  • Some level of “permanent demand destruction” as a result of the recession
  • Changing electric customer trends
  • Executive Order 13423 – a decrease in energy intensity at Federal facilities by 3% annually

The "math" below portrays the likely implications of these emerging trends and factors:

The Dilemma

The big picture view is compelling – the "numerator" is going up and the "denominator" may well be going down over time for the first time in the history of the U.S. electric power industry.

Increased Costs
------------------------       =      Higher Cost Per kWh
Decreased kWh
Consumed

Changing the Math

What factors influencing "the variables in the equation" can be addressed in a meaningful way over an acceptable time frame – and level of associated risk? The more traditional business models that have served the power sector so well in the past simply may not be enough – the time for true innovation may have arrived.

Learn more by downloading the full report.

As used in this document, ‘Deloitte’ means Deloitte LLP (and its subsidiaries). Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.

 

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