Fresh off its $7.9 billion acquisition of Constellation Energy, Exelon Corp. – now the nation’s largest competitive power producer, with total generation capacity of 34 gigawatts – reported weak quarterly earnings this week due to a historically mild winter, the plunging price of natural gas, and costs associated with the merger with Constellation.  Also the largest U.S. nuclear power company, Exelon faces rough sailing ahead under new CEO Christopher Crane.  Confronted with a natural gas glut with no end in sight, plateauing demand for electricity, and forthcoming stringent regulations on greenhouse gas (GHG) emissions, particularly from aging coal plants, U.S. utilities are going through a wave of consolidation and cost cutting as they attempt to weather the stormy transition to more sustainable forms of power generation.  The Exelon-Constellation announcement was followed by Duke Energy’s purchase of Progress Energy for $13.7 billion in stock, in January.

Chicago-based Exelon is in a particularly interesting, not to say dicey, position because of the big bets that Crane’s predecessor, John Rowe, placed on nuclear power.  A blunt-spoken “lawyer and amateur historian with a fascination for antiquities and a love of the podium,” as Crain’s Chicago Business described him, Rowe had become a familiar figure in Washington, D.C.’s corridors of power and a leading advocate for the heralded “nuclear renaissance.” He believed that the shift away from coal and other carbon-emitting forms of power would favor nuclear power, which supplies 20% of America’s electricity and remains cheap compared to other forms of clean energy, including renewables.

“The single most disruptive technology in my 28 years as a CEO was shale-gas fracking,” Mr. Rowe told an energy conference in March. The natural gas boom represents “a huge challenge for my successors at Exelon.”

That’s not exactly a rousing vote of confidence for Crane, who never finished college and who started out as an electrician at nuclear plants in the 1970s.  Exelon’s share price has lost 18% of its value since its peak in November 2011, before the full extent of the domestic natural gas supply became evident.  That now seems like another era.  Few people foresaw the gas glut that’s now proving to be an economic boost for the United States and a huge challenge for big producers of power from coal (like American Electric Power) and nuclear, like Exelon.

Exelon is also locked in a political battle over a new 650-megawatt plant planned by Omaha-based operator Tenaska, Inc. on Exelon’s home turf of Illinois.  Tenaska had originally planned a $3 billion next-generation “clean coal” plant for its Taylorville, Ill. site.  Faced with strong opposition from state politicians and influential business figures including John Rowe, Tenaska this week said it would shift gears and build a natural gas plant instead, at a third of the cost.  How Exelon will respond remains to be seen.

The waves rippling across the energy industry represent the biggest change in the utility business since deregulation, in the 1990s.  How these new power behemoths navigate the tossing energy seas will play a major role in determining the structure of the U.S. energy industry for a generation.

Aiming to reduce greenhouse gas (GHG) emissions from coal-fired power plants, the Environmental Protection Agency (EPA) recently released its “new source performance standard” to sharply limit such emissions from coal plants that will be built in the future (the standard does not apply to plants constructed in the next 12 months).  The new rules will allow existing coal plants to continue to operate, though EPA could eventually issue standards to reduce carbon pollution from these plants, too.

In June 2011, the Supreme Court declared that the EPA has the authority to curb greenhouse gas (GHG) emissions under the Clean Air Act.   While the EPA determines new source standards, it shares the responsibility to do so with the states for existing sources.

The “new source performance standard” requires that new plants meet a specified emissions rate that is both technically feasible and economically viable. Although the standard does not dictate which fuels a plant can burn, it essentially requires that new coal plants cut CO2 emissions by 50% to match emissions from natural gas plants.

Coal power plants are the nation’s largest source of GHG pollution, emitting almost 1.9 billion tons of CO2 equivalent into the air every year.  Nevertheless, the EPA continues to be challenged by various political groups and factions of the coal and power industries who are determined to derail its new standard.  Some claim that EPA’s rules will cause power shortages and blackouts, but the Department of Energy has concluded that the nation’s need for increasing supplies of electricity can be met by a combination of renewable resources, natural gas plants, and much improved energy efficiency measures and demand response systems in commercial, industrial, and residential sectors.  The tools to meet our growing appetite for electricity are available; the question is whether the tough new limits on new coal plants will survive.

A wave of reports trumpeting the oil industry’s shift to unconventional fuels has appeared in recent weeks.  The Wall Street Journal and the New York Times are among the major publications covering changes in the global fossil fuel industry.  With their investments in new technologies and new resources, the world’s largest fossil fuel companies are rapidly redrawing the map of the global energy industry, at a global and local scale.  Unfortunately, this changing map leaves significantly reduced territory for the cleantech industry. 

In the last several years the world’s largest oil companies have shifted their upstream fossil fuel production investments back to OECD (Organization for Economic Co-operation and Development) countries, typically the largest importers of fossil fuels.  What used to look like a 50-50 division of investments between OECD and non-OECD, is now closer to 70-30 for some oil companies, according to The Wall Street Journal.  From Australia to Canada, and from the United States to Poland, the exploration and production of oil and gas in the developed world is exploding.  Thanks to innovative (and often controversial) new technologies such as horizontal drilling, ultra-deepwater wells, and hydraulic fracturing, oil companies are now exploiting the market for previously inaccessible fossil fuels.  A majority of the future value for Big Oil companies – as much as $1.7 trillion, according to energy consulting firm Wood Mackenzie – is anticipated to come from Australia, Europe, and North America. 

Oil companies are leveraging technology innovation to become diversified energy companies.  That does not necessarily translate into additional investment in cleantech.  Oil company investments are rapidly moving them toward the production of liquefied natural gas, shale oil, and coal gasification, not wind or biofuels.  In a time when the future of the Section 1603 tax breaks, which benefit clean energy and mass transit programs, is up in the air, massive new investment in fossil fuels may dampen the momentum the cleantech sector has built over the last couple years. 

It certainly does when investment in unconventional oil and gas actively displaces investment in the cleantech industry.  This may be the case in Colorado, where ConocoPhillips, the US’s third largest oil company, has indefinitely postponed its plans for a technology research and education campus in the Denver-Boulder area.  Following significant investments in the local biofuels industry through 2008, ConocoPhillips (which is in the process of splitting into two companies, ConocoPhillips and Phillips 66) now appears to be more actively pursuing the “unconventional” opportunity.  Not until later in 2012 will the full effects of the transformation of Big Oil on the cleantech sector become apparent.

I did a double take when I saw this headline on the homepage of The Wall Street Journal: “U.S. Nears Milestone: Net Fuel Exporter.”

“U.S. exports of gasoline, diesel and other oil-based fuels are soaring,” the newspaper reported, putting the nation on track to be a net exporter of petroleum products in 2011 for the first time in 62 years.”

Really? Here are a few highlights from the WSJ’s story:

• A combination of booming demand from emerging markets and faltering domestic activity means the U.S. is exporting more fuel than it imports, upending the historical norm.
• As an overall exporter of fuels made from crude, the U.S. now has greater influence in the global energy market.
• The U.S. will not lose its “net exporter” tag anytime soon.

While many of us weren’t paying much attention, people at energy companies saw a challenge and found new ways to meet it, leveraging new technologies for more efficient drilling amid a shifting global energy market.

This means the energy picture may not be so gloomy after all. Clearly, this does not mean we should ignore other fuel sources, including renewables. And it hardly helps solve the looming challenge of global climate change. But it does offer hope that solving long-term energy challenges, such as national energy security, may not be as difficult as once envisioned. That’s a good thing.