Energy markets are inherently capital intensive, and operate under the constraints of a wide range of uncertainty and risk, from project and construction, to regulatory approvals and on to market supply and demand characteristics. They reflect deliberate, long term system scale, engineering design and anticipated rates of financial return. As a consequence, the role of policy and regulatory review and approvals plays a significant role in risk profiles.
Since 1990, the substitution of gas-fired combustion for other thermal energy resources has met several key objectives including lower capital cost, lower net air emissions profiles and faster ramp rates. Reports of declining reserves of Natural Gas in North America caused this model to be re-examined recently.
However, recent technology advances have made the extraction of natural gas from so-called unconventional sources cost effective, and extended estimates of affordable supplies several decades in the future. The impact of trend may disrupt reliance on coal and nuclear for base-load electricity resources, displace some hydroelectric facilities used for load firming, and even defer the need for some alternatives such as renewable.
Recent evidence of potential seismic and water quality hazards from hydraulic stimulation of geothermal and tight gas resources suggest that the existing regulatory approval model may be unprepared to deal with the uncertainty and risk associated with these activities. Regulators may decide to either defer decisions to the future, impose uneconomic mitigation measures designed to reduce risk to nearly zero, or simply deny projects on the basis of incomplete or difficult technical presentations or solutions.
Since energy development and consequent risk assessment is highly probabilistic in nature, the deterministic process of regulatory hearings includes an inherent bias against new or innovative, typically unproven technologies and processes. This paper explores the issues that must be addressed within the structure of the regulatory process in order to fairly evaluate the potential of new unconventional gas and alternative technologies in meeting future supply needs in the electricity system.