The EPA will release new standards today that govern power plant emissions. The merit, necessity, or timing of the standards is moot. They will be issued and they will curtail significant amounts of coal based electricity generation. While the result may be harmful for the nation, it benefits HVAC contractors over the short and medium term.

Utility planners try to maintain a reserve margin of 15%, meaning power generating capacity is 15% greater than projected demand. In addition, utilities are regionally interconnected so that a capacity shortfall by one utility can be supplemented by a surplus from another. While wheeling power reduces efficiency (i.e., increases costs) due to transmission losses, it adds an element of supply diversity, lessening the risk of supply disruptions. Nevertheless, a number of regions are dangerously close to, or below the 15% reserve margin standard before power plant closures resulting from EPA mandates are accounted.

If old coal power plants are closed, the obvious solution is to build more generating capacity. The problem is we aren’t doing that. Very little coal and nuclear generation is being planned. The leading source of planned new electricity capacity is natural gas generation, which makes sense given the new domestic gas discoveries. Unfortunately, environmentalists seem dead set on blocking gas extraction through hydraulic fracturing (fracking) and the EPA appears to be taking steps to seize regulatory control of fracking from the states. If this happens, expect gas exploration to diminish.

After natural gas, the next leading source of planned generation is wind. The problem with solar and wind energy is their intermittent nature and the predictability of electricity production. Solar power capacity factor average less than 20% of nameplate. Wind operates at 20% to 40% of nameplate. During the summer, solar does match demand, producing the most electricity in the afternoon when demand spikes from air conditioning. Wind, conversely, tends to fall off in the afternoon. During winter months, the conditions are reversed, with solar ineffective in pre-dawn conditions.

Given the intermittent nature of these renewables, utilities must maintain standby generating capacity to use when the renewables fall off. You might wonder why we should use them at all. The underlying logic can be found in this publication from the University of Massachusetts’ Renewable Energy Research Laboratory:

While wind power does not replace an equal amount of fossil-fuel capacity, it does replace production – for every MWh that is produced by a wind turbine, one MWh is not produced by another generator. The damage done by our existing electricity generation is primarily a function of production, not capacity. Burning less coal has a positive environmental impact, even if the coal plant is not shut down permanently.

In other words, we use renewables to reduce pollution. Yet, while wind and solar reduce pollution, they make supply less predictable.

Until sanity reappears, we appear headed down a path where electricity demand will begin to outstrip supply. There are only two possible outcomes when supply exceeds demand. They are shortages (e.g., blackouts) or rising prices.

There will be attempts to reduce demand. In fact, that was the justification for the tax credits that expired in 2010. Do not be surprised if more demand side management initiatives are formed. These include incentives for higher efficiency equipment, reducing duct leakage, more insulation, and tighter homes, couched as “home performance.” This plays to the HVAC contractor’s strengths.

Utilities will also try to adjust demand through the smart grid. In the past, a spike in demand mean the utility fired up more combustion turbines to boost supply. Demand was the independent variable. Supply was controlled. Now, thanks to the growing usage of renewables, part of the supply mix becomes an independent variable. Utility planners will attempt to use the smart grid to transform a portion of demand from an independent variable to a controlled one. Again, there is a roll for HVAC contractors in the smart grid to install the HVAC and appliance control technology that will allow utilities to reduce residential demand remotely.

Contractors can also take advantage of blackouts and the fear of blackouts to offer standby gas powered generators. Rising electricity prices make rooftop solar PV and solar thermal more attractive. While large scale solar power generation may be questionable economically, household applications can make sense for individual homeowners.

Perversely, utility planners have been given a shot in the arm by the economy. A robust economy means greater electricity demand. Sooner or later, we the economy will turn once we abandon the disproven Keynesian economic policies only fail when put into practice. Given the lead time necessary to add capacity, that’s when things will get really interesting.

To prepare for our brave new world of self-inflicted third world electricity, read up on the issues. Keep abreast of the news related to electricity generation. Start talking with your suppliers about standby generators and solar. Talk with your customers about the situation. Encourage them to consider the highest efficiency products they can afford (or that will fit). Offer solar and standby generators to everyone in your customer base and make these essential options on all replacement quotes.

HVAC contractors are the equivalent of straight jacket manufacturers during a period widespread lunacy. We may not cause, but we can sure profit from it.

Matt Michel is the CEO of the Service Roundtable. Contractors join the Service Roundtable for $50 a month to gain unlimited downloads of industry sales, marketing, and management tools and resources, to benefit from online business support by top contractors and consultants, and to receive join the Roundtable Rewards buying group to receive cash rebates on parts, equipment (e.g., up to 9% is available on solar products), and supplies. The learn more or to schedule a complement tour of the website, call toll free 877.262.3341.