Energy
NAICS 22111
The world's energy industry produces, transmits, and distributes electricity and natural gas. Electric power generation may derive from any number of methods, including the burning of fossil fuels, harnessing of wind or water motion, or energy from nuclear reactions. Often several separate companies or organizations are involved in the production and distribution chain, which spans from initial production to delivery to end users. Various firms and public utilities specialize in certain phases of energy production; others integrate several of the production steps. For example, some firms may generate electricity and sell it to distributors that, in turn, resell to the general public. Similarly, natural gas companies may operate pipelines that feed distribution companies, which then provide natural gas to end users in businesses and private residences.
Of the total worldwide energy supply in 2002, the International Energy Agency (IEA) noted in its 2004 report that 41.6 percent was coming from non-coal and non-oil sources. These other sources included natural gas, nuclear, hydro, combustible renewables and waste, and others, including wind and solar. This was up from 30 percent in 1973.
On a global basis, 16.1 trillion kilowatt hours of electricity was supplied in 2002, with the largest producing countries being the United States, China and Japan. However, all were also large users, and France exported more electricity than any other country. Most electricity was still being produced using coal, but there was a growing use of natural gas and nuclear in some countries. Alternative renewable forms of electricity generation were continuing to make inroads, with many investments in wind, geothermal and combustible renewable sources.
U.S., German, British and Japanese electric utilities dominated the top rankings, with the European-based companies showing the strongest signs of globalization. Total consumption of electricity worldwide was projected to reach 16.4 trillion kilowatt hours by 2010, 18.5 by 2015, 20.7 by 2020, and 23.1 by 2025. Total consumption of energy generation fuels, on the other hand, was projected to reach 193.6 quadrillion btu by 2010, 213.9 by 2015, 235.5 by 2020, and 258.6 by 2025.
In terms of natural gas production, on a global basis, more than 96 trillion cubic feet was produced in 2003. Since 1976, most growth had occurred in the countries of the former Soviet Union. Russia, Canada and Norway were the world' leading exporters, and although the U.S. was the second largest producer, it was a net importer in order to meet its demand levels.
The leading companies in the natural gas industry are those that hold or formerly held monopolistic control over domestic distribution rights, including those in the United Kingdom, Japan, the Netherlands, France, and Germany, as well as companies from the United States and other countries that were involved in worldwide exploration for or production of natural gas. In 2004, the world had a total 6.1 quadrillion cubic feet in natural gas reserves, of which the top 20 countries controlled nearly 90 percent, more than 5.4 quadrillion cubic feet.
The vast majority of the energy industry's growth is projected to arise from emerging markets in developing nations, which include Asian, Latin American, and Eastern European countries, where large pent-up demand exists for power, or there is a need to retool existing power plants, with China, Latin America, and Africa seeing the biggest annual increases in demand. The energy needs of developing nations, coupled with widespread global initiatives to deregulate the electric and gas industries and privatize state-owned companies, were increasing competition in an industry once viewed as being necessarily monopolistic.
Each nation generally has its own type of electric power industry structure, which in the case of more developed countries was typically solidified in the first half of the twentieth century. While traditional national and regional markets continued to exist in the late 1990s, deregulation and privatization of utilities was rapidly changing the organization of the electric power industry.
By the early 1990s, private capitalization of independent power projects set the stage for a new global business environment. This environment was characterized regionally by a surplus of power in developed countries such as the United States and Britain, which were in the throes of utility deregulation, and power demand from developing countries in Asia-Pacific and Latin American markets. While Western European utilities have joined in some of the consortia providing power in emerging markets, the independent power movement has roots in the United States and Britain, where utilities facing deregulation, competition, and fixed returns have turned to external markets for higher profits.
In the United States, regulation and deregulation began substantially changing the power industry in 1978 when the Public Utility Regulatory Policies Act was adopted to encourage conservation by allowing non-regulated independent producers to generate electricity that could be sold to utilities. This act was the birth of an independent power industry that grew faster than most expected; independent producers were responsible for half of the generating capacity that went on line during the 1980s. The 1992 Energy Policy Act granted the industry wholesale transmission or "wheeling of power" rights, which allowed utilities to buy energy from utilities across state lines in 1993. The act also gave states the power to permit retail wheeling (or transportation) of power to individual businesses and consumers. Between the late 1980s and early 2000s, the U.S. Federal Regulatory Energy Commission (FERC) approved roughly 850 wholesaler power transmission permits.
In the late 1990s, states were moving at various speeds toward deregulating their retail electricity markets. By April 1998, according to Strategic Energy Ltd., California, Rhode Island, Massachusetts, and Pennsylvania had already opened their retail markets to competition, while six other states—Montana, Nevada, Kansas, Illinois, New Hampshire, Maine, and Oklahoma—had passed retail wheeling legislation and were making progress toward completing the transition to competitive markets. By spring 1998, retail wheeling legislation had been proposed in 11 other states, and legislative or regulatory activity had taken place in the remaining 29 states. By early 1998, 11 states had opted to test the deregulated waters first by instituting pilot programs allowing certain customers to participate in limited retail choice experiments, as a prelude to retail competition. In the early 2000s, highly publicized problems with retail deregulation in California, including widespread blackouts, prompted many states to suspend plans to open their energy markets to competition.
Since the mid-1980s, the natural gas regulatory climate in the United States has changed dramatically as well. In 1985, FERC issued an order requiring pipelines to become open-access carriers for both gas producers and users, making pipeline companies transportation services. In November 1993, FERC order 633, which is aimed at reducing regulation and encouraging competition, took effect, making local utilities responsible for their natural gas supplies from well head to consumer. Additionally, pipeline companies were no longer allowed to sell gas directly to customers, but rather had to utilize a marketing unit. The order resulted in pipeline companies abandoning their sales operations and developing gas market affiliates to serve as intermediaries.
Between 1988 and 1991, Britain largely completed its plan to privatize the electricity industry, with the exception of nuclear power. In the process, the government's public monopoly responsible for generation and transmission of power in England and Wales was separated into two generating companies, PowerGen PLC and National Power, and a transmission company, National Grid Co. Efforts to privatize the natural gas industry moved more slowly, although by 1994 plans had been made to begin phasing in deregulation of the local gas industry starting in 1996, when a portion of British Gas PLC customers would gain the right to choose their gas supplier.
By 1998, as a result of privatization efforts in the United Kingdom, residential electricity bills in England and Wales had fallen an average of 21 percent. In mid-1998, British ministers announced plans to overhaul the country's electricity industry once again. Writing in the Financial Times of London, Andrew Taylor noted that the ruling Labour Party was keen to reform wholesale trading arrangements in the national electricity pool, claiming the structure had unduly favored growth in gas-fired power plants, which contributed to Britain's exceeding its pollution targets. Ministers proposed tighter restrictions for future gas-fired power plants in order to preserve a market for British coal while the new trading arrangements were introduced. In May 1999, the United Kingdom became the first country to...
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