Lawrence Makovich, Chief Power Strategist at IHS, chaired the North American Power Plenary on Thursday morning. A major theme for the panel was the importance of the reliability and resiliency of the power grid in response to shifting generation sources, peak periods of demand, and potential security threats. The panelists-Andrés R. Gluski, President and CEO of The AES Corporation; Nick Atkins, Chairman, President, and CEO of American Electric Power; and Lynn Good, President and CEO of Duke Energy-agreed that pacing the implementation of new generation sources and technological advances is a key factor facing the industry.

The panelists began by identifying key trends among their business strategies. Important to all was the expansion of infrastructure and consistent earnings growth to deliver strong dividends. Ms. Good specified that flexibility and innovation were pivotal to growth and transition in the industry. Mr. Atkins said that growth will vary regionally, with a real opportunity coming from industrial demand associated with shale gas development. Mr. Gluski pointed out that growth outside of the United States, where The AES Corporation makes 75% of its sales, was very strong in certain areas. In its international markets, AES has posted peak electricity demand growth in markets like Vietnam of 11% per year, compared with around 1-2% in the United States.

However, the panelists also identified the challenges of international expansion after Mr. Makovich raised the issue of expanding electricity access in energy-poor areas. Mr. Gluski stated that companies always have to ask, "What's your competitive advantage? What do you bring to that market?" In the past, new technology and capital were important factors, but both Mr. Gluski and Ms. Good stressed the importance of stakeholder relationships and community development and interaction. Ms. Good noted that Duke Energy has little appetite for expanding its business to areas where it has no experience or relationships.

A key theme for the remainder of the discussion was the reliability and resiliency of the US grid in response to a number of factors, including increased cyber attacks. Although added protection will be expensive, Ms. Good said that anything done to mitigate risk and ensure the reliability of supply was "money well spent." Another key concern was the impending retirement of coal plants in 2015. Mr. Atkins saw this winter and the polar vortex that brought unusually cold weather as a stress test of the system that revealed key scheduling, pipeline capacity, and pressure issues associated with stronger reliance on gas-fired generation. Ms. Good pointed out that the price differentials between Henry Hub and other delivery points are a prime indicator of the major remaining supply and infrastructure issues. Even with strong growth in shale gas production, all panelists saw price volatility as a lingering factor facing the industry.

All the panelists agreed that the uncertainty surrounding the reliability of gas supply was a major reason for the importance of a balanced and diversified portfolio. This applies to diversified sources of power generation as well as diversified regions of supply. Mr. Gluski cited Chile's reliance on imported gas from Argentina to fuel gas-fired generation and Chile's reaction following the cutoff in imports as an example of the heavy price of the lack of fuel diversity.

Another major theme was the issue of pacing in relation to the retirement of coal and the buildup of renewable generation. All of the panelists cautioned that an overly rapid buildup of intermittent renewable sources could decrease the reliability of the grid. They said that solutions to the fluctuation of supply, such as improved battery technology and grid optimization, were a major need for the industry. A significant challenge will be the trade-off between customers' preferences for certain types of generation, the resilience and connectibility of the grid, the economics of renewable sources, and corresponding regulatory mechanisms.

Finally, the panelists identified some of the key remaining questions facing the industry. Mr. Atkins said that the grid's response to coal retirements will be the most important issue in 2015, while Mr. Gluski identified great demand for increased electricity storage in California as a major factor to watch.

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.