several innacuracies in that article -- maybe more that I do not know about:
1) He speaks of spread between baseload and peak demand and says typically 15%
I'm not sure what spread refers to there, but if he is using energy -- it is the wrong number. You have to talk about instantaneous demand in units of power. When you do, the spread is NOT anywhere near that low.
2) There are NOT ten semi-autonomous regions. He is confus-ed. There are 3. Texas. The eastern interconnect. The western interconnect. He is talking about NERC regions which are interconnected -- these ar regions which are used for planning reserve capacities in bulk.
3) It is not just a dependence on gas generation that makes a utility "un-competitive" -- utilities didn't make these decisions without a great deal of study. Most have pretty close to the optimum mix EVEN IF natural gas prices rise substantially and coal doesn't. What is key is the efficiency of the gas generation employed. Higher gas prices does not necessarily mean reduced profits for utilities that have a lot of gas generation. If a lot of it is combined cycle (of the more efficient type), they may actually benefit from higher gas prices.
4) Two other implications in the article are wrong
-- unregulated firms have an advantage?? No they don't -- they are at a disadvantage as they are more exposed to the markets and usually have considerably poorer asset mixes.
look for a good regulated firm instead.
-- electricity demand does depend on the economy and his thesis that communications devices, PCs, etc will contribute to above average growth going forward is total BS. One could probably easily disprove the idea by going to the EIA site where there are stats on end-use.
One of the big drivers of peak demand has been the housing boom, I'd bet.
It is not clear at this time that New Source Review will simply be pushed aside as the author states as well. There has not been underinvestment in coal in the US.
Yes, there was overinvestment in gas fired turbines, but you have to understand the genesis -- some decontrol of the markets led to huge price spikes. Peakers were simply cheap insurance -- even if they did cost 40-50M a pop. Now the marketers when ape-sh*t and extrapolated the tightness into the future and locked up all kinds of machines. the volatility went away and they were left holding the bag.
Will the volatility return? I really don't know -- I suspect it will in some regions, but as a whole I think it will follow the economy downward. Whether you have a coal asset or an NG fired asset, weaker markets will not be great for you.
I haven't looked in detail to see if there are values out there -- there may be some, but they are apt to be in a regulated firm. Beware I say -- SMD -- standard market design is being put off, but some of the pieces may be enacted and this will RADICALLY alter the landscpe for utilities.
If you haven't studied these things you do not know what you are getting into and should probably stay away, IMO. |
