Douglas this may help in keeping power prices high:
Bridge Outlook 2001: Expect Delays for New US Power Plants
Dec. 22-MAR--
By David Givens and Tina Kozak, BridgeNews
Santa Fe, N.M.--Dec. 22--New power plants proposed in the United
States for 2001 will see delays in their construction schedules, industry
analysts told BridgeNews, but don't expect developers to cancel their
plans altogether.
* * *
In a tightly guarded power industry, more than a dozen big merchant
developers declined to answer even general questions about the power
generation outlook. According to Judah Rose, senior vice president at
consultant ICF Kaiser, there's a lot of signaling and strategic behavior
among these companies as they try to position to be the first to build
plants in a certain area.
At the same time, Salomon Smith Barney says the consensus view
overestimates
new generating capacity additions. "Generally, plants continue on until
they are approved, so it's delay after delay," said Chris Ellinghaus of
the power and natural gas team at the investment banking house.
Chris Seiple, director of supply side consulting at RDI Consulting
also said longer-term postponements were more likely than actual
cancellations in some areas. RDI estimated in October that only seven
percent of all new power projects were canceled or were facing a long-term
delay.
A recent Salomon Smith Barney report, using various natural gas
production growth assumptions, said that, of the 135,000 Mw planned for
2001 and 2002, maybe 27,000 to 45,000 will make it on-line.
"Keep an eye on gas production increases, and that shows how many
power plants there will be," Ellinghaus added.
SOME AREAS WILL LAG IN THE RACE TO BUILD NEW PLANTS
Utilities and marketers found huge opportunities for profits in
trading power since deregulation came to the wholesale side of the
industry five years ago. The best way to play in this market is to have
plants of your own, and now utilities and merchant generators alike find
themselves in a race to build gas-fired units.
"It is probably safe to assume not all these projects will be built on
this timetable," said Jackie Olson, spokeswoman for the Mid-America
Interconnected Network. She added that capacity additions in the region,
which comprises Illinois and parts of Missouri and Wisconsin, would match
or slightly exceed demand growth for the near term.
Some states on the East and West coasts are going to lag, however. In
California, consultant Cambridge Energy Research Associates says "local
community opposition alone has struck down some key proposed facilities."
The state recently tried to kick-start its lengthy licensing for plants
that pose no significant environmental impact, which has prompted a Texaco
subsidiary to try to bring the 320 Mw Sunrise plant on-line by May.
A BridgeNews analysis found that only one major new power plant, the
480 Mw El Dorado unit in Nevada, came on-line this year in the five
populous Far West states. A few low-capacity dams and wind projects were
also added.
Western state governors supported expedited and incentive-based
construction
of new power plants at an emergency meeting to discuss power shortages
Dec. 21.
"Political and regulatory uncertainty is not an incentive to new
plants," Pacificorp CEO Alan Richardson said at the meeting. "We need to
stabilize the marketplace in this regard."
NORTHEAST ALSO SEES OBSTACLES TO NEW PLANTS
In the Pennsylvania-New Jersey-Maryland (PJM) Interconnect, Rose said
one of the biggest obstacles will be the availability of transmission and
the cost of transmission upgrades. The Interconnect operates the grid and
a system to determine real-time prices.
Steve Herling, manager of system coordination at the Interconnect,
said that in northern New Jersey, for instance, projects are going to be
interdependent. The first new plants in line will have lower costs of
transmission tie-ins, but subsequent applicants will be looking at more
charges for incremental upgrades to the grid.
Without sufficient voltage or pressure to get into the grid,
electricity remains displaced by existing flows of power.
Herling said a project has a 25% chance of making it through the first
stage of PJM's approval process. "Sometimes the developers have not done
serious homework," he said.
Nearly 7,000 Mw are in the queue in PJM for arrival on-line by the end
of 2001. But based on his past experience, Herling said only 3,000 to
3,500 Mw will actually get built.
In adjacent New York state, Rose said there are no new units on the
board for next year because of excessive bureaucratic delays. And
opposition from the local populations can delay or halt a project in New
England, he said.
DEVELOPERS APPLY FOR MORE PLANTS THAN THEY EXPECT
Plants in development for operation in 2001 were grossly
overestimated, Ellinghaus said, and supplies are going to be tight. "There
is far less in construction to meet the amount initially indicated," he
added.
For 2001, Salomon Smith Barney estimated only about 25,000 of the
64,780 Mw that's been announced would come on-line during the year.
That estimate might be safe, given that a BridgeNews analysis has
verified that 24,378 Mw of new generation has come on-line in the United
States in 2000.
"Some developers have said they try to get one plant built for three
applied for," Ellinghaus said. "Maybe if you use that rule of thumb, you
come out with what people want to build anyway." ICF's Rose called this a
good strategy.
FORWARD POWER CURVES CONFIRM 2001 WILL BE TIGHT
Salmon Smith Barney confirms there will be little excess power next
year with forward power curves in the over-the-counter markets, which are
higher in 2001 than 2000 for all power hubs.
For instance, at the Mid-Columbia interties in Washington state, the
third quarter for next year sold at $280 Mw/hr in the middle of this
month. This year, daily pricing in the third quarter averaged $156.32,
according to the Price Waterhouse Coopers PowerTrax database.
Using an example in the eastern U.S., at the Cinergy hub in Indiana
and Ohio, May 2001 was valued Dec. 21 at $55.75. May 2000 dailies averaged
$43.99.
Pacificorp is a unit of Scottish Power. End
Kelly Hettler contributed to this story. |
