Consultant ICF International (NASDAQ: ICFI) said June 19 that its new Integrated Energy Outlook for the second quarter of 2012 shows a significant shift toward renewables and natural gas, which will dramatically affect the wholesale power competitive landscape.
Related to federal environmental regulations, this quarter’s Energy Outlook finds that power system operators must work with generators to coordinate more than 70 GW of fossil-fired capacity retirements, and also outages associated with 400 GW of new pollution control installations, over the next four years. “While these regulations could also mean coal-fired generator retirements of more than 50 GW, ICF projects that coal generation in the U.S. will remain steady through 2020,” the company said. “The study also finds that the U.S. Environmental Protection Agency’s recently proposed New Source Performance Standards for greenhouse gases from new generation sources, does not impact the going forward capacity build-out.”
Notable is that EPA’s greenhouse proposal limits CO2 emissions from new plants to those from a new natural gas-fired plant, so gas-fired plants on the drawing boards would have no problems with the rule. New coal plants, however, can’t meet the standard without unproven and expensive CO2 capture and storage technologies, said industry officials. A handful of coal projects may possibly be able to get into construction during a one-year grace period that EPA proposes to grant under the new rule.
In the gas market, this past winter’s record warm weather reduced core gas demand in the residential and commercial sectors and caused gas prices to fall to $2/MMBtu, ICF noted. “These prices are not sustainable,” it added. “As projected, producers have begun to cut back gas development and redirect drilling activity to oil and natural gas liquids. As a result, gas prices have started to firm. Core demand likely will return this coming winter, as supply tightens and demand returns, with gas prices hovering in the $5 to $6 per MMBtu range in the long run.”
“The Energy Outlook provides big picture insights about volatile energy markets, as well as market-specific capacity projections and price forecasts,” said Steve Fine, vice president for ICF International. “For example, the Outlook shows a significant shift toward renewables and natural gas, which will dramatically affect the wholesale power competitive landscape.”
The report addresses a number of significant issues, including:
- how low gas prices are spurring new demand in the industrial and power sectors;
- what gas prices will look like over the next five years as new demand is created by coal plant retirements and liquefied natural gas export terminals that could place additional upward pressure on prices;
- why coal prices are expected to start rebounding in 2013;
- how the current regulatory and low natural gas environment is expected to cause some permanent demand destruction for coal use in the electric generation sector; and
- how U.S. coal will remain competitive on the export market.