Current fleet faces flat demand, ‘bundle’ of rules and changing markets

These are uneasy times for the existing baseload fleet, especially coal and nuclear power plants, officials told a U.S. power forum sponsored by Alstom July 25 in Washington, D.C.

Various speakers, including American Electric Power (NYSE:AEP) Executive Vice President Mark McCullough and Duke Energy (NYSE:DUK) Senior Vice President William Tyndall agreed, they expect flat load growth in the near term.

They also cited a “bundle” of Environmental Protection Agency (EPA) standards which, together with cheap natural gas, are forcing scores of coal units into early retirement.

Meanwhile, the technology for more efficient air conditioners in commercial buildings and “virtual” power plants, gives power suppliers a lot to think about before they invest $500m in environmental controls on an existing coal plant or commit to $10bn and 10 years to build a new nuclear power plant, Tyndall said.

“Natural gas is certainly driving this industry, whether you like it or not,” said Electric Power Research Institute (EPRI) Vice President for Generation Thomas Alley.

Most speakers agreed that coal plant retirements will probably hit 60,000 MW by 2020. In addition, the average age of the existing coal plant is more than 30 years old, officials noted.

In addition to its cheap price and lower carbon footprint, natural gas generation today also has the advantage of being able to start up quickly to accommodate the growing amount of subsidized renewable sources, various speakers said.

Baseload plants seem to be having a tough time in this new world. “Will the nuclear fleet be asked to load follow,” Alley asked?

One company looking to profit from the existing state of flux is Calpine (NYSE:CPN) with its modern fleet of natural gas units, said Calpine Senior Vice President for Generation John Adams.

Calpine and its gas fleet ran at only 48% capacity in 2012, Adams said. This gives the fleet lots of potential to increase gas-fired generation, and reduce the nation’s CO2 impact, without building any new power plants.

Adams said most of Calpine’s fleet is between 10 and 15 years old and new combined-cycle technology developed in recent times have made gas-fired generation technology cheaper and more efficient.

The pipeline infrastructure for gas is continuing to improve, Adams said. The Calpine official also said fears of U.S. over-reliance on natural gas are largely overblown.

The legacy fleet isn’t going away, however

But even Adams said that coal will continue to play a major role in U.S. power generation for decades to come.

“The reality is that the existing fleet has got to keep operating for a lot of years,” said Alstom Vice President Robert Hilton.

Gas generation is fundamentally different from coal power because it relies on essentially “just in time fuel supply,” FERC Commissioner Philip Moeller said. Coal plants do offer the stability of having a 60-day fuel stockpile available on site, Moeller said.

Despite all the progress in distributed generation technology, Moeller believes the nation will long need large centralized power plants. The FERC commissioner also noted that much of the nation lacks capacity markets where generators could be paid for having a power plant available during peak demand periods.

McCullough said parts of AEP’s service territory experienced a summer peak only days earlier – at a time when several units were offline due to a lightning strike and various equipment issues.

“We don’t like a potential future with just one fuel source,” McCullough said.

McCullough also noted that AEP looking to build a much new transmission infrastructure to help make up for coal retirements. AEP is also increasing its natural gas use, he added.

After seeing a surge in its natural gas power generation in 2012, AEP is seeing something of a coal power rally in 2013, McCullough added.    

While tougher environmental standards have sparked concern over impact among generators, Moeller credited EPA with doing a good job of listening to the industry avoiding a major shock to the grid so far.

Duke’s Tyndall said today regulatory and market situation is looking more like a “balkanized wild, wild West mess,” that we’ve created.

Renewable power and energy efficiency is becoming a large enough market niche that it is drawing a large amount of investment, Tyndall said. Nobody knows how quickly changes will occur, Tyndall said.

The one constant is that things will change, noted Alstom President for the United States and Canada, Pierre Gauthier. A few years ago many people were predicting a nuclear renaissance, he added.

In addition to Alstom, the event was also sponsored by the Institute of Clean Air Companies, the Gas Turbine Association, The Coal Utilization Research Council and the American Boiler Makers Association.

 

About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at wayneb@pennwell.com.