Electric consumers have more options, including distributed generation and micro-grids, and that’s complicating business for power suppliers, ScottMadden Management Consultants said in the firm’s fall industry update.
Solar photovoltaic (PV) will continue to be attractive to power customers in the coming years, the firm said. Market forecasts estimate the installation of 17,514 MW of distributed PV from 2013 through 2017. Expansion of that scale will require an investment of $48.5bn, according to ScottMadden.
In addition, the growing role of natural gas; coal retirements; capacity market debates and nagging questions about nuclear power continue to demand industry attention, ScottMadden said in the report.
If you listen to the public comments of CEOs from several publicly-traded companies several common trends emerge, the ScottMadden report said. Many big companies are looking to exit merchant generation and invest in regulated infrastructure. Many are building major new natural gas power plants and growing their solar portfolios as well.
Investor-owned utilities, merchant power generators and public power organizations are also coping with factors such as carbon emission rules for new plants and renewable generation growth, ScottMadden said in the report. Fleet modernization and cyber-security are also areas of growing concern.
Investor-owned utilities are encountering a number of headwinds including flat weather-adjusted power demand, the firm said. Many of these utilities, however, have supportive regulatory relationships and recovery mechanisms for aging infrastructure, ScottMadden said.
Merchant plants, meanwhile, are seeing sustained periods of low gas prices that depress power prices. In particular, merchants are seeing nuclear, coal-fired plants challenged in sustained, low natural gas price environment.
But various proposed environmental standards would likely raise power prices, making merchant power more competitive, the firm said.
Texas, gas-electric harmony remain issues to watch
Market issues concerning the Electric Reliability Council of Texas (ERCOT) continue to generate much attention.
“ERCOT generation is gas-dominated, and with low prices and low heat rates, returns in an energy-only market are low,” ScottMadden said. The chair of the Public Utility Commission of Texas (PUCT) has said ERCOT needs quick-start, flexible generation, but revenue does not support it presently.
“For example, a gas CT garnered 2012 revenue of $25/kW-year vs. an estimated requirement of $80–$105/kW-year,” ScottMadden said in the report.
A key debate is whether to augment the current energy-only market with a centralized forward capacity market. “Opponents believe that this would create a windfall to generators without encouraging new build,” ScottMadden said.
“ISOs have such markets—NYISO, PJM, and ISO-NE—but are still (with FERC) trying to balance interests to ensure “just and reasonable” rates and make those markets work,” the consulting firm said in the report.
Other options being touted in Texas include enhanced “scarcity pricing” as well as an administratively-set “downward-sloping operating reserve demand curve (including that as prices rise, demand falls),” ScottMadden said.
On the national scale, pipeline construction is needed to serve the growing natural gas generation sector. But building a pipeline can take three-to-four years. Also, “rare but possible single-point-of-failure risk” exists for downstream generators, ScottMadden said.
Regional solutions will likely include a mix of mitigating strategies, increased gas and/or electric infrastructure, and dual or back‐up fuel capability, the firm said in its report.
Founded in 1983, ScottMadden works on projects around the world and has offices in Atlanta and Raleigh.