GenerationHub: U.S. power industry driven in large part due to extensions of renewable tax credits

Natural gas continues to dominate the U.S. electric power industry, which is also driven in large part by renewables due to the extension of tax credits, but challenges such as policy uncertainty remain, Kent Knutson, director of Hub Services for PennWell, said during the Feb. 24 GenerationHub Quarterly Market Update.

As noted in a presentation during the webcast, gas wind and solar power continue to dominate the generation capacity landscape, with U.S. investment from 2016-2018 forecast to entail:

  • 85.9 GW of gas, or 66% of total investment
  • 25 GW of wind, or 16%
  • 20.4 GW of solar, or 13%

U.S. investment in gas, wind and solar is forecast at 131.3 GW, or 95% of the investment in all fuel types, which totals 137.8 GW, during that time frame.

Of the renewable tax credits, the presentation noted that a $1.1 trillion bill passed on Dec. 18, 2015, extended a 2.3 cents per kWh production tax credit (PTC) through 2016; thereafter, there is a 20% reduction per year through 2020.

“[I]f there is ‘commence to construct’ between now and the end of this year, the full 2.3 cents per kWh PTC would be granted,” Knutson said during the webcast, adding, “[T]hereafter, on an annual basis, 20% reduction in that 2.3 cent credit will occur through the end of 2020, and then starting in 2021, the tax credit will be gone completely.”

Also, the investment tax credit (ITC) was extended as is – 30% – for three years through 2019, and it will then ramp down until 2022, when it will be a permanent 10%.

The “commence to construction” factor now applies to both the ITC and the PTC, Knutson said.

GenerationHub is tracking “a lot of projects that are scheduled to come online, particularly in the solar and wind area in the next year or so, but I think what we’ll find is that they’ll get pushed out and there will be some balance to that as they’re brought online,” he said.

He noted that to close the tax credit extensions deal, “the Republicans were granted the lifting of the 40-year ban on oil exports.”

Knutson noted that the extensions will drive development in the near term, but will slow rapidly in the long term. Gas, wind and solar power continue to dominate the development front, and that is driven more by price than anything else, given the low price of natural gas, and the fact that wind and solar power are being subsidized to a great degree through the tax credits, Knutson said. The extensions of the tax credits also increase “a certain amount of volatility,” he said, adding that given the uncertainty of this year’s presidential election and the recent U.S. Supreme Court stay on the U.S. Environmental Protection Agency’s (EPA) Clean Power Plan, “some big investments could go on hold.”

He also noted that coal plant retirements are still a huge factor and the reason behind the growth in natural gas, in particular, but in the renewable side as well.

“There’s still a lot going on out there in terms of retirements,” he said. “We know that a lot of those retirements are aging, older units, but they’re still set to retire … during this year. Thereafter, [on the] coal side, things will taper off.”

On other policy matters, Knutson noted that the Energy Policy Modernization Act of 2015, or S.2012, “was bogged down in the Senate,” after being introduced earlier this month by Sen. Lisa Murkowski (R-Alaska).

As TransmissionHub reported, the broad energy bill will continue to be debated after Republicans and Democrats could not agree on whether to include federal aid for Flint, Mich., to address its water crisis, Senate leaders said on Feb. 4.

New gas generation

The presentation noted that new gas generation planned to come online in 2016 includes (nameplate capacity MW listed):

  • Virginia Electric and Power’s (Dominion Virginia Power’s) 1,472 MW Brunswick County Power Station in Virginia that is under construction; Dominion Virginia Power is a subsidiary of Dominion Resources (NYSE:D)
  • Midwest Generation’s 1,320 MW (refuel project) Joliet 29 plant in Illinois that is in advanced development
  • Florida Power & Light’s (FPL) 1,260 MW Port Everglades plant in Florida that is under construction; FPL is a subsidiary of NextEra Energy (NYSE:NEE)

New gas generation planned to come online in 2017 includes (nameplate capacity MW listed):

  • Exelon Power’s estimated $1.5bn, 1,221 MW Wolf Hollow II plant in Texas that is under construction; Exelon Power is a subsidiary of Exelon (NYSE:EXC)
  • Exelon Power’s estimated $1.5bn, 1,157 MW Colorado Bend II plant in Texas that is under construction
  • Old Dominion Electric Cooperative’s estimated $675m, 1,114 MW Wildcat Point plant in Maryland that is under construction

New gas generation planned to come online in 2018 includes (nameplate capacity MW listed):

  • Duke Energy Florida’s estimated $1.5bn, 1,640 MW Citrus County Combined Cycle Power Plant in Florida; Duke Energy Florida is a subsidiary of Duke Energy (NYSE:DUK)
  • Lackawanna Energy Center’s estimated $2bn, 1,500 MW Lackawanna Energy Center in Pennsylvania
  • Cricket Valley Energy Center’s estimated $1.4bn, 1,170 MW Cricket Valley Energy plant in New York

Clean Power Plan

Also speaking on the webcast was GenerationHub Chief Analyst Wayne Barber, who discussed the Clean Power Plan, which is scheduled to be argued before the U.S. Court of Appeals for the District of Columbia Circuit on June 2. It could take several months after that, and even a year or more, for that court to issue its decision, he said, noting that “the losing side in all likelihood would ask for the … full D.C. Circuit to reconsider the case rather than just the three judge panel. The full D.C. Circuit usually says no and at that point, whoever the loser was in that litigation will then ask the U.S. Supreme Court to weigh in, and this could be late 2016, it could be early 2017, it could be mid-2017.”

At some point, there is speculation that the Supreme Court will grant the reconsideration of the rule and by the time it does end up before that court, there is a good chance that there will be a ninth justice in the role left vacant following the death of Supreme Court Justice Antonin Scalia earlier this month, Barber said.

Of the circumstances surrounding the Clean Power Plan, he said, “The best quote I have read about this development of the Supreme Court stay was a football analogy that the opponents to the Clean Power Plan threw a 50-yard Hail Mary touchdown pass on the last play of the game and it worked, they scored the touchdown and sent the game into overtime.”

The stay “freezes the clock in place and utilities like time to make big changes to their fuel mix and this buys utilities, in all likelihood, another year or two to figure out how they’re going to decrease the carbon appetite of their power fleets,” he said.

Noting that about half of the states had already signed on to legal challenges of the Clean Power Plan, Barber said that it is not shocking to see such states as Wisconsin, Michigan and Indiana planning to suspend all work on state implementation plans to cut carbon emissions 32% by 2030 until the plan is litigated. Still, there are other states like Maryland that want to decrease carbon, he said, pointing to a Feb. 24 article by The Washington Post that noted that the Maryland Senate voted 38-8 to cut greenhouse gas emissions to 40% below 2006 levels by 2030.

Nuclear, solar, wind power

Barber also discussed nuclear power, saying that there two dynamics occurring in that industry: while there are a number of units under construction at Georgia Power’s Vogtle plant in Georgia, and the V.C. Summer plant in South Carolina – which is being built by SCANA’s (NYSE:SCG) South Carolina Electric & Gas, along with minority partner Santee Cooper – and the Tennessee Valley Authority has loaded fuel at the Watts Bar Unit 2 reactor, the “industry is trying to stave off premature retirement of nuclear plants and more keep getting announced all the time.”

Georgia Power is a subsidiary of Southern Co. (NYSE:SO).

Of solar power, he noted that there are concerns at the state regulatory level around net metering involving who bears the responsibility of paying for grid maintenance statewide and how much of a responsibility people who add rooftop solar bear for maintaining the greater grid for everyone.

Among other things, he said that around 5,000 MW of wind energy were brought online in 4Q15, and that trend of transitioning to more wind and solar should continue.

Also speaking on the webcast was GenerationHub Chief Analyst Barry Cassell, who discussed various gas-fired power projects that are moving forward, including the 920 MW gas-fired peaker, the Jackson County Generating Facility by the Southern Power unit of Southern Co.

As GenerationHub reported earlier this month, the company is nearing final decisions from the Texas Commission on Environmental Quality (TCEQ) for issuance of two air permits that would authorize construction of that facility.

That is an interesting development because while there are a lot of combined cycle plants in development, there are also a number of peakers, particularly in areas like Texas that have numerous wind and solar projects, which need a lot of peaking capacity to compensate for when they stop producing electricity because the sun went down or the wind stops blowing, he said.

Cassell also discussed dual fuel-powered plants, noting that, as GenerationHub reported, New England’s annual capacity auction concluded on Feb. 8 with sufficient resources to meet demand in 2019-2020, at a lower price, and with more than 1,400 MW of new generating capacity that will help replace recently retired and retiring generators. Three new dual-fuel power plants totaling 1,302 MW cleared the auction. The proposed plants are all near the region’s largest population centers, and two are in the former Southeast Massachusetts/Rhode Island zone, where a capacity shortfall materialized before last year’s auction for 2018-2019. All three will burn natural gas as their primary fuel, with oil as their secondary fuel.

Other projects moving along include the 786 MW combined-cycle power plant that Northern States Power is proposing in the next decade at the site of its coal-fired Sherburne County plant as a way of replacing two of the three existing Sherburne County units, Cassell said.

Noting challenges in the gas industry, he discussed the TransAlta MidAmerican Partnership (TAMA Power) project in Alberta. As GenerationHub reported, the Alberta Utilities Commission on Feb. 4 granted a request from TAMA Power to delay the commission-imposed deadline by four years, until the end of 2022, to complete construction of the 856 MW, combined-cycle natural gas-fired project known as Sundance Unit 7.

Another matter in the news recently involves Public Utility Regulatory Policies Act of 1978 (PURPA) matters, Cassell said. For instance, as GenerationHub reported, the Utah Public Service Commission on Jan. 7 only partially approved a May 2015 application from PacifiCorp d/b/a Rocky Mountain Power requesting approval to modify the maximum contract term for prospective power purchase agreements (PPAs) with qualifying facilities (QFs) as that term is used in PURPA. The application asked the commission to reduce the maximum term of a QF’s PPA from 20 years to three years. PacifiCorp argued that continuing to require it to enter 20-year, fixed-price contracts with QFs unnecessarily subjects ratepayers to significant market risk. It said it had seen a big spike in the past couple of years of QF projects, especially solar projects. The commission, though, only approved a cut in contract length to 15 years.

Industry trends

The presentation noted industry trends, including that for the most recent 12 months ending in November 2015, compared with the same period in the prior year, natural gas was up 13.4%; coal was down 16.5%, nuclear power was flat at 0.7%, hydropower was down 3.1%, and other renewables, including wind and solar power, were up 7.5%.

Also, in that same timeframe, compared to the same period in 2014, for electric utilities, the delivered price of coal was down 3.4% to $2.29 per mmBtu, and the delivered price of natural gas was down 29.9% to $3.64; for independent power producers, coal was down 5.3% to $2.13 per mmBtu, and natural gas was down 38.1% to $3.06.

Meanwhile, in that same timeframe, residential electric rates were up 1.4% to 12.7 cents per kWh, and up 0.1% to 10.4 cents per kWh for all customers. Of electric sales for the most recent 12 months ending last November, compared with the same period in 2014, the presentation further noted that residential sales were down 0.4%, commercial sales were up 0.4%, industrial sales were down 3.5%, and all sales were down 0.9%.

About Corina Rivera-Linares 3270 Articles
Corina Rivera-Linares, chief editor for TransmissionHub, has covered the U.S. power industry for the past 16 years. Before joining TransmissionHub, Corina covered renewable energy and environmental issues, as well as transmission, generation, regulation, legislation and ISO/RTO matters at SNL Financial. She has also covered such topics as health, politics, and education for weekly newspapers and national magazines. She can be reached at