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Gas-Fired Generation

Fortnightly Magazine - September 15 1995

industry increase its share of the electric generation market.

James Schretter

Senior Vice President

C.C. Pace Resources, Inc.

The future growth of gas-fired power generation depends on load growth, efficiency improvements, and the price of natural gas relative to other fuels. Past utility concerns about price volatility and the deliverability of the natural gas system appear to be fading with time. The real question is "When will new generation be needed?"

Energy supplies go in cycles, and new generation will be needed over the next 5-10 years. Natural gas will capture a respectable share of this market. Improvements in the efficiencies of gas-fired units will assist in this trend. However, the deliverability of natural gas during peak electric times constitutes a major challenge for the pipeline and natural gas supply industry.

Today's natural gas-fired generation industry is nothing like it

was in the past. Traditional,

nonrecourse funding for long-term utility power sales agreements has changed. The success of future projects will require more equity, higher risk, and sophisticated customer marketing. PURPA is currently a small part in the creation of new generation assets.

Gas-fired power generation will continue, based on its strong underlying economics, but the owners' balance sheets will be larger, their determination will be tested, customer relations will be critical, and project success will be subject to more doubt.

Gary G. Ely

Vice President, Natural Gas

Washington Water Power Co.

The future of gas-fired power generation depends on several factors. First, there's the relationship between delivered natural gas costs and the costs of alternative generation. Certainly, the deregulation of the electric industry will create pressure for all forms of generation to reduce costs. If Congress repeals PURPA, that will reduce costs of alternate generation, simply by forcing PURPA alternatives to compete.

Given these possible scenarios, the outlook for the growth of gas-fired power generation will remain flat to fairly low. The bias for coal or any fuel or alternative form of power generation will

depend on the variable production costs.

Gas pipelines should only become power generators if they possess the assets and knowledge to produce and market power competitively to the grid.

B. Jeanine Hull

Vice President &

Assistant General Counsel

LG&E Power, Inc.

I see a continued bright outlook for market-driven innovative uses of high-efficiency gas-fired technology.

Intended or not, I believe the FERC's and Congress' actions to encourage competitive markets will place an even higher premium on efficiency. Gas-fired technologies can be expected to continue to do well in such an environment.

The bias is not for coal or gas but for customer choice. Customers will decide what they want in terms of risk, supply, and fuel type. Competitive, market-driven concerns will influence those choices more than any inherent bias for an individual fuel type.

Power generators have, however, noted with some concern the FERC's current restrictions on shippers' ability to manage firm transportation agreements in an efficient and market-responsive manner. Greater flexibility in managing these contracts could materially enhance our ability to use natural gas in new power generation projects.

If gas pipelines want to become