Merchant Power: Promise or Reality?
Projects sprout in the United States and overseas, pushing the limits of grid capacity, turbine manufacturers and available sites.
Merchant power plants are emerging en masse to address the growing electricity needs of the United States and other countries, thanks to deregulation and fearless developers. While some plants are built to replace older, less-efficient utility-owned units, others would serve demand growth. Still more are planned as niche-oriented peakers - ready to supply the grid when marginal prices rise high enough. Ancillary services might offer another niche.
The bottom line is that the U.S. market is hot, as are others.
"With deregulation and the [number of] older facilities that will need to be replaced, the domestic U.S. market is much more fluid than it looked like it would be a few years ago," says Jeff Leichtman, a spokesman for Bechtel Enterprises in San Francisco.
Regardless of the purpose of these plants - most are still on the drawing board - they represent a stunning total of combined megawatt capacity. As of late October, developers had announced plans to build 109 plants in the United States to generate 56,368 MW, according to the Electric Power Supply Association of Washington, D.C. And EPSA's list isn't comprehensive.
How many of these projects will clear licensing hurdles and actually break ground? Will fuels and turbines be available to power these plants? Are there sufficient links to the transmission grids for these enterprises? And will banks finance the multi-billion-dollar cost of the proposals?
Only time will answer all these questions, but it's clear that the variables pose a formidable counterweight to the plans of developers. The uncertainties also suggest that during the coming decade, a shakeout will yield a small pool of major, integrated players, some developers say.
What may be most important about this rising wave of proposed merchant power plants is that they promise low costs and efficient designs. Plant owners expect to be free of most of the constraints imposed on independent power producers prior to deregulation. Therefore, developers say, the market for merchant power plants has yet to be defined.
"The 50,000-plus MW [new capacity currently proposed] seems like a big number, but there is 750,000 MW installed in the United States, and 45 percent of that capacity is over 25 years old," points out Ron Walter, senior vice president of business development for Calpine Corp. of San Jose, Calif. "A recent survey indicated that by 2015, about 90 percent of this [installed] capacity is going to have to be replaced. If you add to that the increase in demand of some 13,000 MW to 15,000 MW per year, you'll have to replace a million megawatts in this country," he adds.
"So anybody's prediction of what's being planned is really small compared to what has to be done."
Red Tape is Loosening
Led by pioneers like Massachusetts and California, many state utility commissions are reviewing the first wave of merchant plant proposals within those jurisdictions where such reviews are required. While the regulatory process varies from state to state, the common denominator is a