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Fortnightly Magazine - October 15 2001


Vice President Dick Cheney has suggested that the United States needs to build one new power plant per week for the next 20 years. So, our power supply situation must be pretty dire, right? Well, not so fast. A new study from RDI Consulting concludes that the supply side has reacted to perceived shortages-and may have overreacted.

The study, called "Booms & Busts 2001" an update to 2000's "Identifying Booms & Busts", reveals that the United States was well on its way to meeting the vice president's goal before the Bush administration announced its energy policy. According to NEWGen, over 450,000 MW of new capacity has been proposed since 1999 and more than 90 percent of those capacity additions stand ready to move forward nationwide. Over 60 percent of proposed projects are scheduled to enter the market by the summer of 2003, and 87 percent by 2005.

Based on these proposed additions, RDI Consulting concludes the nation could have a capacity surplus of more than 70,000 MW by 2005. "Booms & Busts 2001" examines the forces driving supply/demand balances in each region. Taking into account factors affecting the demand for electricity, such as the emergence of the digital economy (not as important as one would think) and the impact of retail electricity deregulation (potentially huge), the study projects supply-demand balances for each region using a probabilistic approach. This article focuses on the supply side: How much new capacity will be available in the coming years?

The greatest uncertainty on the supply side is determining just how much of the proposed 450,000 MW will make it to market. Already, 8 percent of the announced projects tracked in the NEWGen database have been canceled or temporarily tabled. Many other projects face significant developmental hurdles. In other words, just because a project is announced doesn't mean it will ever contribute one electron to the market. At the same time, developers appear determined to bring their announced projects online even in regions that are almost certain to face over-supply conditions.

To predict how much new capacity will be brought online, RDI developed a probabilistic model that derives a distribution of annual capacity additions based on inputs from RDI's NEWGen database. Each project in NEWGen is assigned a probability of development based on the current status of the project. The probabilities are region and technology specific.

Construction delays were also accounted for in RDI's model. Since most announced projects plan to begin operation in the summer months, delays in construction mean that planned additions are not available during critical on-peak periods. In fact, approximately 10,000 MW scheduled to begin operating by July 2001 did not meet their target on-line date, giving regional planners heart palpitations in places such as New York and California.

RDI's probabilistic model determined an expected value of capacity additions in each year beginning with additions proposed to be brought online in 2001. The study concludes that 180,000 MW will enter the market by 2005 nationwide. That projection is relatively firm: 55 percent of the proposed additions either began operating in 2001 or