USE OF U.S. ECONOMY UPHELD FOR EQUITY CALCULATIONS
The Federal Energy Regulatory Commission, in seven rate cases involving interstate natural gas pipelines, has upheld a new policy on...
costs" for coal and nuclear may be viewed as benchmarks, subject to the conditions and limitations of this study, for judgments regarding the economic and financial competitiveness of new projects.
A high "parity capital cost" indicates strong market receptivity to new coal or nuclear, relatively high competitiveness with combined cycle, and relatively high financial margins. In other words, new projects having relatively high capital costs can be economically competitive and financially attractive. Comparisons with anticipated new plant costs can provide insights as to whether projects in general or specific projects are likely to be financially attractive, but a cautionary note is in order when comparing specific projects to the results of this study. Individual developers and projects may have very different views of the future and/or financial parameters than those that underlie this study.
Results are presented for three scenarios (see Table 1, ). Scenario 1 assumes substantial installed capacity or ICAP markets everywhere, and substantial revenues therefrom for all generators. This scenario utilizes the reference gas price trajectory. Scenario 2 is based on a market structure in which there are only minimal ICAP revenues, and generators must rely on the energy market for profitability to a much greater degree. The reference gas price trajectory is used here as well. Scenario 3 is based on the Scenario 1 market structure, but assumes a 20 percent higher gas price trajectory. Only one scenario of environmental regulation requirements is considered; alternatives are beyond the scope of the present study. Sensitivity cases were examined for variations in financing costs and for nuclear plant fixed operation and maintenance costs. The following observations emerge from these scenario results.
Clearly, both coal and nuclear benefit from an increase in gas prices. The 20-percent increase in Scenario 3 relative to Scenario 1 yields a parity capital cost increase of about $210 per kilowatt for both types of base load units.
Market structure is somewhat important in this study, with both coal and nuclear benefiting from a structure that incorporates an explicit ICAP market. The advantage in parity capital costs is about $100 per kilowatt for both. However, we have considered only a very limited subset of the many possible bidding strategies that market participants could adopt. Results may be different for alternative bidding strategies.
For coal units, the most favorable and least favorable markets are consistent in the three scenarios. This is substantially true for nuclear as well.
PJM appears to be among the best markets for both coal and nuclear.
MAIN appears to be among the least favorable markets for both coal and nuclear, probably because of the large existing population of base load generators. While it is important for every new project to minimize fuel costs, this may be particularly important for proposed coal plants in MAIN. This study assumed new projects would use a typical local coal with an escalated typical recent historical price. Very recent EIA data indicate that coal prices in Illinois in particular are being reduced, perhaps more than is reflected here. Also, it may be advantageous for a new MAIN project to