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Squeezing Juice from Plants

Asset optimization is a favored utility strategy in an economic downturn.
Fortnightly Magazine - December 2002

or exceeded some of the goals the client had regarding steam production and generation. Not only that, but the plant has won some environmental awards from the state. "We're very proud of the fact that not only are we able to operate an efficient plant, but we are able to clean up the environment quite a bit," Rosiak says. He adds that it garners a lot of goodwill from the community.

Rosiak points out that when trying to squeeze megawatts out of a plant, it also is important to be able to keep the plant running under new environmental regulations. When trying to squeeze megawatts, he cautions that sometimes you might not be able to go too far because of environmental or other issues. "So it's not just simply squeezing megawatts, you have to deal with all the regulatory issues that come from the output of the unit," Rosiak concludes.

The How and Why by Region

Although the generation plant construction industry is experiencing a downturn, there are regional variations in the boom-and-bust cycle. Henwood, a consulting firm, recently released its six-month updates on power market fundamentals for the following regions:

In the Midwest: Henwood says the turbulence and price spikes of 1998 and 1999 are in the past. Today's power market in the Midwest is defined by capacity overbuild. New construction by merchant plant developers and by some electric utilities has resulted in systemic overbuild for the region. But that supply is not evenly distributed. So while sufficient capacity is completed or under construction to meet demand growth for the rest of the decade, in other markets new capacity will be needed in a few years. Wholesale electric prices are expected to stay low for several years because there is too much supply relative to demand. But wholesale prices are expected to increase rapidly in the mid-term as markets move toward all-in pricing in the 2007 to 2012 time frame.

In the West: Henwood finds that while drought, capacity shortages, and high electricity prices of 2000 to 2001 are indeed in the past, the West does face challenges. For example, the liquidity crisis facing many merchant developers has resulted in many project cancellations and postponements. But Henwood notes that a large number of new generating plants are coming online, and others are under construction, while loads have not returned to their pre-crises levels. Henwood believes there may be an overreaction by forecasters to the precipitous load drop, and that some entities predict a more rapid return to the old forecast level, which is consistent with Henwood's view. But for the first time, Henwood forecasts that some aluminum smelter load in the Pacific Northwest never will return. Generation appears adequate from an overall margin reserve viewpoint. And while some load-serving entities (LSEs) need to secure their energy requirements, some generators still have not sold their output. So both the "short" LSEs and the "long" generators are exposed to volatility and need to find a way to enter mutually beneficial bilateral contracts. Finally, Henwood does predict the potential for price spikes in September