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Squeezing Juice from Plants

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

2003, and finds some outage potential in Northern California, as well. But overall wholesale prices presently are low and are expected to remain moderate over the forecast period (through 2012), despite some regional and localized differences.

In the Southeast: New construction by merchant plant developers in the Southeast, as well as by some electric utilities, has resulted in a systemic capacity overbuild for the region, according to Henwood. But it cautions that the supply is not evenly distributed. So in some markets there is sufficient capacity completed or under construction to meet the expected growth in demand for the balance of the decade, while in others there is a need for new capacity in just a few years. Most areas in the Southeast have adequate margins through 2010, but some areas may need added peaking capacity as early as 2004. Overall the wholesale price of electricity in the Southeast is low compared to historical levels and is expected to stay that way for several years. Henwood expects prices to rise rapidly in the Southeast after 2006 as markets move toward equilibrium pricing, but not to reach levels to support merchant generation solely from the spot energy markets until well after 2010. However, prices could rise earlier if loads increase moderately such as from a prolonged weather event, old coal or nuclear capacity retirements, or more rapid market evolution.

In the Northeast: While the Northeast is marked by capacity overbuild, the supply is not evenly distributed. So in most areas within the Northeast, with the possible exception of Quebec, there is sufficient capacity completed or under construction to meet the expected growth in demand for the balance of the decade. But in other markets, such as New York and New England, there is a need for added peaking capacity as early as 2004. Henwood says that overall, the Northeast markets reflect high reserve margins that will keep wholesale power prices low. Low prices also are in large part due to an overbuild in generation that is highly efficient and heavily dominated by nuclear in a region that is a mix of multi-fueled units. Henwood expects wholesale prices to rise rapidly after 2006 as markets move toward equilibrium pricing, but not to reach levels to support merchant generation solely from the spot energy markets until well after 2010.

In Texas: The forecast had not yet been released at press time, but Gary L. Hunt, vice president of consulting services at Henwood, says preliminary results show that Henwood's prediction of two years ago-that ERCOT faced a threat of displacement-has come true. In fact, about 7,000 MW of older, mostly coal-fired generation has been mothballed. "The newer, efficient units are driving out the older ones," Hunt says. "That is accelerated in part by the regulatory quirk that ERCOT is the last market where you can get something equivalent to stranded costs recovery," he explains. "So some of the older units are coming off now because the PUC says 'Get this junk out of here and clean up the air and we'll give you some stranded cost

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