Benchmarks

A hypothetical look at moneymakers across regions.

Given the high degree of ongoing electric market uncertainty, it can be challenging to get a reading on the current and future health of power markets. One way to gauge the health of the generation segment of the electric sector is to simulate the financial performance of a new gas-fired, combined-cycle unit. To perform this analysis, we start with the cost and performance characteristics of a new combined-cycle unit. Let us use these characteristics across all regions. We assume a 7,000 Btu/kWh heat rate, a $575/kW total project cost, a fixed operations and maintenance (O&M) cost of $15/kW-yr, and a variable O&M of $2/MWh. To achieve national coverage, we can examine 6 regional price points:

SP15 and MID-C in the West, ERCOT Houston, Cinergy (INDI) in the Mid-Continent region, TVA in the South, and NYC (NNYC) in the East. For these price points, we extract energy and capacity prices from the most recent Platts Research & Consulting (PR&C) Power Outlook Research Service forecast, and natural gas market prices from the PR&C GPCMDat natural gas data service.

Figure 1 shows the annual gross margins of the combined-cycle unit for each market from 2003 through 2015. The thick back line Figure 1 represents annual capital cost (assuming a 15 percent carrying charge) and fixed O&M expenditures, such that each regional line must surpass the horizontal back line to achieve before-tax profitability.