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The Generation Glut: When Will It End?

An analysis of the timing, location, and mix of new capacity additions that may be needed in the future.
Fortnightly Magazine - April 2004

not see the most recent increase as a definitive indication of significantly higher natural gas prices over the long term, the possibility cannot be ruled out entirely. Consequently, we have evaluated how significantly higher long-term natural gas prices would affect the timing and mix of new capacity. We have assumed gas prices would be $5 per million Btu in constant dollar terms through 2018.

Higher gas prices would have two significant impacts. First, they would dramatically accelerate the need for new capacity on an economic basis. Second, primarily coal plants, but also significant amounts of renewable resources would be substituted for combined-cycle plants and, to a lesser extent, single-cycle combustion turbines. We project that the higher gas prices could lead to 21.2 GW of renewable resources by 2006 over and above what we project under the EIA's gas price forecasts and an additional 67.4 GW of coal-fired capacity by 2008. (For the purposes of this analysis we have not factored in any institutional or infrastructure issues that could limit these dramatic changes in the mix of new capacity additions.)

It is necessary to qualify these short-term results. The experience over the 2000-2003 period tells us that substantial amounts of new capacity could be brought on line in a relatively short period of time, albeit not necessarily in the appropriate locations. Over the 2000-2003 period, an average of about 45 GW a year came on line, and about 62 GW in 2003 alone. In our view, it is unlikely that siting, permitting, and constructing 67 GW of coal-fired capacity could be achieved by 2008, and some portion of this capacity, possibly a large portion, would have to be deferred. But the key point is that there would be a significant demand for substantial amounts of new capacity in the short to medium term if generators were confident that sustained high gas prices were likely. The timing and mix of new additions is shown in Tables 6A and 6B.

Of course, those regions most dependent on gas, and where coal could be sited, would see the largest shifts to coal and renewable resources. By 2006, the largest impacts would be in the WECC, with its relatively large renewable resource base. Assuming, as we did, a four-year lead time for new coal plants, the earliest they could begin to displace gas would be 2008. Thereafter, new coal would be the main source for meeting growth in demand and for displacing gas-fired generation. Obviously, the extent of this substitution would depend on the level of gas prices.

Nukes to the Rescue?

For the preceding analysis, we have adopted the assumptions regarding the costs and characteristics of a new generation of nuclear plants, the key component of which is capital cost. The estimates the overnight costs with contingencies to be $2,141/kW expressed in 2002 dollars. Up to this point, our results reflect the estimate, and at this cost new nuclear plants do not appear to be economic.

At least one vendor of nuclear plants with an Nuclear Regulatory Commission-licensed design maintains it can construct nuclear plants at