Are we languishing, or working off a 20th-century legacy? Gartner’s hype cycle suggests the latter, as new technologies start producing value.
America's Resource Mix
Wind gains, but won’t soon alter the fuel mix.
Some power markets may be seeing possible signs of recovery. Spark spreads appear to have bottomed out, and reserve margins have begun to fall in some markets. As Figure 1 shows, recovery is uneven, with many regions still experiencing excess supply and a few regions with peak reserves under 10 percent. The picture becomes somewhat distorted as utilities build new capacity inside their rate base and sign power purchase agreements with wind projects to meet state renewable portfolio standards.
Retirements on the Rise
The retirement of old and inefficient power plants was an expected outcome of restructuring as was the overbuilding of new, more efficient plants, but never a noticeable trend. That may be changing as markets become better organized, liquidity grows, environmental regulations are stepped up, and competition becomes more intense.
A large number of announced retirements and mothballing in Texas have occurred, driven by the highly competitive and organized ERCOT wholesale market, open transmission access, a functioning retail market, and the wave of new plant development, which pushed reserve margins past 35 percent. The pressures of competing at the retail level means that companies no longer can rely on their old, inefficient capacity but instead must search out the lowest-cost plants.
On both the West Coast and East Coast, tightening emissions controls may induce retirements or fuel-switching away from coal. Near the close of 2004, New York announced settlements over air quality with AES and NRG Energy. By 2009, AES agreed either to install new emissions controls or shut down three of its small coal-fired plants totaling about 288 MW. In addition, it agreed to convert its 162-MW Greenridge plant to a clean-coal demonstration project. AES owns six coal-fired plants in central New York totaling approximately 1,400 MW.
Resource Mix and New Build
In the 1960s through the 1980s, the building boom in coal-fired generation plants led to a 150 percent rise in coal generation. Figure 2 shows coal capacity is now down to 32 percent of U.S. capacity market share, although coal’s generation market share still exceeds 50 percent. However, Global Energy expects the contribution of gas-fired generation to the generation mix to rise significantly over the next 10 years. This increasing U.S. reliance on gas fuel and liquefied natural gas will have important consequences.
A large amount of capacity currently being developed could enter the market over the next few years. As of March 2006, 58,000 MW were in some form of permitting. In addition, approximately 18,000 MW (nameplate) were under construction. Two-thirds of this capacity is natural-gas-fired, and coal accounts for about 4,300 MW. Most of the remaining capacity is renewables such as wind.
Meanwhile, there are 61,000 MW of coal-fired capacity currently being developed in the United States. 1 As indicated in Figure 3, most of this capacity is targeted for the Midwest,