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Keep Your Eye on the South

The Southeast again is the battleground for fuels, technology, and market structure.

Fortnightly Magazine - July 2007

across most Southeast market zones. Our analysis has indicated that reserve margins in SOCO, Entergy, and TVA will remain at or above 20 percent through 2010. By the end of this decade, VP, FRCC, and AECI will need additional capacity to maintain their planning-reserve targets. The Southeast region, as modeled by Global Energy, includes all or parts of 13 states. Figure 2 presents a snapshot of the Southeast region.

Merchant generator profitability continues to be problematic. Excess generating capacity and low wholesale prices have caused spark spreads for gas-fired generation in the last few years to be lower than the levels sufficient to provide decent financial results. 2 Further, many of the new plants find themselves on the wrong side of congested transmission lines. In Global Energy’s forecast, if weather conditions are normal, gas-fired merchant generation will continue to face financial challenges. However, as the electricity markets gradually re-emerge from the historic overbuild, they will show signs of recovery with market heat rates elevated from their low 2004 and 2005 levels. This trend is expected to continue during the following few years, offering improved value for merchant generators in the region. At the same time, the continuation of high natural-gas prices over the next few years is expected to keep spot-market prices relatively high since natural gas-fired generation is on the margin frequently, especially during on-peak summer hours.

Figs. 4 and 5 illustrate the new capacity additions since 2000 and the fuel mix of announced power projects in the Southeast, respectively. As shown in Figure 4, development activity in the Southeast markets indicates that the free fall from the peak year of 2002 has come to an end. Between 2007 and 2020, developers plan to add over 41,000 MW of generating capacity. As demonstrated in Figure 5, these additions now suggest a more balanced resource mix as opposed to the recent building boom with a greater presence of coal and nuclear fuels, inspired among other things by the growing volatility in the natural-gas markets. Renewable capacity development still is limited in the Southeast.

Figure 3 illustrates the current status of announced power projects in the Southeast.

Recently, the electricity markets have witnessed renewed interest from power plant developers in coal-fired capacity. In the Southeast, there are 1,323 MW under construction and expected to be on line by 2010. Another 11,000 MW is in different stages of development.

Southeast at the Forefront of Nuclear Resurgence

With strong federal and industry support, nuclear energy is gaining momentum as a primary energy choice of the future. The recent approvals of early site permits (ESPs) by the Nuclear Regulatory Commission (NRC) brings more transparency to the new licensing process, and the continued interest by utilities and independent producers alike to develop new facilities demonstrates that the nuclear industry is poised for a revival. The Southeast is leading the development activity with 49 percent of the announced nuclear capacity planned in the VACAR, Entergy, Southern Energy, TVA, and Florida markets. As shown in Figure 6, this translates to approximately 16,800 MW of announced nuclear-generation capacity with commercial operation planned