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Solve the Seams

The big challenge facing the Northeast energy markets.

Fortnightly Magazine - October 2007

( e.g., power to spare) than the generation owners in the east and north.

In NPCC, purchased-power transactions generally flow from west to east and from north to south. This is because the majority of the less expensive hydro, nuclear, and coal generation is located in the west and north, while the more expensive natural gas, oil, and dual fuel generation is located in the east and south.

The higher-demand metropolitan areas of the Northeast region ( e.g., PJM-East, southeastern NY, Boston, and southwest Connecticut,) have the more expensive gas- and oil-fired generation, and lower reserve margins. PJM West, western New York, and the Canadian provinces have the less expensive hydro, coal, and nuclear generation, and greater reserve margins. This situation drives the major purchased-power transactions, and also creates the transmission congestion.

Defined Capacity Additions

The Northeast region has experienced a significant increase in merchant power generation, perhaps more than any other region. Global Energy’s spring 2007 forecast includes over 6,000 MW of defined capacity additions coming on line between 2007 and 2011 in the Northeast region.

In determining a likely amount of initial entry, we reviewed a variety of publicly available sources describing projects currently being developed in the Northeast. As shown in Table 2, Global Energy found a total of about 35,000 MW of new capacity completed since the beginning of 2000. In addition, Figure 3 shows a breakdown of plant developments in the 2000-2007 period, including about 29,000 MW of new capacity that has been cancelled.

To determine total amounts of generation coming on line, Global Energy generally assumed that projects currently under construction would be completed regardless of early-year economics. While some regions clearly are overbuilt, most developers and investment bankers are willing to finish near-completed projects. A project that is finished, even though it may be deemed financially uneconomic given current market pricing, has more value than an unfinished, sometimes heavily indebted, project.

Facilities in earlier stages of development, such as announced or permitted (but not under construction) are assumed to be completed in response to future supply and demand conditions. Based on these assumptions, Global Energy included almost 6,400 MW of new capacity for the 2007-2011 period, with over 44,000 MW in the pre-construction phase. Many of the current projects being planned, permitted, and announced will be built after 2010 when capacity markets in New England and New York have matured.

In Ontario, significant capacity additions will be made during the next decade. In 2004, the Ontario government created the Ontario Power Authority (OPA), which is developing Ontario’s first Integrated Power System Plan (IPSP) since the late 1980s. This plan is expected to be completed by mid-2007. On June 13, 2006, the Ontario Minister of Energy gave the OPA its goals for the IPSP: Close all coal facilities by the earliest practical date; maintain the current level of nuclear generation; double the current level of gas, cogeneration, and renewables; increase conservation measures by a factor of 10; and strengthen the transmission system to achieve this desired supply mix. In an unprecedented open and public