[BETA] Fortnightly

Renewable portfolio standards and other green energy rules put a price on environmental benefits. Calculating this price can help clarify the social value of GHG reductions.

The power and gas markets look very different today from what we were anticipating three to four years ago. Gas has gone from seeming shortage to seeming abundance with recent spot prices falling to well under $3/mcf. Power prices and volatility are down significantly. Demand is soft and excess capacity exists in most of the country. While it might be easy to attribute the conditions in the power markets largely to the recession, the reality is that the fundamentals of the market are materially changing—creating opportunities while revealing new pitfalls.

By some measures, merchant power assets look like a bargain, selling for well below their replacement cost. But whether low prices signal a buying opportunity or a value trap depends on the outlook for electricity demand growth—not just in the long term, but also in the fairly immediate future.

During the next few years, the biggest growth in the solar energy market will happen in the form of utility-scale projects, mostly driven by state renewable portfolio mandates. But financing such projects has become more difficult, with a smaller pool of equity capital and an evolving set of regulatory requirements.

Utilities are taking advantage of a sweet spot in the capital markets, pre-funding and refinancing at record low rates. But cheap money won’t resolve overhanging uncertainties preventing cap-ex projects and M&A deals. Greater certainty in America’s economic and policy outlook will clear a path for strategic change.

California’s new feed-in tariff (FIT) is creating a burgeoning market for green energy investments, but the policy has sparked a fierce battle over state authority to dictate wholesale power transactions. A federal case will determine whether the 1978 Public Utility Regulatory Policies Act pre-empts states from requiring purchases that exceed utilities’ avoided cost.

An estimated $900 billion of direct infrastructure investment will be required by electric utilities over the next 15 years, and $750 million already is in place. Nukes, renewables, low-carbon technologies, combined-cycle gas turbines—all have faced cost challenges. The magnitude of the numbers requires a multi-pronged approach.

The opposing challenges of higher gas prices and rising environmental concerns have put utility regulators in a difficult position: How can they bring rate stability while minimizing environmental impacts? At the same time, they are grappling with trends in consolidation, competition, transmission planning, and distribution service quality. Each state brings a different view of the changing utility landscape. For insight, Fortnightly brought together regulators from several states to discuss their plans and priorities for today and the future.

THE FUTURE OF ELECTRIC COMPETITION

An analysis of competitive power markets finds that oligopolies are the end game for liberalized power markets.

The British wholesale power market is about to enter a new phase.

The Future of Fuel Diversity

The fragmented electric industry structure poses an obstacle to a more stable, diverse, and secure power supply.

Daily news headlines have drawn attention to concerns about fuels, especially the rising prices of oil and natural gas. Fears of interruptions of oil exports from Iraq, Iran, Russia, and Venezuela (take your pick) roil the energy market. But coal is not exempt from bad news, as production declines reduce output from Eastern U.S.