LAST YEAR, RESOURCE DATA INTERNATIONAL PREDICTED THAT merchant plant activity was poised for explosive growth as deregulation created opportunities for a new breed of highly efficient generators. (See "Merchant Plant Activity Set to Explode," April 15, 1997, p. 14.) This prediction has proved true, with nearly 30,000 megawatts of publicly announced merchant plants under development.
More than 50 percent of this development is concentrated in New England, a particularly attractive market for merchant plant development. About 60 percent of existing generation in this region was built more than 25 years ago. These older, inefficient oil- and gas-fired plants cause high market prices. Closure of Maine Yankee and Haddam Neck nuclear plants removed excess capacity from the market; additional closures could create a need for more capacity.
New England is relatively isolated from other power markets due to limited transmission interconnections. Finally, most states in this region are moving rapidly to introduce retail competition, increasing the pool of potential buyers for merchant plant power.
Yet power plant developers seem to have overcompensated for any expected capacity shortages. About 25,000 MW of generating capacity exists in the region. If all publicly announced merchant plants were built, another 15,000 MW of capacity would be added to the grid. Too much new capacity could lead to low market prices; it also would push reserve margins in the region to 100 percent. Clearly, not all of this proposed capacity will get built. Some capacity, however, is already past the permitting stage.