Boom and Bust? Understanding the Power Plant Construction Cycle

Deck: 
Rising energy demand could spur investment in waves, but a fixed capacity charge might flatten the curve.<b> </b>
Fortnightly Magazine - July 15 2000
This full article is only accessible by current license holders. Please login to view the full content.
Don't have a license yet? Click here to sign up for Public Utilities Fortnightly, and gain access to the entire Fortnightly article database online.


 

Rising energy demand could spur investment in waves, but a fixed capacity charge might flatten the curve.

Construction cycles occur in many industries. Examples include automobile manufacturing, metallic commodities, agricultural commodities, and real estate—some of which may differ in fundamental ways from the electric industry. Yet that does not make the power business immune from boom and bust.

The differences that separate these other industries from the power business may arise from their long supply chains or their ability to store products in inventory prior to delivery. The real estate industry, however, appears similar to electricity in many respects. Investors consult market data in deciding whether to construct new buildings, just as a power producer might do. And in real estate, delays in completing construction have given rise to cycles that date all the way back to the early 1800s (See bibliography, Hoyt 1933, DiPasquale 1996, Sterman 2000).

Construction cycles have not been as prominent in the long history of the electric industry—fluctuations in reserve margins have not been as dramatic as changes in inventory in other industries—but that fact may change. When restructuring is completed, electric utilities no longer will be obliged to build the new power plants needed to serve demand. They will consult the market before building the plants that will be needed in the future. Some believe the market will respond in a cyclical manner

This full article is only accessible by current license holders. Please login to view the full content.
Don't have a license yet? Click here to sign up for Public Utilities Fortnightly, and gain access to the entire Fortnightly article database online.