New Power Plants Under Construction

Topic Report: New U.S. Power Generating Capacity

by Michele Markey

March 09, 2009

This report reviews the new electric generation capacity coming online in 2009 and its affect on natural gas fuel consumption.

Source: Energy Velocity Database

According to the Energy Information Administration (EIA), net generation in the United States in November 2008 was 0.9 percent lower than November 2007. This was the fourth consecutive month where net generation was down compared to the same calendar month in 2007. Generation for all fuel types was down in 2008, except for wind, which saw an increase of 33.1 percent through November 2008. New generation capacity added in 2008 consisted of approximately 1,400 megawatts (MW) of coal, 9,367 MW of gas and 8,678 MW of renewable electric generation, which was primarily wind.

Despite the economic downturn, new power generation facilities are scheduled to be built in 2009. New capacity additions in 2009 are focused on natural gas-fired and coal-fired plants. The chart below shows 16,958 MW of natural gas-fired generation and 16,332 MW of coal fired generation, while only 5,230 MW of wind power is scheduled to come on line in 2009. Wind is an inconsistent source of power because power is generated only when the wind blows above a minimum level. Also, the highest wind speed might not coincide with peak demand. Thus, wind power must have standby power generation (usually supplied by combine cycle turbines fueled by natural gas) to cover wind�s variable output.

Source: Energy Velocity Database

However, despite the fact that much of the new generation scheduled to be built this year is coal-fired, there are potential roadblocks to this generation ever coming online. The Environmental Protection Agency (EPA) has stated that it will reconsider a Bush Administration rule to let new coal-fired power plants open without taking carbon emissions into consideration. The EPA has warned companies who wish to start construction on power plants to not rely on the Bush Administration rule in seeking permission to build coal-generation facilities. Thus, although the permits to go forward with the coal plants have been approved, these plants may be delayed or postponed until the EPA makes a final ruling on carbon emissions.

The Obama administration has indicated that it wants to implement a cap-and-trade emission program by 2012 in order to cut carbon dioxide emissions. This could pose a substantial cost burden to coal-fired generation because coal gives off twice the amount of carbon dioxide as natural gas. A substantial carbon penalty would certainly stall ongoing coal-fired plant projects. Power consumers in the regions where coal is predominantly used for energy would be hit with higher electricity costs. Higher electric costs might force power providers to find cheaper sources of power, encouraging additional gas-fired generation development.

Despite the current economic downturn, the U.S. will need additional generation capacity in the next two to five years because of increasing electricity demand. According to the EIA, total electricity consumption is projected to decline by 0.8 percent in 2009, particularly in industrial electric sales. However, total electricity consumption is expected to grow by 1.3 percent in 2010.

In December 2008, the EIA forecasted that growth in renewable electricity (excluding hydropower) will make up 33 percent of the growth in electricity generation between 2007 and 2030. That forecast is probably too conservative and could be higher now that tax credits for renewable energy have been extended for the next three years. At the same time, with the major drop in natural gas prices, combined-cycle turbines fueled by natural gas have become a more economical means of adding incremental generation. The EIA forecasts a 4.4 percent increase over 2008 in natural gas consumption by the electric sector by 2015.

Conclusion:

Coal-fired plants are difficult and time consuming to permit and build (five to 10 years), and with the new administration�s climate policy, coal plant permits will be much more difficult to obtain in the future. Dynegy recently announced that it has cancelled a massive project to build five coal plants due to the potential cost of carbon regulation to the company. Consumers Energy in Michigan is also coming under attack by environmentalists for its plans to build four new coal plants.

A new nuclear plant has not been built in decades. Wind generation can only be used for incremental power needs because its variability cannot be used as baseload power supply. A gas-fired combined-cycle power plant can be built in two to three years. Despite the focus on renewable and unconventional power supply, natural gas-fired generation might be the only baseload capacity that can be quickly added to meet new demand once the economy improves.

About the Author

Michele Markey, manager of Special Projects, has been in the energy business for 27 years, with supply and logistics experience in crude oil, refined products, and natural gas trading, transportation and supply. She has held various trading and logistical positions at both gas and electric utilities. She came to Apache in 2002 and held the position of Director of Natural Gas Marketing responsible for marketing Apache�s North American production of approximately 1.2 Bcf per day. She spent four years of her career at Platts, as Director of Energy Trading Information Services where she developed and implemented one of Platt�s most successful databases, GASdat, and managed the Gas Daily and Megawatt Daily Pricing teams that are responsible for collecting and publishing the daily price indexes used throughout the energy industry.

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