The U.S. energy system is now dependent for more than 230,000 MW of power from fossil fuel-fired generation plants that are 40 or more years old, and that represents a $165 billion opportunity for newer, more efficient electric generation plants over the next five years, many of which could be fired by natural gas, Calpine Corp. CEO Jack Fusco told analysts Tuesday at the independent power plant operator's annual financial conference in Houston.
If a 2% annual electric load growth rate is factored in, the generation plant investment balloons up to $275 million, Fusco said.
Noting that $19 billion has been invested in new generation in this nation during the last three years, primarily in intermittent wind and solar facilities, Fusco called this investment collectively "loss leaders" without financial and government subsidies. He said the renewables deliver only when the sun is shining and the wind blowing, leaving a lack of reliable power and capacity.
"With all of the studies done on the integration of wind and solar energy, it is always assumed that the existing natural gas-fired power plants are going to stay operable, providing the vital utility services to maintain integrity of America's electric grid with no additional revenue," said Fusco, whose company is the nation's largest independent power provider with a mostly young, gas-fired fleet of plants. "That's just not reality."
Even with this situation providing Calpine with conceivably some large growth opportunities, COO Thad Hill told analysts the company is "neutral" toward natural gas for this year and next, assuming that continuing low wholesale gas prices will be good for the power generator, particularly at a time when coal prices are rising.
Hill further offered the observation that unlike the projections of just three years ago when wholesale gas prices were skyrocketing and volatile, there was a widely held expectation that natural gas would become a global commodity by now. But he now thinks it has fast become more of a domestic commodity, while coal is more of a global commodity today.
"Our hedge position sees us as neutral toward natural gas this year and next," Hill said. "Who would have predicted two years ago what's happened to natural gas [in North America]; everyone was predicting that it would be a global commodity. Instead, it has actually become a truly domestic commodity, and coal -- particularly Appalachian coal -- which was a strictly domestic commodity is becoming an international one."
He called the results of this "very bullish" for Calpine and its fleet of mostly natural gas-fired, combined-cycle generation plants.
However, the big elephant in the room near term remains the aging U.S. power generation fleet, something Fusco thinks should "make every legislator, regulator and power grid operator lose sleep." While the debate over long-term energy policy continues to be muffled in Washington, DC, he said, "the power plants continue to age."
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