The longer the period of low natural gas prices drags on, the more value is added to existing fossil fuel generation plants, Edison International CEO Ted Craver told a financial analysts at the Sanford C. Bernstein & Co. Strategic Decisions Conference. Craver acknowledged that he is struggling to add value to Edison's independent power producer, Edison Mission Group (EMG).
While refusing to put a number of what the ideal price for merchant power would be these days, Craver said prices were headed in a "constructive direction," adding his thoughts on the impact of gas prices in the independent power sector.
"The longer the period of lower gas prices and low power prices, the more the incumbent assets retain their value or actually grow in value," Craver said in response to questions at the meeting. "Nothing new is being built. The only things getting built are renewables, and the more renewables you add to the mix, the more you actually need incumbent assets, but you need the ones that are flexible."
Craver said EMG's fleet of mostly coal-fired plants, all of which are undergoing emission control upgrades, can provide some of that added flexible power supply. "Our coal-fired plants are particularly well positioned the more we have renewables integrated into the grid because the coal plants can be ramped up and down quickly," Craver said. "This is part of the value proposition we see in which incumbent assets are only going to become more valuable over time. Nothing I see suggests anything to the contrary."
Craver added that the earthquake/tsunami-devastated Japanese nuclear industry probably adds to the value of incumbent plants globally. Unlike some of his industry colleagues who are still bullish on nuclear prospects in the United States, he thinks the outlook is bleak at least in the near term.
"It is hard to envision a big resurgence in nuclear power, and, in fact, in my personal opinion, it is going to require relying on the next generation of nuclear design and that is a long process [for development]. I think we will have more units retire, and that, too, makes the incumbent assets more valuable."
Edison is still studying whether to apply to the Nuclear Regulatory Commission for an extension of the license at its San Onofre Nuclear Generating Station (SONGS), Craver said. The licenses for both units expire in 2022.
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