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DENA Firing Up New Plants For Summer Peak
Duke Energy North America (DENA) will be firing up about 2,300 MW of new merchant generation capacity this summer to capture some of the load growth and higher electric power prices in Texas, the Midwest and New England.
Projects completed this summer will be added to the 5,400 MW DENA currently has operating. Besides the plants going into service this summer, the company has another 2,200 MW under construction, and 13,500 MW in advanced development which are expected to go into the construction phase in the next 12 to 18 months.
DENA also announced two new 640 MW natural gas-fired facilities scheduled for operation for summer 2001, one in Lee County, IL and another in Audrain County, MO. The company also is evaluating the potential for additional wattage in Florida, besides its New Smyrna Beach project, and has filed a petition of need with the state for a 620 MW facility near Fort Pierce.
Sizing up this summer's market, Duke North America President Jim Donnell estimated there will be a market for 35,000 to 40,000 additional MW across the continent, while new facilities totaling only 22,000 to 23,000 MW are expected to go online. "We had a tight situation two years ago; we had a tighter situation last year and we expect it to be tighter again this year." He pointed to the fact the forward market is about 75% higher than last year at this time.
"The ingredients are there for price volatility..for really spiking prices." DENA expects to profit from its added megawatts. Using "rough economics" Donnell calculated the cost of a MWh fired by $4.25/Mcf natural gas --- currently the NYMEX 12-month strip price --- at $42.50. Subtracting that from the $225 MWh forward price of power, produces a margin of about $180.
Donnell and other Duke executives briefing reporters in Washington last week, credited the success of Duke's non-regulated businesses to the company's strategy of building up energy-related businesses and assets around commodity trading and risk management. It's a strategy Duke Energy Services (DES) is pursuing on regional platforms around the world, DES Group President Harvey Padewer said. The comprehensive services provided by DES business units, Including North America, International, Merchants, DukeSolutions, Engineering & Services, and Duke/Fluor Daniel, capture more of the energy-related market and save customers the time and expense of hiring third party contractors.
The strategy has been profitable for Duke. Padewer pointed to the 380% increase in DES earnings from the first quarter of 1999 to 1Q 2000, from $39 million earnings before interest and taxes to $187 million. DES is projecting business growth on average of 40-50% over the next few years.
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