Study Shows Booming Merchant Power Plant Development
Of the 36,600 MW of new electric generating capacity under construction or planned in the U.S., more than 93% will be fueled by natural gas, according to a new analysis by Boulder, CO-based Resource Data International (RDI). And of the projects identified, about 90% do not yet have gas supply contracts.
"Ten merchant plants representing some 1,500 MW of capacity [are] up and running across the U.S., another six plants with 1,900 MW of capacity [are] under construction. And 78 plants with a combined capacity of 33,200 MW [are] proposed," RDI noted. The next three years likely will be peak construction years for merchant plants. By year-end, as many as eight plants with a combined generating capacity of 1,033 MW may be built, RDI said. "That number doubles to 17 plants with 4,026 MW of capacity in 1999, 17 plants with 9,600 MW of capacity in 2000 and 15 plants with 8,200 MW of capacity in 2001," RDI added.
The likelihood, however, is that not all of the proposed merchant generating plants will be built. Because merchant plant development is "driven almost entirely by market economics, even subtle regional price changes may be enough to prevent some plants from going forward. In this sense, merchant plant developers are not unlike commercial real estate developers who announce a new building, look for tenants to lease space, and take a handful of signed leases (capacity commitments) to a lender for construction financing. If for some reason the pool of available tenants dwindles or if market economics turn south, the project stops until conditions improve," RDI noted.
Over half of the planned capacity is targeted for northeastern states, represented by the Northeast Power Coordinating Council (NPCC), a power pool. Of the 97 merchant power plants under development or construction, the NPCC is home to about 38 of the units. Total current and proposed merchant capacity the NPCC is 18,750 MW, with Massachusetts the most active state with 11 projects representing 6,800 MW of capacity. Maine follows with 11 projects representing 3,700 MW; Connecticut has six of the projects, representing 3,500 MW; and New Hampshire has four, totaling 1,950 MW.
RDI attributed the attractiveness of the Northeast to three factors: "First, the region's generating capacity is largely oil-fired and aging. Second, the region is opening to competition more rapidly than any other part of the country outside of California. And third, the region has severe transmission constraints which have led to relatively high electricity prices."
The NPCC is followed by Western States Coordinating Council (WSCC), where 23 announced projects totaling 7,600 MW are underway. Within the WSCC, California is the most active with nine projects representing 3,950 MW. The next most active region is the Electric Reliability Council of Texas (ERCOT) with 12 announced merchant plants and almost 5,700 MW.
The remaining proposed capacity is scattered outside NPCC, WSCC and ERCOT: the Southeastern Electric Reliability Council has some 1,240 MW of planned merchant capacity; East Central Area Reliability Coordinating Agreement 616 MW; Mid-Atlantic Area Council 518 MW; Florida Electric Power Coordinating Group 500 MW; Mid-Continent Area Power Pool 363 MW; and Mid-America Interconnected Network 200 MW. Only the Southwest Power Pool has no merchant plant capacity planned between now and the end of 2001, RDI noted.
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