Modest power demand growth and the rise of renewable energy, particularly wind, could signal the end of the boom times for gas-fired power generation, analysts at Barclays Capital said in a research note.

Driven largely by deregulating power markets, over the last decade developers scurried to construct gas-fired power plants. Gas projects were favored for a number of reasons, particularly their lower construction costs and ease of siting and permitting relative to coal-fired plants. However, a weaker economic outlook and the proliferation of renewable portfolio standards (RPS) in numerous states as well as the potential for federal renewable energy and efficiency mandates have changed the outlook for gas-fired power generation.

“Regardless of one’s GDP [gross domestic product] outlook and renewable assumptions, the growth rate of gas-fired output is likely to be lower than the rate experienced this decade,” the Barclays analysts wrote. “Only retirements of coal-fired plants at a significant scale, or the rapid growth rate of power demand (e.g., from electric vehicles), could swing enough share to gas-fired plants to equal the output from earlier this decade.”

From 2000 to 2007 gas-fired power plant output grew 6.7% per year on a gigawatt hour basis, according to the analysts. “But the future is not as assured,” they wrote. “Power demand growth has stalled with the recession, and a host of utilities, ISOs, RTOs [independent system operators, regional transmission organizations] and the EIA [Energy Information Administration] have revised downward their outlook for power demand growth rates beyond the current recessionary period.”

Further, more renewable energy is coming online, driven by funds from the American Recovery and Reinvestment Act and the enactment of RPS in 32 states.

While gas-fired plants have been able to push coal-fired generation out of its traditional position in the dispatch stack in some markets due to exceptionally low gas prices (see Daily GPI, May 19), that situation can’t go on forever, the analysts noted. And the power generation sector has been the gas industry’s only opportunity for growth.

“This raises the prospect that output growth from the surge of renewable facilities could keep pace with muted power demand growth,” the analysts wrote. “Should this occur, growth of gas-fired power output would likely stall. This would slow the speed of gas as the marginal, price-setting resource during many hours of the day and cool the natural gas industry’s sole source of demand growth.”

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