Duke Energy North America (DENA) will be firing up about 2,300MW of new merchant generation capacity this summer to capture someof the load growth and higher electric power prices in Texas, theMidwest and New England.
Projects completed this summer will be added to the 5,400 MWDENA currently has operating. Besides the plants going into servicethis summer, the company has another 2,200 MW under construction,and 13,500 MW in advanced development which are expected to go intothe construction phase in the next 12 to 18 months.
DENA also announced two new 640 MW natural gas-fired facilitiesscheduled for operation for summer 2001, one in Lee County, IL andanother in Audrain County, MO. The company also is evaluating thepotential for additional wattage in Florida, besides its New SmyrnaBeach project, and has filed a petition of need with the state fora 620 MW facility near Fort Pierce.
Sizing up this summer’s market, Duke North America President JimDonnell estimated there will be a market for 35,000 to 40,000additional MW across the continent, while new facilities totalingonly 22,000 to 23,000 MW are expected to go online. “We had atight situation two years ago; we had a tighter situation last yearand we expect it to be tighter again this year.” He pointed to thefact the forward market is about 75% higher than last year at thistime.
“The ingredients are there for price volatility..for reallyspiking prices.” DENA expects to profit from its added megawatts.Using “rough economics” Donnell calculated the cost of a MWh firedby $4.25/Mcf natural gas – currently the NYMEX 12-month strip price- at $42.50. Subtracting that from the $225 MWh forward price ofpower, produces a margin of about $180.
Donnell and other Duke executives briefing reporters inWashington last week, credited the success of Duke’s non-regulatedbusinesses to the company’s strategy of building up energy-relatedbusinesses and assets around commodity trading and risk management.It’s a strategy Duke Energy Services (DES) is pursuing on regionalplatforms around the world, DES Group President Harvey Padewersaid. The comprehensive services provided by DES business units,Including North America, International, Merchants, DukeSolutions,Engineering & Services, and Duke/Fluor Daniel, capture more ofthe energy-related market and save customers the time and expenseof hiring third party contractors.
The strategy has been profitable for Duke. Padewer pointed tothe 380% increase in DES earnings from the first quarter of 1999 to1Q 2000, from $39 million earnings before interest and taxes to$187 million. DES is projecting business growth on average of40-50% over the next few years.
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