The latest Energy Security Analysis Inc. (ESAI) survey of power plant projects indicates that only 19,000 MW of the close to 100,000 MW of projects in the development queues of the New England, New York and PJM ISOs are likely to be completed by 2006.

“At the expected electric power demand rates in 2006, that is likely to increase prices by $2 per megawatt, and that will amount to some $1 billion per year of added cost to Northeast consumers,” said Ed Krapels, ESAI’s director of gas and power markets. This additional cost will vary considerably from zone to zone within each of the Northeast power pools, Krapels said.

In New England, ESAI’s survey indicates that 7,000 MW of new power projects will come in service between 2002 and 2006, much of that in 2002. In New York, only 5,000 MW out of a total of 15,000 MW in the ISO queue is likely to be completed. In PJM, where there is more than 40,000 MW in the six PJM queues, ESAI estimates about 7,000 MW will be completed between now and 2006.

The end of the period of “irrational exuberance” in power plant development bodes well for the owners of well-placed existing facilities, for owners of well-placed power generating projects under construction and for owners of well-placed merchant transmission lines, according to Krapels. The reduction in investment in power plants will result in higher prices in many zones and in increased arbitrage opportunities between zones, according to ESAI.

“Now that the power boom is over, tight power supply and high prices will be a problem in selected areas,” Krapels added. He said that in a perfect world, developers, investors, regulators and power buyers would collaborate to ensure a “just in time” delivery of the essential projects needed to prevent tight supplies from becoming a crisis.

“We obviously do not live in such a world,” he said. “The development and regulatory processes are and will remain chaotic, making it all the more necessary to implement power market design that makes sense.”

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