Despite the now infamous bust in gas-fired combined cycle power generation projects in development and even under construction, combined cycled capacity additions are expected to top 78,000 MW during 2003 and 2004, according to Arlington, VA-based consulting firm Energy Ventures Analysis Inc. However, actual operating results will fall far short of nameplate capacity, EVA predicted, because of tight spark spreads.

A total of 100,000 MW of combined cycle generation in development has been cancelled. But combined cycle additions this year are still expected to jump 41%, or 50,317 MW, and next year, gas-fired combined cycle generation capacity is expected to rise another 16%, or 27,878 MW, EVA said in its FuelCast short term outlook.

“The boom of the new technology…is certainly unprecedented in the industry both in terms of the amount of the new capacity and the very short window of time in which the boom has occurred,” EVA noted.

“One aspect of the boom which had not been anticipated by developers of combined cycle power plants and their financiers is the possibility that their units would not operate at their anticipated pro forma capacity factors of 60% or more. The developers justified their plans based on an outlook for the future that included low and stable gas prices, substantial actual growth in electricity consumption and the taking of market share from other generation sources — first from antiquated gas steam generation and then from and then at least a portion of coal and nuclear’s share of generation.”

However electricity consumption has been about half of what was expected. Retail sales are expected to grow at a 1.9% rate in 2003 following surprisingly strong 3.1% growth in 2002, EVA said. In 2004, retail electric sales are expected to grow 2.5%.

Gas prices have proven to be much more volatile with recent record winter spikes in some regions, the consulting firm noted. “The 85% reduction in trading activity likely will contribute to increased price volatility [going forward],” said EVA. The overbuild of gas-fired generation also served to set a floor for gas prices and raise the ceiling price at which fuel switching occurs.

Coal fired generation is expected to grow by 1% this year and currently is not at risk of having a substantial amount displaced by new gas units because gas prices are so high. Even nuclear generation is growing in both capacity and output.

“The outlook for combined cycle generators is for continued growth in generation at declining rates,” EVA said. Load factors will be dependent on the economy. Combined cycle generation output is still expected to grow by 35% this year while combined cycle capacity grows by 41%. Next year, combined cycle generation is expected to grow by 14% with a 16% increase in capacity.

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