The planned capacity additions announced by merchant power plantdevelopers for the U.S. market have more than tripled in less thantwo years, confirming that power suppliers are “aggressivelyresponding” to market demands for more generation and greatersystem reliability, according to the Electric Power SupplyAssociation (EPSA).

Planned capacity additions by competitive power suppliers nowtotal more than 177,000 MW, a 45% increase from the 121,733 MWannounced as of October 1999, and more than triple the 56,500 MWthat had been proposed as of October 1998, the EPSA said.

“More than 6,600 MW of that additional merchant capacity isscheduled to be on line by the end of…..June, and almost 20,000MW is expected to be operational by the end of the year,” notedEPSA Executive Director Lynne H. Church. “This represents 45 extraplants in 20 states by 2001, all designed to quickly enhancegeneration adequacy.”

Merchant power plants are generating stations financed byinvestors who are willing to accept market risks associated withtheir start-up and operation. Unlike regulated power facilities,merchant facilities receive no guaranteed rate of return andtypically do not have long-term sales contracts.

There is ample evidence that merchant power developers areaccelerating their proposed completion dates, EPSA said. In two ofthe more capacity-constrained areas of the East Central and upperMidwest regions, for example, the number of merchant megawattsscheduled to be brought on line by 2001 has risen to almost 17,000MW from just 4,324 MW as of last September, according to the groupof power suppliers.

The North American Electric Reliability Council (NERC) recentlysaid the “near-term reliability” of the bulk power system willdepend on these merchant capacity additions, EPSA noted. “More thanhalf of the announced generation will be needed to keep pace withdemand growth in the next two years,” NERC said in its 10-yearreliability assessment. “Without the announced new generationcapacity, capacity margins could be dangerously low, challengingthe ability of the bulk electric supply systems in the EasternInterconnection to respond to higher-than-projected customer demandcaused by extreme weather and unexpected equipment shutdowns ofoutages.”

Despite projections of more merchant power capacity, Churchnoted that developers will be restricted to building new merchantfacilities in the regions where they can easily and quicklyinterconnect to the power grid. Developers “will focus theirattention on those regions…..where they have access to, or arelikely to have access to, open retail and dependable wholesalemarkets,” she said.

Consequently, “much of the country is still likely to facereliability challenges in the years ahead due to a lack ofgeneration investment – investment that will only come when powersuppliers are truly given a green light to compete in thosestates,” Church noted.

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