Less than half of the electric power plants now in development in the United States are likely to be completed, according to an analysis of electricity and natural gas supply and demand by an energy analyst with the Williams Capital Group LP, a New York-based investment bank.

While those new facilities that actually do get built will ease tight power markets and alleviate political pressures to control prices in the near term, high gas prices and electricity price volatility are likely to continue, according to Christopher Ellinghaus, an energy analyst with Williams Capital. Only if new coal-fired or nuclear power plants come on line in significant numbers, are shortages likely to be abated, the analysis noted. But Ellinghaus pointed out that bringing new coal-fired or nuclear power plants on line at any significant level cannot happen until 2005.

Although independent power producers and other electricity suppliers hope to have 300,000 MW of new generating capacity on line by 2005, it is doubtful that much more than 100,000 MW will be possible over the next three years, Ellinghaus asserted. He attributed the difference to infrastructure constraints, including U.S. energy policy, public attitudes toward new facilities and anemic growth of natural gas supplies, the fuel to be used in over 90% of the proposed plants.

Pointing out that gas supplies have been growing by less than 1% annually despite record drilling activity, Ellinghaus warned that unless unprecedented amounts of new, net gas production emerge over the next three to five years, only a fraction, perhaps 40% to 45%, of the natural gas-fired plants currently being developed will actually be constructed.

Demand for electricity is likely to grow by 3% annually through 2010, Ellinghaus forecasted. That rate reflects the fundamental shift in the U.S. economy that has made electricity-intensive technologies such as computers, telecommunications and the Internet the engines of U.S. economic growth.

To meet this demand and build sufficient reserves to avoid price shocks, U.S. power generators would have to build 330,000 MW of new and replacement capacity by 2010, a 41.7% increase from the 822,000 MW of capacity in 2000. If all the new plants were gas fired, demand for natural gas would grow by between 11 and 15 Tcf, requiring the gas market to grow from 22.4 Tcf to between 33 and 38 Tcf.

The analyst said that in order to meet that demand, natural gas supply would have to increase by 9% annually. Based on production experience over the last decade, it is doubtful that such a level of increased production could be achieved, Ellinghaus said. Most gas exploration and production analysts expect an annual growth rate in the 1% to 3% range.

There will be adequate gas supply to the fuel new plants being built this year and next, when 43,000 MW and 36,000 MW of new generating capacity are expected to come on line, Ellinghaus said. However, in subsequent years there only would be enough gas supply to support 20,000 MW of new plant construction. “Natural gas remains the principal constraint to completing and operating plants currently in development.”

As a consequence of insufficient gas supplies, power generators would have to build 200,000 MW of generating capacity fueled by coal or uranium to meet long-term demand, Ellinghaus stated. However, because of the lengthy development cycle and public policy concerns, new plants relying on these energy sources will not begin to come on line in sufficient numbers until 2005 or 2006.

The full report contains regional analyses for the 12 regions and eight sub-regions that comprise the North American Electric Reliability Council. To obtain a copy, send an email to simon@willcap.com and a subject line that reads SEND REPORT.

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