New Power Plants to the Rescue

The usually corresponding forces of supply and demand, which have been out of synch recently in wholesale power markets, may be reuniting soon, concludes a recent research study conducted by the Fairfax, Va.-based market-research firm, ICF Consulting. ICF's Bulk Power Outlook highlights a recent boom in power plant construction and predicts that it is enough to solve current shortages within one to three years.

05/25/2001


The usually corresponding forces of supply and demand, which have been out of synch recently in wholesale power markets, may be reuniting soon, concludes a recent research study conducted by the Fairfax, Va.-based market-research firm, ICF Consulting.

ICF's Bulk Power Outlook highlights a recent boom in power plant construction and predicts that it is enough to solve current shortages within one to three years.

The regions projecting the most new power-plant construction activity are The Electric Reliability Council of Texas (ERCOT)—14,078 megawatts (MW); Mid-American Interpool Network—9,092 MW; and the New England Power Pool (NEEP)—6,950 MW. Together, ERCOT and NEPOOL account for almost 30 percent of all current power-plant construction, despite the fact that their combined market share consists of only 10 percent.

At the other end of the spectrum, considerably less new power-plant construction is expected to take place in the Southwest Power Pool, Northwest Power Pool, Mid-Continent Area Power Pool, Rocky Mountain Area and the New York Power Pool. Combined together, the outlook for new generation accounts for just 4.6 percent of the projected generation capacity increases in the U.S.

"Regulators, consumers and producers need to be sensitive to current difficulties and base decisions on future developments," says Judith Rose, an ICF managing director. "Moderating oil and gas prices over the same period also will help lower power prices. In addition, a return to normal hydro conditions by 2002 will further reinforce the effects of new plant construction."

Unfortunately, this burst of construction will not hit both coasts at the same time. California, the first state to deregulate its electric industry, is not expected to benefit from this trend until almost a year later than its peers will.

"California faces potentially severe problems this summer," Rose says. "However, even California can expect to be in balance within three years, and prices will moderate and extreme price spikes will occur less frequently."

For more information on ICF's Bulk Power Outlook study, visit www.icfconsulting.com .





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