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Merchant power plant era begins

Issue 1 and Volume 101.

Merchant power plant era begins

A new era has begun in power plant development in the United States. It`s the era of merchant power. It will prove to be as significant as the independent power era that started in earnest 10 years ago. It will rejuvenate our stagnant power generation industry. New merchant power plants are being built to serve the emerging competitive wholesale power market. They are not committed to long-term power sales agreements with specified buyers, which has been the model for independent power for the last decade. Developers feel they can build low-cost merchant plants, generally natural gas-fired combined-cycle plants, that will be able to produce electricity at rates substantially below the costs of existing units.

Examples: U.S. Generating Co., the independent power joint venture of Pacific Gas & Electric and Bechtel, announced that it intends to build a 400 MW gas-fired merchant plant to operate in Massachusetts in the year 2000. The director of this “Millenium” project, Gary Lambert, said it “… is part of the new wave of independent power plants (IPP) being developed without the security of a long-term utility contract … (and it) … will be a market-driven asset designed to offer customers a reliable source of electricity at very attractive prices.” He added that the plant will have twice the thermal efficiency of the 30-year-old power plants with which it will compete; Houston-based natural gas firm PanEnergy Corp. and Associated Electric Cooperative (AEC), a generation and transmission cooperative electric utility, announced plans to build a 250 MW gas-fired power plant in Missouri in 1999 that will devote half its output to the co-op and half to the open market. AEC is directly linked to 21 midwestern electric utilities; Calpine Corp., a California-based IPP firm, and Phillips Petroleum Co. announced plans to build a 240 MW gas-fired cogeneration merchant plant at a Phillips chemical plant to operate in 1998 near Houston. It will sell 90 MW to Phillips and the rest to the Texas wholesale electricity market through Calpine`s power marketing subsidiary.

New plant developers are not the only ones leading the charge on merchant plants. For example, a consortium known as Mid-American Power LLC has purchased the E.J. Stoneman Station in Wisconsin and plans to sell its output into the newly competitive market. And as the expected utility asset divestitures proceed, we can expect to see more of these. No one is predicting prices, but the merchant plant developers obviously feel they can make a profit at the wholesale rates that will prevail a few years from now when power generation is going to be in short supply and California-type pools will be buying only from the low-cost producers.

A new era has dawned.