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U.S. Generation Continues Slow Growth

Issue 12 and Volume 102.

U.S. Generation Continues Slow Growth

Total Utility Industry Net Summer Generating Capability in the United States in 1997 Totaled 780

GW. The vast majority of this total–91.3 percent–is accounted for by conventional electric utilities; the rest is accounted for by nonutility generators including independent power producers, qualifying facilities and exempt wholesale generators.

Capacity growth, however, is almost entirely associated with nonutility generators. Between 1989 and 1997, nonutility generating capacity has nearly doubled, from 36.4 GW to 67.8 GW (an 86 percent increase), while utility capacity has only increased modestly, from 684 GW to 712 GW (a four percent increase). Much of this trend is related to the market forces being unleashed through deregulation. In many cases, independent power developers can more quickly respond to demand requirements, and without the same burdens associated with approval in a regulated rate-base structure. The merchant power phenomenon–where power plants are operated without long-term sales contracts for their power–will continue the trend toward increased nonutility generating capacity. More than 1,600 MW of merchant capacity is currently operational, and more than 25 GW is currently operational, under construction, under active development, or under consideration in the United States.

Overall, fossil fuel-fired capacity remains the dominant generating source for U.S. electricity, accounting for 73 percent, or 567 GW of net summer generating capability. Nuclear energy comprises 13 percent (101 GW) and renewable energy, mostly hydroelectric power, makes up the remaining 12 percent (90 GW). Of the fossil capacity, coal-fired plants are the workhorses, at 314 GW; dual-fired (petroleum and gas) plants are next at 154 GW, followed by gas-fired plants at 51 GW and petroleum-fired plants at 48 GW. Renewable capacity is dominated by hydroelectric power, accounting for 85.0 percent, followed by biomass at 6.5 percent, geothermal energy at 3.2 percent, waste at 3.0 percent, wind energy at 1.9 percent and solar energy at 0.3 percent. Capacity by energy source generally shows a geographical pattern (significant petroleum-fired capacity in the east, hydroelectric in the west, gas-fired capacity in the coastal south, etc.).

Ownership Matters

There is a striking difference in capacity breakdown between utility and nonutility plants. Natural gas-fired plants are much more common in the nonutility industry, comprising 41 percent of the nonutility capacity, compared to only 17 percent for coal-fired plants. Not surprisingly, nuclear and hydroelectric power capacity is limited to utility companies; these plants` high capital costs and regulatory provisions prevent nonutility producers from building such capacity.

Between 1996 and 1997, about 4,000 MW of new net capacity was added to the U.S. total (additions, repowerings, and upgrades minus retired capacity). The majority of this new capacity was either natural gas-fired or dual fuel-fired (petroleum and natural gas), accounting for 1,500 MW and 2,600 MW, respectively. Repowering is becoming a popular choice for boosting capacity levels. New permits are not required, and capital costs are much lower than for new construction. Options range from a full fuel source repowering, such as New England Electric System`s Manchester Street repowering project, to steam path upgrades that offer 5 to 10 percent capacity upgrades.

Net Generation

The electric industry set another record in 1997 for net electricity generation. Electric utilities and nonutility power producers generated 3,533 billion kWh in 1997, a 2.5 percent increase over 1996`s 3,447 billion kWh total. Nonutility power producers accounted for a relatively small 12 percent of total 1997 net generation, but this represents a 100 percent increase from 1989`s six percent fraction and is rather significant considering nonutility power producers have only been in existence for about 20 years.

Breaking down electricity generation by fuel source results in a similar trend to that seen with generating capacity. Coal is the predominant fuel source, providing 52.5 percent of total U.S. electricity generation in 1997. Nuclear generation is next, at 17.8 percent, followed by natural gas at 14.1 percent, hydroelectric power at 10.2 percent, petroleum at 2.7 percent, other renewables at 2.3 percent, and other gas at 0.4 percent.

Generation breakdown by type of power producer is again strikingly different between utility and nonutility power producers. Whereas the largest portion of utility generation (57 percent) is coal-fired, the largest portion of nonutility generation (52 percent) is gas-fired. A surprisingly large fraction of nonutility generation, 14 percent, is accounted for by waste- and wood-fired power plants, compared to less than one percent for utility generation. This statistic highlights the opportunistic character of nonutility power producers, which often turn to unconventional fuels for lower-cost power generation.

Forecasts

Electricity demand has slowed in the past few decades from the lofty seven percent per year growth rates experienced in the 1960s. Projected growth rates out to the year 2020 are estimated at little more than one percent per year by the Energy Information Administration`s Annual Energy Outlook 1998. The reduced growth rate is attributed to higher appliance and equipment efficiencies, utility demand side management programs, and legislation promoting greater efficiency.

Despite slower load growth, 403 GW of new generating capacity will be needed by 2020 to satisfy demand growth and replace retiring units. Between 1996 and 2020, 52 GW of current nuclear capacity and 73 GW of current fossil-steam capacity are expected to be retired. Of the new capacity, 85 percent is projected to utilize combined cycle or combustion turbine technology fueled by natural gas or both natural gas and oil. Coal accounts for 49 GW, or 12 percent of the new capacity additions, while renewable energy accounts for the remainder. Despite the emphasis on natural gas and oil for new power plants, coal will remain the leading electricity fuel through 2020, although its share of generation will fall from 52.5 percent in 1997 to 49 percent in 2020. Natural gas-fired generation will experience the most dramatic increase, rising from 14.1 percent of generation in 1997 to a sizable 33 percent in 2020.

Renewables-based generation, including hydroelectric power, is projected to rise only slightly in the EIA forecast, from 433 billion kWh in 1996 to 436 billion kWh in 2020. Almost the entire increase in generation will come from renewable resources other than hydroelectric power, as a decline in conventional hydroelectric power is offset by a 34 percent increase in non-hydroelectric renewable power. The bulk of the renewables growth will be accounted for by municipal solid waste (including landfill gas), wind, and biomass.

Despite growth in the forecast period for renewable generation, its share of total U.S. generation will fall from current levels. The substantial growth in fossil-based capacity will result in renewables declining from 12.5 percent of generation in 1997 to 9.2 percent in 2020. Forecast levels for renewables could change, however, if public demand rises and/or if environmental restrictions require increased reliance on nonemitting generation sources.

Competition Effects

Retail electricity prices are projected to decline by one percent per year through 2020 because of greater competition, paralleling declines in electricity production costs, which have fallen 1.8 percent per year since 1982 and are expected to continue falling but at a slower rate. The production cost decline is the result of higher plant efficiencies, demand growth, fuel cost declines, and staff reductions. In 1982, coal-fired plants used 250 employees per GW; by 1995, that number fell to 200. Similarly, gas-fired plants reduced staff from 138 per GW in 1982 to less than 100 per GW in 1995. By sector, projected electricity prices in 2020 are 19 percent, 21 percent, and 24 percent lower than 1996 prices for residential, commercial, and industrial customers, respectively. These drops reflect full competition in the electricity industry, in contrast to apparent trends in today`s markets, where industrial customers appear to be getting larger rate reductions than residential and commercial customers. p

This is an excerpt from the 1999 International Electric Power Encyclopedia published by Penn-Well. To order call (800) 752-9764.