The US electricity markets are facing higher prices in the coming years as regulations on cleaner air are shutting down more and more coal power plants, forcing producers to depend more on natural gas. Standard & Poor estimates that 40 to 75 gigawatts of coal units may be shut down by 2020.
We are really in for a wild ride for five to six years because of the amount of coal shutting down in such a short amount of time and the transformation toward more gas being used to generate electricity,” Philip Moeller, a member of the Federal Energy Regulatory Commission in Washington, said in an interview. “Prices will definitely rise. The question is how much.”
Midcontinent Independent System Operator Inc. (MISO) expects its power reserves from Manitoba to Louisiana to fall by approximately 2,000 megawatts by 2016. Even with the recent cut in gas prices, power generated by shale costs $30 to $35 a megawatt-hour compared to $25 for coal.
According to S&P’s report on September 29th, half of the anticipated plant shutdowns will take place next year. Even though power prices are rising, it does not encourage the construction of new plants.
The price that you can see does not justify building,” Crane said. “When natural gas sets the marginal price of electricity, it not only makes it impossible to build any other type of power plant unless there is a market mandate but it also makes it impossible to build natural gas plants.”
Of the gas plant projects planned from 2014 to 2020, about 75 percent have not started construction yet because of required regulatory approval. Plants are now going through the lightest development cycle ever witnessed over the next decade which is a reaction to a period of extremely low power prices. According to Viswanath, what we are seeing is a “net subtraction of supply.”
Read more here – “Breathing Cleaner Air to Cost Americans on Utility Bills,” (Naureen S. Malik and Harry R. Weber, Bloomberg).