PennWell’s GenerationHub is tracking about $138bn, or about 138 GW, in planned and under-construction natural gas generation projects in the United States and Canada, PennWell Director of Hub Services Kent Knutson said on Aug. 26.
The Edison Electric Institute (EEI) expects record capital expenditure, north of $103bn in 2014, with more ahead during the next three years, he said during the GenerationHub Quarterly Market Update. About 42% of that involves generation investment, with the remainder being investments in transmission and distribution, he said.
Utility-scale solar and wind continue to expand, with GenerationHub tracking 17.5 GW of solar resources in development in the next two years.
As noted in his presentation, GenerationHub is tracking 37.1 GW of wind resources from 2015 to 2018, with about 15.7 GW in 2016 alone.
Renewable energy development in the near-term is going to be dependent on the federal production tax credit (PTC) being extended.
Knutson noted that the U.S. Senate Finance Committee in July passed an extenders tax policy that had various tax incentives, including the wind PTC.
“That was passed on a 23-3 vote by the Senate and now the big thing is to wait and see how Congress is going to react, or if they’ll move this forward in the fall,” he said.
The investment tax credit (ITC) was not included. The solar ITC is set to expire at the end of 2016, “but it’s set to just change, basically, from a 30% investment tax credit to 10%,” he said.
Knutson also noted that GenerationHub is tracking 11.7 GW of nuclear power in development between now and 2020, as well as 13.8 GW of hydropower – mostly pumped-storage – primarily after 2018.
As noted in his presentation, gas, wind and solar resources continue to dominate the new generation landscape. Investment in the United States from 2015 to 2018 in gas resources represents 109.3 GW, or 65%; 30.5 GW, or 18%, of wind; and 19.9 GW, or 12%, of solar.
Knutson said that the planned capacity build-out in 2016 is all about gas, wind and solar, and is comparable to the almost 70,000 MW build-out in 2001, which is considered the great gas boom of the last decade. But since so many projects are in early stages of development, it is almost certain that the current build cycle will be spread out over the next several years, he said.
According to his presentation, new gas generation in 2015 involves such plants as Southern (NYSE:SO) utility Mississippi Power’s 877 MW Jack Watson plant in Mississippi, Georgia Power’s 807 MW Yates plant in Georgia – both repower projects – and Panda Power Funds’ 803 MW Panda Temple Power Station in Texas.
Discussing gas supply and demand trends, Knutson’s presentation noted that ICF estimates nearly 1,500 trillion cubic feet of recoverable reserves below $5/mmBtu; many regions continue to produce more despite a big drop-off in new rigs; the key driver behind U.S. gas demand is power generation; and the market response infrastructure development is well underway – with 16,689 miles of pipelines, according to FERC.
He also noted that coal retirements are at an all-time peak, with American Electric Power (NYSE:AEP), for instance, “moving from 60% coal in 2014 to 49% by 2020.”
Knutson continued: “We have 228 units that we track that are set to retire this year and next year. So, in a two-year window, 2015 to 2016, there will be over 38,000 MW of capacity retired.”
He also noted that overall electric output generation and electric demand show have declined this past year, which will “definitely have an impact on the final build out of the capacity that’s in development.”
EPA’s Clean Power Plan
Knutson also addressed the 1,560-page U.S. Environmental Protection Agency (EPA) Clean Power Plan, which promotes renewable energy and energy efficiency more than natural gas.
As GenerationHub reported, the revised Clean Power Plan will seek a 32% reduction of carbon dioxide (CO2) emissions by 2030. While that is greater reduction than the 30% target set in the draft version of the rule, the CO2 reduction however can be implemented more incrementally than the original proposal.
State plans are due in September 2016, but states that need more time can make an initial submission and request extensions of up to two years for final plan submission, the Obama administration said on Aug. 3.
The compliance averaging period begins in 2022 instead of 2020, and emission reductions are phased in on a gradual “glide path” to 2030. Many electric utilities had complained that the original had a so-called “2020 cliff” because such a high degree of reduction was required by 2020.
Knutson noted during the webcast that the Clean Power Plan includes a reliability safety valve as well as a clean energy incentive program, “which is a period of two years before the first goals need to be met in the interim where renewable energy can be built … and I think that’s going to depend a lot on the PTC and the ITC and what happens with that.”
Also speaking during the webcast was GenerationHub Chief Analyst Wayne Barber, who noted that the Clean Power Plan’s release “immediately sparked reaction from all quarters,” including from FERC commissioners, who voiced reliability concerns about the plan.
“We’ve already had a group of 15 states, led by West Virginia, ask the U.S Court of Appeals for the District of Columbia Circuit to block the EPA Clean Power Plan – to put it on hold until legal challenges are addressed,” he said.
That group does not include Texas, which has also called on the EPA to halt the Clean Power Plan.
“Litigation season should really get geared up this fall on the Clean Power Plan,” Barber added. “There have already been efforts made by Republicans in Congress to try and derail the Clean Power Plan.”
He also noted that some individual utilities have weighed in on how their particular states will be treated under the plan.
Discussing points made during GenerationHub’s GenForum, which was recently held in Columbus, Ohio, Barber said: “[T]he coal-fired industry biggest hope of really having an impact on the Clean Power Plan is probably getting some sort of stay in the courts to put this regulation on hold until legal challenges can be considered. The industry does not want to see another situation, such as it did in [the EPA’s Mercury and Air Toxics Standards (MATS)], where they ultimately won federal litigation on MATS, but it took years to do, and by the time they had won a legal victory in court, they had already spent billions of dollars and retired large assets that were coal-fired. So, I think the real action will be in the courts.”
As far as Congress and a new presidential administration putting the brakes on the Clean Power Plan, he noted that the initial deadline for states to begin filing compliance plans is in September 2016, or two months before the presidential and congressional elections. That, he said, makes “it difficult if you’re counting on a more conservative Congress or a more conservative president, perhaps, putting the brakes on” the plan.
Among other things, he noted that the Clean Power Plan does not apply to Alaska and Hawaii, and it does not cover generation that is less than 25 MW.
Discussing other news, Barber noted that Southern recently announced that it is buying a major natural gas distributor, AGL Resources, which is the builder of three major pipelines on the East Coast.
The boards of directors of both companies have approved a definitive merger agreement to create America's leading U.S. electric and gas utility company. The companies expect to complete the $12bn transaction in the second half of 2016.
Separately, Southern is building a coal gasification power plant in Mississippi that has “had all sorts of costs overrun issues and has had a lot of issues with” Mississippi state regulators and the state Supreme Court, he said.
On nuclear power, Barber noted that the Tennessee Valley Authority (TVA) has almost completed construction of the Watts Bar 2 reactor unit and hopes to start loading fuel on that plant in Tennessee as early as next month.
TVA has sent documentation to the U.S. Nuclear Regulatory Commission (NRC) saying that construction of the reactor unit is substantially complete and requested that NRC issue an operating license for the unit. The letter provides a list of remaining key activities which will be finished prior to operations and requests that an operating license be issued for the 1,150-MW pressurized water reactor unit. The “substantially complete” letter is a major construction and licensing milestone for the project.
In other nuclear news, Barber said that the Vogtle Units 3 and 4 near Waynesboro, Ga., being built by Southern utility Georgia Power and its partners, as well as the V.C. Summer Units 2 and 3 near Jenkinsville, S.C., being built by SCANA (NYSE:SCG) utility South Carolina Electric and Gas and its partner, Santee Cooper, “remain on track to be in commercial operation before” January 2022.
Barber also discussed the recent PJM Interconnection capacity auction, which was the first to include the new capacity performance requirement. As TransmissionHub reported, the auction procured, overall, 166,837 MW of capacity, representing a 19.8% reserve margin.
Reaction to the auction indicates “that there’s going to be more emphasis on natural gas to actually provide fuel back-up in the form of fuel oil, which will increase their cost at the plant, but will make those plants more reliable in the face of what could be another polar vortex,” Barber said.
Power plant updates
Also speaking during the webcast, GenerationHub Chief Analyst Barry Cassell noted that Panda Power Funds officials recently broke ground on the 778 MW Stonewall generating station in Loudoun County, Va.
The biggest areas for natural gas plants, in terms of being built, are Texas and California, “with some scattered ones in other states like … Virginia,” North Carolina and Rhode Island, he said.
At this point, he said, there is not a lot of new natural gas-fired construction in New England, even though that region needs new capacity pretty badly, Cassell said. A major problem in New England involves pricing, he said, adding that the region grapples with such questions as, “does [the pricing] justify new construction? And some of the developers there are saying” that changes are needed.
While there is a lot of natural gas pipeline construction planned for New England, “that’s going to take a while as you go through the FERC” process, he said, adding that other issues include local zoning matters and “not in my backyard,” or NIMBY issues.
Cassell also discussed Invenergy’s proposed 1,500 MW combined-cycle natural gas power plant in Pennsylvania.
“Most of these independent power plants – gas-fired projects – tend to be more in the 800 [MW] to 1,000 MW range, and there’s certainly a lot of those, and so the Lackawanna one – 1,500 MW – really does catch some attention,” he said.
Cassell also addressed coal plant retirements, noting that “the second quarter of this year was huge in terms of retirements.”
He also noted there is “a lot of bankruptcy in the coal industry right now … so it’s going to be interesting over the next few years what’s going to be there in terms of coal supply and the companies that will supply it to the remaining power plants.”
Among other things, he said that there are also a number of gas-fired power plants – which are basically steam plants – that are going to be retired over the next two or three years.
Those steam plants are being replaced – at times, not directly, but often – with new gas-fired simple cycle and combined cycle facilities that are new and much more efficient. In the case of simple cycle facilities, Cassell added that those facilities can respond very quickly to intermittent wind and solar issues.
Concluding the webcast, and as noted in his presentation, Knutson said that going forward, EPA ground level ozone standards could be costly, with the final rule set to be released in October; gas power will be front and center stage over the near term; and gas prices will stay competitive, but electric rates overall will continue to increase as regulatory costs pile up.