The movement to natural gas-fired and renewable energy solutions for U.S. power generators is continuing its rapid march. Utilities are aligning their generation portfolio assets to address increased federal regulations concerning cross-state air emissions, proposed carbon emissions rules and surface water regulations, as well as renewable portfolio standards.
These trends were evident from the results of the 2014 Strategic Directions: U.S. Electric Industry report, released by Black & Veatch.
“Utilities are facing the challenge of determining the amount of generation capacity that will be needed in the future as economic conditions evolve,” said Rob Patrylak, Managing Director, Black & Veatch’s management consulting business.
Patrylak explained that in past decades, utilities would add capacity by often building the same size generating plant because of a steady trend in increasing load. However, future load growth rates are now more uncertain because of stressed economic conditions, energy efficiency, distributed generation and demand-side management.
Source: Black & Veatch Respondents were asked to select the percentage (on a megawatt basis) of all U.S. power generation that they believe will come from distributed generation (power assets with a capacity less than 20 megawatt) by 2020.
This trend is reflected in the survey results, with 43 percent of respondents reporting that load growth rates have not returned to historical levels. In addition, nearly one-third of respondents say that their load growth rate is flat or declining. Patrylak said this means that many utilities are holding off on making larger investments in power generation until there is more certainty around emerging Environmental Protection Agency (EPA) regulations, including recently proposed CO2 rules for existing plants.
“It is critical that power generators approach their integrated resource planning using many different possible future conditions,” Patrylak said. “These include utility modeling around various regulatory and economic scenarios, stronger future renewable requirements and higher carbon taxes to ensure that their generation decision will perform effectively in different future conditions.”
The March of Natural Gas Continues
The trend toward natural gas will remain strong during the next five years, with 50 percent of survey participants planning to replace retiring coal and nuclear plant capacity with natural gas generation, as well as provide backup power for intermittent renewable energy generation.
Black & Veatch’s Energy Market Perspective projects that approximately 60 gigawatts of coal plant capacity will be retired by 2020, and 35.4 gigawatts of nuclear resources will be retired by 2038, with the electric sector’s demand for natural gas nearly doubling in the next 20 years.
The main driver in coal retirements is environmental regulation. Coal retirements are having the biggest impact in the Midwest where coal-fired capacity is most predominant. Nuclear generation is being challenged by increasing regulatory and safety compliance costs that escalated after Fukushima, Patrylak said. In addition, there is increasing interest in retiring smaller and single-unit nuclear facilities because of declining capacity and energy payments. This is especially affecting nuclear plants in the Independent System Operator New England, Midcontinent and PJM regions, Patrylak noted.
In this year’s survey, nearly 43 percent of utility respondents believe that 6 to 10 percent of U.S. power generation will come from distributed generation facilities with capacities of 20 megawatts or less in the next five years. Factors moving this growth include the current low cost of natural gas, coupled with declining costs for solar photovoltaic (PV) technology.
“The cost of solar PV technology has plummeted during the last five years, resulting in additional utility-scale projects in the Southwest U.S.,” Patrylak said. “In addition, many states and municipalities have developed incentive plans for commercial and residential solar installations that provide customers with a financial benefit.”
He said rising electric rates and sustained low-cost natural gas have fueled interest among large industrial customers in developing on-site power generation to meet their electric needs.
“Black & Veatch is working with several organizations in examining existing combined heat and power within factories and manufacturing centers to determine if the current equipment or new equipment can provide a lower cost energy approach.”
Published originally on Black & Veatch Solutions.
