US EIA September 2014 Short Term Energy Outlook

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US EIA is out with its September 2014 release of the Short Term Energy Outlook. The forecast says power producers added 4.35 gigawatts (GW) of new capacity during the first half of 2014. This may seem like a lot but that rate is 40% below last year’s new build rate. Natural gas is the fuel of choice with half of the new capacity and renewable generation makes up the rest. No surprise that no new coal-fired power plants were built in the first half of 2014, compared with 1.51 GW last year, but two coal plants totaling 0.58 GW are expected by the end of 2014. But 0.95 GW of coal-fired capacity has retired in 2014 with more to come.

Low natural gas prices in the US are expected to maintain their current trend for the next 3 years. US gas demand growth is primarily driven by growth in power generation. In Canada, gas demand growth is projected to be primarily driven by natural gas use in oil sands production and for electric generation. In Mexico, gas demand is expected to increase from growth in power generation and industrial manufacturing growth taking advantage of Mexico’s favorable labor wage rates. But the larger US economy has yet to see the strong economic growth in manufacturing that low gas prices are expected to encourage

Fuel switching continues in the power generation sector with more coal plant retirements due to environmental regulations like MACT and the eventual replacement for CSAPR causes gas demand to grow, at about 1% per year.

The result is that investor owned utilities and merchant power generators are starving for growth in markets where RPS mandates are required to be met thus crowding out both marginal existing power plants of all fuel types just as they undermine the economics of new power plant construction making them unprofitable to build.

There is significant structural fuel switching in the US power generation sector with rapid retirement of older coal generating plants due to environmental regulations like MACT and the eventual replacement for CSAPR causes gas demand to grow, at about 1% per year, but the combined impact of RPS mandates, higher reserve margins from all that renewable energy and low natural gas prices is crowding out new power plants except for renewables.

At the same time, commercial and industrial customers are using this opportunity to control their future energy costs with combined heat and power projects, more energy efficiency and a focus on sustainability strategies that seek to proactively manage energy spend. The preferred route for growth on the residential side sees vendors of solar rooftop systems use zero-down financing, solar leases, avoided cost sell-back regulations and tax credits to build the market share of solar neighborhood by neighborhood, and community by community.

Microgrids are also emerging as a competitive threat to utility demand growth. Microgrids focus on a combination of supply side and demand response programs to enable a group of customers or a commercial or industrial complex to be as self-sufficient or ‘off-grid’ as possible. Smart meter and smarter grid technologies enable microgrids to function smoothly without adversely affecting either customer or grid reliability. Taken together these customer-driven strategies are a clear part of the big power shift underway in the electric power industry.