SOURCE: US EIA
The Mismatch of Supply and Demand. Many North American power markets (both ISO and non-ISO) have what might be described as too much of too many good things in plentiful power supply and low natural gas fuel prices. What’s missing is demand growth to put all that generation potential to productive use. This mismatch of supply and demand presents itself as excess generation capacity from the lingering effect of slow economic growth and flat utility demand growth as customers embrace demand response.
The Rest of the Renewable Portfolio Standards Story. Adding to this market change are policy mandates to add more supply to meet Renewable Portfolio Standards (RPS) driving up reserve margins and crowding out everything else. When combined with relatively low and stable natural gas prices the result pushes peak and off-peak power prices low or lower than prices five or more years ago prior to the start of the recession.
How much new renewable energy capacity can the power markets absorb in the absence of more robust economic growth?
From 2014 to about 2019 the answer appears to be that retiring coal generation capacity will largely be replaced by wind and solar renewable energy RPS projects. By 2020 reserve margins grow substantially and remain high at between 35% and 36% over the forecast period.
This expected reserve margin level is twice the traditional 15% reserve margin needed for reliability. The key takeaway is not persistently high reserve margins across the regions but that we reach that disequilibrium with only 50% of the mandated RPS target for renewable capacity factored into the forecast. But the purpose of RPS is not to balance the market but to socially engineer it.
The new renewable generation projected to meet even the reduced 50% state RPS requirements. The analysis suggests that some of the renewable energy capacity mandated by the states cannot economically be built due to a variety of factors including limitations on turbine manufacturing, installation labor, related equipment, suitable sites, and permitting make achieving even these levels difficult, leaving the potential for further RPS reductions or deadline extensions.
Reserve margin growth and more mandated renewable capacity depress profit margins enough that new gas-fired generation is uneconomic in many regions. Merchant generators worry that persistently low power prices will force the retirement of more existing power generation units beyond coal units as uneconomic. Particularly vulnerable are nuclear units and older gas fired generation. However load pockets exist in many congested markets, but capacity market prices may not be high enough in some markets to make new power plant construction economic. ERCOT, for example, is considering a capacity market solution because it faces the lowest expected reserve margins in the US.In the US coal and nuclear capacity retirements outpace new installations.
Since 2010, coal plant retirements sum to 30 GW but over 30 GW of additional retirements are likely over the next decade, three quarters of which are targeted by 2016.
In many US markets “all in” power prices and spark spreads make new gas generation uneconomic. Where new capacity is required it likely will be gas-fired or non-hydro renewable capacity. This may increase total US installed capacity but the fuel mix change and replacement of baseload plants with load-following or intermittent resources may affect price volatility or reliability or both.
 Kind, Peter, “Disruptive Challenges: Financial Implications and Strategic Responses to a Changing Retail Electric Business,” , EEI, 2013, http://www.eei.org/ourissues/finance/Documents/disruptivechallenges.pdf
 Newell, Sam, Brattle Group, Resource Adequacy in ERCOT, Composite Policy Options, 2012, ERCOT,