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What Will the Power Generation Mix in 2018 Look Like?

It’s been a rocky road for the US power generation industry in recent years.  Shifting prices, procurement procedures and changing government policies have embroiled the generation markets.  Couple all that with little or no demand growth and it’s been a very confusing game.

In 2017, natural gas and coal made up the majority of power generation sources.  Renewables like solar and wind have been capturing an ever-larger share, especially with new additions.  Energy storage has emerged as a significant and promising player, while nuclear power has struggled to stay alive, with announced plant closures and bankruptcies.  And there are many moving pieces in the generation space that could play a role in the future mix: economics, government policies, regulations, etc.

So, what will the impacts be?  What will 2018 look like?

Economically, renewable costs are dropping, coal pricing is stable, and gas prices have been up.  But there are federal efforts aimed at subsidizing certain sources while apparently discouraging others.  The Notice of Proposed Rulemaking (NOPR) filed by the Department of Energy (DOE) seeks to stabilize the grid by subsidizing more traditional sources of generation, notably coal and nuclear.  The potential for tariffs on imported PV cells and the uncertainty over the fate of tax credits (notably the Base Erosion Anti-Abuse Tax, or BEAT) make solar and wind projects more challenging to finance going forward.  Conversely, many utilities, states, cities and corporations seem to be embracing renewables.

A lot of the future generation mix hinges on the price of natural gas.  As more LNG export terminals come on line, gas producers will seek the highest price for their product, which may well be overseas.  New pipeline capacity is being added, but some projects still await FERC approval while others battle local opposition.  If the price of gas increases for domestic power producers, then that would be expected to benefit coal.  The coal fleet is still being rationalized, but in certain parts of the country coal-fired power remains a viable option.  It’s unlikely to spur any new plants, but the existing units should see increased capacity factors.  A favorable ruling from FERC on the NOPR will help.  The impacts of regulatory rollbacks to the Clean Power Plan and other regulations are having less of an impact.  Regulation is not coal’s biggest problem, competitive pricing is.

Nuclear plants are really struggling to stay competitive and will need all the help they can get from Federal and State subsidization.  Several states with significant nuclear assets within their borders have acted.  Other states press ahead with the desire to eliminate coal and nuclear and move towards renewable energy, as have a number of large corporations.

And what will the impact be on the consumer?  With power demand flat and an abundance of supply choices, a truly “free” market should result in lower prices.  Energy prices have come down in recent years, but consumers have also seen artificial price manipulation across the board as a result of various tax incentives and subsidies.  It looks like some version of that may well continue into 2018.

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