Editor’s note: This study is significant because it provides a contrast between the cost variability of conventional fuels and its uncertainty, with the zero cost of fuel to drive a wind turbine, the great advantage wind critics continuously ignore.
ICF International, a provider of consulting services and technology solutions to government and commercial clients, has released its ICForecast Energy Outlook for the third quarter of 2014. The study highlights the near, mid and long-term future of gas, coal and power prices; the impacts of proposed U.S. federal environmental regulations; and projections on pollution control installations, coal production and renewable energy development.
Attention is turning again to regulation of the power sector with recent court rulings favoring the U.S. Environmental Protection Agency (EPA) and its Mercury and Air Toxics Standards (MATS) rule and the Cross-state Air Pollution Rule. EPA’s recent release of its proposed Clean Power Plan, regulating carbon dioxide emissions from existing generation sources, will draw much of that attention going forward. ICF’s retirement projection for U.S. coal plants leading up to the MATS compliance date remains steady in the range of 63 GW, based on a regulatory portfolio that includes EPA’s proposed regulations.
Growth in gas production should provide sufficient storage refill after winter 2014’s record withdrawals, though it is unlikely working gas levels at the start of next winter will be as high as they have been in recent years. ICF expects gas prices to gradually soften over the next 18 months if weather for the remainder of the year is close to the 20-year average “normal.” However, accelerating demand growth from liquefied natural gas and Mexican exports, the petrochemical industry and the power sector will place upward pressure on gas prices through the remainder of the decade. As demand growth increases, the potential for price volatility will increase.
As it has in recent years, the Marcellus Shale, stretching from West Virginia through Pennsylvania, is expected to be the fastest growing gas play. Together, the Marcellus Shale and the Utica Shale, concentrated in East Ohio, are expected to account for nearly 80% of the projected growth in natural gas production. The growth in shale gas production will require continued investment in new infrastructure to get these new supplies to market.
Coal stockpiles are much lower than expected after the cold winter, which is driving up demand. Further, lingering railroad delivery issues on the U.S. West Coast will cause some power plant stockpiles to be lower than desired coming in to the summer season. If the summer is unusually hot, based on 20-year average temperatures, some coal plants may be short on coal, which will put increased pressure on natural gas prices.
Over the next 10 years, coal consumption is expected to remain relatively flat, with the biggest hope for producers being the export market. Despite periodic signs of life, international coal prices remain depressed, which makes U.S. coal less competitive and will reduce U.S. exports over the next several years compared with the record high exports in 2012. With gas prices expected to remain competitive for the next several years and electric load growth at moderate levels in many areas, domestic coal demand will remain flat in the near to mid-term time frame with a gradual decline starting after 2020. Coal demand will remain flat despite the expected coal retirements through 2016 as ICF expects the remaining coal plants to run at somewhat higher capacity factors.
On the renewable front, an extension of the Renewable Electricity Production Tax Credit was proposed in May of 2014 as part of a broader taxpackage in the U.S. Senate, but ultimately fell short. A combination of renewable portfolio standards requirements and improving wind energy economics will still continue to drive development opportunities for new wind in select regions of the U.S. In contrast, distributed solar has taken center-stage for many industry stakeholders, as it continues to grow rapidly in several parts of the U.S. With increasing penetration of distributed solar, state regulators have recently made decisions on what approach to take in order to compensate for such generators—a Net Energy Metering tariff or a Value of Solar tariff. The ICForecast Energy Outlook provides insight into growth trends for renewable energy generation, and also highlights key events and developments in the past quarter.
“With the power sector facing added regulatory uncertainty in the face of EPA’s recent CO2 proposal, it is critical that parties engaged in generation – from owners to fuel delivery – evaluate the viability of their investments going forward,” said Chris MacCracken, principal for ICF International. “The ICForecast Energy Outlook provides the inputs to those decision-making processes, integrating regulatory requirements with power and fuel market fundamentals to provide insights critical to owners, investors and other market participants over a 20-year time horizon.”
The ICForecast Energy Outlook addresses a number of significant issues, including:
- Progress of existing regulatory issues and their impact on power and fuel markets
- Views on natural gas demand to 2037 and how that affects power and other markets
- Coal pricing, retirements, and regulation effect on generating markets
- Power market supply/demand trends and future pricing effects
- Renewable energy and the effect of not having long-term energy policy certainty
- How U.S. coal supply/demand dynamics affect the export market
Using a suite of proprietary analytical tools and by incorporating global expertise from all areas of the industry, ICF utilizes a fully integrated assessment of wholesale power, transmission, fuel, and emissions markets in order to offer the most complete picture of the energy industry. The report offers insight into the key areas of emissions, gas, coal, renewable energy and power.
Filed Under: News, Policy