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Power Forecast Analysis: What Lies Ahead For U.S. Power Generation In 2019

Highlights

With reserve margins at record-low levels going into this summer, Market Intelligence projects ERCOT will need nearly 10,000 MW of new capacity by 2023

Generation investment signals grow across several regions

Outright spark spreads declined year-over-year for the fourth quarter, as surging natural gas outpaced growth in power prices. Implied spark spreads in forward markets benched higher, indicating a profitable investment environment for new generation across several markets. Tighter reserves are driving prices in the key merchant markets of PJM and ERCOT, while fuel supply concerns are emerging in New England and Southern California. Coal retirements appear likely to cause generation gaps in the Midwest and Desert Southwest as well.

NYISO Zone G forward sparks surged 67% to over $17 per MWh, while Mid-Columbia expanded by 23% to $21 per MWh on higher forward natural gas. Other forward market sparks declined, benching lower on lower first quarter electricity demand. ERCOT-Houston Zone led decliners, down 26% to just under $20 per MWh.

Variable winter weather constrains natural gas prices

Natural gas storage balances held steady January-March, allowing supply to catch up to the winter weather that closed out 2018. This drove a moderation of natural gas prices, although regional volatility occurred in the Northwest and Midwest U.S.

Developing reserve shortages

With reserve margins at record-low levels going into this summer, Market Intelligence projects ERCOT will need nearly 10,000 MW of new capacity by 2023, likely including a mix of new gas plants, gas plants returning to service, and solar photovoltaic plants. Other areas where shortfalls may develop include the Midwest (MISO) and the Southwest.

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