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US utilities eye generation-replacement scenarios: Black & Veatch

Highlights

US electric utility executives see growth of distributed generation, replacement of coal and nuclear generation and stagnant load growth in the decade ahead, according to a report from consulting firm Black & Veatch.

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The report is based on a survey of the power sector, with 43% saying load growth rates have not returned to historical levels since the economic downturn of 2008. Nearly 33% said their load growth rate is flat or declining, B&V said in the report, "2014 Strategic Directions: US Electric Industry."

The result, according to Robert Patrylak, a managing director in B&V's management consulting business and one of report's authors, is that many utilities are holding off on large investments in generation until they see more certainty on issues such as proposed Environmental Protection Agency regulations on greenhouse gas emissions.

Meanwhile, the trend toward natural gas-fired generation remains strong over the next five years, with 50% of respondents saying they plan to replace retiring coal and nuclear capacity with gas-fired generation.


A separate B&V report, "Energy Market Perspective," projects that about 60 GW of coal-fired capacity will be retired by 2020 and 35.4 GW of nuclear resources will be retired by 2025, with the electricity sector's demand for natural gas nearly doubling in the next 20 years.

The trend toward replacing coal and nuclear generation with gas-fired generation is less certain among utility executives who face replacing 20% or less of their coal or nuclear capacity. At lower-replacement levels, respondents indicated that renewables and solar photovoltaic were among their first choices.

The Strategic Directions report sees DG growth, with nearly 43% of the respondents believing 6% to 10% of the US power generation will come from DG facilities with capacities of 20 MW or less in the next five years. The trend is driven by the current low cost of natural gas and the declining cost of solar PV technology. In addition, rising electric utility rates, combined with low gas prices, are prompting increased interest in on-site generation among large industrial users.

The challenges that renewables and DG are posing for the industry may require electric utilities "to reimagine their traditional vertically integrated model and role as the primary provider of power" toward an "emerging paradigm" of the electric utility as a systems integrator, B&V said.

The report also found that industry executives are more concerned about cybersecurity than they were in the past. Cybersecurity jumped from sixth into fourth place among the top concerns in the industry, leaping over concerns about aging infrastructure. Reliability remained the top concern in the survey, with environmental regulation ranked second and economic regulation ranked third.

The report is based on an analysis of 576 respondents to an industry-wide survey conducted in May. Most respondents, nearly 37%, were based in the Midwest, followed by nearly 22% in the Southeast. Other regions -- the Northwest, Rocky Mountain and Mexico and Canada -- all responded at rates between 7% and 8%, while Alaska and Hawaii made up 2.6% of the respondents.

Just over two-thirds of the respondents were either investor-owned or public utilities, with merchant generators and industrial power producers making up most of the remainder.

--Peter Maloney, peter.maloney@platts.com
--Edited by Valarie Jackson, valarie.jackson@platts.com