Taking a different view on merchant development.
Steven A. Mitnick is CEO of Energy Leader Consulting in Washington, DC. He was formerly co-leader of the global energy consulting business of PHB Hagler Bailly, chief economist of SAIC and a member of the faculty of Georgetown University (where he taught economics and statistics).
The Nov. 15, 2001 issue of Public Utilities Fortnightly included an article entitled "Power Shortages? Fuhgeddaboutit!" The article, by Betsy S. Vaninetti of RDI Consulting, projects a glut of generation capacity in the United States. "As things now stand, overbuilding is the real concern," Vaninetti wrote.
Later in the article, the author explains: "Merchant developers, encouraged by real or perceived capacity shortages and the lure of high wholesale electricity prices, have flooded the market with new generating capacity. This excess capacity, however, puts downward pressure on electricity prices and capacity prices ... which will likely make new plant construction less profitable." She adds: "And the glut of new gas-fired capacity that is currently being built is likely to depress prices and rationalize capacity development." [Emphasis added]
This conclusion, and the basis for it, is fundamentally flawed. A glut is unlikely. The misleading analytic basis rests upon outdated notions about reserve margins and, using the author's words, "capacity required."