Wind gains, but won’t soon alter the fuel mix.
Gary L. Hunt is president of Global Energy Advisors. Contact him at ghunt@globalenergy.com. George Given is vice president of Global Energy Advisors. Contact him at ggiven@globalenergy.com.
Some power markets may be seeing possible signs of recovery. Spark spreads appear to have bottomed out, and reserve margins have begun to fall in some markets. As Figure 1 shows, recovery is uneven, with many regions still experiencing excess supply and a few regions with peak reserves under 10 percent. The picture becomes somewhat distorted as utilities build new capacity inside their rate base and sign power purchase agreements with wind projects to meet state renewable portfolio standards.
Retirements on the Rise
The retirement of old and inefficient power plants was an expected outcome of restructuring as was the overbuilding of new, more efficient plants, but never a noticeable trend. That may be changing as markets become better organized, liquidity grows, environmental regulations are stepped up, and competition becomes more intense.
A large number of announced retirements and mothballing in Texas have occurred, driven by the highly competitive and organized ERCOT wholesale market, open transmission access, a functioning retail market, and the wave of new plant development, which pushed reserve margins past 35 percent. The pressures of competing at the retail level means that companies no longer can rely on their old, inefficient capacity but instead must search out the lowest-cost plants.