The plans of generating utilities to curtail expansion, aimed at reassuring investors disturbed by the collapse of merchant generation, are raising independent concerns that the US may face power shortages in the next few years. Mirant Corp., Duke Energy, NRG Energy Inc. (now XCel), Calpine Corp., AES and El Paso Corp along with other generators have postponed billions of dollars in projects representing almost 100 000 MW since early this year to bolster their credit ratings. A decline in electricity prices has further reduced the incentive to build plants, plus the continuation in service of many nuclear and coal-fired facilities originally forecast as plant retirements in 1998. The slowdown in construction of new generation could lead to tighter power supplies as the US economy recovers from the current recession.
According to financial reports from Bloomberg News the key factors are the level of plant retirements or life extensions for nuclear, oil and coal facilities, fuel price and availability, and the pace of economic recovery. But there are many other factors, particularly the current pattern of inconsistent state regulation, delayed implementation of regional solutions, unreliable regional weather patterns leading to planning instability and renewed market interest in weather derivatives, transmission line shortfalls and lack of expansion, escalation of environmental regulation changes and emissions trading, fuel supply instabilities with natural gas and fuel oil, a growing inability to manage power concerns in generator and transmission markets, and the lack of a liquid market for selling existing generation. There are also concerns about EPC construction capacity constraints with shortages in engineering and skilled construction work forces; and the fact that turbine capacity declines with production ramp-ups.
But in 18 months time the market supply and demand balance could be very different. Current market factors do not support this type of ramp-up, just as market volatility does not support longer term generation resource planning.
*The turndown has already affected industry giant GE Power Systems which is to eliminate approximately 2500 jobs over the next eight months and expects to make further reductions in 2003.
Cutbacks will occur primarily in the turbine production facilities of its energy products business where the volume of US orders and shipments of gas turbines is forecast to decline by 80 per cent or more over the next two years. Workforce reductions are expected to be achieved through a combination of early retirements, attrition and layoffs.
Although sales of turbines and generators will be lower, they are falling from a very high position - the past four years have seen unprecedented demand for gas turbines, particularly in the US. GEPS also anticipates operating profit growth of more than 20 per cent a year in its oil & gas and energy services businesses.
John Rice, President and ceo of GEPS, commented "We have always made it clear that, after several years of exceptional growth, our turbine business would at some point return to more normal order levels. We are adjusting our costs and capacity accordingly. At the same time, we are preparing for excellent opportunities for growth - energy services, for example, will benefit from the near-doubling of the installed base of GE heavy-duty gas turbines over the past four years." Specifically, GE intends to reduce its workforce by 1000 in Greenville and 1000 in Schenectady.
As part of its restructuring, Power Systems also plans to move generator-manufacturing operations from Pensacola, Florida to Schenectady and begin producing a new product line - wind turbine blades - in Pensacola to meet expected high demand in the wind energy sector.
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