The Evolving Opportunities for Fossil Power Generation

U.S. wholesale electricity markets are in the midst of significant disruption.  One author has called it “The Breakdown of the Merchant Generation Business Model”.

Due to ever-improving economics, large quantities of new natural gas and renewables capacity are being added to the power system, quickly capturing large gains in market share of the nation’s generation mix.  With the resulting surpluses of lower-cost supplies, prices for both energy and capacity are declining in most parts of the country.  In turn, many coal and nuclear power plants have become uncompetitive at these low prices.  Many of the largest owners of merchant (i.e., unregulated) generation portfolios have experienced significant financial distress, and many of the most economically-vulnerable plants are being driven into early retirement.

Through the Department of Energy, the Trump Administration in September 2017 submitted a Notice of Proposed Rulemaking (NOPR) to the Federal Energy Regulatory Commission (FERC), seeking to implement market structure changes that would provide preferential power prices to owners of generation facilities capable of storing more than 90 days of fuel inventory — in other words, coal and nuclear plants — but in early January the FERC firmly said no to such an obvious subsidization scheme for propping up mature assets.  Meanwhile, regional marketplaces across the U.S. — including PJM and ISO-NE — are considering changes to capacity pricing mechanisms, aiming to strengthen market signals to ensure adequate quantities of dispatchable resources are always available to maintain high grid reliability, especially in the wake of mass retirements.

In recognition of this market turbulence, GE Power recently asked me to write a series of short essays describing the implications of these changes on fossil power plants.  During the last quarter of 2017, the following articles were published to GE’s Transform website:

Together, I refer to this set of writings as “Mission Possible”.  For many owners and operators of fossil power generation assets, the moral is that all is not lost, notwithstanding how challenging the market environment has become.  Although possibly requiring repositioning to enable operations quite different from historical experience, productive and profitable futures may exist for many remaining pre-existing fossil power plants.



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