According to the ICF Kaiser Consulting Group's
1999 Bulk Power Outlook
FAIRFAX, VA, June 10, 1999 - Even if a strong capacity
build were to materialize in the Midwest—something that
looks unlikely at this point—power markets in the Midwest
are likely to be "North America's best peaking market"
for several years to come, according to a new study of the regional
market by the Energy Practice of the ICF Kaiser Consulting Group.
"The Midwest is a victim of the worst type of transition
to more competitive markets—rapid moves to deregulate the
wholesale market coupled with extremely slow, uncoordinated,
and ineffectual efforts on the part of the states to open retail
markets. This combination further exacerbates what would already
be a difficult transition into a hazardous one," said Judah
Rose, a Senior Vice President with the Group and the director
of the ICF study.
ICF's analysis of the Midwest points to a number of key
near-term implications:
- Premium prices above equilibrium values. The tight
supply/demand balance will allow suppliers to bid-up prices
above competitive equilibrium levels in the near-term. While
peak summer prices are unlikely to reach the stratospheric,
$7000 per MWh levels seen in the summer of 1998, extremely
high prices in the short-term should be expected at least
through 2000.
- Susceptibility to short-term nuclear outages. The
Midwest market—especially the MAIN sub-region—remains
particularly dependent on troubled nuclear plants to meet
customer load. Unexpected outages of these plants, even
if very short in duration, will compound the region's delicate
supply situation and lead to further upward price pressure.
- Weather-induced price volatility. As in 1998, hot
summer weather would force prices to skyrocket again to
levels beyond what otherwise would be expected in this tight
market, and potentially lead to a repeat of last year's
events.
The study also evaluates the long-term future of the Midwest
market and highlights the following key results:
- Capacity Requirements Growing Explosively. The
region faces an immense need for new capacity—at over
40,000 MW by 2005, the region's capacity need is the largest
ever seen in a single marketplace.
- Energy Prices Rising Steadily. Prices will continue
to rise as the region transitions from a predominantly coal-based
generating system to one in which gas-fired generation increasingly
provides the incremental megawatt-hour.
- Capacity Prices Remaining Moderate. Capacity values
will moderate somewhat in the long-term, but will need to
remain relatively high given the ongoing race to add capacity
fast enough to meet the Midwest's need.
- Explosive Gas Demand With Steady Prices. Gas demand
for power generation in the Midwest is likely to increase
more than ten-fold between 2000 and 2010 given a dramatic
move to gas-fired generation to meet the region's incremental
electricity needs. Gas price, however, are likely to rise
only modestly in response, because the Midwest will remain
the focus of a dramatic increase in gas supply from both
the U.S. and Western Canada.
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ICF International (Nasdaq: ICFI) partners with government and commercial clients to deliver consulting services and technology solutions in the energy, environment, transportation, social programs, defense, and homeland security markets. The firm combines passion for its work with industry expertise and innovative analytics to produce compelling results throughout the entire program life cycle, from analysis and design through implementation and improvement. Since 1969, ICF has been serving government at all levels, major corporations, and multilateral institutions. More than 1,800 employees serve these clients worldwide. ICF’s Web site is http://www.icfi.com.
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For Immediate Release
Contact: Douglas Beck
1.703.934.3820
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