According to the ICF Kaiser Consulting Group's
1999 Bulk Power Outlook
FAIRFAX, VA, June 7, 1999 - Participants in the Northeast
power markets need to exercise a good deal of discipline or
they risk oversupplying the region and undercutting the value
of their investments, according to a new study of the regional
market by the Energy Practice of the ICF Kaiser Consulting
Group. "Although the market is tight now, the supply
response in the Northeast—particularly in New England—could
swamp the region's need for new capacity in the long term
if it does not slow down," said Judah Rose, a Senior
Vice President with the Group and the director of the ICF
study.
ICF's analysis of the Northeast points to a number of key
near-term implications:
- Premium Near-Term Capacity Values Attracting Investment.
Tight market fundamentals are creating a high-value capacity
market in the Northeast, with fundamentals supporting prices
of $80 to $100 per kW-year during 1999 and 2000. This market
strength is one of the main factors attracting new generation
to the region.
- Susceptibility to Further Nuclear Shutdowns. The
premium value for capacity is supported by the likelihood
of additional nuclear plant closures. In ICF's view, at
least two more nuclear plants could be retired on economic
grounds by 2000.
- Ongoing Gas Market Expansion. The rush to gas will
further strain the region's gas supply and transportation
infrastructure. Even with the addition of Sable Island gas
supplies from Atlantic Canada, the Northeast will need to
continually add capacity to keep up with new generation
additions.
The study also evaluates the long-term future of the Northeast
market and highlights the following key results:
- Capacity Requirements Small Relative to Potential Additions.
Load growth will create a capacity need of approximately
10,000 MW by 2005, primarily in the New York and PJM subregions.
While this need is substantial, it could easily be overwhelmed
by the volume of announced new capacity in the region, which
totals approximately 30,000 MW in NEPOOL alone.
- Energy Prices Rising Moderately. In the absence
of such an overbuild scenario, energy prices will increase
modestly in real terms, with the PJM region likely to see
the greatest price appreciation. These increases are driven
primarily by increases in natural gas prices and, to some
extent, fuel oil prices.
- Capacity Prices Poised For a Fall. Near-term premium
values for capacity (i.e., $80 to $100 per kW-year) will
moderate over time as the market brings forth new capacity.
In an extreme overbuild situation, capacity values could
be driven to low levels as early as 2002 to 2003.
- Large Gas Demand Growth Even With Strong Prices. The
strength of the power market could easily cause gas demand
in the sector to double by 2010, even with regional prices
remaining at a strong premium to Henry Hub prices.
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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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