Power Surpluses May Create Problems for Renewable Investments

Declines in electricity consumption and the completion of previously-planned conventional power plants are creating power surpluses that may undermine the capacity of utilities to invest in new renewable facilities.

The first three months of 2009 saw power usage decline significantly, primarily as a result of the economic downturn.  However, some of the drops are more extreme than the decline in gross domestic product would indicate, potentially signaling a shift in consumer behavior, says a study by energy consulting firm Wood Mackenzie, cited by the Houston Chronicle.

Demand is projected to continue at current levels before slowly beginning to recover next year. In the meantime, numerous new power plants deemed critical during earlier periods of increasing demand are set to come online in the next few years.

That surplus power could make mandates for renewable power hurt that much more for already strapped power companies, many of which are having trouble raising funds for new capital projects as it is.

As demand has declined, grid operators have seen reserve margins reaching unprecedented levels.  In Texas, where the target reserve margin is about 12.5 percent, the current reserve margin is more than 25 percent and is expected to reach more than 30 percent in 2010.

The decline in electricity demand has also fed the glut of natural gas compounded by the recent surge of domestic production, all accompanied by a significant slide in natural gas prices.

Return to June 2009 Western Energy News

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