May 22 - McClatchy-Tribune Regional News - Tom Fowler Houston Chronicle


An overbuilding of power plants combined with a large drop in electricity demand might make it a particularly bad time for state and federal mandates on renewable power, according to a Wood Mackenzie analysis.

Power usage is down steeply across the country in the first three months of 2009 compared with 2008, due in part to the economic downturn and possibly a change in consumer behavior, said George Given, the head of power market research with the energy consulting firm. The demand lag is expected to continue into next year before starting a very slow recovery.

But several new power plant projects -- including some coal-fired plants -- are expected to come online in the next few years, creating even deeper surpluses of power supplies across the country.

Congress and several state legislatures are considering increasing the amount of power that comes from renewable sources as part of broader efforts to lower greenhouse gas emissions. The U.S. House debated a bill this week that could require 25 percent of the nation's power to come from renewable sources by 2025, while the Texas Legislature is considering adding 1,500 to 3,000 megawatts of solar power to the state grid in the coming years.

But the drop in demand has damaged power company balance sheets, Given said, meaning they're in a particularly poor position to invest in the renewable power projects, which tend to rely on government subsidies. And even if those projects were built, they'd be competing in an over- supplied market full of lower-cost options.

"It's not the best investment for these companies at this time," Given said.

Many power companies have seen large drops in electricity use. Houston's CenterPoint Energy reported a nearly 10 percent drop in residential consumption in the first three months of the year from the same quarter last year.

Given said some of the decrease is linked to the downturn in the economy, but the drops are much deeper than the drop in gross domestic product alone can explain. It might reflect a fundamental shift in power usage by consumers in reaction to higher prices in 2007 and 2008.

Reserve margins -- the difference between how much power capacity is available and the peak demand -- have continued to climb as demand has slowed. In Texas, the main grid operator tries to keep the reserve margin about 12.5 percent, but it's currently more than 25 percent and expected to reach more than 30 percent next year.

The steep downturn in the power industry is also dragging down the natural gas market, said Jen Snyder, an analyst for Wood Mackenzie.

The problem is compounded by a recent surge in natural gas production in the U.S. -- government data released Thursday says stockpiles rose by 103 billion cubic feet, well above analyst expectations, and 22.4 percent above the five-year average. Also, a wave of new liquefied natural gas capacity coming online overseas is oversupplying Europe and Asia.

Many natural gas production companies have pulled drilling rigs out of production in an effort to stop the price slide, but Snyder said only a rebound in demand will bring natural gas prices back up. She expects a modest improvement in the economy in 2010, but gas demand won't recover until 2012.

Natural gas slid 36.7 cents to $3.603 per million British thermal units Thursday while crude oil fell 99 cents to $61.05 a barrel in New York trading.

tom.fowler@chron.com

(c) 2009, McClatchy-Tribune Information Services