Cheap gas and renewables are making U.S. merchant power untenable


If you want the right answer, you need to ask the right question.

We at pv magazine have been among those heaping scorn on the grid study which U.S. Energy Secretary Rick Perry has ordered, given Perry’s public statements which suggest that this inquiry is built upon faulty and politically motivated assumptions. We have not been the only voices. Earlier this week trade group Advanced Energy Economy released a study which debunked the two major assumptions driving the report, showing that low-priced natural gas is mostly responsible for driving coal and nuclear plants off the grid, and that the replacement of such baseload does not necessarily have any significant impact on grid reliability.

However, this does not mean that the recent influx of cheap natural gas, wind and solar is having no impact on power markets. On the contrary, the build-out of gas, wind and solar is driving down wholesale power prices, including periods of negative prices in some markets, and in general is creating grave difficulties for generators.

Earlier today a new study emerged which looks at the way that these forces are threatening the entire model of competitive power markets. The Breakdown of the Merchant Generation Business Model by Power Research Group and law firm Wilkinson Barker Knauer notes that only 20 years after restructuring created a huge market for merchant power, many of the large merchant generators are headed for “a second round of bankruptcies”…

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