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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--A strengthening U.S. economy and still-emerging clarity about environmental regulations will be the main drivers for project spending in the North American Power Industry in 2012, according to the North American edition of Industrial Info's 2012 Power Industry Outlook.
The U.S. gross domestic product (GDP) grew 1.7% last year, continuing its slow recovery from the Great Recession, which officially ended in mid-2009. Owners of coal- and oil-fired generation received greater clarity about the level of emissions reductions they will need to make in sulfur dioxide (SO2), oxides of nitrogen (NOx), mercury and other emissions after the U.S. Environmental Protection Agency (EPA) (Washington, D.C.) issued two important rules last year: the Cross-State Air Pollution Rule (CSAPR) and the Mercury and Air Toxics Standards (MATS) rule. CSAPR was temporarily stayed late last year by a federal court, which is scheduled to hear oral arguments on the case next month.
Against this backdrop, the North American power generation and transmission business will spend about $75.9 billion on capital and maintenance projects this year, about $1 billion less than what it spent last year, according to Industrial Info. Of this year's Power Industry project spending, about $58.7 billion will be spent on capital projects and $17.1 billion will go to maintenance projects. U.S. project spending is forecast to decline by about $2 billion compared to 2011 spending, but Canadian spending is expected to rise about $750 million from last year's levels.
"The decrease is largely due to a sharp drop off in renewable projects now expected in the 2nd half of this year," said Shane Mullins, Industrial Info's vice president of product development. "We would have seen a much larger decrease if it wasn't for some new nuclear projects starting construction, as well as some upgrades, uprates and environmental projects starting to kick into gear."
The $75.9 billion in North American projects that Industrial Info forecasts actually kicking off this year represents about one-third of the value of all the projects the Power Industry has scheduled to start this year. Industrial Info's historical data shows that about two-thirds of the projects scheduled to kick off in a given year are postponed or cancelled. The $75.9 billion of projects starts is our estimate based on historical patterns of how much Power Industry project spending will actually take place in 2012.
In the U.S., Power Industry project spending rose last year as renewable power developers rushed to take advantage of federal cash grants and loan guarantees, which ended at the end of 2011. Also, the yearend 2012 expiration of the federal production tax credit (PTC) for most forms of renewable generation has cast a pall on the renewable energy market. Finally, as some utilities have met their state-mandated requirements for renewable portfolio standards (RPS), they have stopped signing power purchase agreements for renewable power projects.
All these factors will constrain this year's renewable project spending, particularly for windpower, which has been one of the dominant drivers of capital spending in the power business for the last several years.
"This year will be a roller coaster for renewable energy," Mullins predicted. "Most of the $69 billion in federal stimulus support for renewable energy has been spent. During 2011, there was a huge spike in equipment sales under the safe-harbor clause of the Section 1603 Cash Grant program, which allowed developers to quality for grants if they incurred 5% of a project's costs by December 2011. Most of this year will be spent constructing renewable generators that use that equipment, enabling the industry to continue with some projects this year."
Mullins sees 2012 as a "survivable correction year," but there are sizable doubts about 2013. "For most types of renewable generation, the federal production tax credits (PTC) expire at the end of 2012. Projects not under construction by May or June won't be completed in time to qualify for the tax credits."
Efforts to extend the PTC have drawn broad, bipartisan support, but attempts to bring it to a vote in Congress have foundered, Mullins continued. There were efforts to attach a PTC extension bill to the recent payroll tax-cut legislation, but that was stripped out at the last minute. Then, last month, a PTC extension was attached to legislation on transportation, but that bill was shelved without a vote.
"There are basically two opportunities to extend the PTC this year: a stand-alone, up-or-down vote on the legislation, or as part of a lame-duck session of Congress after the November elections," Mullins said.
The other hurdle facing renewable developers is the lack of a tax-equity market. Mullins estimated that approximately $3 billion of tax equity investment funds are available today--far less than what is needed to realize promising renewable energy projects. He said that U.S. Energy Secretary Steven Chu is scheduled to convene a meeting this month where Fortune 500 companies with big tax bills will be encouraged to enter the tax-equity market for renewables.
Absent extension of the PTC, Mullins sees a dramatic decline in U.S. renewable generation construction: from approximately 12,000 MW in 2011 to about 8,300 MW this year and 4,000 MW in 2013.
Construction of natural gas-fired generation, another significant driver of North America's Power Industry project spending, is expected to have another strong year in 2012, according to Industrial Info's data. Across North America, 79 gas-fired power projects with a combined total investment value (TIV) of $25.6 billion are scheduled to kick off this year. Most of those projects will be based in the U.S., with the Northeast, West Coast, and Southwest expected to be the most active regions. Right now, North America has more than 18,000 megawatts (MW) of gas-fired generation under construction and an additional 10,000 MW is scheduled to kick off in 2012.
Click on image at right for a regional snapshot of North American gas-fired power plant construction projects scheduled to kick off this year.
One major factor driving the continued "dash to gas" has been the fuel's low cost, which is largely a function of huge new supplies and rising production levels from shale formations like the Marcellus, Eagle Ford and Bakken, the Power Outlook report noted. The rise in renewables construction also plays a role in driving gas-fired construction, as intermittent resources like windpower and solar power typically are not dispatchable. Gas-fired generation is often required to back up those intermittent renewable resources.
Retirements of coal-fired generation, driven by CSAPR and MATS, are a third force propelling gas-fired generation construction. Industrial Info sees more than 55,000 MW of aging, coal-fired generation is at risk for early retirement over the next five years. Since the start of 2011, utilities like The Southern Company (NYSE:SO) (Atlanta, Georgia), Duke Energy Corporation (NYSE:DUK) (Charlotte, North Carolina), Tennessee Valley Authority (NYSE:TVE) (TVA) (Knoxville, Tennessee), FirstEnergy Corporation (NYSE:FE) (Akron, Ohio) and American Electric Power Company (NYSE:AEP) (Columbus, Ohio) have announced the early retirement of more than 20,000 MW of coal-fired generation. The Power Outlook report projects the retirement of at least 10,000 more megawatts of coal-fired capacity, a number that will be significantly influenced by the outcome of litigation over CSAPR.
"The new-build coal power market is at a standstill, and we don't expect to see that changing this year," commented Brock Ramey, Industrial Info's manager of North American Power Research.
Across North America, project spending is scheduled to jump for the transmission segment of the Power business. This year, more than $23 billion of projects are scheduled to break ground, the Power Outlook report said. The regions with the highest dollar-value of project activity are: Rocky Mountains ($5.3 billion), Southeastern U.S. ($3.5 billion), Western Canada ($3 billion), Midwest/a> ($1.9 billion) and Great Lakes ($1.8 billion). A lot of this activity is geared to connecting new renewable generation to the regional grids, but many projects are being undertaken for reliability purposes as well.
Project spending for nuclear power-- both capital outlays and uprate activities--is expected to grow in 2012, driven in large part by the scheduled start of construction of four new generating units: Units 3 and 4 of the Alvin W. Vogtle Nuclear Power Station in Georgia and Units 2 and 3 of the Virgil C. Summer Nuclear Power Station in South Carolina. The U.S. Nuclear Regulatory Commission (NRC) (Rockville, Maryland) recently approved the AP1000 reactor design by Westinghouse, which is the type of reactor to be used at those four new units. About $20 billion of nuclear projects are scheduled to kick off in 2012.
View Project Report - 17001442 16001637
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.
The U.S. gross domestic product (GDP) grew 1.7% last year, continuing its slow recovery from the Great Recession, which officially ended in mid-2009. Owners of coal- and oil-fired generation received greater clarity about the level of emissions reductions they will need to make in sulfur dioxide (SO2), oxides of nitrogen (NOx), mercury and other emissions after the U.S. Environmental Protection Agency (EPA) (Washington, D.C.) issued two important rules last year: the Cross-State Air Pollution Rule (CSAPR) and the Mercury and Air Toxics Standards (MATS) rule. CSAPR was temporarily stayed late last year by a federal court, which is scheduled to hear oral arguments on the case next month.
Against this backdrop, the North American power generation and transmission business will spend about $75.9 billion on capital and maintenance projects this year, about $1 billion less than what it spent last year, according to Industrial Info. Of this year's Power Industry project spending, about $58.7 billion will be spent on capital projects and $17.1 billion will go to maintenance projects. U.S. project spending is forecast to decline by about $2 billion compared to 2011 spending, but Canadian spending is expected to rise about $750 million from last year's levels.
"The decrease is largely due to a sharp drop off in renewable projects now expected in the 2nd half of this year," said Shane Mullins, Industrial Info's vice president of product development. "We would have seen a much larger decrease if it wasn't for some new nuclear projects starting construction, as well as some upgrades, uprates and environmental projects starting to kick into gear."
The $75.9 billion in North American projects that Industrial Info forecasts actually kicking off this year represents about one-third of the value of all the projects the Power Industry has scheduled to start this year. Industrial Info's historical data shows that about two-thirds of the projects scheduled to kick off in a given year are postponed or cancelled. The $75.9 billion of projects starts is our estimate based on historical patterns of how much Power Industry project spending will actually take place in 2012.
In the U.S., Power Industry project spending rose last year as renewable power developers rushed to take advantage of federal cash grants and loan guarantees, which ended at the end of 2011. Also, the yearend 2012 expiration of the federal production tax credit (PTC) for most forms of renewable generation has cast a pall on the renewable energy market. Finally, as some utilities have met their state-mandated requirements for renewable portfolio standards (RPS), they have stopped signing power purchase agreements for renewable power projects.
All these factors will constrain this year's renewable project spending, particularly for windpower, which has been one of the dominant drivers of capital spending in the power business for the last several years.
"This year will be a roller coaster for renewable energy," Mullins predicted. "Most of the $69 billion in federal stimulus support for renewable energy has been spent. During 2011, there was a huge spike in equipment sales under the safe-harbor clause of the Section 1603 Cash Grant program, which allowed developers to quality for grants if they incurred 5% of a project's costs by December 2011. Most of this year will be spent constructing renewable generators that use that equipment, enabling the industry to continue with some projects this year."
Mullins sees 2012 as a "survivable correction year," but there are sizable doubts about 2013. "For most types of renewable generation, the federal production tax credits (PTC) expire at the end of 2012. Projects not under construction by May or June won't be completed in time to qualify for the tax credits."
Efforts to extend the PTC have drawn broad, bipartisan support, but attempts to bring it to a vote in Congress have foundered, Mullins continued. There were efforts to attach a PTC extension bill to the recent payroll tax-cut legislation, but that was stripped out at the last minute. Then, last month, a PTC extension was attached to legislation on transportation, but that bill was shelved without a vote.
"There are basically two opportunities to extend the PTC this year: a stand-alone, up-or-down vote on the legislation, or as part of a lame-duck session of Congress after the November elections," Mullins said.
The other hurdle facing renewable developers is the lack of a tax-equity market. Mullins estimated that approximately $3 billion of tax equity investment funds are available today--far less than what is needed to realize promising renewable energy projects. He said that U.S. Energy Secretary Steven Chu is scheduled to convene a meeting this month where Fortune 500 companies with big tax bills will be encouraged to enter the tax-equity market for renewables.
Absent extension of the PTC, Mullins sees a dramatic decline in U.S. renewable generation construction: from approximately 12,000 MW in 2011 to about 8,300 MW this year and 4,000 MW in 2013.
Construction of natural gas-fired generation, another significant driver of North America's Power Industry project spending, is expected to have another strong year in 2012, according to Industrial Info's data. Across North America, 79 gas-fired power projects with a combined total investment value (TIV) of $25.6 billion are scheduled to kick off this year. Most of those projects will be based in the U.S., with the Northeast, West Coast, and Southwest expected to be the most active regions. Right now, North America has more than 18,000 megawatts (MW) of gas-fired generation under construction and an additional 10,000 MW is scheduled to kick off in 2012.
Click on image at right for a regional snapshot of North American gas-fired power plant construction projects scheduled to kick off this year.One major factor driving the continued "dash to gas" has been the fuel's low cost, which is largely a function of huge new supplies and rising production levels from shale formations like the Marcellus, Eagle Ford and Bakken, the Power Outlook report noted. The rise in renewables construction also plays a role in driving gas-fired construction, as intermittent resources like windpower and solar power typically are not dispatchable. Gas-fired generation is often required to back up those intermittent renewable resources.
Retirements of coal-fired generation, driven by CSAPR and MATS, are a third force propelling gas-fired generation construction. Industrial Info sees more than 55,000 MW of aging, coal-fired generation is at risk for early retirement over the next five years. Since the start of 2011, utilities like The Southern Company (NYSE:SO) (Atlanta, Georgia), Duke Energy Corporation (NYSE:DUK) (Charlotte, North Carolina), Tennessee Valley Authority (NYSE:TVE) (TVA) (Knoxville, Tennessee), FirstEnergy Corporation (NYSE:FE) (Akron, Ohio) and American Electric Power Company (NYSE:AEP) (Columbus, Ohio) have announced the early retirement of more than 20,000 MW of coal-fired generation. The Power Outlook report projects the retirement of at least 10,000 more megawatts of coal-fired capacity, a number that will be significantly influenced by the outcome of litigation over CSAPR.
"The new-build coal power market is at a standstill, and we don't expect to see that changing this year," commented Brock Ramey, Industrial Info's manager of North American Power Research.
Across North America, project spending is scheduled to jump for the transmission segment of the Power business. This year, more than $23 billion of projects are scheduled to break ground, the Power Outlook report said. The regions with the highest dollar-value of project activity are: Rocky Mountains ($5.3 billion), Southeastern U.S. ($3.5 billion), Western Canada ($3 billion), Midwest/a> ($1.9 billion) and Great Lakes ($1.8 billion). A lot of this activity is geared to connecting new renewable generation to the regional grids, but many projects are being undertaken for reliability purposes as well.
Project spending for nuclear power-- both capital outlays and uprate activities--is expected to grow in 2012, driven in large part by the scheduled start of construction of four new generating units: Units 3 and 4 of the Alvin W. Vogtle Nuclear Power Station in Georgia and Units 2 and 3 of the Virgil C. Summer Nuclear Power Station in South Carolina. The U.S. Nuclear Regulatory Commission (NRC) (Rockville, Maryland) recently approved the AP1000 reactor design by Westinghouse, which is the type of reactor to be used at those four new units. About $20 billion of nuclear projects are scheduled to kick off in 2012.
View Project Report - 17001442 16001637
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.
