IHS: Diversity of US Power Supply Could Decline

July 28, 2014 By Karen Henry

us-power-generation-energy-manageA new study by IHS says diversity in the US power supply could be dramatically reduced in coming decades. According to the study, “The Value of US Power Supply Diversity,” depressed wholesale power prices, proposed environmental regulations and a focus on renewables and natural gas over coal, oil, nuclear and hydroelectric power plants is moving the United States toward a significant reduction in power supply diversity.

Incidents during last winter’s polar vortex demonstrate the value of diversity. Greater demand for natural gas and electricity to heat homes and businesses in the Northeastern United States strained the capability of pipeline systems, which led to localized price spikes. There were also some brief periods when additional natural gas was not available at any price.

Although oil-fired power generation accounted for only 0.35 percent of generation in the Northeast in 2012, it provided a critical alternative to the strained natural gas supply during the polar vortex. In the Midwest, the increased utilization of coal-fired power plants played a similar role, providing a necessary substitute for constrained natural gas-fired power plants during the cold snap.

In coming decades, natural gas’ share of US power generation could rise to nearly 62 percent—more than double its share in 2013.

To illustrate the importance of US power supply diversity, the IHS study compared a base case – reflecting the current generation mix in regional US power systems during 2010–2012 – with a reduced diversity case involving a generating mix without meaningful contributions from coal and nuclear power, a smaller contribution from hydroelectric power, and an increased share of renewable power. The remaining three-quarters of generation in the scenario come from natural gas-fired plants.

IHS found that the cost of generating electricity in the reduced diversity case was more than $93 billion higher per year and the potential variability of monthly power bills was 50 percent higher than the base case. As a result, the study estimates that the typical household’s annual disposable income would be around $2,100 less in the reduced diversity scenario, there would be around one million fewer jobs compared to the base case and US gross domestic product (GDP) would be nearly $200 billion less. The study also says that additional costs would arise if current trends lead to the retirement and replacement of existing power plants before it was economic to do so.

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