IHS: diversity of U.S. power supply could be reduced.

Author:Permenter, Kate

Diversity in U.S. power supply--the most cost-effective means of managing the risks in fuel costs and technology performance in generating power--could be dramatically reduced in coming decades, according to the International Energy Agency (IHS).

The new study, "The Value of U.S. Power Supply Diversity" finds that a combination of factors--chronically depressed wholesale power prices, proposed environmental regulations and a focus on renewables and natural gas over coal, oil, nuclear and hydroelectric power plants--are the chief reasons for the shift.

"The critical importance of diversity to stability in power supplies and prices is the missing factor in much of the discussion on electricity," said study author Lawrence Makovich. "A diversified portfolio of U.S. power supply is fundamental to a properly functioning electricity system."

To illustrate the point, the study said if the U.S. power sector had been all natural gas-fired since the year 2000, the average fuel cost for power would have been more than twice as high and month-to-month power bill variation would have been three times greater.

The study said incidents during last winter's polar vortex --when colder-than-normal weather brought on deliverability challenges and price volatility for natural gas used to generate power--demonstrate the value of diversity. Greater demand for natural gas and electricity to heat homes and businesses in the Northeast strained the capability of pipeline systems, which led to localized price spikes. At some points for brief periods, additional natural gas was not available at any price.

Oil-fired power generation--although accounting for only 0.35% of generation in the Northeast in 2012--provided a critical alternate supplement to the over-strained natural gas supply system during the polar vortex, generating power that would have required delivery of 140 MMcf/d of additional natural gas supplies...

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