Changes in the U.S. Power Industry: IPPsn

Report Highlights

• By the end of 2006, power marketers will sell 3.61 billion megawatts of power, at an average annual growth rate (AAGR) of 5% through the period. This augurs well for the independent power industry.
• Only 24 of the 48 contiguous states, however, have attempted partial deregulation, and the results have been mixed. The promises of open markets have mostly remained unfulfilled for residential users as the last loop of the links that connect the substation to the user premises remains under the tight grip of the utilities.
• Deregulated markets have been a blessing to medium and large commercial and industrial users, as they are seen as an attractive target for independent power sales.
• The number of power marketers (many of which are the subsidiaries of large independent power contractors, investors and holding companies) will grow to 973 by the end of 2006 representing an AAGR of 2.5%.

INTRODUCTION

STUDY GOALS AND OBJECTIVES

BCC's goal in conducting this study is to evaluate the market potential for power production and distribution for independent power producers in the deregulated utility industry. BCC is aware of the increasing demand for electricity and the important role that independent power producers and merchant plants are playing in meeting the demand, as well as the prevailing confusion in the power services industries in some states. Therefore this report focuses on types of fuel sources, activities of main independent power producers, competition and related issues as well as projected growth of the main segments of the industry through the year 2006. Additionally, the increasing role of power marketers and brokers and the activities of renewable power production industries have received special consideration in analyzing the industry.

Early independent power production was mainly based on selling power to the utilities, and to a lesser extent in the open markets. However, the emergence of the power exchange and selling power as a commodity, the increasing role of the power grid, the existence of Independent Service Operators, and the ability of large commercial users to buy power from a number of suppliers are set to revolutionize the industry. Growth in the volume of power produced and consumed in the country; increasing efficiency of power plants and distribution systems; and demand for distributed power generation, especially the demand for guaranteed power supplies, also has changed the industry.

REASONS FOR DOING THE STUDY

The study was undertaken to measure the relative growth prospects and cross-influences that independent power production, deregulation and the traditional and renewable power fuel sources have on each other and the es they support. While some reports currently available focus on certain areas of the industry, we believe this study includes comprehensive coverage of the major sectors of the independent power production industry in the U.S. Additionally, it presents an overview of high-growth areas of the independent power production industry.

Researchers were made aware of the conflicting and contradictory information currently being generated in the independent power production and power marketing industries about projected industry growth. Some industry experts have projected very high growth rates for all areas of the deregulated power industry. Our goal for this study was to evaluate "real" growth potential for the independent power production segments of the industry and arrive at realistic projections.

CONTRIBUTIONS OF THE STUDY AND FOR WHOM

This study is based on detailed information gleaned from interviews with independent power producers, marketers and users, consultants and other industry experts. Additionally, BCC analyzed a variety of published information from the government, trade press, trade associations, research organizations and other sources. More than 75 independent power producers, power brokers and others involved in the independent power industry were interviewed for detailed information on their activities, and the data generated were carefully analyzed. Information gathered from various sources was matched to produce an "actual deployment vs. projected use" scenario. Furthermore, a consensus was developed to eliminate the most vexing problem facing the industry, i.e., whether the independent power production industry is focused on a select few, large vendors or on all consumers. A median-cost crossover ratio was developed to arrive at a reasonable deployment scenario. This study is aimed at industry specialists, consultants, marketing managers, investors and other financial personnel and others involved with the power industry.

SCOPE AND FORMAT

This study covers the major power production systems by the type of fuel used and the most popular size of the production plant used in independent power production. The analyses focus on applications markets as well as select renewable power production systems used in the industry. Each segment is analyzed, focusing on the current state of the technology, deployment, and major trends that influence the sales of power in the commercial, industrial and residential markets. A brief overview of technology and developments is presented where appropriate.

METHODOLOGY

BCC presents an analysis by each major technology/product and systems segment, focusing on power production and services for both commercial and residential markets. The projections for each segment and group evaluate the current and per-year growth during the next five years. Where applicable, growth volume is presented in volume and units. Each projection was based on current industry statistics, opinions from industry experts, and analysis available from several reliable sources.

INFORMATION SOURCES

BCC surveyed more than 100 sources to obtain data for this study. These included developers of independent power production systems; owners and investors involved in independent power production and marketing; as well as out-source services, users, consultants and other experts. Major industry publications, reports from the Department of Commerce, the Department of Energy, several associations connected with the independent power industry, universities and financial publications also were consulted.