New Market Report: United States Power Report Q2 2016

From: Fast Market Research, Inc.
Published: Wed Apr 27 2016

Continued availability of cheap natural gas, coupled with the extension of tax incentives for developers of wind and solar power plants, will define the development of the US power market over the coming years. The impact of existing environmental regulations and growing investment into gas-fired capacity will bring about a structural shift in the US power mix, with gas-fired generation exceeding coal from 2018 onward. While wind and solar power capacity installations will boom, nuclear power will struggle amid low wholesale power prices and weak consumption, leading to early reactor retirements.

Latest Updates And Structural Trends

A surge in natural gas-fired power generation and a fall in coal-fired power in 2015, due to the retirement of coal-fired power plants and the historically low price of natural gas, will make natural gas the dominant component of the US power mix in 2016. Although coal will rebound in 2017 as gas prices start to increase, we forecast that gas power will replace coal-fired electricity generation as the biggest component of the US electricity generation mix for good from 2018 onwards. This view is based on our forecast for Henry Hub gas prices and existing environmental regulations; it does not take into account the Environmental Protection Agency's Clean Power Plan (CPP), as we expect the plan's enforcement will be halted until the US Supreme Court decides on its constitutionality.

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On February 9 2016, the US Supreme Court ruled to halt the CPP's implementation until a pending lawsuit against it - presented by 27 states, coal miners and utilities - is set by the U.S. Court of Appeals for the Washington, DC Circuit. Oral arguments for this lawsuit are scheduled for early June 2016. In case the Court confirmed the legality of the plan, we expect the plaintiffs to appeal to the Supreme Court. As such, we think that the survival of the CPP in its current form will ultimately depend on a ruling of the Supreme Court on its constitutionality.

Following the death of justice Antonin Scalia on February 13, 2016, we will at least wait for a new justice to be appointed before including the plan in our forecasts. Our US Country Risk team believes it is unlikely that the Senate will confirm a new justice prior to the November 2016 general election, as the Republican party's official position on the subject is that the seat should remain vacant until the voters decide who should lead the country in the upcoming general election.

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