EIA: Natural gas biggest winner in restructuring of power industry

The U.S. Energy Information Administration concludes in a new report that natural gas will be the biggest winner to benefit from restructuring of the U.S. electric power industry. EIA said, "Restructuring will change the financial risks faced by the industries that supply the fuels used to generate electricity, and place new demands on their supply and transportation systems."

Oct. 5, 1998

2 min read

Competing fuels

The EIA report said that coal supplies fuel for 56% of utility power generation, representing 87% of all U.S. coal consumption. "Restructuring will result in renewed pressure for cost-cutting and consolidation in the coal industry. Small firms may be forced out of business, and large firms are likely to continue increasing in size through acquisitions and mergers.

"With more than half of all coal being delivered by rail, changes in the structure of the railroad industry also may affect the economics of the coal and electric power industries."

It said that the nuclear power industry accounts for about 21% of total electricity generation and faces the possible early retirement of some nuclear power units due to restructuring.

"Competitive electricity prices may be too low to cover operating costs. A plant's inability to cover full costs, including capital costs, produces stranded costs. The states will determine whether and how much of these costs are recovered. Nuclear power plant operators will be challenged to reduce all operating costs."

Gas preferred

EIA said that natural gas is the preferred source of energy for most new generating capacity.

It said that electric generation accounts for only 2% of U.S. oil consumption, and deregulation will have little effect there, except to provide oil companies with opportunities to expand into a related business, using the experience they have gained in electricity production overseas.

EIA said because electricity generated from renewable fuels, other than hydropower, generally is more expensive than conventionally generated electricity, competition in a deregulated electricity market could result in a reduced role for renewable energy facilities.