How bad is the capacity crisis and why is it happening?

How bad is the crisis?

Very bad. Experts say it is not a question of if we will have blackouts, but simply when. In fact several major outages have already occurred in the West, and the Eastern half of the country has been on the verge of collapse several times.

The reason is simple. There is a growing shortage of generating capacity to meet peak demand. Capacity margins over peak demand have fallen to less than 10 percent in some North American Electricity Reliability Council (NERC) regions. (See the NERC Regions Map and the NERC Margin Charts) This means we are using 90 percent of all existing plants and power lines, many of which are old and unreliable.

But margins continue to slide, new construction has slowed to a crawl, while peak demand grows robustly. Summer peak demand grew 30,000 megawatts nationwide in 1995, over 4% in one year, while only about 11,000 MW of capacity was added. In 1997 only 1,000 MW was added, while demand increased another 15,000 MW.

This growth means every generating unit we have is running for at least several weeks a year, and unpredictable weeks at that. Otherwise, large parts of the nation would run short of power and black out because electricity, unlike other commodities, can't be stored up.

So-called demand side management programs report annual reductions in peak demand of 10,000 megawatts or so each year. But that does not mean peak demand is going down, although that is how the newspaper reports often read. These are reductions from what would otherwise have occurred, or so it is claimed. The truth is that demand continues to grow rapidly, averaging about 3% per year, and there is no reason why it should stop growing as the country grows.
Why is it happening?

There are three basic reasons for the crisis. First and foremost is the huge glut in generating capacity built in the 1970s after the last big blackout. (See the Capacity Chart) With all this excess capacity we started taking reliable electricity for granted, and we still do. Second has been our ever-growing environmental concerns, which make it difficult and expensive to build new power plants. Third, in 1992 we began to deregulate the electric power industry to allow competition between generating companies. In the uncertainty and confusion of deregulation few companies have wanted to take the risk of building expensive new power plants that might not be competitive.

So almost nothing is being built while the old plants wear out. But demand keeps growing relentlessly. It is a prescription for disaster.

See Electric Power Trends 1996-1997, Cambridge Energy Research Associates, for more detail.


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