Gas Plants Fail to Live Up to Promise

[Marina Schwarz + 1,576]

That's a surprise: the small gas-fired power plants that private equity companies have been investing in heavily in recent years are failing to return enough on the investment. Why might that be?

[SLL + 24]

Not to worry, I am sure that the veritable flood of EVs will drive up power prices.....

hahahahahahaha

[Jan van Eck + 7,558]

On 5/23/2018 at 7:44 AM, Marina Schwarz said:

That's a surprise: the small gas-fired power plants that private equity companies have been investing in heavily in recent years are failing to return enough on the investment. Why might that be?

The plants have in large part been built along the major urban centers of the Northeast and Midwest.  In the Northeast, they run into heavy competition from Hydro-Quebec, with now has some 5,600 MW of generating capacity with no home. Each bucket of water that goes over the spillway is lost cash.  So HQ is an aggressive vendor of power - and the US is their big export market. 

You also have to remember that HQ uses that river of cash to run the Province.  It got its big start with a canny set of negotiations with Joey Smallwood, then the Premier of Newfoundland and Labrador.  Smallwood was the pusher behind a massive hydro deal in the North of Labrador, a place called Churchill Falls  (where yet another massive project, Muskrat Falls, is now under construction).  What Quebec did was refuse to have Newfoundland transport its Churchill electricity across Quebec terrain for resale in the US; instead, Quebec required that the power be sold to HQ, and then HQ would re-sell it.  Now the way that deal ended up was that HQ paid Newfoundland 0.2 cents/kwh  (yup, two tenths of a cent), and then re-sold it into the USA for about 5 cents  (now closer to 6 cents).  So in effect, for the past fifty years the power from Churchill Falls made no income for Newfoundland  (roughly, 2 billion) and made 27.5 billion for Quebec.  And Quebec used that capital to jump-start its way from a sleepy outlier province into a major industrial power and international finance and shipping center.  It also paid for a very extensive health-care system, and a massive amount of subway and commuter rail. 

Quebec then expanded on that with a whole series of massive power projects along James Bay, leaving it right now with that large 5,600-MW surplus with no home.  So when an American hedge fund puts up a gas plant, it is competing with that surplus power and attempting to displace some of that power in order to sell its gas.  And that is a losing proposition.

What you end up with is the gas plants being used by the ISO as balancing plants; they never end up running flat out, and are the first to be cut back or shut off when power demand is not there.  And that limits the cash flow into the gas plant.

It gets worse.  The loonies that run the next door province, Ontario, went crazy with industrial windmills, those big three-bladed propellors you see scattered about.  The overbuild was so massive, and the net-metering so ruinous, that Ontario Hydro went bankrupt.  Right now, Blackstone Group is putting in an undersea cable down the length of Lake Champlain to bring at least 1,000 MW from Canada to the New York market.  the operator will be paid by Ontario Hydro to take its surplus windmill power, then get to re-sell that free power for top dollar in NY City.  And another hedge fund built a gas plant just outside NYC, in Westchester County up near the 287, but for that they have to buy gas from the pipelines. How do you compete with free?  You cannot.  So once again, the gas plant will become a peaking plant and the bulk of the supply will flow from Canada  (with the Boston hedge fund re-selling wind and hydro from Canada  making scads of coin). 

Edited May 30, 2018 by Jan van Eck
clarify last sentence