Tuesday, October 23, 2012

Why The Economics Don't Work for Kewaunee Anymore

NEI VP Richard Myers
Over the past 24 hours, we've seen a number of folks online ask the question of why it's no longer economically feasible for Dominion to continue to operate the Kewaunee Power Station in Wisconsin. Earlier today, I put the question to Richard Myers, NEI's Vice President, Policy Development, Planning and Supplier Programs. Here's what he wrote back:
In 2005, when Dominion bought the plant: (1) power prices in the Midwest were in the $40-50/MWhr range; wellhead gas prices were in the $6-10 per million Btu range; and U.S. electricity demand was growing.

Today: (1) power prices in the Midwest are in the $30/MWhr range: gas prices are in the $2-3 per million Btu range; and (3) the U.S. has had 5 years of no growth in electricity demand, thanks to the worst recession in 80 years.
Thanks to Richard for laying out the numbers for us. For a statement from NEI's Marv Fertel on the decision to close Kewaunee, click here. For a a quote from an RBS research note that defended the decision, click here.

5 comments:

SteveK9 said...

None of those 'today' numbers are likely to apply 'tomorrow'.

Engineer-Poet said...

There is a shakeout coming in the natural gas industry.  The bubble in shale gas is popping already, and demand is set to surge as heavy trucks start to switch from diesel to LNG.  The breakeven cost of shale gas is around $8/mmBTU, which is where the price will be within a couple of years.  If LNG export terminals open, North American NG prices will likely rise again to within a couple dollars of the world price (currently around $15/mmBTU).

Given this, closing Kewaunee because of the short-term price situation is extremely short-sighted.  I hope some patient capital is willing to buy the plant and keep it open, because it will be well-rewarded in just a few years.

Anonymous said...

Still seems short-sighted, apparently ignoring the historical volatility of gas in the context of economic recovery in the US and beyond.

Anonymous said...

It seems short-sighted both economically in terms of the historical volatility of NG prices, and also strategically for a robust and diverse mixture of generating assets. There may come a day when NG is in short supply (and therefore expensive) and we will wish we had a zero-emissions source of capacity like Kawuanee. But there is no going back from decommissioning. Once you trash and rip down that asset, it is gone forever.

Alex said...

When Dominion bought Kewaunee, I wondered what they were going to do with it. It was part of, I seem to remember, a three plant deal.
Dominion is an East Coast company and they have this plant on the other side of Lake Mchigan.
It would make more sense for another company to take over this plant.