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Mind the Gap: What Scenario Analysis Says About the Future of the U.S. Power Industry

January 09, 2013 by David Gee, Pattabi Seshadri, Geoff Dethlefsen, and Lei Chen
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In This Article
  • The U.S. electric-power market is inching toward a generation capacity shortfall of approximately 50 gigawatts by 2020, presenting major reliability consequences for the nation’s power grid.

  • BCG developed three scenarios that show how the power industry’s future may evolve under different technologies and regulatory drivers. Each scenario points to challenges in adding capacity and an efficient mix of plants.

  • To address these challenges, regulators must set policy that encourages clear and credible price signals for new generation, utilities should swap old coal shutdowns for new combined-cycle gas turbines, and merchant generators should evaluate power purchase agreements to build new plants.


The U.S. electric-power market is inching closer to a major shortfall in generating capacity. This is troublesome in itself but what is causing perhaps even more concern for both the industry and the country’s broader economy is the magnitude of uncertainty related to alternative ways to address the supply gap. This uncertainty may translate into taking too few or insufficiently concrete steps, and thus it has serious implications for the reliability of the nation’s power grid.

Although the U.S. economy was recently hit by a recession, the demand for electric power continues to grow. And the story is also complicated on the supply side: how will recent and future changes in technology and emissions regulations impact the competitive mix in electric-power generation sources?

A number of new and existing variables are clouding the future of the U.S. electric-power industry primarily by exacerbating the uncertainty about policy and the prices power companies will require to justify making big investments in new generation capacity. The advent of new technology and drilling methods has made the U.S. the world’s leading producer of natural gas, allowing gas to approach coal’s share of the country’s power-generation fuel mix. The U.S. Environmental Protection Agency, the states, and the courts continue to battle fiercely over rules for curbing power plant emissions of carbon dioxide, mercury, and other pollutants. The nuclear industry has been in a state of anxiety since Japan’s Fukushima nuclear accident in March 2011. And the renewable-energy business is feeling insecure as a result of waning federal-government support and crumbling power prices due to falling natural-gas prices.

The cumulative effect of increasing uncertainty has been industry paralysis. There has been limited movement in coal-fired and gas-fired plant investment even though the Cross-State Air Pollution Rule (CSAPR) was struck down in 2012. It has been especially hard to add capacity in deregulated states whose economics do not justify the cost of new plant construction. For example, in only one of the past five years has the price of power reached a level that could support building new combustion turbines (CTs, or “peakers”) and combined-cycle gas turbines (CCGTs) in Texas. (See Exhibit 1.) Even in states whose capacity markets cover a portion of generators’ fixed costs and thus arguably provide some encouragement for new construction, the economics are not attractive.