Why net capacity additions are important

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Nov. 26 2019, Updated 3:10 p.m. ET

Net capacity additions

In regards to power utilities, capacity is defined as the potential power output that power plants can generate. Each power plant has a shelf life. After the shelf life, they’re replaced with new power plants. The plants are replaced to maintain capacity.

When power plants capacity additions exceed retiring capacity, the total generation capacity increases. This happens when power companies believe power consumption is going to increase. Therefore, it’s an important data point to analyze the industry.

Capacity

Net addition in capacity 

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In the first half of 2014, a total of 4,349 Megawatts (or MW) of capacity was installed in the U.S—compared to 2,345 MW of retiring capacity in the same period. This means a total of 2,004 MW of net capacity was added during the first half of the year. More than half of the capacity additions are based on natural gas. No coal-based capacity was added in the first half of the year.

Low gas prices and impending environmental regulations against coal plants made natural gas plants more attractive for power companies. The electricity that’s produced from natural gas-fired power plants is cleaner than highly polluting coal plants.

States with the largest capacity addition

Of all the states in U.S., Florida added the largest capacity for the first half of 2014. It added 1,210 MW of capacity during the period. All of the added capacity was natural gas plants. Florida Power and Light is a subsidiary of NextEra Energy (NEE), Duke Energy (DUK), and Teco Energy (TE). The companies are major players in Florida. All three of the companies are part of the Utilities Select Sector SPDR (XLU).

California and Utah added 1,100 and 629 MW of capacity in the first half of 2014, respectively. Most of California’s added capacity is solar. It was installed by First Solar (FSLR).

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