In an interview with Wisconsin Public Radio, company spokesman Brian Manthey attributes low natural gas prices and orders from a Midwest power supply operator to the plant’s low operation but Michael Vickerman notes that this is only part of the story. Read or listen to Chuck Quirmbach’s story to learn how rate payers are absorbing the costs of the plant’s low operation.
By Chuck Quirmbach
As part of its ‘Power The Future‘ project a few years ago, WE Energies was allowed to build 1,200 megawatts of new coal-fired generating capacity near an existing power plant in Oak Creek. The new plant is called the Elm Road Generating Station. WE Energies concedes the plant only operated about 20 percent of the time last year. Company spokesman Brian Manthey says that’s due to orders from a Midwest power supply operator and low natural gas prices that made it cheaper to boost operation of a gas-fired plant. But Manthey says the Elm Road plant really cranked up when the weather got very hot last summer.
“The two new units actually at times were operating beyond their rated capacity, at a time when there was power needed from every possible source in the Midwest.”
Manthey says with natural gas prices going up this year, he expects the Elm Road plant to run more. He says it’s available to generate power more than 90 percent of the time. But Michael Vickerman, of Renew Wisconsin, says WE Energies rate payers still have to keep paying for Elm Road, and aren’t getting much for their investment.
by Michael Vickerman
with a license to operate for an additional 20 years, the Kewaunee nuclear power
station rode into the sunset this week, having generated its final
kilowatt-hour. Dominion Resources, the Virginia-based company that owns the 550
MW facility along Lake Michigan, plans to spend nearly $1 billion to
decommission the facility and transform the acreage back to its former status
as farm fields. The process could take as long as 60 years.
than a little odd to see a 39-year-old nuclear plant taken offline in a state
that’s replete with middle-aged fossil units. But in this story, age and fuel
type matter less than the extremely unfavorable market structure confronting an
independently owned baseload plant in the Upper Midwest, especially one lacking
a power purchase agreement.
2005, when the Kewaunee plant was sold to Dominion, the prevailing expectation
among Wisconsin electricity stakeholders was that sales and revenues would
never stop growing. They were convinced then that there would be room for every
new power station on the drawing boards or under construction. But when reality
intruded in the form of a nasty economic contraction, electricity loads headed
after the peaking of electricity sales in 2007, an unusually large wave of new
generating units came online, including a mammoth 1,235 megawatt (MW)
coal-fired plant just south of Milwaukee. (More about the Elm Road station
later.) In a flash, the once roomy environment for power plants vanished,
leaving in its wake a glutted field of generators trying to stay afloat in a
shrinking pool of revenues.
electricity prices in the Upper Midwest are set in accordance with a
generator’s marginal cost of energy. Without a captive rate base to underwrite
safety upgrades and relicensing expenses, Dominion desperately needed a power
purchase agreement to have any chance to operate Kewaunee at a profit.
utilities, who have their own middle-aged generators plants to protect, were
not about to throw a lifeline to Kewaunee. Recognizing an opportunity to thin
the generation herd without having to write down one of their own assets, they
decided to let brute economics administer the coup de grace to an unwanted
baseload plant, Kewaunee was poorly adapted to compete in a depressed market.
Nuclear power plants operate pretty much at one speed–full throttle—and end up
producing the same quantity of electricity at 2:00 AM, when the wholesale price
of electricity in the Upper Midwest is often below the cost of production, as
they do at 2:00 PM, when the prevailing price is at or above production cost.
for a generator like Kewaunee, there are more off-peak hours than on-peak hours
in a year. When baseload plants compete in a market that does not cover the
marginal cost of operations, they tend to hemorrhage money.
ago, baseload generators were touted as the firewall that would protect
ratepayers against price gouging orchestrated by unscrupulous power marketers
like Enron. Today, we have a diametrically opposed dynamic. In a chronically
depressed market, baseload generators are the ones in greatest need of
additional ratepayer outlays to sustain them.
point merits much more discussion than can be squeezed into this column, as it
signals the emerging obsolescence of the traditional utility business model.
Suffice it to say that we can now appreciate baseload generation as a luxury
made affordable by rapid load growth rates that allow the investment in
capacity expansion to be spread over a larger population of ratepayers. Sustained load growth encouraged utilities to
capture economies of scale by building centralized power plants and running
them flat out over many decades. This growth was essential for driving power
prices lower through much of the previous century.
loads stop growing, the operational inflexibility of a large coal or nuclear
plant becomes a liability. Unlike a gas-fired turbine, a baseload coal plant
cannot be ramped up and down without incurring wear and tear. And, unlike a
solar electric array, a baseload generator cannot turn itself off at night,
when wholesale energy prices fall through the floor.
is this situation more evident than with Elm Road, the aforementioned coal
plant owned mostly by Milwaukee-based We Energies. With a price tag of $2.3 billion, this twin-unit
leviathan was the most expensive construction project in Wisconsin’s history.
has it performed to date? In 2012 , its first full year of operation, Elm Road
produced only 18% of its rated capacity, roughly one quarter of its projected
output for that period. By comparison, We Energies’ newest wind power
installation, Glacier Hills, logged a capacity factor of 27% in 2012.
2013, the most recent month in which utilities have reported their production
data, Elm Road’s capacity factor dropped to an abysmal 8%, the lowest
percentage among We Energies’ mainstay generators. Indeed, a hypothetical 1,235
MW solar farm in We Energies territory would likely have outproduced Elm Road
that month, recurring spells of cloudy weather notwithstanding.
Now, if a
new building was unable to achieve a 20% occupancy factor in its first year,
the building owner would face a stark choice: find more tenants or let the
banks take over. Similarly, if an airline found itself struggling to fill more
than one of every five seats in a given route, it wouldn’t take long for management
to cut back on the number of flights or cancel service between those airports altogether.
the hypothetical airline or building owner, the parent companies that own Elm
Road are sitting pretty, because they can count on receiving monthly lease
payments that will, over a 30-year period, recover the capital sunk into that
plant, along with a tidy double-digit return on investment. Those lease
payments are now embedded in utility rates, whether Elm Road is cranking out
the kilowatt-hours or gathering dust.
market conditions—low natural gas prices and depressed demand–that hastened
Kewanee’s retirement are partially responsible for Elm Road’s breathtakingly
poor performance to date. But the plant’s difficulties are exacerbated by its massive
size and its operational inflexibility.
likely a few hours in every weekday when market prices rise high enough to
bring an Elm Road unit online. The trouble is, Elm Road is not equipped to
cycle like a gas-fired plant just to cover a few afternoon hours. When those
situations arise, the system operator dispatches a smaller, more flexible
generator that can do the job, even if Elm Road’s unit energy cost is nominally
lower. So Elm Road just sits there, consuming electricity instead of producing
simply not enough market space right now in Wisconsin to accommodate a large
newcomer like Elm Road at anywhere near its rated capacity, even after
Kewaunee’s departure. Until the generation herd thins out some more, Elm Road’s
utility to the ratepayers who are picking up the tab for this monumental
misallocation of investment capital will remain virtually nonexistent.
lessons from Kewaunee and Elm Road are clear: building baseload plants belongs
to a bygone era. The older ones are fraught with legacy costs, while the newer
ones carry burdensome financial risks. Those states that manage to avoid the
choking levels of overcapacity we have in Wisconsin have plenty of room to
stake out an aggressive clean energy development program going forward.
from Michael Vickerman
In addition to unwanted snow showers, April 2013 has brought us a flurry of clean energy news stories. Taken together, these recent developments offer a revealing picture of the unique challenges we face in Wisconsin in advancing an energy future that is less reliant on fossil fuels.
On the face of it, the announcement on Earth Day that several Wisconsin utilitie will retire a minimum of 260 MW of older coal-fired plants and spend $1.2 billion on pollution control upgrades should qualify as good news. The settlement with U.S. EPA also obligates Wisconsin Power & Light (Alliant Energy) and Madison Gas & Electric to offer up to $5.5 million to support solar PV installation in their territories.
However, if one does the math, the solar component adds up to only one-half of one percent of the total amount the utilities will spend under this settlement. The price tag of the pollution control work even exceeds the nearly $1 billion it will cost to decommission the soon-to-be-retired Kewaunee Nuclear Power Plant. That 39-year-old plant will cease operating in May.
With a combined price tag exceeding $2 billion, these will very likely be the two most expensive electricity-related projects initiated this decade. Ratepayers will absorb the full cost of the pollution control measures undertaken by the owners of the Columbia and Edgewater power plants.
If Kewaunee’s retirement and the planned shutdowns of Alliant’s Nelson Dewey and Edgewater 3 plants had been announced five years ago, Wisconsin would be swarming with wind and bioenergy developers right now. But utility interest in renewable energy development has diminished markedly, owing to the unfavorable political climate here for windpower development and the belief that natural gas will stay cheap for years to come. Furthermore, electricity providers have largely fulfilled their requirements under Wisconsin’s modest Renewable Electricity Standard, and there is no successor policy in sight.
Don’t get me wrong. We are elated that up to $5.5 million will be set aside for new solar electric generating capacity. But that sum is insufficient to remedy the massive imbalance in Wisconsin’s electricity resource mix. Even when being shuttered for good, Wisconsin’s legacy coal and nuclear plants seem destined to cast a long shadow over our energy future and draw resources away from building a less fossil-fuel-intensive energy economy.
Contrast these stories with two recent developments in Iowa. First, Facebook announced that it will locate a brand-new data center near Des Moines. There were many ingredients that led to the selection of Iowa as a data center host, not least of which is a substantial in-state wind energy portfolio that help keep Iowa electricity rates well below the national average.
The other milestone was a recent Circuit Court decision that moves Iowa tantalizingly close to the day when electricity customers can freely contract with third parties to provide them with renewable energy produced on their premises. If this becomes an explicit policy in Iowa, the solar energy market should mushroom there, as it has in states like New Jersey, California and Colorado.
Natural gas prices are just as low in Iowa as they are here, but you won’t find the utilities there using that as an argument against investing in renewables. In the case of Facebook, ongoing renewable investments helped seal the deal. The social media giant is hungry for wind generation, and Mid-American, which has ample supplies of windpower, is hungry for new customers with large energy appetites.
A similar dynamic could evolve in Wisconsin, but the state’s utilities need to understand how valuable clean energy is to attracting companies and industries to set up shop here.
An exciting new settlement in Wisconsin leads the way for millions in funding for clean energy. The EPA’s press release is below. Also check out Tom Content’s blog post summarizing the settlement. Detailed information can be found here.
Clean Air Act Settlement with Wisconsin Utilities to Reduce Emissions by More Than 50,000 Tons Annually
WASHINGTON – The U.S. Environmental Protection Agency (EPA), the Department of Justice, and the United States Attorney’s Office for the Western District of Wisconsin announced a Clean Air Act (CAA) settlement with Wisconsin Power and Light Company (WPL) that will significantly reduce air pollution from three coal-fired power plants located near Portage, Sheboygan, and Cassville, Wis.