nav-left cat-right
cat-right

Positioning for a low-carbon future, utilities rely on gas, coal in near term

Positioning for a low-carbon future, utilities rely on gas, coal in near term

Positioning for a low-carbon future, utilities rely on gas, coal in near term

Executives from some of the largest U.S. electric utilities and power providers said they will continue to rely on fossil fuels, including coal, well into the next decade as they position themselves for a low-carbon future.

“There’s no question that at certain times of the year, the fossil generation fleet is what carries the day,” American Electric Power Co. Inc. Chairman, President and CEO Nicholas Akins said in a Nov. 11 interview at the Edison Electric Institute Financial Conference in Orlando, Fla. “If the wind’s not blowing, there’s the need for these types of resources. They will be there as more of an insurance policy.”

The decision to run fossil fuel units beyond 2030 comes amid mounting pressure from customers and shareholders to embrace cleaner energy and improve transparency around investment decisions.

“We’ve significantly invested in our facilities to make them environmentally compliant and we’ve materially reduced our overall emissions,” PPL Corp. Chairman and CEO William Spence said at EEI in reference to the continued operation of the company’s Kentucky coal plants. “We continue to assess new ways that we can advance a cleaner energy future in the state. In the near term … the marginal cost of energy from coal is quite low. We’re not expecting wind or solar to be economic and to replace those assets really until maybe the early 2030s.”

Utilities have also championed an integral role for natural gas and coal to ensure the reliability and resilience of the grid.

“I tend to think that folks out there who view natural gas as a bridge fuel and people who articulate that have a tough case to make,” John Bartlett, portfolio manager and electric utility analyst at Reaves Asset Management, said in a Nov. 12 interview. “I don’t view natural gas as a bridge fuel. I think natural gas is going to be with us for a long time.”

A new generation mix

AEP’s CEO said there is a “rebalancing of the portfolio not just in our company but across the country.”

“And you’re going to continue to see that because frankly all these other resources are coming into play,” Akins added.

AEP is investing heavily in renewables throughout its service territories, including new plans to acquire three wind projects in Oklahoma from developer Invenergy LLC after a previous effort failed. The nearly $2 billion deal involves the acquisition of the planned 999-MW Traverse Wind Energy Center, the 199-MW Sundance Wind Project and the 287-MW Maverick Wind Project by AEP subsidiaries Public Service Co. of Oklahoma and Southwestern Electric Power Co.

Akins said there is “no question that solar and wind prices are coming down” but also noted that utilities need to provide resources to support this new generation.

“I think you’ll see the fossil fuel units move to more of a peaking and back up type of capacity,” Akins said. “Because really … if you’re focused on climate change, the carbon emissions is based on output of the units from an energy perspective not a capacity basis.”

SNL Image

A future for coal?

AEP has retired a significant amount of coal capacity in recent years, dropping its coal capacity to 45% of the generation mix in 2019 from 70% in 2005.

During a presentation at EEI, Akins showed that AEP has reduced its coal portfolio from about 24,800 MW in 2010 to about 13,200 MW in 2019.

SNL Image

 

The company plans to shut down the Oklaunion plant in Texas and the final unit at the Conesville coal plant in Ohio in 2020. AEP also expects to retire its Rockport unit 1 in Indiana, Northeastern unit 3 in Oklahoma and 595 MW of capacity at its Cardinal coal plant in Ohio from 2021 through 2030.

By 2030, AEP expects to still operate about 9,700 MW of coal capacity including Appalachian Power Co.’s 2,900-MW John E. Amos and 1,299-MW Mountaineer coal plants in West Virginia.

“Just a few years ago … we spent whatever it took to make a coal unit run,” Akins said, adding natural gas and “the advent of big data analytics” are giving utilities the opportunity to alleviate the reliance on coal.

While companies also see opportunities to reduce dependence on natural gas, Akins said “that’s probably a next decade type of thing rather than something that you’re dealing with in the near term.”

Natural gas not a bridge fuel

NiSource Inc. subsidiary Northern Indiana Public Service Co. plans to shut down its two remaining coal plants in 2023 and 2028 as part of a “coal-free” initiative. While the utility is seeking 2,600 MW of wind, solar and storage capacity to replace this generation, it will still operate the 563-MW, combined-cycle Sugar Creek Facility, the 155-MW R.M. Schahfer and 31-MW Bailly natural gas combustion turbines.

“When we look across the territories we serve, natural gas is so well-positioned as a fuel for the future,” NiSource President and CEO Joseph Hamrock said in a Nov. 11 interview.

The head of the electric and gas utility pointed to the “great” production opportunities and economics, as well as “low volatility” of natural gas.

“That said, we recognize there are voices of decarbonization and electrification and as we look at that, we think having a balanced mix of electric and gas utilities is a good way to be positioned,” Hamrock said.

Public Service Enterprise Group Inc. Chairman, President and CEO Ralph Izzo said his company has reduced its carbon footprint through “a combination of coal retirements, replacement of less-efficient gas units with more-efficient gas units and getting much more out of our nuclear plants than we have in the past.”

“We are not newcomers to this notion that carbon is an issue,” Izzo said, pointing to the company’s plans to reach net-zero emissions by 2050.

PSEG competitive unit PSEG Power LLC will shut down its last remaining coal unit, the 385-MW Bridgeport Harbor 3 plant in Connecticut, in June 2021 but will continue to rely on “highly efficient natural gas plants.”

“We’re a natural gas company and we think that this consumer dividend that we receive from shale gas is an important and valuable thing for our country, the economy and it’s a relatively clean fuel,” Izzo added in an interview on the sidelines of the EEI conference. “That’s why we’re hopeful if you put a price on carbon that will motivate people to look for a carbon capture-type solution as part of the overall equation.”

SNL Image

Fossil fuel plants such as American Electric Power’s 2,900-MW John E. Amos coal plant in West Virginia will be part of the generation mix for the foreseeable future.
Source: S&P Global Market Intelligence

Source: S&P Global

www.spglobal.com

4 mins read

By:  Darren SweeneyAshleigh Cotting

LINK:  https://www.spglobal.com/marketintelligence/en/news-insights/trending/lEo4_Z8YiIGsu0Y9Ow0AyQ

Leave a Reply

Your email address will not be published. Required fields are marked *