By Joe Smyth | email@example.com | @joesmyth
A report published last week by Moody’s Investors Service found that most coal plants owned by municipal utilities and generation and transmission associations are now more expensive than new renewable energy. From Moody’s press release:
Most municipal- or G&T-owned coal plants in the US are old and have high production costs. According to the report, 72.3% of these plants, or about 65.0 gigawatts, have operating costs exceeding $30 per megawatt hour, which Moody's views as the threshold above which coal plants are vulnerable to be displaced by cheaper generation options.
The report provides costs and other details about several coal units, including those owned by Tri-State Generation and Transmission Association - the Escalante coal plant in western New Mexico, all three units at the Craig coal plant in northwest Colorado, and unit 3 of the Springerville coal plant in eastern Arizona. According to Moody’s report, each of those five coal units’ total production costs in 2016 were higher than that $30 per megawatt hour threshold.
Tri-State coal plant total production costs in 2016, according to Moody’s Investors Service:
Craig unit 1: $35.13/MWh
Craig unit 2: $33.63/MWh
Craig unit 3: $34.19/MWh
Springerville unit 3: $36.80/MWh
That puts each of Tri-State’s coal plant costs in the yellow bar of the chart below, among the 72.3% of coal plants owned by generation and transmission associations and municipal utilities that Moody’s considers “at risk” because they cost more to run than power purchase agreements for new renewable energy.
Still, the report notes a key reason that many coal units could continue running for several years, despite their higher costs - unlike investor-owned utilities, generation and transmission associations and municipal utilities often do not need approval from state regulators to set rates, so higher costs can more easily be passed on to electricity consumers:
In light of how inexpensive renewable and natural gas fired generation have become, we consider $30/MWh in operating costs to be a threshold above which coal plants are vulnerable to be displaced by a combination of natural gas and renewables. We refer to such plants as being “at risk”. This term does not imply that Moody's expects the coal plant to be shutdown in the near term, especially since public power and G&T coop utilities are able to set their own rates to recover all costs. It simply reflects a greater likelihood of shutdown before the plant's useful economic life as utilities seek to minimize costs.
Plants that are greater than $30/MWh are more expensive than long-term purchase power agreement (PPAs) for utility-scale renewables and renewable-plus-storage projects in some parts of the country. For example, the national average levelized price of wind PPAs is $20/MWh, and a few utility-scale solar PV PPAs have been priced as aggressively as $30/MWh (all inclusive of federal tax credits). Renewable plus storage projects are now also setting lower benchmark prices, including a recent request for proposal (RFP) median bid of $21/MWh for wind-plus-storage in Colorado.
That’s a reference to the low cost renewable plus storage bids that Xcel Energy received, which also included proposals for 75 solar power projects with a median price of $29.50/MWh, as well as proposals to build the largest battery in the world. More details about those renewable energy and storage bids are expected in the next few weeks.
What can be done with uneconomic coal plants?
The Moody’s report also discusses ways that generation and transmission associations and municipal utilities can try and deal with uneconomic coal plants, including converting to natural gas (if near an existing gas pipeline), or modifying the plant to be better able to ramp production up and down. Moody's highlights steps that Tri-State has taken as an example for another option:
Early retirement of a coal plant before the end of its useful life is another option. Early retirement can involve, at the discretion of the utility, accelerating depreciation whereby the asset's value is reduced more quickly in order to match cost recovery with the remaining operating life of the plant and helps avoid potential stranded costs. For instance, Tri-State G&T Association, Inc. (A3 stable) is accelerating depreciation for its 100 MW Nucla Station and 428 MW Craig Unit 1 (24% ownership), which are to be retired ahead of schedule, by 2022 and 2025 respectively.
Along with the planned retirements of the Nucla coal plant and unit 1 of the Craig coal plant, Tri-State also transferred its interest in unit 3 of the San Juan coal plant in northwest New Mexico, which shut down at the end of 2017. Another unit at the San Juan coal plant is currently offline after a fire last month, which is currently under investigation.
Unit 3 at the Craig power plant also recently failed, in December 2017. The Craig Daily Press reported in January that repairs were expected to take months to complete.
Higher maintenance and repair expenses for older coal plants could also impact their economic competitiveness. The Moody’s report calculates coal plant operating costs using actual fuel and variable operating costs, plus “an assumed $50/kW-yr for fixed operations and maintenance, and major maintenance capital expenditures” - so actual maintenance expenses for each coal plant could vary from that assumption.
Poudre Valley Electric and Xcel Energy Colorado President win national awards from Smart Electric Power Alliance
Latest coal plant subsidy proposal could hit electricity bills in the West
Moody’s report: “High quality renewable resources” could help Tri-State and Basin Electric navigate rising carbon transition risks
Senator Heinrich highlights “frustrations in New Mexico” with Tri-State’s limits on local solar
Moody’s report shows Tri-State’s coal plants are more expensive than new renewable energy
Tri-State’s limits on local energy development are a growing problem for co-op members
Governor Hickenlooper discusses Tri-State at the Climate Leadership Conference
Bids for Xcel’s Colorado Energy Plan include a proposal for the world’s largest battery
New wind and solar power in Colorado is now cheaper than existing coal plants
Companies' 100% renewable energy goals are getting results in Colorado
What does cheap solar mean for electric cooperatives?
Colorado towns and cities are helping push utilities to embrace renewable energy
How are electric cooperatives navigating the transition from coal to cheap clean energy?
Blocked from building more solar projects, United Power shifts to community batteries
Economic reality sets in for Tri-State efforts to expand the Holcomb coal plant
Solar projects in the works in Grand and Jackson counties
Mountain Parks Electric grapples with solar