January 27, 2020

Phillip Graeter and Seth Schwartz of Energy Ventures Analysis (EVA) coauthored a white paper for the National Association of Regulatory Utility Commissioners (NARUC) under a partnership with the United States Department of Energy (DOE) exploring the impact of changing markets on coal plant operations.  The white paper, which can be downloaded by following this link, explores coal plant operations at a time when renewable and gas-fired generation has become more prominent. The executive summary for the report can be read below.

Graeter and Schwartz will speak in a webinar today from 2:00-3:00 p EST. To register for the event follow this link.

Coal Plant White Paper Executive Summary

Over the last decade, the U.S. electric power sector has gone through one of the most dramatic changes in its existence. The combination of low natural gas prices as a result of the shale gas revolution and significant reduction in construction and operating costs for renewable resources, in part due to federal tax credits such as the production tax credit and investment tax credit mainly benefiting wind and solar, respectively, has resulted in a significant shift away from coal-fired generation, and instead towards natural gas and renewable generation.

Furthermore, the operating profile of existing coal-fired electric generating units has changed significantly. As new natural gas combined cycle plants have become increasingly more efficient and cheaper to operate than older existing coal-fired power plants, coal units continue to lose baseload generation share and more frequently operate as load-following, or cycling, resources. These trends are of particular importance to state public utility commissions (commissions). Functioning as economic regulators, commissions oversee investments in a reliable, efficient system while balancing emissions goals, customer demands, and other policy objectives. Changes to coal plant operations as a result of increased competition from other fuel sources may have a bearing on system reliability and economics, and therefore constitute an important area for commissions to monitor.

Increased cycling operations of coal plants, including more frequent startups and shutdowns, as well as faster changes in unit output, have a considerable impact on the reliability and cost of the plant. More frequent cycling increases wear-and-tear of plant equipment and can lead to shorter equipment lifespan due to thermal fatigue, thermal expansion, increased corrosion, and increased cost of start-up fuel. Without proper maintenance of the plant during these operations, unexpected plant outages become more frequent.

Despite the increase in plant operating costs due to cycling, there exist numerous options for plant operators to minimize the financial impact and optimize the plant’s operation. One option for mitigating the effects of flexible operation is for plants to implement system modifications that recover plant efficiency lost to continuous cycling operation. Examples include sliding pressure operation, variable-speed drives for the primary cycle and auxiliary equipment, and boiler draft control schemes and operating philosophy.

Other options include establishing and following cycle chemistry guidelines for flexible operations, accurate damage estimation, flexible operation studies, and plant operator coaching. Additionally, areas to minimize coal plant cycling costs, outside the control of coal plant operators, include the increased deployment of energy storage and demand-side management resources and curtailing wind and solar generation during times of high generation or low demand.

Most of the cycling cost mitigation strategies require significant capital investment. However, recent market developments have undercut the profitability of existing coal-fired power plants and reduced the amount of working capital plant owners are able or willing to spend on the maintenance necessary to ensure plant reliability.

While they are currently being discussed, no specific market mechanisms to compensate unit flexibility provided by fossil fuel power plants exist in the Electric Reliability Council of Texas (ERCOT) and Southwest Power Pool (SPP) power markets, the two independent system operators (ISO) with the largest share of intermittent renewable energy resources in their generation mix. However, without any additional source of revenue for coal plants (e.g., for providing necessary operational flexibility for these power markets), more coal retirements due to poor economics are likely, increasing the risk of potential power outages in states like Texas. In areas with regulated utilities, the increased cost of coal plant cycling is being passed on to utility customers. Any market mechanisms that financially reward the flexibility of coal-fired generating units will arguably result in lower overall system costs while ensuring the reliable operation of the electric power grid.

Thoughtful market mechanisms that financially compensate coal-fired generating units for providing essential market balancing attributes, such as short-term generation flexibility, could arguably result in lower electric retail rates for end-use customers while equally, if not more importantly, helping to ensure reliable operation of the nation’s electric power grid.