Baseload Power is So Yesterday. A Cleaner, Modern Electric Grid Deserves Flexibility.

power-lines-unsplash2Coal-heavy utilities in the Midwest have mustered a new argument to secure subsidies for their uneconomic power plants. They used to suggest the plants were needed to maintain reliability, until regional grid operators declared there was plenty of generation to ensure the lights stayed on. They then attempted to argue the plants provided jobs and taxes to the local communities, until conservative economists highlighted the inefficiency of subsidies.

Now several utility executives, including the chief executive officer of American Electric Power (AEP), are trying to regale regulators with the importance of baseload generation. The argument goes something like this: Since some power plants – largely nuclear reactors and coal-fired power plants – have a hard time ramping up and down in response to changing electricity demand, the grid needs those units to operate all the time, to provide a “base” output of power.

Such last-century thinking, however, ignores the phenomenal advances provided by modern sensors, smart meters, and telecommunications. A combination of dynamic power options – like demand response (crediting homes and business for using less electricity when the power grid is stressed), renewable energy, and battery storage, among others – allow the grid to respond more nimbly than ever before. Rather than propping up old, lumbering baseload generators, we should prioritize a more modern, cleaner grid that focuses on flexibility and diversity.

Linking the Polar Vortex and FirstEnergy’s subsidies

After 2014’s Polar Vortex caused reliability issues, utility executives effectively leveraged the opportunity to get a better deal for their baseload units. They convinced PJM and other grid operators to provide higher capacity payments to power plants that operate year-round, including during peak-demand periods in both the summer and winter.

As a result, some utilities operating baseload coal and nuclear units made hundreds of millions of additional dollars – simply for continuing what they had already been doing. For many utilities, however, even that windfall was not enough to enable old and inefficient plants to compete with other generators, particularly natural-gas-fired units. Power company executives, in response, turned to states for subsidies.

The most prominent appeal came from Ohio-based FirstEnergy, which initially requested $4 billion to keep several baseload units operating. When the Federal Energy Regulatory Commission (FERC) ruled that such subsidies illegally distorted competitive markets, the utility upped its request to $12 billion and tried to avoid federal oversight by claiming the bailout was not related to any particular power plants. The Public Utilities Commission of Ohio (PUCO) recently offered the utility $600 million, with seemingly no strings attached.

The odd thing about that ruling, which the PUCO chairman himself admitted was “undoubtedly unconventional,” is the regulators went on and on about the importance of modernizing the grid – the very actions that would bring our energy system into the 21st century and reduce the need for baseload capacity. Then they simply provided FirstEnergy with an enormous subsidy that will enable it to keep operating outdated and dirty power plants, without any requirement to modernize the grid.

The baseload argument spreads

AEP’s chairman, Nick Akins, hopes his utility soon gets a similar deal to what the PUCO gave FirstEnergy. “You see states reaching out trying to do something to provide support for these types of assets,” he said. Those “types of assets” are not the sophisticated resources that will lead to a cleaner, more efficient electric grid.

Atkins and his utility colleagues may be trying to reframe the subsidy debates, yet other utility decision-makers recognize the opportunity at hand:

I think what we see in the future is the whole concept of a baseload power plant going away. Power plants have to be much more dynamic in terms of how they operate in the marketplace, much more flexible, much more integrated renewables and other demand response technologies,” said Cris Eugster, Chief Strategy Officer for San Antonio’s CPS Energy.

Between the falling cost of clean energy resources and new technology constantly being unveiled, there are more power options than ever before. No doubt it will take time to transition. But regulators and executives should be focused on how best to modernize the grid in ways that encourage diversity and flexibility, while minimizing the need for outdated baseload generators.

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4 Comments

  1. Posted November 18, 2016 at 8:06 am | Permalink

    Excellent!!

  2. Mike Johnson
    Posted November 18, 2016 at 10:03 am | Permalink

    Right………..Mr. Eugster is a clueless moron when it comes to Electric Power generation; he is a former tech geek who suddenly found himself in charge of power plants one day when they consolidated a bunch of departments at his company in order to save money.

    In truth, CPS energy customers are starting to pay more money for generation that is "green" but almost useless when they need it. It only makes sense to the complete moron to replace generation with a 90% capacity factor (Coal, Nuclear & Natural Gas) with generation that only realizes only an 18% capacity factor (Wind and Solar) at best. And regardless of how much of this "green energy" you surround yourself with, it will never be capable of handling inductive loads, there will always be the need for a conventional baseload unit to provide voltage support.

    But that's OK, because with the new President we are probably going to end these subsidies hopefully and force the green crowd to exist in the free market. Then their "better mousetraps" will dry up and blow away just like old dog poop…….

  3. Posted November 19, 2016 at 7:07 pm | Permalink

    Mike Johnson You demean yourself and ruin your argument when you open with an ad hominem attack (look it up). And you lose all credibility when Cris Eugster is in fact an intelligent utility executive and professional with a unique perspective at CPS, one of the nation's most innovative utilities – indisputable. Your discussion of capacity factors reveals old-fashioned ideas about electricity that are the very subject of this debate. Increasing amounts of flexible decentralized energy at lower and lower costs (look it up) will indeed challenge the ability of large inflexible power plants to compete, leaving capacity that cannot economically dispatch (see Eon http://tinyurl.com/gvfae4y).

    Renewable energy of all kinds are on track to be cost competitive with fossil fuel power plants – without subsidies – in a few short years. When that day comes, where will the money come from to pay for 30-year debt on large power plants? That is one of the core challenges that we are discussing. The other is climate change, which you conveniently leave out. We can't pump the toxins and waste of fossil fuel plants into the air forever without consequences. "Denial ain't just a river in Egypt," as the saying goes.

    Your argument is weak, your delivery is obnoxious, and the time you spent writing that ridiculous comment was wasted. If you want to be taken seriously, go do just a little research, open up your mind and broaden your view, and learn to behave like a gentleman instead of a troll. Reminds me of another saying: "Better to remain silent and let them think you're a fool, than to open your mouth and let them know it for certain."

  4. Robert Meinetz
    Posted November 21, 2016 at 10:03 pm | Permalink

    Dick, questions:

    • Was this EDF's position even before your org was paid $6 million by fossil fuel companies – specifically Royal Dutch Shell, Exxon-Mobil, and TransCanada – to conduct methane "research"?

    • Someone told me EDF stands for "Environmental Destruction Fund", is that true?

    • How many times do you need to repeat the myth nuclear is "baseload" generation to earn $6 million dollars? That's a lot of methane to sell.

    You people are criminals.

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