Duke’s Coal Plan: Part 3: How Many Additional Power Plants Should We Pay for? The Southeast’s hidden ‘reliability tax’ – SACE | Southern Alliance for Clean EnergySACE

Customers in the Southeast pay for more power plants than other regions due to insufficient regional allocation of reserves. Climate change and the rise of data centers make market reform increasingly urgent.

Eddy Moore | June 26, 2024

| Fossil Gas, North Carolina, Utilities

In much of the rest of the country, regional markets help root out inefficiencies, identify reliability needs and determine which transmission improvements can increase reliability and lower costs for consumers. But not in the Southeast. This article discusses Duke Energy’s proposed long-term energy plan and shows how continued resistance to market reforms in the Southeast imposes a multi-billion-dollar “reliability tax” on businesses and residential customers.

Read Duke’s 2024 CPIRP blog series

There is a lack of a regional market in the Southeast

Nearly 20 million people in the Southeast are served by our region’s three major electric companies – Duke Energy, Southern Company and Tennessee Valley Authority (TVA). Each of these companies largely builds and operates its own power plants and transmission lines under its own monopoly fiefdoms.

Unlike many parts of the United States, the Southeast does not have a regional energy market where the lowest-cost energy investments can be made among multiple utilities to ensure reliability and/or jointly plan transmission lines to move power around the region in an emergency. needs, as shown in the Clean Energy Buyers Institute’s map of U.S. wholesale electricity markets:

In much of the rest of the country, regional markets have independent system operators that generate and transmit power across multiple territories providing utility services at the lowest cost. This independent planning and operation function helps root out inefficiencies, identify reliability needs and determine which transmission improvements can increase reliability and lower costs for consumers. Because systems operate over a larger area, fewer total reserves are needed, allowing the region to operate at least as reliably without having to build as many power plants. Regional markets also provide transparent, real-time data about the power system. However, in the Southeast, a lack of effective regional coordination and transparent data ultimately means that consumers must pay local utilities to build more power plants than would be necessary to meet local needs.

Extreme weather and projected growth are driving Duke Energy’s plan

Duke Energy’s proposed resource plan, called the North Carolina Coal Plan and South Carolina’s Integrated Resource Plan (IRP), paints a picture in which climate change-driven weather events and data center-fueled increases in electricity sales require massive expansion by ratepayer providers. financed fossil gas power plants. When Winter Storm Elliott hit the Southeast during the Major Polar Vortex on December 23-24, 2022, Duke had to cut off power to hundreds of thousands of customers, largely due to the failure of coal- and fossil-gas-fired power plants. While nearby regional markets also experienced similar power plant outages, they managed to avoid customer outages during this storm.

In response to extreme weather conditions and large projected increases in electricity demand, Duke is now proposing to build more power plants as a backup “just in case” of future power plant failures or extreme loads during severe weather events. In the industry, these “just in case” plants are called “margin reserves.”

A self-perpetuating problem with a billion-dollar solution

Only the power plants Duke proposes to build to meet demand increases reserve margin, would cost customers much more billion dollars, essentially imposing a local “reliability tax” on customers that could be avoided with better regional coordination.

To be clear, standby plants are not plants that will directly serve the new, increased load, but are instead additional plants in addition to the plants needed to handle the increased load, which Duke says are necessary as backups in case other plants fail. According to Dr. Jennifer Chen, who testified before the North Carolina Public Utilities Commission (NCUC) on behalf of a group of large utilities seeking renewable energy, Duke’s plan increases these reserves from 17% to 22% of peak demand. As Dr. Chen points out (on page 5), each 1% increase in reserves is roughly equal to the new mid-sized fossil fuel plant that ratepayers would pay for.

Increased reserve margins are part of a vicious cycle: because fossil gas is unreliable – especially during recent winter storms – Duke says we need more fossil gas to compensate for this unreliability. This is similar to a situation where a doctor tries to treat symptoms while ignoring the underlying disease causing those symptoms. Until the disease is treated, these symptoms will return.

As Dr. Chen points out (pages 11-12 of his testimony), the December 2022 winter storm was the fifth such major disruption in the last decade, and as utilities are built across the region more and more fossil gas power plants that can self-insure against winter storms, their customers do more and more exposed to more frequent power plant failures during extreme weather conditions. It points out, for example, that a large fossil gas power plant is more than three times more likely to fail when the polar vortex drops temperatures to 5 degrees below zero than on a moderate day when the temperature is 50 degrees. In addition, higher reserves are also largely influenced by the inclusion of weather patterns in the demand forecast that have not been observed since the early 1980s, while ignoring the subsequent impact of climate change on electricity demand.

This problematic scenario at Duke, in which extreme weather and higher plant failure rates result in requests for higher reserve margins, is being replicated in similar plans throughout the Southeast.

Markets help manage weather, growth and renewable energy sources

The regional markets that dominate much of the rest of the country are designed to reduce the number of additional power plants that need to be built to provide reliability reserves. As this report on the increase in reserve margins in the southwestern United States from 12% to 15% and page 9 of this report for the Mid-Atlantic and Midwest regions suggests, large areas of the country where regional markets are located maintain margins reserves in the (still historically high) 17% range – even in more extreme weather conditions – rather than the 20%-plus range we currently see in plans for utilities in the Southeast.

Lost in the secret mathematics is a circular puzzle air pollution from power plants causes extreme weather conditionsand extreme weather conditions increase the risk of plant failures, leading to even higher reserve margins.

When plants perform better as a group, fewer backup plants are needed

Independently managed regional markets appear to be better able to address this problem than individual utilities. As Dr. Chen points out, in the U.S.’s largest regional market (PJM), power plant owners face financial penalties for failing to perform tasks that have helped gradually improve reliability. When all plants as a group perform better, fewer additional plants are needed to be held in reserve. And when a plant is too unreliable and the risk of fines outweighs the benefits to the grid, it can prompt those plants to retire rather than continue to burden the system.

Duke is also trying to justify building additional fossil gas power plants by arguing that they are needed to stem growing demand for renewable energy. This is another “problem” that regional markets can solve: a larger regional resource pool better adapts to weather fluctuations, as well as to cheap, variable renewable energy, under rules that try to remain neutral with respect to energy generation technologies or ownership .

Regional markets are far from perfect, and each has its strengths and weaknesses. However, the current crisis in the South, with wild weather, load shedding, major asset retirements and a backlog of renewable interconnectors, is calling for utilities and regulators in the Southeast to take a fresh look at regional market solutions.

Customers should not be saddled with an additional “reliability tax” levied on each utility just because utilities do not want regional reserve allocation or cost competition.

Read Duke’s 2024 CPIRP blog series