Using the Coal Asset Valuation Tool from Synapse Energy Economics, the total cost to update certain Duke Energy coal units in the Carolinas is compared with the cost of widely-used electric industry benchmarks. DEC refers to Duke Energy Carolinas plants; DEP to Duke Energy Progress.
Duke Energy is banking on charging customers in the Carolinas an estimated $7.7 billion just to keep its existing fleet of coal plants running. For at least thirteen of those units (at 5 plants), however, it is pretty clear that the additional investment is not worthwhile, and Duke Energy should change its plans.
What’s worse, Duke Energy is trying to wow financial analysts with these costs, while keeping them out of legal proceedings before state regulators. In February, Duke Energy pointed to projections of these expenditures as “earnings base growth” when speaking to financial analysts and shareholders. While not all of the cost estimates included in the model we used appear to be in Duke Energy’s financial plans, the company did include an estimate of $2.9 billion in planned “investments” in Carolinas coal plants for environmental controls.
Yet in a legal filing with state regulators, Duke Energy insisted that studying these costs today would be “imprudent.” There’s no question that Duke Energy agrees that compliance with future environmental regulations will have costs, and that it decided not to estimate those costs in its resource plans. Resource plans are the documents in which the utility demonstrates how it will continue to provide reliable and cost-effective electricity service to their customers. Duke Energy’s failure to include any cost estimate whatsoever in its resource plan is a clear failure to seriously consider whether there are cost-effective alternatives to keeping those coal plants in operation.
It’s a cycle we’ve seen before: Utilities that fail to evaluate the costs associated with avoiding environmental problems try to foist those costs on their customers sooner or later. Today, Duke Energy is struggling with the Dan River coal ash disaster. As the public once again learns about the consequences of bad planning and how utilities coordinate with environmental regulators to avoid compliance lawsuits, Duke Energy is hardly in a position to say that evaluating whether it makes sense to keep coal plants running is “imprudent.”
Background
The $7.7 billion cost we described below is not our “number,” it comes from the Coal Asset Valuation Tool (CAVT) created by Synapse Energy Economics. Synapse created CAVT to organize and calculate cost estimates included in reports by the U.S. Environmental Protection Agency, Sargent & Lundy, the Electric Power Research Institute, and the Edison Electric Institute. A more detailed explanation of how the $7.7 billion estimate is calculated can be found in comments on Duke Energy’s resource plans filed by Southern Environmental Law Center on behalf of SACE and the Sierra Club in a North Carolina Utilities Commission proceeding.
The $7.7 billion cost isn’t Duke Energy’s “number,” either, because Duke Energy hasn’t even supplied estimates of what it will cost to ensure that its coal plants are operated safely within environmental requirements that are in the process of being finalized. Furthermore, Duke Energy won’t make public those costs that it has estimated, claiming they are “confidential,” even to the customers who will be on the hook for them.
Briefly, the $7.7 billion estimate from CAVT represents the cost to build and operate (for up to 30 years) environmental controls to protect us from coal ash, water pollution, and air pollution problems at the coal plants. These controls, Duke Energy agrees, are likely to take effect within the next five to ten years, although the specific requirements are not final. As the $7.7 billion estimate is based on reasonable assumptions about what the final requirements may be, it is a far more useful figure than Duke Energy’s resource planning estimate: zero.
Duke Energy’s Least Cost-Effective Coal Plants
Our analysis of the CAVT cost estimate, plus an in-depth review of Duke Energy’s resource plans, convinced us that at least 5,000 MW of Duke Energy’s 10,065 MW coal fleet are not worth the investment using the most basic benchmarks. At these thirteen coal units, it would be less costly to invest in new resources than to spend about $3.5 billion to build and operate environmental controls at these vintage plants.
Duke Energy's retired Dan River plant
Of that $3.5 billion, the two largest future costs will be baghouses to control particulate matter and mercury pollution and measures required to provide safer disposal coal ash (combustion waste). Notably, our coal ash disposal cost estimate is based on the less costly “Subtitle D” approach to coal combustion waste management, and does not include the cost to clean up “legacy” waste that is currently contaminating rivers across the Carolinas. Along with many experts and organizations, SACE has concluded that coal combustion waste should be treated as a hazardous waste product under “Subtitle C,” which would be even more costly than the estimate used in this analysis. Which Subtitle will become law we will not know until EPA issues their final rule in December of 2014.
At eleven of these coal units, it will be more expensive to build and operate environmental controls than to invest in an alternative energy resource. For these eleven plants, we determined that a fair benchmark for their “capacity value” would be a gas peaking unit, or combustion turbine unit. According to the U.S. Energy Information Administration’s 2014 estimate, the “overnight” cost to build these plants is $673 per kW.
You can see how these eleven units stack up in the illustration above: Only three units are close to the benchmark cost of $673 per kW, but considering that the operating lifetime of a new gas turbine plant would likely be longer than, for example, a vintage Roxboro coal unit, its not hard to see that even at similar costs, a new power plant would be a better value.
The other two coal plants on our “least cost-effective” list are Asheville units 1 and 2. We determined that a fair benchmark for these two units would be a gas combined cycle unit, which the EIA estimates to have an “overnight” cost of $1,022 per kW. Even with this more costly benchmark, these two units came up far short: The cost to build and operate the needed environmental controls is estimated at over $1,300 per kW.
Duke Energy has installed “scrubbers” and other air pollution controls at these thirteen units. However, even though they are cleaner than “unscrubbed” coal plants, that doesn’t mean they are ready for the next decade of operation. In November 2013, for example, TVA determined that two coal units at its Paradise station were not worth additional investment, even though scrubbers were installed in 2012.
The other seven coal units remaining in Duke Energy’s fleet aren’t off the hook. While some plants are estimated to have relatively low costs to upgrade due to environmental requirements in effect at the time the plant was built or recently upgraded, most of these units would be fairly costly to bring into compliance with forthcoming environmental regulations. However, benchmarking these seven units is less clear-cut, and would require exactly the type of resource planning analysis that Duke Energy is failing to perform.
Alternatives to Coal
While our simple cost benchmarks are both gas-fueled power plants, we are not saying that gas is the preferred alternative. It just
happens to be an easy-to-use and standard benchmark; from the utility’s point of view, it is also relatively easy to build and operate.
Our comments on Duke Energy’s plans also recommend a full and fair evaluation of energy resource alternatives, including energy efficiency, wind energy, and solar energy. Recently, for example, we joined the Coastal Conservation League of South Carolina in recommending that Duke Energy modify its plans to build a gas combined cycle plant at its Lee Station in South Carolina. We recommended that the company seek bids for a solar plant that would cost less than the long-term cost to fuel and operate the gas plant. Unfortunately, neither Duke Energy nor the South Carolina Public Service Commission accepted our recommendation.
Across the country, utilities are beginning to adopt this “hybrid” approach: Solar and gas plants are being matched up on utility systems to reduce costs, without any state mandate driving the decisions. We’ll discuss this and other alternative approaches that Duke Energy should be evaluating in a future blog. But as we discussed in our comments on its current resource plans, Duke Energy stacks the deck against solar energy by using unreasonable cost forecasts and outright prohibiting the model from selecting solar energy.
The alternatives to coal aren’t free, but they will cost less than $7.7 billion. Whether those alternatives are given fair consideration is up to the utility and its regulators. If not, customers will be stuck with the bill.