The Citizens Utility Board of Ohio has published a report warning policymakers against relying too heavily on aging, mostly coal-fired power plants. The study casts doubt on programs that allow facilities to run even when they’re not the most cost-efficient option.
In the short term, that means electricity is more expensive, and those costs eventually show up on residential power bills, it shows.
Perhaps more important, though, the report says, policies that keep aging plants running blunt the economic signals meant to drive investment toward newer, more efficient power plants.
“Without change,” Citizens Utility Board Executive Director Tom Bullock said, “we are operating the market with one foot on the accelerator and one foot on the brake. Consumers should not be forced to subsidize inefficiency.”
Downward spiral
The report complicates coal’s reputation as a as a reliable backstop when energy demand is high. Instead, it depicts coal as power source from an earlier era caught in a vicious cycle.
As old plants age out, there’s less demand for coal. With that demand declining, mining operations lose the economies of scale that allowed them to produce and deliver coal cheaply. Remaining coal plants face higher input costs, and the cost of maintenance increases as they get older as well.
Meanwhile, the grid has modernized, and favors power sources that can respond rapidly to changing conditions. The report states, “decades-old coal units, which were designed for steady, inflexible operation, are poorly suited to these conditions.” Repeated cycling to meet that demand only “accelerates mechanical wear, raises maintenance costs, and reduces efficiency.”
Ohio has seven coal power plants, according to the utility tracker Cleanview. The youngest began operation in 1990. The oldest started running 1955.
The report points to three cost recovery tools that keep “uneconomic” plants running when there might be cheaper alternatives.
The first is controlled at the state level, providing financial support through fees and riders on customers’ bills.
This was the arrangement under Ohio House Bill 6 that subsidized the Ohio Valley Electric Cooperative coal plants. Lawmakers eliminated those riders with Ohio House Bill 15 last year.
The other tools are controlled by the 13-state grid operator PJM Interconnection. The first, known as an uplift payment, covers the gap if the current market price is less than what it costs to run a power plant. The second, is a reliability must run contract, which keeps a plant headed for retirement running until other power sources can come online to replace it.
Why it matters
While the report stressed there are legitimate reasons to use any one of those tools in the short term, over time, they distort the market.
Paying power plants to run when they otherwise wouldn’t be profitable keeps the market price for energy artificially low. But because those payments eventually land with consumers, it’s not like they’re seeing a benefit from that lower price point.
Instead, the report argues, they could be missing out on the longer-term benefit of the actual, higher price point attracting power plant operators to invest in new facilities.
Bullock drew an allusion to the steroid era in major league baseball.
“The old players are being allowed to juice their performance. And what that does is it displaces the younger players that might come in on the roster and rejuvenate the team,” he said.
Bullock said Ohio “got its affairs in order” by eliminating OVEC subsidies through H.B. 15, “but it belongs to a league with 12 other teams, and the commissioner of the league, in this case is PJM.”
Reactions and recommendations
For its part, PJM defended its use of uplift payments and reliability must run contracts. In a statement, spokesman Jeffrey Sheilds stressed “PJM needs to operate the fleet of resources that is currently available.”
“At times,” he went on, “that means that uplift occurs when resources are needed for reliability; we work to minimize the amount of uplift while accounting for the uncertainties we must manage to maintain reliability. “
Shields added that reliability must run agreements “are necessary to preserve system reliability for those local consumers until transmission can be built to safely retire those resources,” and that federal regulators have oversight on those agreements.
The grid operator isn’t favoring or disfavoring any source of power, Shields said, “when we need every megawatt of power generated to manage our supply/demand imbalance being driven by data center growth.”
The Citizens Utility Board report made several recommendations. There should be greater transparency about cost recovery, they said, including the amount paid, the reasons it was necessary, and the beneficiaries.
The group called for “clearer cost allocation principles” to determine who pays when economic support is needed, as well as greater scrutiny for prolonged use of those tools “to distinguish more clearly between temporary reliability interventions and sustained support for aging, under-performing assets.”
The group also reiterated a longstanding complaint about how long it takes to get new power plants up and running.
“Improving the speed and predictability of these processes would reduce the perceived need for short-term reliability support and enable more cost-effective solutions to emerge,” the report stated.
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This story is republished from the Ohio Capital Journal under a Creative Commons license. View the original article.
