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Planning for Retirement

Reliant Resources' announcement of the planned retirement or mothballing of 622 MW of peaking generation within PJM has again fueled the fire of those claiming an impending reliability crisis. The "solution" of course would be to solve the "crisis" by paying Chicken Little a boatload of dollars for already operating capacity ASAP. Fortunately, little evidence supports such claims and solutions, and no, the sky isn't falling. Plant retirements remain fewer than expected, given the age of generation. Installed capacity payments that favor of old, inefficient, dirty plants are neither good for the economy nor the environment. Instead of throwing billions of dollars at owners of existing capacity in the form of installed capacity or ICAP payments, with no guarantee that the recipients of this windfall will build new, cleaner generation, a three-part retirement plan must be adopted to insure reliability and reduce pollution.

First, PJM should perform annually a generation adequacy study with a three-year time horizon and conduct a capacity auction if market forces are not supplying any generation necessary to meet reserve requirements. Second, PJM and state public utility commissions must increase greatly demand side response programs. The absence of substantial, permanent demand response programs and markets available to all consumers is regulatory malpractice. On the hottest day of the year, it is too late to build new capacity to avert a blackout. Only customers responding to price in real-time can bring demand efficiently and economically in balance with supply. Third, renewable energy portfolio requirements can improve reliability and price stability by diversifying generation fuel sources. They also will lead to thousands of megawatts of new generation construction. With this policy package in place, plant retirements of old, inefficient generation would be just good news. Is retirement of old plants a trend?
Not yet, but maybe one is beginning to develop. PJM has a younger generation fleet than the nation as a whole, but even in the Mid-Atlantic a substantial portion of generation operating now is beyond its expected life. In PJM, about 15% of power plants are more than 40 years old and about 13% are less than 10 years young. Nationwide, about 21% are more than 40 years old while less than 5% are less than 10 years old nationwide. The real news is that despite the age of the fleet, relatively little generation has in fact retired since the onset of competitive markets. Units totaling approximately 750 MW have already been retired or mothballed since 1997. In addition to the 750 MW already retired/mothballed and the 622 MW that Reliant plans to retire/mothball, approximately 1,500 MW of generation will retire in 2004. The bottom line is that up to about 2872 MW of generation may have been retired/mothballed between 1997 and the end of 2004, although some portion of that amount is only being mothballed and not necessarily gone for good. If Reliant’s plans are indicative, owners of mothballed plants would bring them back on line if market conditions support doing so. In contrast to the amount of generation retired or mothballed, PJM has added about 11,000 MW of new generation since 1997, leading to a current oversupply of about 3000-4000 MW. The PJM Generation Interconnection queue currently includes about 15,000 MW of new generating plants in various stages of the process that a developer must go through to get a plant built. Of this 15,000 MW, about 3,000 MW appears to have initiated actual construction. So why all the hoopla?
Last year, PJM suggested that it might become modestly short on capacity beginning in 2007. While everyone concerned with the reliable operation of the electric grid was very interested in this projection, and the age of the generation fleet makes plant retirement an important to issue to track, the hoopla has far more to do with advocacy for increasing capacity costs than evidence of a supply problem. PJM staff readily acknowledges that its analysis was rough. In fact, the data used is based upon trends during a period of oversupply in the market and very high and volatile natural gas prices, while natural gas is the fuel for most new construction. It only makes sense that generation developers would not add significant volumes of new generation under such circumstances. With an existing surplus, thousands of MW still being built, and with the ability to bring units out of mothballs if necessary, the argument that the market is not providing the needed incentives to get necessary generation built is weak. Some sensible plan, nonetheless, is warranted. What do the retirements reflect?
Market prices thus far have been adequate to keep many older plants in service beyond their expected life as well as to support substantial new generation additions, but that current oversupply and other market trends are producing a “pause,” reflected both by an increase in retirements and a slowing of new development. Nobody’s crying
No one should be sad to see old, dirty plants heading to mothball or retirement. The Reliant plants that are being mothballed are among the least efficient plants in PJM.

In its press release, Reliant spokesperson Bob Harvey says, “These units are rarely dispatched due to newly added, more efficient generation capacity that has already come on-line and, additionally, will be negatively impacted by new generation expected to come on-line in the near future.” This has two important implications. First, these inefficient units probably had a higher marginal cost to operate. By replacing these units with newer units with lower marginal costs to operate, LMP prices will be lower whenever these units are on the margin, which ultimately translates into savings for customers. Second, more efficient units of a similar fuel type are by definition less polluting.

Since 1997, the plants shut thus far are fueled by coal, oil and kerosene, and by natural gas. They have been inefficient and dirty.

Retirement Date / Plant / Name / Fuel Type
1997 / Burlington 7 / No. 6 Fuel Oil
1998 / Bethlehem Steel / Not available
1999 / Holtwood 17 / Anthracite
1999 / Deepwater 4 / No. 6 Fuel Oil
2000 / Linden 5 / Natural Gas or Kerosene
2000? / Linden 6 / Natural Gas or Kerosene
2000? / Ringold NUG / Not available
2003 / Mobil Oil 1, 2, 3 / Natural Gas and other gas
2003 / Hudson 3 / Kerosene
2003 / Seward 4 / Bituminous Coal
2003 / Seward 5 / Bituminous Coal

How do emissions change?
Two primary emissions of concern are Nitrogen Oxide (NOx) and sulfur dioxide (SO2). For NOx, plants that emit more than and 0.15 lbs/mmBtu for NOx are required to buy emission allowances. Some coal plants have been able to operate with NOx emissions as low as 0.07 lbs/mmBtu. Plants burning natural gas are not SO2 emitters. For SO2, a plant that emits 0.30 lbs/mmBtu is at the high end of what can be permitted today, and some permits require SO2 emissions as low as 0.10 lbs/mmBtu. A review of the plants being retired or mothballed in 2004 by Reliant shows them generally to be dual fuel plants for No. 2 fuel oil that primarily have been burning natural gas when operating. Based on 2002 data published by the Environmental Protection Agency, the plants that Reliant has recently announced for retirement/mothballing don’t measure up too well: 2002 Annual Emission Data (lbs/mmBtu)
Plant Name / SO2 / NOx / CO2
Wayne / 0 / 0.75 / 0
Warren / 1.54 / 0.58 / 117.42
Shawnee / 0 / 0.67 / 0
Blossburg / 0 / 0.33 / 0
Glenn Gardner / 0 / 0.38 / 0
Werner / 0 / 0.28 / 0
Gilbert / 0.0049 / 0.13 / 120.63

Two other plants slated for retirement this past year, Reliant’s Sayreville plant and Constellation’s Gould Street plant, also are quite dirty. Both burn No. 6 fuel oil or natural gas. 2002 Annual Emission Data (lbs/mmBtu)
Plant Name / SO2 / NOx / CO2
Sayreville / 0.00 / 0.27 / 90.26
Gould Street / 1.11 / 0.30 / 171.13

Again, not up to snuff. Plants like Gould Street, which came on line more than 50 years ago, and Sayreville, which came on line more than 45 years ago, should be replaced by newer, more efficient, and much cleaner plants. The same EPA data source shows new natural gas plants that came on line in 2001 are much cleaner:

2002 Annual Emission Data (lbs/mmBtu)
Plant Name / SO2 / NOx / CO2 / Fuel Type
AES Ironwood / 0.00 / 0.01 / 118.86 / Natural Gas
Handsome Lake / 0.00 / 0.15 / 117.99 / Natural Gas
Retirements of old, dirty plants should not be discouraged and need not be feared if capacity auctions, demand response programs, and renewable portfolio standards are in place. Policymakers should take heed and plan for retirement.

John Hanger's picture

Thank John for the Post!

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