PowerGen 2015: Dynegy and CAISO CEOs illustrate a generation industry in flux
Keynote addresses and chatter on the show floor at a major generation conference reveal a changing industry
The changing face of the U.S. electricity sector was on display at the first full day of Power-Gen International, a major conference for power generators taking place in Las Vegas, Nevada.
In their keynote addresses, the CEO of independent power producer Dynegy sharply critiqued a settlement proposal to support aging coal and nuclear generation in Ohio, while the head of the California Independent System Operator (CAISO) warned audience members that his state’s “experiment” in high renewables and distributed generation would soon become the new normal for the entire nation.
The contrasting keynotes illustrated an industry in flux, with some regions forging ahead to integrate ever-greater amounts of clean energy while others weigh whether to break with their coal-heavy pasts. Those challenges have not only just shaped the keynote speeches, attendees said, but the focus of the conference itself.
Ohio's fight over aging power plants
Early this month, FirstEnergy announced it had come to a settlement in its attempts to secure income support for aging coal and nuclear plants in Ohio. While the generator had sought a 15-year power purchase agreement (PPA) that would guarantee income to the W.H. Sammis coal plant, the Davis-Besse nuclear plant and its share of two other units operated by the Ohio Valley Electric Corporation, regulatory staff scaled the proposal back to eight years.
FirstEnergy and American Electric Power, which has a similar proposal before the commission and is reportedly close to a settlement as well, argue that the aging coal and nuclear units are essential to maintain reliability and protect the state from becoming too reliant on natural gas.
Critics, including environmentalists, consumer advocates, and competitors like Dynegy, point out that grid operator PJM is responsible for reliability in Ohio and expects it to be secure in the coming years, even with the continued retirement of coal plants and buildout of natural gas infrastructure.
In November, as FirstEnergy and AEP negotiated a settlement with PUCO staff behind closed doors, Dynegy threatened to sue the Public Utilities Commission of Ohio (PUCO) if regulators approved the PPA proposals.
“It’s so ridiculous it’s even made it this far,” Dynegy CEO Bob Flexon said at the time. “It’s absurd that two investment-grade companies are running with their hands sticking out to the consumers and citizens of Ohio to pay them money that they don’t need. It’s the most absurd argument I’ve ever heard.”
Flexon’s antipathy toward the PPA proposals was evident in his keynote at the conference, which he prefaced with an apology to any AEP or FirstEnergy employees in the audience.
FirstEnergy has worked out “a backroom deal with PUCO staff where they’re going to get a PPA for eight years that will cost consumers $3.9 billion,” he said.
While the PPAs are not significant in terms of the number of megawatts they cover, Flexon said the proposals could change the behavior of generators in the PJM market, which he pegged as one of the best-functioning organized markets in the country.
The plan, he said, “tears away the competitive fabric of the market.”
FirstEnergy’s settlement with the PUCO staff is a recommendation to the state regulators, not a final deal, and Flexon called on the commissioners to reject it out of hand. If they do not, the grid operator or federal government should step in to stop it and any agreement made with AEP, he said.
“I certainly hope PJM is going to defend its market, and I certainly hope FERC is going to step in and say ‘You can’t do that.”
For Flexon, what's at stake is the integrity of the PJM market. The key to its success, he said, is that it doesn't mix vertically-integrated regulated utilities with independent power producers in the same competitive market. Other markets, like SPP or MISO, he said, have both fully-regulated utilities and independent producers.
“Mixing in those two models creates a real disadvantage for competitive generators,” he said. “You either need to be regulated company or an unregulated company. You can’t have a market that starts combining these things.”
Flexon compared the PPA proposals in Ohio to Exelon’s push for support for its aging nuclear plants in Illinois. Both have been “triggered by natural gas prices being as low as they are,” he said.
Historically-low natural gas prices can create problems for companies with large coal fleets, and Dynegy has felt the squeeze along with its Ohio competitors. While its generation fleet is roughly half coal and half gas, Flexon said, “80% of our gross margin these days comes from gas.”
But tough times for generators shouldn’t mean they can run to regulators for support, Flexon said. “It’s state regulators picking winners and losers and it’s very disruptive to the market.”
Is California's overgeneration problem 'coming soon to a theatre near you?’
While utilities in the Midwest continue to struggle with coal retirements and how they think about baseload power, California is dealing with a very different problem – too much renewable energy.
“We have the specter of overgeneration,” Steve Berberich, CEO of the California Independent System Operator (CAISO), told the audience during his keynote.
CAISO now has 13,000-15,000 MW of renewables on its system with a peak load of 50,000 MW, and there were multiple instances this spring of the state getting 40% or more of its power from renewable resources – largely wind and solar, since hydro doesn’t qualify as renewable in California.
The problem, Berberich said, is that most of that generation – especially from solar plants – comes during the middle of the day, well before the peak power demand each evening. That problem – demonstrated in the infamous Duck Curve – is a problem for any jurisdiction with high renewables penetration, like Hawaii, which just ended retail rate net metering for rooftop solar installments and is facing curtailment of solar resources at midday.
Dealing with that overgeneration means first “pushing down system generation as much as possible,” Berberich said, but there are limitations to how much they can do that. Turning off all the renewable generating facilities and keeping fossil plants online is a political “non-starter” in California, and Berberich joked it could be hazardous to his job security as CAISO president since the state’s residents are so committed to decarbonization.
That means CAISO has to find places to put that excess generation. Berberich said that even building out desalinization plants – each consuming about 25 MW apiece – or electrifying the transportation sector wouldn’t completely solve the overgeneration problem in the years and decades to come, so the grid operator has looked to “collaborate more regionally.”
To that end, CAISO launched an energy imbalance market (EIM) last year with western utility Pacificorp. The goal is to connect the West’s independent balancing authorities with a market that allows automated, unobligated trading of energy resources to balance supply and demand. In its first eight months of operation, the EIM saved customers in the Pacificorp and CAISO regions more than $21 million, enticing a number of other utilities to sign on. Nevada’s NV Energy entered the market on Dec. 1 and Portland General Electric recently filed a plan to do the same. Washington’s Puget Sound Energy and Arizona Public Service will join in 2016.
The market works for CAISO because it “gives us a place to put that overgeneration,” Berberich said, but it could have even greater benefits for neighboring states still largely reliant on coal. Instead of building out all their own new renewable and gas generation to comply with the Obama administration’s Clean Power Plan, states can simply import some of the clean energy that California has to spare, easing their path to compliance.
“It’s a win-win situation,” he said.
But dealing with the Duck Curve will require more than simply trading energy across state boundaries. California's renewables-heavy grid needs technologies that can act to balance supply and demand, such as ramping up quickly in the late afternoon when power consumption rises and solar generation drops off.
To that end, CAISO is teeing up new grid services that can respond to these new system realities, such as a 3-hour storage offering that specifically targets ramping services.
“Capacity will no longer be the coin of the realm," he said. "Capability will be the coin of the realm."
Berberich acknowledged that for many of the power generators in the audience, a grid aiming for 50% renewables by 2030 is a relatively foreign concept.
But they shouldn’t write off the California experiment, he said. Its work today will guide how utilities across the nation decarbonize their grids throughout the century.
“People consider us to be crazy, but it’s really a laboratory for a movie that’s coming to a theatre near you.”
Changing times for the generation sector
The shifting focus of the generation industry was not only on display in the contrast between Flexon and Berberich’s keynotes, but in the entire organization of the Power-Gen conference.
For the first time this year, organizers combined Power-Gen with three other trade shows – Renewable Energy World, Nuclear-Gen and Coal-Gen – and veteran attendees told Utility Dive the conference has mirrored the power sector in focusing more on renewables and energy storage than it did in the past.
“This [conference] will track what’s going on in the industry,” said Guy DeLonardo, GM for advanced gas turbines at GE, who has been coming to Power-Gen for more than 20 consecutive years.
While traditional generation is still well represented at the show, emerging clean energy technologies are making inroads.
The presentations from vendors at the conference have evolved as well, mirroring the shift toward digital technology in the industry.
“The quality of these booths … where you’re seeing miniature replicas, working models, meeting rooms, all the media aspects, all the digital displays, that’s a huge part,” he said. “It used to be ‘bring your brochure,’ now it’s ‘go to my site, download my app.’”
As for why renewables have received so much more attention at Power-Gen and in the industry, DeLonardo had a simple answer:
“You talk 10 years ago, [it was a] completely different industry,” he said. “[Renewable energy] wasn’t competitive from a generation standpoint. Now it is.”
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