Coal power ‘under pressure’; Colorado Springs plant ‘at risk,’ says ratings service
Author: Mark Jaffe - April 27, 2018 - Updated: May 10, 2018
Colorado coal-fired power plants serving municipal electric utilities and rural cooperatives remain economically competitive despite the availability of cheaper natural gas and renewable energy, but one plant in Colorado Springs is “at risk,” according to an analysis by Moody’s Investor Services.
Moody’s, which rates bond credit and does market research, assessed the market competitiveness of the 113 largest U.S. coal-fired plants that serve municipal utilities as well as the generation and transmission associations (G&T) that serve rural power cooperatives. In Colorado, Westminster-based Tri-State Generation and Transmission Association is a G&T.
A little more than half the plants — 63 — were market competitive, according to the Moody’s analysis.
“Coal-fired generation in the U.S. remains under pressure due to coal’s lack of competitiveness against natural gas and even renewable energy in some regions,” the Moody’s report said.
In Colorado, the three coal-fired units at the Craig Station in northwest Colorado, serving Tri-State and the Fort Collins-based Platte River Power Authority, were all deemed competitive in the market, as was the Ray D. Nixon plant operated by Colorado Springs Utilities.
Meanwhile, Colorado Springs Utilities’ Martin Drake Power Plant landed at the bottom of the Moody’s list for competitive plants, with the bond rating agency deeming it to be “as risk.”
The utility has reviewed options for closing the coal-fired unit and there has been some public support for shuttering it.
Moody’s used two metrics to assess market viability: the operating costs per megawatt-hour (MWh) of electricity produced and the capacity factor reflecting how much the unit is run.
“We consider $30/MWh in operating costs to be a threshold above which coal plants are vulnerable to be displaced by a combination of natural gas and renewables,” Moody’s said. “We refer to such plants as being “at risk.”
“This term does not imply that Moody’s expects the coal plant to be shut down in the near term, especially since public power and G&T coop utilities are able to set their own rates to recover all costs. It simply reflects a greater likelihood of shutdown before the plant’s useful economic life as utilities seek to minimize costs,” the report said.
Moody’s set the $30 threshold with an eye toward the prices being offered in long-term purchase power agreements for utility-scale wind and solar generation. The national average price for wind power agreements is $20 per MWh and a few utility-scale solar projects have offer electricity at $30 a MWh, Moody’s said.
The report noted that a recent request for proposals by Xcel Energy for Colorado brought in a median bid for wind-plus-storage of $21 per MWh.
“We described $30/MWh as more of a threshold than a hard cutoff, and each plant may perform differently depending on the market in which they are located,” David Jacobson, a Moody’s spokesman, said in an email.
The Moody’s analysis found that plants with capacity factors above 50 percent also tended to be more competitive.
The Martin Drake plant had operating costs of $31.13 in 2016 and a capacity factor of 46.6 percent, according to Moody’s. Drake was one of seven plants identified as competitive but at risk nationwide.
Colorado Springs Utilities’ Nixon plant had operating costs of $27.71 a MWh and a capacity factory of 66 percent.
By comparison, the most market-competitive unit in the Moody’s report was the Wygen 1 plant in Gillette, Wyoming, which was built in 2003 by Black Hills Energy. The Municipal Energy Agency of Nebraska has a share in the plant.
Wygen 1 had 2016 production costs of $15.48 per megawatt-hour and a capacity factor of 94 percent.
More than 70 percent of the plants have operating costs above $30 a MWh. The three Craig units have an average operating cost of $34.31 with an average capacity factor of 73 percent, according to Moody’s data. The Craig plants are serve by two nearby stripe mines.
Asked for comment on the report, a Colorado Springs Utilities spokeswoman said that using the base cost of generation per megawatt hour “is a limited way to measure usefulness to the electric system. It’s more of a whole system approach and a value of time, location and the flexibility of the generation.
Utility spokeswoman Amy Trinidad added via email: “We are constantly thinking about how to make our generation and transmission and distribution systems smart and flexible so that we can take advantage of the low-cost resource that’s available from renewables, and integrate them into the system in a cost-effective way.”
As for the Drake plant, “the location of this generation source is significant in that our community and electric system was built around it,” she said. “It was decided … that the Drake Power Plant would be decommissioned no later than 2035. We took our first step in this process by retiring the oldest generating unit at the plant at the end of 2016. Last year, we conducted a review of earlier retirement dates. As a result, the (city) Utilities Board directed us to accelerate essential transmission projects that will allow for the decommissioning of the plant while ensuring system reliability. It was also decided that future replacement generation would not be at this site.”
Lee Boughey, a Tri-State spokesman, said in an email: “As Moody’s points out, Tri-State’s coal units are competitive and our fleet is well positioned due to locations close to fuel and our continued investment in efficiency and controls. Our coal units will continue to be competitive and fill a valuable role in reliability and securing stable costs.”
“With current low prices, Tri-State remains interested in adding to our renewable portfolio,” Boughey said. “Tri-State continues to look at opportunities and intends to issue an RFP for additional renewable resources later this year.”
The viability of coal power is a national issue, with President Donald Trump having campaigned on ending a “war on coal” that he blamed on excessive environmental regulation. Others point to the declining cost of natural gas and other alternatives, as well as growing consumer demand for cleaner energy.
Coal powered nearly half of U.S. electricity production in 2008, but by last year, its share had fallen to 30.1 percent, exceeded by natural gas at 31.7 percent, according to the U.S. Energy Information Agency. Nuclear power accounted for 20 percent in 2017 and renewable energy for a combined 17.1 percent, led by hydropower and wind.