The Illinois Power Agency (IPA) filed a power procurement plan Sept. 28 with the Illinois Commerce Commission that includes proposed procurement of power from the coal-fired FutureGen 2.0 project, which would involve repowering of the shut Meredosia power plant in Illinois.
IPA’s proposed plan is to serve certain customers of Ameren Illinois, a unit of Ameren (NYSE: AEE), and Commonwealth Edison, part of Exelon (NYSE: EXC).
“The IPA hereby submits to the Commission for its consideration and approval, the IPA’s proposed Power Procurement Plan for the period June 2013 through May 2018 (‘Procurement Plan’ or ‘Plan),” said the filing. “The Procurement Plan sets forth a recommendation relating to procured electricity commodity and associated transmission services, and renewable energy resources, to meet the supply needs of eligible retail customers served by Ameren and Commonwealth Edison. The Procurement Plan is designed to meet its statutory mandate ‘to ensure adequate, reliable, affordable, efficient, and environmentally sustainable electric service at the lowest total cost over time.…’”
The initial procurement plan was put out for comment in August and there are four primary areas where the IPA modified that draft plan in response to the comments:
- Corrections to numbers, charts and graphs;
- IPA proposes that it conduct no capacity procurement for either ComEd or Ameren in 2013. The draft plan had proposed to procure about 290 MW of capacity resources for 2013/2014 for Ameren. However, given uncertainty about customer migration in Ameren’s territory, and the mechanics of Midwest ISO capacity auctions, the revised plan proposes that Ameren Illinois purchase any remaining 2013/14 capacity in the MISO auction to satisfy the initial MISO resource adequacy requirement, with any balancing of capacity requirements to be achieved as required by MISO;
- FutureGen 2.0 has provided the IPA with a revised proposed sourcing agreement, which the IPA recommends for approval subject to commission modification. IPA noted that FutureGen 2.0 delivered to the IPA a revised sourcing agreement after the draft plan was published; and
- IPA no longer recommends that it conduct a solar renewable energy credit (REC) procurement for delivery year 2013/2014. The draft plan raised the possibility that it would conduct a solar photovoltaic renewable resource REC procurement for 2013-14 delivery. However, given the risks associated with potential customer migration in Ameren’s territory, and the potential that any remaining renewable resource budget may not be available for 2013/14, the IPA said it does not recommend that it conduct a solar REC procurement for this period.
Also, the draft plan proposed to conduct a bilateral capacity procurement of 540 MW of Zonal Resource Credits for 2015/2016. However, given the administrative costs of conducting this bi-lateral capacity procurement in the absence of any energy or renewable resource procurements, the IPA now recommends that no bi-lateral procurement for capacity products be conducted in the 2013 plan.
This is the fifth such electricity procurement plan done by the IPA
This is the fifth electricity and renewable resource procurement plan prepared by the IPA under the authority granted to it under the Illinois Power Agency Act and as further regulated by the Illinois Public Utilities Act. The plan deals with the provision of electricity and renewable resource supply for the “eligible retail customers” of Ameren Illinois and ComEd, which are generally residential and small commercial fixed price customers who have not chosen service from an alternate supplier, for a five-year planning horizon that begins with the 2013-2014 delivery year and lasts through the 2017-2018 delivery year.
Since 2006, retail competitive markets have continued to flourish, with recent advances fostered by wide-spread municipal aggregation efforts, the plan noted. More recently, both ComEd and Ameren have experienced big reductions in retail load serving obligations since the overwhelmingly successful March 2012 referenda authorizing opt-out aggregation of customers and the resulting opportunities for substantial savings on the supply portion of customers’ bills, the plan added. The utility load forecasts which underpin this supply procurement plan are projecting significantly lower utility loads than did prior plans.
On the supply side, both Ameren and ComEd have a supply portfolio already procured and under contract. This portfolio was procured without the benefit of witnessing the dramatic shift residential and small commercial customers have made to exploring competitive retail markets, at least as they exist today in Illinois, the plan said. Therefore, particularly for the 2013-14 delivery year, there is significant apparent oversupply in the base case forecast.
The 2013-14 delivery year is a transition year in which the oversupply of current contracts winds down. The utility supply portfolios can then start with a “clean slate” going forward, the plan said. That is not to say that the IPA, stakeholders, or the commission can assume that the utility load serving requirements are permanently altered to a lower level.
“Constant vigilance and analysis, and prudent risk management strategies must be maintained,” the plan added. “The annual filing of IPA Procurement Plans allows for future adjustments to be made. Fortunately, Illinois retail electricity customers have the benefit of strong regional transmission organizations, PJM and MISO, which further assure supply reliability, transparent wholesale prices, and capacity, energy and ancillary service products designed to provide appropriate risk management tools.”
Illinois law says IPA needs to include ‘clean coal’
The IPA Act contains a goal that cost-effective clean coal resources account for 25% of the electricity used in Illinois by Jan. 1, 2025. The act describes two special cases: the “initial clean coal facility” and “electricity generated by power plants that were previously owned by Illinois utilities and that have been or will be converted into clean coal facilities (“retrofit clean coal facility”). Currently, there is no facility meeting the definition of an “initial clean coal facility” that the IPA is aware of that has announced plans to begin operations within the next five years. However, the IPA said it is aware of a retrofit clean coal facility that intends to begin operations within the next five years, which is FutureGen 2.0.
FutureGen 2.0 consists of the proposed repowering of one unit at the Meredosia power plant of Ameren Energy Resources, which is located in Morgan County. FutureGen 2.0 is to be developed as 166 MWe (gross) of near-zero emissions coal-fueled generation, with a targeted commercial operation date in 2017, and a 30-year life. It is anticipated to operate as a baseload plant to be dispatched by MISO in the coal stack of the dispatch order. An interconnection request has been submitted to MISO, with no significant issues identified in its initial system study, the plan noted. The air and water permitting process has begun with the Illinois Environmental Protection Agency.
FutureGen 2.0, supported by the U.S. Department of Energy, is designed to validate the cost and performance of commercial-scale, near zero emissions oxy-combustion coal-fueled power generation with carbon capture and sequestration. The plant would receive $1bn in federal stimulus funds and additional state-level grant funding. These funding sources, coupled with the non-profit status of the sponsoring FutureGen Alliance, significantly improve the economics of the project, the IPA plan said.
The first year of commercial operation for FutureGen 2.0 is anticipated to be 2017, which is the fifth year in the planning horizon in the 2013 procurement plan. While the plan has historically focused on a ladder of resources for a three-year future, inclusion of the FutureGen sourcing agreement in this year’s procurement plan is appropriate so that financing for the unfunded portion of the project can be secured and to allow pre-commercial operation date work on the project to proceed, the IPA plan said.
FutureGen 2.0 has proposed a sourcing agreement with Ameren, ComEd and Alternate Retail Electric Suppliers (ARES). The IPA’s procurement administrator is developing the “cost-based benchmark” for review by the commission. By submitting the sourcing agreement to the commission, the IPA said it approves the agreement for review and determination of approval by the commission contingent on the cost benchmark coming in lower than the cost cap. To the extent that there are unresolved issues about the operation or applicability of the sourcing agreement to current and future ARES, the IPA suggests that the commission initiate a rulemaking to clarify and resolve any such issues.
Given the size of the FutureGen 2.0 plant and the allocation of its output to Ameren, ComEd and the ARES in proportion to their market share, the Ameren and ComEd combined market share of the output could be on the order of a 50 MW block of energy, with the remainder shared among the ARES. Given the large unhedged positions of Ameren and ComEd in 2017 and beyond, this purchase does not appear to introduce an appreciable amount of portfolio risk, while maintaining competitive neutrality with ARES, the plan said.
Regional power supplies, despite coal retirements, look solid
While it appears from published material that resources are likely to remain adequate in this region through the planning period, the uncertainty most likely to impact resource adequacy is new environmental regulation, the plan noted. New regulations requiring capital investments for some facilities such as the Cross-State Air Pollution Rule and the National Emission Standards for Hazardous Air Pollutants have the potential to force plants to retire, potentially degrading reliability and/or raising prices for capacity. Several entities have attempted to address the issue of these retirements. For example, PJM recently examined the projected impacts of U.S. Environmental Protection Agency regulation on coal retirement. Several conclusions are of importance, the plan said, including:
- Some capital investment will be required with as much as 37% of the total coal capacity in PJM requiring at least two retrofits.
- Even with almost 7,000 MW less coal capacity clearing for the 2014/2015 delivery year, PJM estimates the RTO will carry a reserve margin of 19.6% for the delivery year.
- Even with the potential retirement of coal capacity already there are also announced commitments to replace a portion of that capacity with new gas-fired capacity such that the PJM would still carry a reserve margin at or above of the target 15.3% installed reserve margin.
The integration of Entergy (NYSE: ETR) into the Midwest ISO this November will provide more generation to be dispatched and bid into the MISO markets, and the same can be said of the successful integration of Duke Energy Ohio and Duke Energy Kentucky into PJM, the plan said. While the announced or actual retirement of several coal-fired units around the state of Illinois were in the news lately, including the Fisk and Crawford plants in Chicago, Illinois appears to have an in-state generating portfolio that is better situated than most because of its longstanding clean-air rules for coal plants, as well as the non-coal diversity of its generating stock, including nuclear and wind.
“Coupled with a relatively robust transmission system, overall, and proactive transmission planning in anticipation of coal plant retirements, the base case planning scenario for resource adequacy indicates sufficient reliable capacity to meet system reliability targets for the planning horizon,” the plan said. “Given this conclusion, the IPA does not need to include any extraordinary measures in the 2013 Procurement Plan to assure reliability over the planning horizon.”