By switching to low-sulfur Western coal and making significant investments in control technology, Consumers Energy has lowered emissions at its coal-fueled plants, reducing SO2 by 54% and NOx by 62% since 2000.
But, to meet further clean-air needs, this CMS Energy (NYSE: CMS) subsidiary will suspend in 2016 the operation of the so-called “Seven Small Coal Units” (also called the “Classic 7”), replacing that capacity with more environmentally friendly resources, which includes the proposed, 700-MW, gas-fired Thetford Plant, said the utility’s latest integrated resource plan (IRP). The IRP was filed July 12 with the Michigan Public Service Commission attached to an application for approval of the Thetford project.
The company owns and operates 12 coal-fueled and two dual-fueled oil and natural gas-fueled generating units, 13 hydroelectric dams, a pumped storage hydro plant, a wind farm, a natural gas combined cycle plant, and several natural gas-fueled simple cycle units that produce electricity when needed during peak demand periods. Consumers Energy also purchases power through a combination of 61 short- and long-term power purchase agreements (PPAs).
Consumers Energy noted in the IRP that it is the state’s largest renewable energy provider. Today, the company generates or purchases renewable energy equivalent to approximately 8% of retail sales. By 2015, the company will meet the 10% renewable energy portfolio standard of the Clean, Renewable and Efficient Energy Act-Public Act 295.
New capacity needed due to coal shutdowns, modest demand growth
Beginning in April 2016, the company requires 839 Zonal Resource Credits (ZRCs) of additional capacity. This need grows to 967 ZRCs by 2021. The primary driver of the company’s need for capacity is the planned suspension of operations of the Seven Small Coal Units in April 2016. This will create an 839 ZRC capacity shortfall. Another driver of this need is the anticipated modest growth in net peak demand plus reserves of approximately 0.5% per year through 2040.
The federal Mercury and Air Toxics Standards (MATS) impose stringent limitations on emissions of mercury, acid gases, certain metals, and organic constituents from coal- and oil-fueled units. This rule affects operations of nearly 250 generating units within the Midcontinent Independent System Operator (MISO) region, including all twelve of the company’s coal units. The company requested, and subsequently received approval from the Michigan Department of Environmental Quality (MDEQ), to extend the compliance date of the MATS rule for one year for 10 of its 12 coal units. Accordingly, Consumers Energy must be MATS-compliant by April 15, 2016.
Consumers Energy said it determined that installing the air quality control systems necessary to meet MATS emissions requirements on the Seven Small Coal Units is uneconomic compared to other electric resource alternatives. Placing the air control systems on the Seven Small Coal Units necessary to achieve compliance with federal environmental requirements would increase customer costs more than $450m over the remaining life of the units on a net present value of revenue requirements (NPVRR or NPV) basis compared to building the proposed Thetford Plant and purchasing short-term capacity and energy from MISO markets.
The company has submitted Attachment Y applications, and has received approval from the MISO, to suspend operations on April 15, 2016, through April 14, 2019, of:
- BC Cobb Units 4 (156 MW installed) and 5 (156 MW);
- JC Weadock Units 7 (145 MW) and 8 (145 MW): and
- JR Whiting Units 1 (101 MW), 2 (99 MW) and 3 (124 MW).
The company is actively reviewing the scope, cost and requirements to repower the BC Cobb Units 4 and 5 with natural gas as a potential alternative to market capacity purchases beyond the capacity provided by the Thetford Plant. The company is not actively looking at repowering the JC Weadock or JR Whiting units with natural gas, although, if the company does not proceed with the Thetford Plant, it may have to revisit the future use for the Seven Small Coal Units.
New air controls to be added to surviving five coal units
The coal units that would remain open are:
- JH Campbell Units 1 (260 MW installed), 2 (347 MW) and 3 (751 MW); and
- Dan E Karn Units 1 (255 MW) and 2 (260 MW).
In the absence of suspending operations of the Seven Small Coal Units, Consumers Energy would be able to meet its electric load plus reserve requirements until the Palisades PPA terminates in 2022 with no or relatively small short-term resource capacity purchases.
Due to various clean-air requirements, for SO2 compliance the company began the installation of Spray Dry Absorbers (SDAs) at Karn Units 1 and 2 and Campbell Unit 3 in 2010. For NOx compliance, the company currently has Selective Catalytic Reduction (SCR) installed at Karn Units 1 and 2 and Campbell Units 2 and 3.
Activated Carbon Injection (ACI) coupled with a particulate matter collection device is required to achieve the mercury reductions required by both the MATS and a Michigan mercury rule. Some form of Flue Gas Desulfurization (FGD), which also needs to be paired with a particulate collection device, is required in order to achieve the reduction of acid gases required by MATS. The Campbell units applied for and were granted a one-year MATS compliance extension. Campbell Units 1 and 2 will be equipped with Dry Sorbent Injection (DSI) and Campbell Unit 3 and Karn Units 1 and 2 will be equipped with SDAs for acid gas reduction. All five units will also be equipped with Pulse Jet Fabric Filters (PJFF) and ACI for mercury reductions.
Fuel restrictions at Campbell Unit 2 may be necessary to assure compliance with the MATS HCl limit when utilizing DSI technology. This is in effect a semi-permanent, or maybe permanent, derate to the unit because it cannot achieve its full load capability without burning an approximate 40% eastern, 60% western coal blend.
MISO-wide coal retirements will wipe out current surplus
Currently, there are significant changes taking place in the MISO wholesale market, the IRP said. Until recently, capacity needed to meet customer load obligations was bought and sold via bilateral agreements between load serving entities and electric generation resource holders as well as in the MISO voluntary resource adequacy auctions. Prior to June, the planning resource auctions occurred each month. Starting in June, the monthly construct changed to an annual time period from June 1 of every year to May 31 of the next year. Load serving entities can satisfy their resource capacity needs by owning the resources, holding a PPA for the capacity of resources, or buying capacity from the one-year capacity market.
In addition, the MISO has divided its footprint into seven resource planning zones, acknowledging the fact that the electric transmission system is constrained. A certain amount of generation resources must be located near electric load centers in order to ensure that an adequate level of reliability is maintained. This makes generation located in a constrained area more valuable to an entity serving load in that area.
Consumers Energy does not expect its projected capacity need can simply be met with purchases from the MISO market. While the MISO is projecting a capacity reserve margin of around 28% for summer 2013, the capacity surplus currently enjoyed in the MISO footprint is expected to change significantly by 2016. The company forecasts that about 12,000 MW of coal-fueled generation will suspend operations or retire by April 2016. The available generating capacity in the MISO footprint will not be enough to meet the projected load plus reserve requirement. Furthermore, within MISO Zone 75 (which is where the proposed Thetford Plant will be located), available generating resources are expected to be less than the Local Clearing Requirement (LCR).
The LCR is the minimum amount of generating resources that must be located in each resource planning zone in order to ensure 1 day in 10 year loss of load reliability is maintained. The MISO determines the LCR value for each resource planning zone.
In April, the MISO reported the results of its first annual planning resource auction. Only 1,804 ZRCs above the LCR of MISO Zone 7 were offered in the planning resource auction. After the Seven Small Coal Units, and other MISO Zone 7 generation resources suspend operations or retire due to the MATS rule, MISO Zone 7 will be near or below the required amount of generation resources that must be physically located in Zone 7 to maintain adequate electric reliability in Zone 7, Consumers Energy said.
Also, the IRP added, results of the recent PJM three-year forward looking capacity auction and electric transmission point-to-point service requests suggest that over 2,600 MW of installed capacity in Zone 7 cleared the PJM auction for Planning Year 2016, meaning that these resources are no longer available for use in Zone 7 in 2016 (unless substitute capacity arrangements are secured prior to the MISO 2016 Planning Year capacity auction). As a result, Zone 7 will not have the needed resources to meet the LCR in 2016 unless further generating resources are built in Michigan’s Lower Peninsula.