Detroit-based Consumers Energy will be in a difficult spot beginning in 2016, as plant retirements and a lack of sufficient transmission capacity to import power will put constraints on the Lower Peninsula area of Michigan, according to the company’s integrated resource plan (IRP).
The IRP was incorporated in its July 12 application to the Michigan Public Service Commission (PSC) seeking a certificate of need (CON) to build a 700 MW natural gas-fueled combined cycle gas generating plant near Thetford Township, Mich., to replace 926 MW of generating capacity that will be lost when the company closes seven small coal plants. The facilities, sometimes referred to as the “Classic 7” generating plants, must close by April 16, 2016, to comply with the EPA’s mercury and air toxics standards (MATS).
If approved, the Thetford plant isn’t expected to enter service until mid-2017, so the company anticipates a substantial power need beginning in 2016.
Company officials estimate that the region’s transmission system will only accommodate about 930 MW of capacity imports in 2016. Growth coupled with the loss of the coal plants’ capacity is expected to leave the footprint short of required capacity, David Ronk, Consumers’ director for electric transactions and wholesale settlements, said in testimony filed with the company’s application.
Exacerbating the situation, the majority of power imported into the state’s Lower Peninsula flows from the south and the tie lines with southern border states have limited additional import capability. Additional transmission could provide sufficient transfer capacity, but transmission project studies currently underway by the Midcontinent ISO (MISO) have not demonstrated that the projects would provide economic benefits to Michigan customers, Consumers said.
In addition, Consumers is predicting that the MATS standards will force approximately 12,000 MW of coal-fired generation within the MISO service territory to be removed from service at the same time it anticipates closing its small coal plants, meaning that the entire region could be competing for fewer resources and the needed megawatts might not be available.
Potential solutions expensive
With the loss of the coal plants’ generation – about 17% of Consumers’ total capacity – the generating resources within MISO resource planning zone 7 are expected to fall below the local clearing requirement (LCR), the amount of generation needed within a resource zone to ensure “1 day in 10 years” loss of load reliability. That shortfall will continue unless and until additional generating resources are built in the Lower Peninsula, the company said.
When completed, and if built with zone 7 as planned, the Thetford plant would increase the amount of capacity located within the resource zone and reduce the additional megawatts needed to meet the LCR. However, additional megawatts will still be required and could prove expensive because of a provision of the MISO market rules and because of the cost of building needed transmission to facilitate transfers of power transmitted from outside zone 7.
If the Thetford plant does not proceed as scheduled, the company may have to “revisit its decision to suspend operations at the seven small coal units,” Consumers said. “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.”
To ensure sufficient resources within the zone, Consumers will have to purchase zonal resource credits (ZRC) to meet the LCR. A ZRC is equivalent to 1 MW of capacity available in, or capable of being transferred to, the resource delivery zone in which customer demand is being served during periods of coincident peak demand after discounting for forced outages and counts toward the LCR.
Those ZRCs will be priced using a “cost of new entry” (CONE) calculation that takes effect when one or more planning resource zones have insufficient capacity available to satisfy the LCR. In such circumstances, “the zonal market clearing price in the capacity-deficient planning resource zone will equal the cost of new entry [and] the zonal delivery charge for imports into the capacity deficient planning resource zone will equal the difference between the cost of new entry and the zonal market clearing price in the adjacent planning resource zones,” Ronk said in his testimony.
The CONE price is based on the capital and operating costs of a new simple cycle combustion turbine, and is usually higher than the cost of operating existing generation resources. The cost is then assumed to escalate at approximately 3.6% per annum every year thereafter.
In MISO’s planning resource auction for planning year 2013, Consumers purchased approximately 77 zonal resource credits (ZRC) of capacity. The company estimates it will need 839 ZRCs of additional capacity to meet its electric load, plus reserve requirements beginning in April 2016. If the company and others within the zone are required to purchase an additional 1,500 ZRCs of capacity, as Consumers estimated was possible, the price of capacity in resource zone 7 will increase from about $1.05/ZRC-day (or about $380/ZRC-year) to approximately $268/ZRC-day (or about $98,000/ZRC-year), Ronk said.
“This increase would [occur] as a result of the limited amount of transmission capacity available, i.e., even though capacity in other planning resource zones was available for $1.05/ZRC-day,” he said.
Additional transmission could provide sufficient transfer capacity, and the utility’s IRP lists a number of transmission projects including four transmission projects connecting eastern locations in Wisconsin to Michigan by 500 kV submarine HVDC cable. It also includes three portfolios of potential transmission projects to serve the area, but “the costs far outweigh the economic benefits of the projects,” Consumers said in its IRP.
In addition, it is improbable that such facilities could be designed, permitted, sited, and built by the time the coal plants will be forced from service.
Manitoba Hydro has development plans for adding two additional hydro generating units and associated transmission network upgrades which would increase the import capacity into MISO by approximately 1,100 MW, but not until 2027.
Accordingly, the utility faces the decision of whether to purchase the additional megawatts it needs at the CONE price, even after the Thetford plant is completed and online, or invest in transmission projects that would enable the importing of additional power needed to meet the LCR, eliminating the CONE price but engaging in projects it deems uneconomic.