AES works on repowering projects at California plants

The AES Southland unit of AES Corp. (NYSE: AES) is working on repowering projects for two of California plants to meet various needs, including power customer commitments.

In terms of aggregate installed capacity, AES Southland is one of the largest generation operators in California, with an installed capacity of 3,941 MW, accounting for approximately 5% of the state’s installed capacity and 17% of the peak demand of Southern California Edison, AES noted in its Feb. 26 annual Form 10-K report. The three coastal power plants comprising AES Southland are in areas that are critical for local reliability and play an important role in integrating the increasing amounts of renewable generation resources in California. The plants are: Alamitos (2,075 MW), Redondo Beach (1,392 MW) and Huntington Beach (474 MW).

All of AES Southland’s capacity is contracted through a long-term agreement, which expires in mid 2018 (called the “Tolling Agreement”), with Southern California Edison. Under this agreement, AES Southland’s largest revenue driver is unit availability, as approximately 98% of its revenue comes from availability-related payments. Historically, AES Southland has generally met or exceeded its contractual availability requirements under the Tolling Agreement and may capture bonuses for exceeding availability requirements in peak periods.

The offtaker under the Tolling Agreement provides gas to the three facilities at no cost; therefore, AES Southland is not exposed to significant fuel price risk. AES Southland does, however, guarantee the efficiency of each unit so that any fuel consumed in excess of what would have been consumed had the guaranteed efficiency been achieved is paid for by AES Southland. Also, if the units operate at an efficiency better than the guaranteed efficiency, AES Southland gets credit for the gas that is not consumed. The business is also exposed to the cost of replacement power for a limited time period if any of the plants are dispatched by the offtaker and are not able to meet the required dispatch schedule for generation of electric energy.

AES Southland delivers electricity into the California Independent System Operator’s market through Southern California Edison.

In October 2014, AES Southland was awarded 20-year contracts by Southern California Edison to provide 1,284 MW of combined cycle gas-fired generation and 100 MW of interconnected battery-based energy storage. In addition to replacing older gas-fired plants with more efficient gas-fired capacity, SCE chose advanced energy storage as a cost-effective way to ensure critical power system reliability. This new storage resource will provide unmatched operational flexibility, enabling the most efficient dispatch of other generating plants, lowering cost and emissions and supporting the on-going addition of renewable power sources, AES said.

This new capacity will be built at the existing AES power plant sites in Huntington Beach and Alamitos Beach. For the gas-fired capacity, financing agreements are expected to be finalized in 2016, construction is expected to begin in 2017, and commercial operation is scheduled for 2020. For the energy storage capacity, commercial operation is scheduled for 2021.

AES is pursuing permits to build both the gas-fired and energy storage capacity and will complete the licensing process before financial close. The total cost for these projects is expected to be approximately $1.9 billion, which will be funded with a combination of non-recourse debt and AES equity.

At this time, it is contemplated that the Redondo Beach, Huntington Beach and Alamitos power plants in California will need to have in place Best Technology Available (BTA) for cooling water intake by Dec. 31, 2020, or repower the facilities. In April 2011, AES Southland filed an Implementation Plan with the California State Water Resources Control Board that indicated its intent to repower the facilities in a phased approach, with the final units being in compliance by 2024. The board is currently reviewing the implementation plans and has requested additional information to assist with its evaluation.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.