What’s Driving the Sudden Influx of Independent Power Producers?

panda_stonewall

The Panda Stonewall gas-fired plant under construction south of Leesburg. Photo credit: Bechtel

by James A. Bacon

The 1,400-megawatt power plant proposed in Chesapeake by Matex Virginia Power last week is only one several natural gas-fired generating units under development by independent or out-of-state power producers. Panda Power Funds is constructing a 778-megawatt natural gas-fired plant in Loudoun County, while Southern Power has purchased 300 acres in a Pittsvylania County industrial park for yet another gas-fired power plant, reports the indefatigable Michael Martz in the Richmond Times-Dispatch this morning (no link).

News of those projects follows a June ruling by the State Corporation Commission approving a request by Doswell Limited Partnership to expand its combined-cycle gas complex in Hanover County by building two more gas turbines with a capacity of 340 megawatts.

It looks like Dominion Virginia Power isn’t the only power producer that sees a bright future for natural gas. Dominion opened a 1,400-megawatt plan in Brunswick County this summer, and it has started construction of an even bigger facility in nearby Greensville County. The utility’s 15-year Integrated Resources Plan envisions the need for yet another large facility in 2022 at an unidentified location. The company’s plans have come under fire by environmentalists who say that rapid advances in solar and wind technology may render the gas plants obsolete and uneconomical and saddle rate payers with stranded costs.

The Panda Stonewall plant, which received a State Corporation Commission go-ahead in 2014, is scheduled to start generating power in 2017. The company plans to sell electric power into the PJM Interconnection wholesale market. In that market, day-ahead and same-day contracts go to power producers that offer their electricity at the lowest price.

Matex and Southern Power have revealed little information about their intentions, and there is no way to know how serious they are. They may be just keeping their options open in case the market for gas-powered electricity takes off. A major uncertainty is whether the Clean Power Plan, which would force a shift from coal to either gas or renewables, passes U.S. Supreme Court review. Another is which flavor of the Clean Power Plan Virginia chooses to adopt; one of four broad options would make it exceedingly difficult for anyone to build a new gas-fired power station in the state.

But Panda Power Funds is charging full steam ahead, and it looks like the Doswell Limited Partnership is close behind. Independent power producers are not guaranteed a return on investment like electric utilities are. Their willingness to invest represents a bet that they can generate a competitive rate of return on their capital over the lifetime of the plant by profitably under-pricing the competition.

Here’s my big question: Why so many proposed gas-fired plants in Virginia? These facilities would tap the same cheap Marcellus gas that is available in abundance in states to the north. A plant in Pennsylvania or West Virginia could get gas just as cheap. I suspect the answer may involve the layout of the electric transmission grid. PJM incentivizes power producers to add capacity in locations where they can avoid congestion charges caused by insufficient transmission capacity.

Bechtel, a partner in the Panda project, says on its website that the plant will “generate power for up to 778,000 homes in Virginia and the District of Columbia” — an area divided between Dominion, Old Dominion Electric Cooperative and Pepco service territories. The partnership’s willingness to invest there suggests that it foresees tight electricity supplies for a region that has experienced strong population growth as well as an influx of power-hungry data centers.

There are currently no comments highlighted.

31 responses to “What’s Driving the Sudden Influx of Independent Power Producers?

  1. Wow. So much for the idea that natural gas will lower CO2 emissions in Virginia. The old coal plants were going to be decommissioned anyway because of other air quality regulations (MATS). Now we are seeing a huge influx of natural gas plants based on the assumption of long-term low natural gas prices. Dominion is projecting a 300% increase in natural gas prices from today’s price of under $2 mcf to over $6 mcf by 2025.

    There will be an even greater incentive by the imbedded energy producers to influence the GA to slow down the third-party implementation of solar and other renewables in Virginia.

    The choice of a CPP strategy will have to go in the direction of intensity-based plans. The mass-based plans will not give Dominion enough headroom to build all of the gas plants that they want with these other new sources contributing more CO2 in Virginia.

    Someone with more knowledge of the CPP will have to help me, but with the dual rate intensity-based plan that Dominion favors none of the combined cycle units being built today will meet the 771 lbs/MWh standard for combined cycle plants that will be in force in 2030. Is it because all of these new plants are regulatory limbo until the CPP is sorted out?

    It does confirm the recently released Synapse Energy Economics report that the existing pipelines in the region are sufficient to meet natural gas demand at least through 2030, without the ACP or MVP.

    • Tom, I believe all these independent plants will be subject to regulation under Section 111(b), the more relaxed standard for new sources and, if so, their emissions will not factor into Virginia’s compliance with the CPP.

      • Will all new plants be under 111(b) instead of 111(d) or just the IPP plants? I heard someone say that all you had to do was to decommission an old coal plant and build a new gas plant and the emissions from the old plant were now removed from the CPP contributions but the new plants were not counted at all. Is that the case?

        The utilities would get a double bonus. They would replace a fully depreciated plant with a new one that they would receive a 40-year rate of return on and not have to count the emissions towards the CPP limit.

        No wonder Dominion and Duke have projected such a high annual increase in demand. It allows them to build as many new gas plants as possible until this bubble bursts.

        • Not exactly. There are measures in the CPP to preclude such “leakage;” I just don’t know how to explain them very well. But, you have put your finger on a “problem” the EPA wanted to acknowledge and address.

    • Here is a reference you might find some good stuff in …
      http://cepl.gatech.edu/sites/default/files/attachments/NEMS_CPP_Paper_06-24-2016.pdf#

      Finding the best Southern Pathway to meet the CPP, the”leakage”issue, and the “too much gas” issue. The best pathway to emissions reductions AND customer savings is efficient buildings and on-site solar.

  2. I think it’s becoming clear that DVP perspective is not the actual reality…. or something has changed…

    at the least I would expect DVP to be helping Jim to understand and better explain what is going on right now .. to readers…

    here he is – with some level of relationship with DVP which helps to give their view of the issues – of which we were apparently led to believe that DVP decided what would or would not be – in their territory – and now all of that seems to be . changing…

  3. Something seriously stinks here. Consider:

    (1) Where is the market for independent gas-fired plants? PJM? Local private industries? Some kind of power swaps?

    (2) Bye, bye eminent domain. One would think that Dominion and its ACP partners might have a harder time trying to bully their way into private property if it’s not for the service area’s benefit. If I were a landowner, I’d double down on my legal defenses. Why give up your family land just so some mysterious company with roots in Australia can make some bucks that will end up in foreign investors’ hands?

    (3) TomH makes an excellent point about CO2. It may not be as bad as coal, but gas is a big emitter. In this case, what happens to all of Dominion’s complaints about the Clean Power Plan? Odd, that they’d be supplying gas to an independent plant in Virginia and it doesn’t count or they don’t want to admit it.

    (4) And Jim, if you do call and ask Dominion, your sponsor, about what their plans really are, maybe you could get in some questions about Dominion’s $4 billion play into Utah natural gas. What’s that all about?

    (5) It could be that Dominion and the other regional utilities have not been truthful about what gas needs really are in their Virginia service area. Again, why sacrifice Virginia’s economy, land and climate just so far away people can get gas service and make money.

    • Peter, don’t shoot the messenger, but I believe that an interstate gas pipeline would be permitted under the Natural Gas Act to use eminent domain for construction of a pipeline that, in part, provided gas to a privately owned power plant that generates electricity for the wholesale market. The FERC has decided that wholesale generation competition is in the public interest. So, even if Matex contracts for part of the capacity of the ACP, that would not be a bar to the use of e.d. for its construction.

      In response to your first question, the market for the output of the Matex plant would almost certainly be the PJM wholesale market. That’s a market of 61 million people.

  4. With the low cost of natural gas, presumably there are cost advantages. This potentially puts Virginia in a favorable generation location. However, if we had enough power plants for our own needs, like say PA, a few new natural gas power plants might seem to be the normal amount. I believe VA imports 30-40% of our power and MD about 50% and ditto for many other Northeast states, so a big potential market is there. Lots of the Northeast power importer states also seem opposed to new power plants (blue states) within their state boundaries, so holy Virginia Beach mackerel.

  5. Concerning the CO@ emissions by Dominion … Sierra has calculated that Dominion is actually now planning MORE CO2 by 2025 than they are currently emitting. Another question would be … why does Dominion choose to purchase so much of it’s electricity?

    This particular plant received initial approval probably 5 years ago, so it was part of an ‘old’ rush mostly to repklace coal.

    Reasons for the plant, rests primarily with the number of aged coal plants that have been serving us. Here is something I took from the Bechtel website:
    • More than 20 gigawatts of coal-fired power plant retirements have been announced to take place in the PJM (Pennsylvania, New Jersey and Maryland) market in the next few years, setting the stage for tightening reserve requirements
    • More than 70 gigawatts of power plants in PJM average 56 years of age

    The website also cites peak demand growth. Loudoun was the fastest growing county in the country then …
    • Total peak demand growth of over 1.4 percent per year, or approximately 2,200 MW per year

    I was living in Loudoun County when this was first discussed. It is an old industrial site off route 7 south of Leesburg. At that time, gas seemed a whole lot better than dirty toxic coal. I also remember that several gas lines run through the property and can serve the plant with no new pipelines required. Connecting to the transmission lines was also relatively easy. There was a major question about water use and Leesburg got some benefit promised ????

    Finally, the county was home to one data center and was hoping to attract more. That was in the old days before data companies went ‘self-financed renewable’. One of those proposed companies went to NC instead where the rules allowed them to own their generation more easily.

  6. on the proliferation of gas plants –

    first – it’s GOOD that these are NOT DVP plants and will not end up being “stranded” and still cost ratepayers…

    second – as gas becomes more scarce and more expensive – somebody is going to start building solar and only burn the gas when the solar is not enough.

    Third – if that does not happen for some reason – consumers will utilize technology to cut use.

  7. The real story is that the Port of Hampton Roads has to find a replacement for all those piles of coal exports that Obama has outlawed. So the plan now is to export electrons. That’s right, there will be these huge Chinese ships pulling into port, loaded to the gills with lithium rechargeable batteries. A big cable will run under the Elizabeth river, across the James to the old coal loading site in Newport News. Once all the batteries are charged, the ship will make a bee line for China, where the electrons will go a long way to reducing the black cloud of smog that dominates the Beijing skyline. That has to be the reason because if you ask anyone around Tidewater they will tell you there isn’t one new job here that would be reason enough to build new power plants unless someone is planning to make the malls look like Times Square.

    • Why wouldn’t most coal exported to China go from West Coast ports? I have no information on this issue (coal exports) and am just looking for facts.

      • The cost of shipping coal by rail is pretty expensive compared to the price of coal itself. It’s one thing to ship 300-400 miles from Central Appalachia to Norfolk, quite another to ship 2,500 miles to the West Coast. Far cheaper to put the coal on a vessel and transport by sea.

        By contrast, Wyoming coal is shipped to West Coast ports.

        Also Europe is a major market for U.S. coal. It would make no sense at all to ship coal by rail to the West Coast and then by ship back to Europe.

        • JAB – I am under the impression – perhaps wrongly – that most coal exported from the US comes from the western states. But I may well be wrong.

          • I’m not up to speed on the latest figures, but western coal tends to be lower quality, lower BTU per ton than Appalachian coal. Coal has long been exported from Central Appalachia through the Hampton Roads ports. Back in the early 1980s there was such a demand for U.S. coal that there was a backlog of some 150 vessels in Hampton Roads waiting to pick it up.

  8. All this activity underscores the risk that all these competing NG unit developers are trusting that NG will remain the cheapest fuel for grid electricity generation within the PJM marketplace, and that renewables like solar aren’t going to displace so many hours of NG generation that the less efficient NG units will fail to make much money for their owners. At some point, as LarryG is saying, you’d have to ask why DVP wants ratepayers to participate in that risk. DVP has a transmission constraint on the lower Peninsula, and a stability problem around Leesburg, but once those are taken care of (by Dominion or 3d party generators, it doesn’t matter), why not get out of the rate-based generation business and build merchant plants if any from here on, and only take the risks Dominion, not its DVP ratepayers, has financed?

    • If they had the courage of their convictions that natural gas was the long-term answer that is what they would do. But I think some of the many bright people at Dominion said that they couldn’t be sure how long the natural gas bet would pay off. They would rather make less on the upside and let the ratepayers cover the downside risk. That is good risk management for everyone except the ratepayers.

      Larry has it exactly right. Sooner or later the price savings for energy efficiency and renewables compared to natural gas will become apparent. Ratepayers will eventually seek out other options even if the utilities make them harder to access. This is the point I’m trying to make to Dominion. They will not win working against the interests of their customers. The sooner they embrace a modern energy system, the better it will be for their shareholders, the ratepayers and Virginia’s economy.

  9. Aren’t these discussions interesting in the context of letting the private sector and free market “work” and our “excuse” is that DVP is a state-granted monopoly that the General Assembly has worked to strengthen and protect that monopoly – against even a semblance of a free market – one that other states have managed to do with their investor-owned utilities – but not Virginia’s General Assembly.

    and the red state rural rubes just keep on re-electing them…because they are “pro-business” and “pro-free-market”.

    One would think that PRINCIPLED Conservatives would INSIST that elected people who yammer about free market competition and all that rot – actually do that … and stop making excuses that since it’s a monopoly their first allegiance is to the investors…not Virginia taxpayers and ratepayers..

  10. Darrell,
    Obama has NOT outlawed coal exports to China. If he has, please show us some documentation.

    The coal that does get exported from Hampton Roads is NOT steam coal primarily. It is metallurgical coal used to make steel. That’s the type of coal that might go to China. It has nothing to do with electrons in Beijing. China has plenty of steam coal it uses to fuel electric power plants. It does not need to spend money getting it from Virginia which is half the way around the world.

    • It’s a rare day when I agree with Peter, but he’s right about this. Coal shipped through Hampton Roads for export goes to foreign countries. Obama is powerless to influence demand for coal in those countries. We can pin many things on Obama, but not a decline in coal exports.

  11. Overall the implication is that Virginia’s CO2 emissions could go up, and not down. However, if we take a look at the regional PJM power grid as a whole, the CO2 emissions will be going down substantially. Where geographically the remaining CO2 is emitted could shift (eg; more to Virginia) as coal plants are replaced with natural gas. The EPA’s Clean Power Plan does not disallow such a shift.

    However, there will undoubtedly be severe criticism from environmental groups if Virginia increases CO2 emissions, within our geographic boundary lines. The implication is that it might make sense for all PJM states to join as a regional pact to meet the Clean Power Plan requirements. This would tend to diffuse the bitter politics the EPA has created by their current focus on state boundary lines.

    In effect, by suggesting CO2 management by state boundary lines, the EPA has perhaps inadvertently stirred up a hornets nest for Purple states like Virginia.

    • The CPP covers most fossil units in service or under construction as of about June 2013. Anything built after that is regulated under the new source standards, which, in many instances are not as strict as the CPP state targets. Yes, overall emissions of CO2 within state boundaries may go up, but by the same token, “imports” of coal fired power from West Virginia (DVP’s Mt. Storm plant is its largest fossil facility) should decline markedly. How will all that net out? No one can say yet.

      • It’s beginning to sound to me that the CPP isn’t so much about climate change or CO2 as it is a bailout of Wall Street investments in natural gas production. Under the cover of “climate change” utilities are peppering us with new natural gas units in a time of flat or declining national electricity consumption. Utilities get a stock price and revenue boost installing power plants and pipelines. But the ratepayer is left holding the bag for stranded costs as natural gas prices rise 2x, 3x or 4x higher than today’s prices. Dominion and Duke are proposing 11 new gas-fired generating units to go online between 2022 and 2030. This is exactly the time period that solar plus storage is predicted to significantly undercut the cost of energy produced by natural gas-fired power plants. This is the long-term energy plan we are evaluating for Virginia? Full speed ahead until we hit the wall? Who is looking out for the ratepayer and the Virginia economy? Energy planning is supposed to be a balance of factors, considering both the ratepayers and the shareholders. We are not supposed to take our marching orders solely from the money men.

  12. The CPP allows for regional grouping beyond state boundaries. However, in the U.S., contrary to most other countries, energy regulation is done by individual states. This has its pros and cons. It allows states like New York, California and Massachusetts to break out ahead of the pack. And permits other states, rich in coal, to lag behind.

    Administering the CPP primarily through state utility commissions also limits the speed and flexibility by which we respond to the CPP and other energy issues. The fastest and cheapest way to reduce CO2 emissions while maintaining grid integrity and reliability is through energy efficiency with renewables following in a big way in 5-10 years. These two options are best implemented by entrepreneurial businesses not cautious monopolies.

    By relying primarily on our existing energy producers to solve the problem, we will extend the supply oriented, central station model that contributed to the problem in the first place. Solutions will best be identified by changing our mindset, as has occurred with several other transformational industries in the last several decades.

  13. Yeah – I’m looking at the multi-state approach the EPA used for things like acid rain and the Chesapeake Bay and other rivers and airsheds for emissions and wondering what the truth of the matter is.. or not..

Leave a Reply