Turning point: As power plants approach retirement, power planning should set a better course
Utility companies built the bulk of Minnesota’s current power plant fleet in the 1960s and ’70s.
For the last half century, these facilities have provided low-cost electricity and a strong foundation for the economic growth of our state and region. At the same time, it’s true that Minnesota’s largest and most vital power plants were born during the British Invasion, the disco era, the AMC Gremlin, and computers the size of houses. Despite well-intentioned upgrades and refreshes, Minnesota facilities like Sherco, Boswell, Allen S. King, Black Dog, Monticello, and Prairie Island are all getting older.
On average, Minnesota’s largest power plants have been in operation about 47 years, and — like an old car with lots of miles — they probably have some years left, but not many. According to the U.S. Energy Information Agency, the average U.S. power plant retires at 55 years. While that’s no magic number, it does tell us that sooner or later — and more likely sooner — these older power plants will be nearing the end.
We’re at a very real turning point. Although aging power plants continue to serve Minnesota’s electricity needs today and will for the next couple of decades, they have been joined by a younger, hipper generation of renewable generators like wind and solar. In addition, utilities are investing in renewable production and in more “flexible” natural gas generation that can adjust better than older methods to hour by hour fluctuations in customer energy use. Further, our utilities are actively capturing huge amounts of energy efficiency, saving customers millions of dollars in avoided power infrastructure.
Several conditions are driving older coal and nuclear facilities toward retirement, including the public’s demand for a cleaner electricity supply, uncertainty about the recently announced EPA Clean Power Plan*, and an upcoming wave of very expensive and risky investments to relicense the nation’s aging nuclear facilities and keep them operating beyond their current licenses. But more than any of these factors, historically low costs for natural gas, wind, and solar generation and the emerging presence of a new power plant fleet exert a huge daily pressure on older facilities. (Nothing makes that old beater look worse than a lot full of cleaner, cheaper new models.)
For a number of reasons, utilities typically don’t rush to announce power plant retirements. But when analyzing retirements, one thing stands out: utilities are most apt to retire power plants after they are paid off, or “fully depreciated.” Simply put, a fully depreciated power plant no longer generates return for utility shareholders, and closure no longer poses the risk that large capital expenditures will go unpaid by the ratepayer.
So the signal in the noise is whether or not a given facility is paid off. And virtually all Minnesota’s recently announced retirements bear out this principle: between 2015 and 2019, Minnesota utilities have announced the retirement of 493 MW of old coal power plants — all paid off.
Further, the announced retirements of Sherco 1 and 2, two of Minnesota’s largest power plants totaling more than 1300 MW of capacity, also prove the point. Sherco 1 & 2 will both be fully depreciated in 2025; it is no coincidence that Xcel Energy is proposing to retire these units right around then, in 2023 and 2026. Looking ahead, according to the utility depreciation filings, the number of fully depreciated coal power plants will increase by an additional 1,608 MW from 2020 to 2030. These filings show that between 2030 and 2037, the remainder of Minnesota’s coal and nuclear facilities — totaling 4252 MW of capacity — will be fully depreciated.
Big picture, 70% of the energy currently generated in Minnesota comes from a handful of power plants that will be paid off and could be retired within just two decades.
And there’s our turning point — no matter what, we’ll need to replace the production we’re about to lose. To achieve environmental goals, encourage innovation, and reduce negative impacts on ratepayers, policymakers will need to shape future energy policies around when large power plants are paid off and fully depreciated. Fortunately, replacing our outdated energy resources will also offer massive opportunities for innovative natural gas, efficiency, storage, and renewable technologies.
For more information about retirements see the presentation, Minnesota's Aging Plant Fleet and the Clearn Energy First Opportunity.
* NOTE: On February 9, the U.S. Supreme Court halted implementation of the EPA’s Clean Power Plan to reduce CO2 emissions nationwide. Although the CPP offers a crucial framework to honor our international agreement and reduce carbon and greenhouse gas emissions state by state, its stay doesn't fundamentally alter the trends above: our largest power plants are nearing retirement and will likely need to be replaced. The CPP is an important driver, but just one of many factors influencing next steps. ("...larger trends — such as coal retirements, cheap natural gas, environmental regulations, cheaper renewables and new business models — aren't going away, regardless of what happens with the CPP," quoted from Clean Power Plan: For many utilities, court action doesn’t really change anything, Energy Wire, Feb 11, 2016.)
Image Credit: Tony Webster via Flickr CC