One Way to Retire Coal Plants: Buy Out the Owner

In 2016, New Mexico’s Kit Carson Electric Cooperative left its
long-standing power supply relationship with Colorado’s Tri-State
Generation & Transmission Association behind.

Kit Carson paid nearly $40 million to sever its relationship
with Tri-State, after realizing it could save its customers even
more money — $50 to $70 million — and get access to more
renewables by contracting with Guzman Energy, a wholesale power
provider. Since Kit Carson made a run for the door, numerous
Tri-State members have considered the same.

Think tank Energy Innovation, in a
new analysis
released Tuesday in partnership with energy
modeling company Vibrant Clean Energy, is elevating Kit Carson’s
flight as a model for coal retirement that allows third-party,
private financiers — including energy providers such as Guzman,
investors or renewables developers — to push municipal and
co-operative utilities toward�more renewables.

Under their model, a financier would buy out a utility’s
investor obligations in an existing coal plant and pay for the
plant’s decommissioning plus the costs of new solar generation
(environmental remediation costs generally stay with the utility).
The financier wins by securing returns associated with a long-term
supply contract, while the utility gets to reduce its costs. When
packaged together in a single process, Energy Innovation and VCE
say as much as 22.5 gigawatts of muni and co-op-owned coal could be
retired in favor of more economic new solar in 2025.

“Kit Carson is clearly not the only cooperative customer …
that is looking for a better deal and a cleaner power source,â€
said Mike O’Boyle, director of electricity policy at Energy
Innovation, and an author of the study. Indeed, Guzman has already
contracted with another Tri-State defector, Delta-Montrose Electric
Association.

Tri-State G&T is a cooperative comprising more than 40
electric distribution cooperatives and public power districts in
four Western states, accounting for more than 1 million
customers.

Why uneconomic coal plants are kept online

According to the analysis, even more coal plants could likely be
retired if replaced with solar sited at wider distances (wind is
also a viable alternative but is generally more location-specific
than solar). And that capacity ripe for retirement may grow if
solar costs fall more rapidly than currently forecast, as solar
costs have been known to do.

Though investor-owned utilities could also pursue what Energy
Innovation calls “solar-for-coal swaps,†the model is likely
most viable for publicly-owned municipal and co-operative
utilities, said O’Boyle, because they aren’t beholden to
shareholders. While a utility counts on a return on equity
throughout the life of a coal plant — even if it costs more to
run than new renewables — publicly-owned utilities are more
focused on benefits for their customers.

“There’s not an opportunity cost to the publicly-owned
utility of retiring the coal early. If they can refinance and have
a healthier balance sheet and also cleaner, cheaper power for their
customers, that’s just a win-win,†said O’Boyle. “With the
regulated utility that’s investor-owned, you have the additional
layer of ‘what’s in it for the shareholder?’ If the answer is
‘nothing,’ it’s kind of a non-starter.â€

“Advocating for the early retirement and securitization of
these assets is not aligned with maximizing shareholder returns,â€
he added.

Investor-owned utilities that have been pushed to retire coal
plants, such as
Public Service Company of New Mexico
and the Northern Indiana
Public Service Company, have pursued other financing options such
as securitization and accelerated depreciation. The former process
relies on assets from bond sales to fund retirements, while the
latter pushes costs onto customers.

Coal consumption has been steadily declining in the U.S. since
2007. Yet while more utilities are being dragged away from it by
state-mandated renewable portfolio standards and climate goals, and
many utilities are establishing their own targets due to the
favorable economics of new renewables, coal remains a persistent
part of the U.S. energy mix.

In 2018, the United States closed down 13 gigawatts of coal
plants, second to only 2015 for coal capacity shuttered, according
to the U.S. Energy Information Administration. But the U.S. was
still home to 179 gigawatts of coal plants in 2018 that were less
economic than new-build solar, according to Energy Innovation.

EIA has forecast 90
gigawatts
of coal retirements between 2019 and 2030, citing low
natural gas prices and “efficiency of the natural gas generator
fleet†as the reason for many of those anticipated closings.

Energy Innovation wants renewables to step in. Tri-State now
seems to see
that opening
, too. After watching several members eye the door,
Tri-State in January of this year
pledged to abandon coal
altogether by 2030. The G&T plans
to reach 50 percent renewables by 2024.

Source: FS – GreenTech Media
One Way to Retire Coal Plants: Buy Out the Owner