All posts by Dennis Wamsted

Time For Southern
 To Face Facts:
 Vogtle Project
 Should Be Canceled

The mess at the Vogtle nuclear construction project just keeps getting deeper, and ever-more costly.

Earlier this month, Southern Company CEO Tom Fanning announced that the utility was raising Georgia Power’s share of the already-too-expensive and long-delayed project by $1.1 billion, upping the utility’s 45.7 percent stake in the plant to a mind-boggling $8.4 billion (and that doesn’t even include the $1.7 billion paid by Toshiba to resolve the Westinghouse bankruptcy, but that’s another story). While he continued to defend the company’s work at the roughly 2,234 MW project, Fanning said the company’s shareholders would eat the bulk of the additional cost increase to maintain the project’s “momentum” (if that description is even possible for such a trouble-filled construction effort).

Specifically, Fanning told analysts: “Although we believe the increased…costs are reasonable and necessary to complete the project we have made the judgment that it’s in the best long-term interests of investors, customers and other stakeholders that we not disrupt project momentum by seeking approval of the base capital cost increase so soon after receiving PSC [public service commission] approval to continue with the project. Therefore, when Georgia Power files the increased cost estimate with the PSC as part of VCM 19 later this month, Georgia Power will not request recovery of the $700 million in base capital cost increase.”

I am sure Georgia’s state regulators will take Fanning at his word, probably glad that they can continue to ignore the obvious, that the reactor project is no longer economic. But a much more likely explanation for Fanning’s unusual gesture—for years the company has used the Georgia PSC’s endorsement of the project in 2009 as the justification for each and every cost increase that has come down the pike—is that he and the Southern executive team know that if they sought further cost recovery the commission might finally read its staff analyses and determine that the plant isn’t in ratepayers’ interests nor needed to meet demand.

Consider that in the latest mandatory six-month review of Georgia Power spending at Vogtle, which covered the period from July-December 2017, commission staff concluded that completing the reactor project was only “slightly economic” and, here is the kicker, only “if the company meets its current cost and [commercial operating date] forecasts.” [Emphasis added, but probably not necessary]

That testimony, prepared by Philip Hayet, Tom Newsome and Leah Wellborn, was submitted in June 2018 (it can be found here)—two months before Southern’s latest cost increase announcement. In other words, the additional costs almost certainly render the plant uneconomic, if it wasn’t already, and would explain the company’s decision to soak shareholders for the new charges and not return to the commission.

Worse, more cost increases and delays may be in the offing.

In his early August announcement and subsequent Q&A with analysts (which can be found here), Fanning talked repeatedly about labor-related issues at the site. The company needs, he said, both to boost the size of its onsite labor force, particularly electricians and pipefitters, and to ensure that all these workers are being used productively.

“It really deals with what we’ve been saying for some time now,” he said. “And that is our ability to deploy labor productively onsite. That’s going to help us get to our schedule and that has certainly cost ramifications. We’ve got to keep productivity on the site up, and actually improve the amount of hours worked every month onsite as we get through this ramp-up process into November and then for the next 18 months.”

Whether the company will be able to do that is unknown, but its track record of living up to past promises is spotty, at best.

The degree of difficulty associated with Fanning’s projections for the work that must be done over the next 18+ months if the project is to be completed on time was underscored in testimony by Steven Roetger and William Jacobs as part of the last staff review of the Vogtle project (that testimony can be found here). It is worth noting here that Jacobs and Roetger have been vocal and correct critics of the company’s construction schedules and cost estimates for years (see my story here), and predicted two years ago (see here) that labor productivity issues inside the reactor containment vessels could be a major problem.

Discussing the company’s plan to have the reactors complete by April 2021 and April 2022, which would be eight months earlier than the PSC’s currently approved delayed startup schedule (which is in turn a whopping 69 months beyond the company’s initial announced completion date), the analysts said the staff is not confident the company can meet those targets. To hit those dates, they pointed out, the company would have to boost the amount of work completed each month “to levels never before achieved on this project.”

Later, they expanded on this: “The staff’s greatest concern and what staff identifies as the most significant risk to the project schedule at this time is the ability of SNC [Southern Nuclear Company] to increase construction production to the level needed to meet the target +21-month schedule.  Meeting the target monthly percent complete will require a significant increase in production by increasing craft personnel and by more efficient use of those personnel, i.e. improve the productivity of the craft. At present, the project is earning approximately 85,000 to 100,000 hours per week on the direct construction scope. This will need to increase to 140,000 earned hours per week by October 2018 to meet the current target +21-month schedule.”

In other words, the amount of work completed weekly will have to increase on the order of 50 percent, and be sustained for months, to meet the 21-month schedule.

Even meeting the approved startup dates of November 2021 and 2022 is likely to pose a serious challenge, the two wrote, noting that “improvements in productivity and the required additions of craft personnel must occur in the immediate future for the potential to meet [those deadlines].” Further, they noted, “gains in productivity must also be maintained over extended months.”

Fanning and his executive team are in a tough spot. Asking the commission again to raise the amount owed by ratepayers clearly is a non-starter, at least at the moment, but analysts were none too happy with the company’s decision to bill shareholders either, with Moody’s downgrading the company’s debt and stock analysts following suit on their recommendations regarding Southern shares. Given the company’s stubborn commitment to the project, and the failed Kemper gasification effort before that, it is almost inconceivable that Fanning would opt to cancel the Vogtle plants, but he should. It’s time.

–Dennis Wamsted

Trump’s Coal Obsession
 To Force Perry, GOP
 To Abandon Free Market

So, it has come to this—Rick Perry, the man who seven years ago couldn’t remember that the Energy Department was one of the government agencies he wanted to eliminate is now essentially going to be entrusted with running the nation’s electricity grid as secretary of the very same department for the next two years.

Or, at least that is the indication from the latest memo (which can be found here) circulating around Washington in the Trump administration’s never-ending effort to rewrite the rules of capitalism, that wonderful free market enterprise the GOP has so often defended in years past. Democrats have frequently been at the receiving end of GOP barbs about the free market, with Republicans warning anyone listening that they were the only thing standing between the country and, that’s right, socialism. See Secretary Perry’s particularly relevant quote below about President Obama from 2012. Oh my, how things have changed.

I think Barack Obama is a socialist. I think he cares for his country – don’t get me wrong about that – but I think he truly misunderstands what this country was based upon, the values that America was based upon, which was free enterprise and having the ability to risk your capital and having a chance to have a return on your investment.

–Rick Perry

Anyway, the general GOP defense of the free market used to run something like this: When cheaper, better products come along, incumbent industries get hurt, some survive and evolve while others go out of business. It’s messy, but that’s what makes America great.

Well, that exact messy transition is under way now in the electric power industry, and not even a two-year grid nationalization, for that in effect is what is being considered, is going to stop it.

Renewable energy is getting cheaper almost by the day and, coupled with storage, offers the much ballyhooed “baseload” power that seems to appeal to Trump and his tag-alongs. At the same time, the administration’s own energy dominance agenda ensures that natural gas will be in plentiful supply and remain low in cost for all the existing and planned new natural gas-fired generating facilities across the country. Those facts can’t be wished away by half truths about resilience and reliability.

Continue reading Trump’s Coal Obsession
 To Force Perry, GOP
 To Abandon Free Market

NextEra’s Robo Is Wrong About Offshore Wind

“Terrible energy policy.” That was James Robo’s dismissive comment regarding offshore wind development in NextEra Energy’s first quarter earning’s call last week. His comment was preceded by a recollection that he, and the company, had “worked very hard at offshore wind 15 years ago…on a project off of Long Island.” Ultimately, however, the company didn’t get the project—talk about holding a grudge. More to the point, is Robo really relying on a 15-year-old experience to drive corporate policy? It would be an understatement to say that much has changed in the energy business, particularly concerning renewables, during this period. To see just how much has changed, let’s narrow the scope to the last four years. And to make it particularly relevant, let’s look at the changes at NextEra subsidiary Florida Power & Light, one of the nation’s largest utilities.

In its 2014 Ten-Year Site Plan (which can be found here), FPL told Florida regulators that it had two operating solar photovoltaic facilities, totaling just 35 MW. It also said that it was in the process of “identifying other potential sites in the state for potential central station PV facilities.” But later, in its forecast of future generation, it projected that in 2023, the final year of the forecast, the utility would produce 67 gigawatt-hours of electricity from PV sources—one GWh less than the 2013 total. In other words, FPL had absolutely no intention of pursuing PV generation.

Continue reading NextEra’s Robo Is Wrong About Offshore Wind

EIA Is Damaging
 Its Analytical Reputation
 With Coal Forecasts

The pro-coal sentiments of the Trump administration are well known; unfortunately, that boosterism clearly is beginning to seep into the analytical work of the Energy Information Administration. In a late March Today in Energy piece on the EIA website, the organization reprinted three logic-defying graphics on coal’s future role in the U.S. electric generation sector (the three were originally published in EIA’s 2018 Annual Energy Outlook released in February).

The first, as EIA wrote, shows that there will be “virtually no [coal plant] retirements from 2030 through 2050.” Given the 50 gigawatts of capacity that have been shuttered just since 2011, and the 65 GW of additional capacity the administration expects will shut down through 2030, projections of zero further closures beyond that strain the bounds of believability. There is increasing support throughout the business community for a low-carbon future,  and growing numbers of utilities are coming forward with coal phase-out plans (see my earlier stories here and here). The trend is not to maintain that generation capacity, but to close it.

That flat-line projection also overlooks a key point about the age of the U.S. coal-fired generating fleet—a point that EIA itself made last year. The coal generation units in the United States are aging: According to EIA data, 88 percent of the nation’s coal capacity was built before 1990, meaning that in 2050 even the youngest plants would be 60 years old. More telling, EIA said, the coal generation fleet’s capacity-weighted age in 2017 was 39 years. Given that, projecting that there will be no retirements after 2030 simply borders on the ridiculous.

Compounding matters, EIA also projected in a leap of counter-intuititve logic, that as the coal fleet ages, its average capacity factor will climb back roughly to 70 percent—a level not seen since the mid-2000s when the plants were much younger (see the graphic below)—and then maintain that performance all the way through the end of the of its 2050 forecast period. There are two major problems with this projection. First, it ignores age-related deterioration that affects all older plants. Second, it doesn’t take into account the operational changes that have taken place in the utility sector in the past 10 years, notably the surge of new renewable generation resources that have no fuel costs and the shale boom that has pushed natural gas prices down and promises to keep them low for the foreseeable future.

The next graphic (which was taken from an April 2016 Today in Energy article) illustrates the operational changes that EIA’s current projection fails to incorporate. In 2005, coal plants by and large were operated as baseload facilities, running essentially 24/7 all year. Reflecting this, roughly 270 plants that year posted capacity factors of 70 percent or higher. By 2015, this had all changed and fewer than 100 plants recorded capacity factors that high. The system simply doesn’t operate in the same fashion as it did 10 years. Here, the surge of wind generation in the Midwest is a great example. The region’s wind resource tends to blow hardest in the overnight hours and since it has no fuel cost it is dispatched first, ahead of the coal plants that formerly would have provided that electricity.

It is also important to note that in 2005 when the coal fleet’s capacity factor was 67 percent (There is a discrepancy between the data in the two EIA graphics, but it doesn’t impact this analysis.), there were only approximately 100 units operating at less than a 40 percent level. By 2015, the number of plants at that level had climbed to almost 200.  Overcoming that drag on the overall fleet’s performance would be difficult, at best.

In short,  getting the system as a whole up to a 70 percent capacity factor is nothing more than a pipe dream. Conveniently, however, these truth-stretching assumptions allow EIA to, you guessed it, project that U.S. coal production will remain essentially flat, at roughly 750 million tons annually, all the way out to 2050 (see graphic below).

Unfortunately, wishing something so doesn’t make it so. Anyone looking for real analysis of what is going on in the coal industry is going to have to start looking elsewhere.

–Dennis Wamsted

 

U.S. Battery Storage Nears Tipping Point, Drives Energy Transition

Merriam Webster defines tipping point as “the critical point…beyond which a significant and often unstoppable effect or change takes places.”

While by definition it is impossible to identify a tipping point as it is happening, developments over the past several weeks certainly seem to be pushing the electric power storage industry to or past that landmark. In a couple of years, the last couple of weeks may stand out as the point when storage morphed from being an interesting add-on to an essential piece of the grid, providing backup power, smoothing variable generation and participating in various other ancillary markets.

This transition is projected in the latest forecast from the Energy Storage Association and GTM Research. In their Q1 review (executive summary is available here), they project that annual storage installations in the United States will jump from just 215 megawatts in 2017 to more than 3.3 gigawatts by 2023. Just as telling, AES, which has partnered with Siemens in a storage joint venture dubbed Fluence, said in a presentation (available here) accompanying its annual results that it expected the global market to hit 28 GW of installed capacity by 2022—a tenfold increase in five years.

Continue reading U.S. Battery Storage Nears Tipping Point, Drives Energy Transition