Arkansas’ electric co-ops prepare for changing energy landscape
When Vernon “Buddy” Hasten applied for the position of president and CEO of Arkansas Electric Cooperative
Corporation (AECC) last year, he immediately began intensive research about his potential employer.
“Common themes started to emerge from that research,” said Hasten, 52, who joined Little Rock-based AECC, a generation and transmission cooperative, last October. “And one of those themes is that we have a diverse portfolio of generation today.”
That portfolio includes generation produced by coal and natural gas, as well as wind, solar, biomass and hydropower. This diverse mix of generation has helped AECC fulfill its mission of being affordable, reliable and responsible as it provides electricity for the state’s 17 electric distribution co-ops and their nearly 1.2 million members. But with the expected closure of two of the state’s largest coal-based power plants, anticipated to occur by the end of this decade, Hasten and Arkansas’ electric co-ops must find options to replace that power in a way that meets the cooperatives’ mission.
The perfect storm
Since they were built in the late 1970s and 1980s, in response to federal laws affecting natural gas plants, coal-based power plants have been the mainstay of AECC’s baseload generation, providing reliable, low-cost power on a 24/7 basis. AECC owns 35% of Entergy Arkansas’ White Bluff Steam Electric Station at Redfield and 35% of Entergy’s Independence Steam Electric Station at Newport, as well as 50% of American Electric Power’s (AEP) Flint Creek power plant and 11% of AEP’s John W. Turk coal facility.
Over the years, the usage level of coal plants relative to natural gas plants has depended on cost, availability and market economics, which now trends toward natural gas due to its abundance and low cost. Previously, coal was the best choice because of its lower price volatility. With the advent of regional transmission organizations (RTOs) in the early 2000s, these entities took operational control of the transmission facilities and power markets via economic dispatch.
Litigation between Entergy and environmental groups several years ago resulted in a proposed settlement that requires, pending court approval, the White Bluff and Independence coal plants be retired in 2028 and 2030, respectively. AECC’s ownership of each plant provides a total of 1,168 megawatts of generation capacity to the co-ops.
“We’re going to be losing a whole lot of very reliable, affordable and responsible energy,” Hasten said, adding that it is vital for the co-ops to develop a plan to replace it and maintain the reliability co-op members expect.
“We’ve had such a reliable and affordable electric system all of our adult lives, and it is easy to just take it for granted,” he said. “But every time we take a coal plant offline, we are removing reliable baseload capacity and chipping away at the reliability piece a little bit.”
Although AECC and utilities nationwide are now depending more on natural gas, plus a growing amount of wind and solar to produce electricity, the non-fossil fuels like wind and solar do not supply power that is available 24/7. The energy that’s produced from solar and wind can be stored in batteries, but that technology is still in its infancy, and while the costs of energy storage are decreasing overall, they remain high. This is especially true if you have to have energy storage large enough to meet system demand for long periods of time, such as one or two days or during peak demand. Traditionally, AECC has relied on coal- and natural gas-based generation for baseload needs. Taking more coal out of the mix and replacing it with natural gas and intermittent renewable resources lessens the amount of baseload capacity and fuel diversity, which, if taken too far, can place reliability of the electric grid at risk.
“If you ask me ‘What is the perfect storm?’ I will say it is a really dark morning in the winter when the wind is not blowing,” Hasten said. “It is freezing cold, and everyone is trying to heat their homes with gas. We’re trying to power the grid without coal, which means we only have natural gas. There are no solar panels making energy. There are no wind turbines making energy. And these reliable friends (coal-based plants) we’ve had all of our lives are gone.”
Hasten knows of what he speaks. While working for Associated Electric Cooperative Inc. in Springfield, Missouri, the system hit an all-time peak in January 2018. “Of the 750 megawatts of wind in our portfolio, only 26 showed up to the party,” he said, adding that power from coal- and natural gas-based plants saved the day.
But natural gas alone is not the answer, he said. Unlike coal-based power plants, which store coal on site, natural gas-based plants depend on pipelines to bring the fuel to the plants for immediate use, Hasten noted. “The fundamental difference is a gas plant has to get gas out of the ground from storage or extraction and deliver it through a pipeline to the plant in real time each day the plant operates,” he said. The energy is not stored on site and is exposed to additional transport risk that coal or nuclear plants are not.
Another issue with natural gas is price volatility. Although prices have been low and stable in recent years and the gas commodity forecasts predict this will continue, there is no guarantee that this will continue forever. History has shown that natural gas prices are inherently more volatile than other fuels. The power sector saw price spikes during the 2014 winter Polar Vortex and the 2018 Bomb Cyclone events, and this should serve as a caution as the power grid shifts away from other fuels and moves toward intermittent renewable resources backed up with natural gas.
In addition to issues related to natural gas, Hasten said he is concerned that too much emphasis is being placed on renewables, such as wind and solar, to replace the power lost as coal plants are taken offline. Although Arkansas’ electric co-ops support the development of renewable energy such as solar power, Hasten said it is not the answer to all co-op members’ power needs.
As more solar power is developed across Arkansas and the nation, some say the days of the traditional central station power model, where power is produced at a plant and moved by poles and wires to the consumer, are numbered. Under such a scenario, traditional large power plants would be replaced by power that is generated on site, such as rooftop solar or ground-mount solar arrays, which are a type of distributed generation.
“That model (central station generation) has been working well for over 100 years, but today you’ve got this independent wave running through America, based on environmental sustainability,” Hasten said. “Looking at this distributed model, which is very counter to central station power, it has some shortcomings. It is not a panacea. While solar is attractive because it seems environmentally-friendlier than coal and gas, there are many considerations that must be balanced to keep the lights on. The Achilles heel of distributed energy resources is that they provide energy intermittently, while the demand for energy is not intermittent — it is required 24/7. Thus, the reality is that distributed energy cannot support the grid on a 24/7 basis without the presence of other power supply resources such as coal and natural gas.”
Instead of choosing one model over the other, Hasten foresees a hybrid system comprised of both distributed and central station power for now and the foreseeable future.
“To say we’re going to just migrate to this (distributed generation) model for 100% of our power is, I think, shortsighted,” Hasten said. “For the central station proponents, who say this is just a fad that is going away, that is a little shortsighted as well. The Achilles heel of central station power is carbon dioxide emissions, and that also has to be factored into the equation. At the edges of the spectrum, you have two power supply constructs colliding with one another, but we are going to have to navigate a path through that. If you go back to our affordable, reliable, responsible mission statement, we need to find the intersection of those two constructs.”
Net metering debate
As the development of solar power continues in Arkansas, the issue of compensation for owners of solar generation who sell excess power back onto the grid is becoming increasingly problematic for the state’s utilities, including the electric co-ops. In an effort to promote renewable energy development for small consumers of electricity, state lawmakers approved legislation in 2001 that requires utilities to buy any surplus power produced by eligible generation systems, such as rooftop solar panels, owned by their members and ratepayers through a process known as “net metering.”
Currently, the co-ops and other electric utilities are required to pay net metering end-use customers between three and four times the wholesale market price for the power they send back to the grid. In addition, utilities must buy the power regardless of whether it’s needed or can be used at the time. The co-ops and other utilities argued before the Arkansas Public Service Commission (APSC), which regulates the state’s utilities, that the overcompensation of net metering customers unnecessarily and unfairly raises the electricity bills of their other members and ratepayers. The APSC ruled on the matter and continued this overcompensation.
“I see one industry hurting another to get ahead, and I don’t think that’s a good model,” Hasten said. “If you bring a technology to the table, and you bring a cost-effective solution to the table, and it’s truly amazing, it’ll sell itself. Said another way, if the only way that I can convince you that I am a good leader is to talk bad about the leader who came before me to look good, then I am no leader at all. I would rather convince you that I have a lot to offer and let my words, deeds and accomplishments inform you as to what kind of leader I am. I see value in both industries but think that it is critically important for our member-owners to understand the difference. I think the mix matters, and that you have to get this right for a hybrid system of central station power and distributed resources to coexist in the most fair and efficient way possible.”
Another common theme, Hasten said, is electric utilities’ shift toward dependence on the wholesale power market instead of building their own generation. Federal law and regulations deregulated the wholesale power market starting in the 1990s, placing the operational control of the electric grid in the hands of regional transmission organizations (RTOs) in the late 2000s. The electricity grid in Arkansas is part of two RTOs — Midcontinent Independent System Operator (MISO) and the Southwest Power Pool Inc. (SPP).
“What I hear all the time is, ‘Well, we can close that plant because we’re just going to lean on the market,’” Hasten said. “‘The markets are going to help us; the markets are going to save us.’ But I want to know, who in the markets is watching this reliability piece that’s so important to our nation? Who is minding the store of our reliability?”
When he looks at the generation that is scheduled to be built within the MISO and SPP markets, Hasten said, “It is almost all intermittent renewable resources, which are not as dependable as the generation they are trying to replace.”
To ensure that AECC continues to provide reliable, affordable and responsible power to Arkansas’ electric co-op members, Hasten said maintaining a diverse mix of generation is key.
“I’m not a pro-coal plant guy who just thinks we should only be coal,” he said. “I believe diversity is the cure for uncertainty. Just like penicillin is the cure for lots of diseases. I am technologically agnostic and believe that a portfolio that makes the best use of all resources is the best answer.”
A balanced energy policy that “doesn’t pretend renewables are the total panacea” is needed to ensure the future reliability of the electric grid, he said. However, costly aging infrastructure doesn’t need to be kept when it could be replaced with more efficient generation resources.
“There is an answer in the middle of all of this that keeps us true to our mission,” he said, adding that AECC is working on a detailed strategic plan to meet the future generation needs of the co-ops’ members.
“We want to make sure that in this changing world, the landscape of energy we are in, that we better our position and that our members are better off after the change than they were before,” Hasten said. “And then we will be even more able to say, ‘Yes, we’re affordable, reliable and responsible.’”