A Canadian company’s plan to aggressively shift a Missouri utility to clean energy is facing opposition from state officials.
Proponents of cleaner energy in coal-reliant Missouri had lofty expectations in 2016, when Algonquin Power & Utilities bought Empire District Electric Co. At the time, Empire claimed it could build 800 megawatts of wind energy, close a 200 megawatt coal plant next April — about 16 years early — and save ratepayers as much as $325 million over 20 years.
The utility said it could do this with a substantial investment from a tax-equity investor, by tapping the federal production tax credit and saving $20 million it otherwise would have to spend to make federally mandated environmental upgrades to the power plant it has proposed closing.
Under the proposal, wind’s share of generation for Empire customers would have increased from 14 percent in 2016 to 51 percent by 2023. Coal’s share over that period would have fallen from 49 to 21 percent.
“It’s great to see a utility embrace this stuff,” said James Owen, executive director of Renew Missouri.
However, the state’s Office of Public Counsel and the staff of the Missouri Public Service Commission are skeptical. They don’t trust Empire’s estimates of the future price of wind on the wholesale market, and they maintain that the utility has structured the deal so that the tax-equity investor – as yet unnamed – will be paid off during the first 10 years, leaving only crumbs behind for ratepayers. The City of Joplin also is worried about the possible loss of 55 jobs at the Asbury coal plant.
In late April, several parties signed on to a revised version of the plan that is now before state regulators. It shrinks the wind project from 800 to 600 megawatts and gives Empire discretion as to when to close the Asbury plant. Empire says it needs to act quickly — at least in part due to the diminishing production tax credit — and is pressing state regulators for an answer by June 30.
The likely outcome: dirtier energy than initially envisioned.
“We supported the original plan,” said Henry Robertson, an attorney representing the Sierra Club in the matter. “It’s technically still on the table, but not really. We think 600 megawatts is good, and Asbury’s days are numbered anyway. I’m frustrated with the opposition (the plan) has attracted. It’s very backwards to keep relying on coal and shunning wind.”
Shuttering still-viable coal plants and replacing them with wind isn’t something normally done by Missouri utilities, Robertson said, “and certainly not Empire – until it came under new management.”
Through its subsidiary, Liberty Utilities, Algonquin owns or has an interest in 1,050 MW of wind, 40 MW of solar, 120 MW of hydroelectric and 335 MW of thermal energy capacity, according to Bloomberg. It has wind assets in Illinois and Iowa, among other states. Algonquin would not respond to interview requests.
Algonquin has previously used tax-equity financing, a tool that the wind industry has adopted only in the last few years. The utility envisions finding an investor to provide 50 to 60 percent of the funds needed upfront, “which is a big customer benefit,” according to Robertson, because ratepayers would never have to repay that investment.
The investor’s compensation would come in the form of the production tax credit, accelerated depreciation and “certain cash distributions” for the first 10 years, according to the application the company filed with state regulators.
Customers could begin to reap some financial benefits after 10 years, at which point Empire indicated it likely would purchase the turbines. Algonquin has asked state regulators to allow it to earn a return on the undepreciated part of the Asbury coal plant, meaning that customers would continue to pay something for a generation source no longer in use.
This is what’s known as a “stranded asset,” a piece of equipment that is no longer being used, but has not been paid off. Stranded assets pose a major challenge to the continuing transition from fossil fuels to renewables.
In Colorado, Xcel is pursuing a plan very similar to that put forward by Empire, and encountering some of the same obstacles.
Algonquin says the economics will work out for customers, largely because it will be able to provide wind power at an extremely low price. It would sell its wind power into the Southwest Power Pool’s wholesale market, and then buy back what it needs.
But the wind market is volatile and certain to become more so, according to Geoff Marke, chief economist for Missouri’s Office of Public Counsel. One prediction he would make: given the large number of wind projects under development, the cost of wind is going to collapse – at times when nobody needs it, like 2 in the morning.
But when Empire customers want power, say in the middle of a July afternoon, so will everybody else. And then the price will skyrocket, he said. In a few years, he predicts that Empire will ask the Public Service Commission for permission to build a gas peaker plant or battery to cover those times when Asbury could have delivered.
Adding to the forecasting difficulties, he said, is the possibility that the SPP will vote this summer to make wind power dispatchable – meaning it could decide to keep some wind production out of the system, if it’s too much to handle. Currently, all renewable generation is automatically accepted into the wholesale market for sale.
Batteries could “hopefully” help address the problem, Marke said.
“I think batteries are the perfect complement to wind and natural gas,” he added.
“But we’re still waiting.”