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9 November 2022

AES Indiana coal plant to shut early – but only if it can have gas

AES in Indiana has put out an integrated resource plan (IRP) where it openly defies all the rules of thumb in the current US energy landscape, by suggesting that if it chooses to refuel coal plants with gas, instead of installing more renewables, things will work out cheaper for its customers. That’s pretty unlikely.

While we are not expecting fireworks from a slightly fossil fuel tolerant Indiana Utility Regulatory Commission when this is lined up for review in December, this type of decision is unlikely to be left to stand unchallenged, with perhaps someone reaching for the law courts to force a change of heart. At present IRPs are prepared every 3 years, and so there is no chance to appeal this decision once the IRP is ratified, because AES has cleverly brought forward retirements of its remaining coal plants in Petersburg so they are refueled in 2025.

While the IRP does not lay out the detail of its costings, it may well be the case that converting the existing plant to burn gas will result in lower capex costs than pushing for an earlier increase in renewables and battery. What’s happening here is that this is an opportunity for AES to “chance its arm” to provide dispatchable power in a way it is already comfortable with, and this will delay the purchase of its eventual portfolio of wind, solar and battery – all such delays could reduce capex, as the price of those forms of energy are all set to fall over time. If it fails to get this through the Commission, its fall back plan is to retire the two Peterburg coal units in 2026 and 2028 after investing in renewables.

Even if solar has been properly costed and requires too high a capex cost, then re-calculating its cost while harnessing incentives from the Biden Inflation Reduction Act (IRA) would bring this down dramatically, and since that has only just been passed, it clearly has not been considered in this instance.

AES says that it will meet the Indianapolis Thrive Plan which expects 100% renewable energy by 2050, by closing down these gas plants in 2042. But of course it does this at the expense of volatile gas pricing over the coming years – with its plan B approach not reliant at all on fuel prices.

AES justifies the decision based on the low PVRR (Present Value of Revenue Requirement) which is a way of saying that to spend later is good. However a small line in tiny 6 point text says that pricing for all of this was taken from 2020 – which implies this is out of date solar pricing, out of date battery pricing and more to the point, out of date gas pricing, prior to the global price hike.

AES is insistent that this strategy delivers the quickest exit from coal-fired generation (in 2025) which provides the lowest 20-year AES Indiana generation portfolio emissions for SO2, NOx, water use and coal combustion products, and the second lowest emissions for CO2. Of course earlier use of renewables would provide a lowest emissions and we’re pretty sure it has not taken in to account upstream gas emissions and it has been only recently discovered that these take gas up to the level of pollution of coal.

And it talks about the decision providing firm unforced capacity which will allow AES Indiana to responsibly and gradually transition to renewable

energy resources over the planning horizon.

The IRP also says that AES Indiana will also complete one 195 MW Solar project and 250 MW/180 MWh solar plus storage project during 2023 and 2024. It is interesting after recent events in the US, where battery energy storage saved a number of grids from succumbing to the heatwave by using battery energy storage systems, that AES chooses to delay gaining experience with battery options.

The IRP shows that the refueled gas plants would be run at a lower capacity factor over time, falling from 75% and 55% for the two plants initially, down to under 10% by 2031 before they are closed in 2042.

The Petersburg coal plants are known to be among the dirtiest coal plants in the country and is thought of as Indiana’s worst polluter.

For years the Sierra Club and AES customers have urged AES Indiana to retire these coal plants, but by replacing them with renewables, not gas. One of the deciding factors in what is cheaper is that a gas pipeline is already in place to the Petersburgh coal plants, which dramatically lowers the capex of this project, although not the fuel costs.

Meanwhile this week Xcel Energy said it also plans to retire its 1,067 MW coal fired Polk power plant in northwest Texas in 2028, bringing the retirement forward by four years. Xcel will shutter its entire coal fleet by 2031. Xcel has 6,500 MW of coal plants but has said in the past that it aims to cut its carbon emissions by 80% by 2030. It has been convinced to do this by using more renewables, which it will install with incentives from the IRA act.

The Inflation Reduction Act’s production tax credits reduce the levelized cost of solar projects between 25% and 40% Xcel officials said in an earnings presentation.