Low Cost Path for Southern Company to Comply with EPA’s Clean Power Plan

John D. Wilson | July 30, 2015 | Energy Policy, Utilities
Cost of Alternative Coal Replacement Portfolios for Southern Company System (2014-2034)
With a carbon (CO2) cost, our model shows shifting from coal to gas increases costs by $1 billion total over 20 years. This is actually a pretty small number compared to the total cost over two decades. Shifting to gas and renewables, however, results in a *lower* cost, saving customers $1.2 billion.

With the US Environmental Protection Agency poised to release its final Clean Power Plan rule, some utilities have raised alarm about the rule’s cost. Some of those same voices have raised alarms about reliability, but as I wrote in May, cutting carbon pollution won’t make the sky fall.

Today we release Cleaner Energy for Southern Company, a research summary that explains how every $10 million invested in renewable energy should save Southern Company customers about $1.3 million as part of a least-cost plan for reducing carbon pollution. Our research shows that for Southern Company, future power plant developments that balance both natural gas and renewable energy could cost significantly less than plans that rely on natural gas alone. An aggressive, cost-effective renewable energy strategy could result in Southern Company cutting carbon emissions 18% below today’s pollution level.

The cost savings associated with the Gas + Renewables scenario are $1.3 billion compared to the baseline (coal) case and $2.4 billion compared to the gas only case. As discussed in the report, these cost estimates come with significant uncertainties. Nevertheless, our analysis shows that renewable energy is an essential part of a cost savings strategy  for serving customers of Southern Company with cleaner, more sustainable power supplies.

This isn’t the first time we reached this conclusion: In 2013, we filed testimony backed by extensive modeling that showed how solar energy and energy efficiency could lower costs for Georgia Power’s customers. Unfortunately, most of the technical data and quantitative findings were held back due to Georgia Power’s trade secrecy policies.

The research we are releasing today is the first publicly available report that takes a data-driven approach to studying costs of compliance at Southern Company. Of course, Southern Company has certainly studied its own costs, but although regulated by four state utility commissions, Southern Company does not provide public access to basic information about what it plans to do, what its future costs will be, and why it has chosen those plans.

For example, Alabama Power Company does not provide the public with access to its integrated resource plan (IRP), and routinely changes rates and makes large capital investments without public regulatory review of alternatives. Other Southern Company operating utilities are subject to more oversight, but data regarding energy and cost forecasts are routinely withheld from public review – far more restrictive practices than for most other regulated utilities.

CO2 Emissions by Scenario, Southern Company System
Retirement of 5,205 MW of coal plants reduced Southern Company CO2 emissions by 7% in the Gas Only scenario, and by 18% in the Gas + Renewables scenario. The emission reduction effect is relatively flat beyond 2020, because all of the renewable energy added in this scenario occurred during the 2015-2020 time period.

The research summary includes several related analyses, but its foundation is a dispatch model to simulate the cost of operating the Southern Company system. The dispatch model is described in a recent report by La Capra Associates (LCA) and is very similar to the one used by Southern Company. Both models use standard utility operating decision rules to determine which power plants would operate in each and every hour during the 20-year  forecast period, and at what hourly cost. Using an industry-standard dispatch model ensures that the results provide a realistic picture of how Southern Company would operate a future utility system to ensure reliable service, in the most cost-effective manner possible.

For this summary, the focus is on two hypothetical coal retirement scenarios. In both scenarios, 5,205 MW of coal are retired. In one scenario, LCA determined that 4,150 MW of natural gas resources would provide a reliable replacement. The second scenario requires only 1,100 MW of gas resources, which are complemented by 7,200 MW (4,500 MW on-peak) of solar and wind resources. These findings illustrate the choice between “Gas Only” and “Gas + Renewables” replacement scenarios.

An emissions forecast is just one of the outputs that we have analyzed to better understand what choices Southern Company might make to reduce carbon emissions, while continuing to provide customers with reliable service. As shown in the chart, the shift from coal to gas reduced carbon emissions by only 7%. Shifting from coal to gas and renewables cut carbon emissions by 18%. Considering that the more effective strategy for cutting carbon emissions also appears to cost less in the long run, it seems that a good strategy for Southern Company to respond to the Clean Power Plan would be to invest in thousands of megawatts of renewable energy rather than relying primarily on new natural gas plants.

And just maybe, Southern Company is starting to agree with this logic. Earlier this month, Alabama Power announced that it was seeking to add 500 MW of renewable energy, particularly solar, over the next six years. And Southern Power already owns over 400 MW of solar generation in Georgia. That’s a great start, but of course we are hoping for even better!

John D. Wilson
For more than a decade, John has directed SACE’s research activities and led SACE’s utility reform campaigns. He often represents SACE in formal or informal stakeholder engagement with utilities, and…
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