TVA final Integrated Resource Plan leaves key decisions for Board of Directors

Guest Blog | March 7, 2011 | Energy Efficiency, Energy Policy
TVA's final Intetegrated Resource Plan was released on Friday, marking a significant step orward for the agency, but leaving key decisions for TVA's Board of Directors.
TVA's final IRP marks a significant step forward, but key decisions remain for TVA's Board of Directors.

On Friday, the Tennessee Valley Authority released its final Integrated Resource Plan (IRP): TVA’s Environmental and Energy Future. It marks the culmination of 18 months of analysis, public engagement and stakeholder review to produce a recommended strategy for the agency, but it also leaves several critical decisions for TVA’s Board of Directors.

For years, SACE has pressured TVA to reform its energy and environmental polices with an across-the-board analysis of its options for meeting the Valley’s future electricity demand. The current IRP process and TVA’s commitment to undertake this process at least every five years moving forward mark a significant milestone for the nation’s largest public utility.

TVA’s “final” resource plan represents the staff’s official advice to the TVA Board. It is now up to TVA’s Board to adopt the IRP’s recommended strategy with a focus on maximizing benefits to TVA’s customers and reducing TVA’s environmental impacts.

The IRP process involves a combination of sophisticated statistical modeling and qualitative judgment calls by TVA staff and Valley stakeholders.
The IRP process involves a combination of sophisticated modeling and qualitative judgment calls.

The IRP process is designed to produce recommended strategies for meeting TVA’s electricity demand while minimizing both cost and risk. TVA’s statutory directives to steward the environment, support economic development and encourage technological innovation are also considered.

The IRP process includes both complicated statistical modeling and qualitative input (judgment calls) by TVA staff and Valley stakeholders. The final product is a 20-year strategy that includes proposed guidelines in several key areas of TVA operations.

The IRP’s recommended strategy provides a range for each of several key components of TVA operations:

ComponentGuideline RangeWindow of Time
Coal Capacity Idled2,400 – 4,700 MWBy 2017
Renewable Energy Additions1,500 – 2,500 MWBy 2020
Energy Efficiency11,400 – 14,400 GWh1By 2020
Nuclear Additions1,150 – 5,900 MW2013 – 2029
Coal additions20 – 900 MW2025 – 2029
Natural gas additions900 – 9,300 MW2012 – 2029

1GWh stands for gigawatt hour, a measure of actual output that equals 1,000 megawatt hours.
2Coal additions are assumed to include carbon capture technologies that are not anticipated to be commercially available until at least 2025.

These guidelines leave several strategic decisions to TVA’s Board of Directors, including:

  • The amount of coal-fired generation to idle by 2017;
  • How much to invest in energy efficiency;
  • How heavily to rely on renewable energy;
  • Whether to pursue additional nuclear generation.

In each of these four areas, the IRP provides a clear opportunity for TVA’s Board to direct its staff to think big and build toward a better environmental and energy future for the region.

TVA can idle the full 4,700 MW of coal-fired generation with little impact on cost or risk to TVA’s ratepayers.

From mountain top removal to air pollutants to coal ash, the environmental and human health impacts of coal add significant costs to relying on this diryt energy resource.
From mountain top removal to air pollutants to coal ash, the environmental and human health impacts of coal add significant costs to relying on this dirty energy resource.

The IRP demonstrates that TVA can safely idle at least 4,700 MW of old coal plant generation and customers will feel little impact on rates. In fact, TVA’s analysis suggests possible financial savings at this level. In contrast, the lowest level of idling considered by TVA is not the “conservative” choice – idling on the lower end of the recommended spectrum actually would put TVA customers at greater financial risk.

TVA’s analysis of the cost and risk associated with various levels of coal idling reveals that, in nearly every metric of cost and risk, the difference between idling 2,400 MW and 4,700 MW is less than 5%. In several instances, this difference actually favors higher levels of coal-fired idling.

The table below provides an example: when analyzing the present value of revenue requirements (PVRR) for each level of coal idling, i.e. how much it’s going to cost, idling 4,700 MW of coal actually cost less than idling 2,400 MW of coal under Scenarios 3 (low growth scenario) and Scenario 8 (TVA’s current forecast). Under Scenario 1 (high growth scenario), the model indicates that idling 4,700 MW of coal may cost about 4% more, but even this slightly higher cost is tempered by lower levels of risk that also result from operating fewer coal plants.

System Cost Comparison: Evaluating the Impact of Coal Plant Idling
Present Value of Revenue Requirements, billions of dollars (2010 $)

Idled CapacityScenario 1
High Growth
Scenario 3
Low Growth
Scenario 8
Current Forecast
2,400 MW$ 170.9$ 108.6$ 123.1
3,200 MW$ 172.4$ 108.0$ 123.1
4,000 MW$ 175.3$ 107.6$ 122.0
4,700 MW$ 177.6$ 108.2$ 122.5

A Board directive to pursue 4,700 MW of coal-fired idling does not add significant levels of either cost or risk to TVA’s long-term strategy. Given the environmental and human health benefits of a portfolio that is less dependent on coal, it seems clear that TVA’s Board should be pursuing this level of coal idling. The more megawatts of coal we can take offline and replace with cleaner energy efficiency, renewable generation and even natural gas, the better it’s going to be for the Valley.

TVA should be pursuing the full 14,400 GWh of energy efficiency, and targeting even higher levels may further increase benefits to TVA ratepayers.

Energy efficiency helps reduce costs to TVA and its ratepayers by avoiding the expense of more costly energy resources.
Energy efficiency helps reduce costs to TVA and its ratepayers by avoiding the expense of more costly energy resources.

The IRP’s highest recommended level of energy efficiency, 14,400 GWh, is conclusively demonstrated by the IRP to be the most financially attractive to TVA customers. Achieving 14,400 GWh of efficiency by 2020 would represent approximately 8% of projected demand in 2020, or about 0.8% incremental gains in efficiency each year until 2020.

The 14,400 GWh proposed by the IRP’s recommended strategy, however, still falls short of what TVA could cost-effectively achieve. Unfortunately, the TVA plan does not include any consideration of higher levels of efficiency that might have reduced costs for TVA and its ratepayers not because the efficiency isn’t available, but because TVA erroneously believes higher levels of efficiency are “too ambitious for the Valley.”

In fact, utilities across the nation, including those with rates comparable to TVA’s,  are avoiding costly new generation by aggressively pursuing higher levels of energy efficiency. TVA simply hasn’t built the institutional knowledge to feel comfortable relying on this resource. Unfortunately, this shortcoming may end up costing ratepayers more in the long run if TVA makes investments based on this perspective.

In particular, the IRP shows no consideration of significant gains in efficiency beyond about 2020. During this second decade of the planning period, progress in energy efficiency reaches a standstill in the IRP’s recommended strategy.

The trajectories that TVA considered for energy efficiency over the course of the planning period are shown below.

ee

As an example, the 14,400 GWh by 2020 option (represented by the green line in the figure above) rises to only about 17,000 GWh by 2030. This scenario would represent approximately 8.3% of the estimated 203,000 GWh of demand currently forecasted in 2030, a gain of only 0.4% over the 10 years from 2020 to 2030, or approximately 0.04% annual incremental gains during this decade.

Utilities with experience in aggressively pursuing energy efficiency have learned that, as a resource, efficiency continues to provide reliable energy savings year after year. The incremental growth in efficiency provides benefits by allowing the utility to avoid the higher costs of new generation resources that would otherwise be necessary to meet demand. If TVA were to model more realistic incremental gains in energy efficiency, it would likely project greater benefits for TVA and its ratepayers.

TVA must become more sophisticated in its analysis of renewable energy options.

TVA's flawed analysis of renewable energy options means it isn't allowed to compete on an even field with other generation options.
TVA's flawed analysis of renewable energy options means they can't compete on a level playing field with other generation options.

TVA’s analysis of renewable resources lacks the sophistication given to other resources, which results in a flawed recommendation for future additions. The IRP’s recommended planning direction calls for between 1,500 and 2,500 MW of additional renewables by 2020. However, these numbers include the more than 1,600 MW of wind power for which TVA has already contracted for from outside the Valley. This means that the IRP actually recommends renewable energy additions in the range of 0 to 900 MW by 2020.

The issue is not that renewable energy resources cannot compete with other resource options. What SACE has observed over the past 18 months of engaging in the IRP process is that TVA staff used seriously flawed assumptions about renewable energy to drive the model’s selection of these resources.

As an example, the IRP’s analysis does not take into account the well-documented declining cost curves of renewable energy options. Shown below are cost curves for solar PV and wind resources that were developed by the National Renewable Energy Laboratory. The figures show not only the historical declines in price, but also the forecasted continuation of price declines for these resources.

solarwind

Source: NREL Energy Analysis Office (www.nrel.gov/analysis/docs/cost_curves_2005.ppt)

The IRP does not take these declining cost trends of renewable energy options into consideration when selecting resources to add to TVA’s portfolio. Nor has TVA conducted appropriate resource potential studies. Nor did TVA take into consideration increasing efficiencies that renewable energy options are forecast to experience in the future.

By comparison, TVA’s model does take into consideration detailed price forecasts and anticipated technological improvements in its analysis of coal, nuclear and natural gas when selecting resources to add to TVA’s generation portfolio.

TVA’s lack of sophistication regarding the potential for renewable energy resources means that these resources compete at a significant disadvantage to other resource options. As a result, the IRP’s recommended planning strategy does not include the appropriate amount of renewables to maximize benefits for TVA and its ratepayers.

TVA’s nuclear future is far from certain.

Completing the reactors at the Bellefonte Nuclear Site near Jackson, AL remains a risky investment for TVA and its ratepayers.
Completing the reactors at the Bellefonte Nuclear Site near Jackson, AL remains a risky investment for TVA and its ratepayers.

Adding two new nuclear units at the Bellefonte nuclear site between 2018 and 2022 remains a risky choice. Because TVA did not properly evaluate energy efficiency and renewable energy, especially in the 2020 – 2030 timeframe, there is still considerable uncertainty about whether the plan actually justifies a “need” for additional nuclear reactors in 2020 or beyond.

A combination of less-expensive resources, especially higher levels of efficiency, could delay, or even make completely unnecessary, the construction of Bellefonte. Avoiding the costs associated with building additional nuclear reactors would save ratepayers billions of dollars and provide significant economic benefits to TVA. Even a two- or three-year delay in the need for a multi-billion dollar investment provides significant financial benefits to TVA and ultimately reduces costs for Valley residents.

Fortunately, TVA has the opportunity to build upon this IRP process and continue to improve its analysis of resource options. The Board has the opportunity to point out where it would like TVA staff to improve in preparation for the next resource plan and direct staff to build expertise in renewable energy and evaluate how much further the region can go in eliminating energy waste. With those further steps, the TVA board will be able to reconsider its intentions for the Bellefonte nuclear expansion, and put even more coal plant retirements on the table.

The TVA plan does represent real reform.

Despite the shortcomings of the final plan, SACE is pleased to have been a part of the IRP process. TVA’s staff deserves credit for conducting a broad and relatively transparent evaluation of a range of options and incorporating significant input from stakeholders throughout the process. In all, SACE believes the process will lead to a healthier Tennessee Valley, but key improvements to the process are necessary to ensure TVA’s plan maximizes the benefits to TVA and the people it serves.

For more information on TVA’s Integrated Resource Planning process, visit our website and be on the lookout for our upcoming webinar when we will dig even deeper into the IRP process and its recommended strategy.

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