Why Panda Power Loves Natural Gas

Bechtel, which helped build the Stonewall station, used a 500-tire trailer the length of a football field — to deliver manufactured components to the construction site.

Yesterday I wrote about the 778-megawatt gas-fired Panda Stonewall power station starting up near Leesburg. Against the backdrop of ongoing debate over gas versus solar here in Virginia, I wondered why the Dallas, Tex., investors behind the plant were willing to risk more than half a billion dollars in equity and debt on a merchant generating facility that would sell into the wholesale electricity market.

How did these newcomers to the Virginia energy scene see the future of electricity? Aren’t they worried that solar energy will displace gas in a few years as the price of solar continues to drop and the cost of natural gas is expected to rise? Aren’t they worried their big investment will be rendered valueless? Remember, Panda has zero political influence in Richmond, and the company can’t go running to the State Corporation Commission to bail it out if the bet on natural gas goes sour.

Bill Pentak, vice president of public affairs, says Panda Power Funds owns both gas and solar facilities. “We understand solar,” he says. “We built the largest solar project in the northeastern United States, covering 100 acres in southern New Jersey.”

Panda Power Funds will invest in projects that make economic sense, Pentak says, and right now the economics tend to favor natural gas. Take that New Jersey solar facility — it produces 20 megawatts of electricity. “That’s gross. But you’ve got to convert [the electricity] from DC power to AC. You lose 10 percent in the conversion. In the real world, it produces 18 megawatts.”

Then there’s the land use to consider, he says. Solar requires lots of acreage, and it takes up land that has alternative economic uses such as farming. The Stonewall plant takes up a fraction of the space and produces far more energy — 62 times as much on one fifth the land.

Then factor in solar’s intermittent production. Solar does not generate electricity at night, and it fluctuates during the day. The more solar installed, the more gas is needed as a backup. Says Pentak:

If you have ton of solar or wind on your grid, you make it less stable. If the wind dies down or the sun stops shining, the grid operator will have to call upon power that can be quickly dispatched. It won’t be coal fired, which takes three days to ramp up. It won’ t be nuclear, which takes three weeks. All that’s left is natural gas. A combined-cycle plant can cycle up in an hour and a half. A combustion turbine can in 30 to 40 minutes.

Thus, gas will be needed both as a base-load energy source and a back-up energy source. “We think Stonewall will operate as a base-load plant,” he says. But technology has blurred the distinction between peak load, intermediate load and base-load. Combined cycle plants — which generate electricity with gas-burning turbines and recycle the waste heat to run steam turbines — can operate as a base-load power source if need be, and also can dial output up and down as required.

Battery technology is not at the point where batteries can store enough energy to meet large-scale power needs, Pentak says. Moreover, batteries are not environmentally friendly. “Where do you put spent batteries? Solar technology is promising, but it’s not there yet.”

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51 responses to “Why Panda Power Loves Natural Gas

  1. As Mrs. Pentak related – any baseload plant that takes hours, days or weeks to come up is not a good match for solar but gas turbines – even combined cycle that can come up (or down) in minutes – is.

    That means such a plant can vary it’s output in concert – not only with varying demand – but varying solar…

    Still not fully understanding the ins and outs of PJM relative to various generators in their region – not only utility generators, but independent generators.. If Dominion needs more power and requests PJM.. does PJM pick a Dominion plant to come online or the Panda Plant? Is there a hierarchy ? does location matter? i.e. NoVa needs more power and the nearest Dominion site in 50 miles south of Richmond and Panda is nearer?

    HOw about the electric cooperatives? can they call for more power and tell PJM they want Panda’s power?

    can a 3rd party solar partner with Panda? can they partner with Panda and the electric cooperatives who will prioritize power from Panda and partners over other power especially if DOminion’s gas plant is more expensive ?

    The fact that these independent producers are building plants tells us that they know something we don’t and if Dominion knows.. they aint talking either!

    • Larry,

      As Acbar has explained, it is always up to PJM to decide where the next supply of generation comes from. The Load Serving Entities (LSEs), whether investor owned utilities, municipals or co-ops, do not have a say in where the power comes from. There is a hierarchy in selection. PJM always selects the next cheapest source of energy in the merit order, which is established by the day ahead bids from the generators. All generators whether owned by vertically integrated utilities or merchant generators, such as deregulated utilities or independent power producers like Panda, are part of this market in the PJM territory.

      IPPs, like Panda, are betting that they can generate electricity cheaper than other sources and therefore be dispatched often enough to make the plant profitable. New combined cycle units are typically the low price units in the market and set the clearing price for units serving baseload. Owners of nuclear facilities and coal plants can bid their units into the market at a price lower than their cost of production to make sure their units are picked first and can run all of the time. But they will be paid whatever the clearing price is during any particular period.

      Renewables are dealt with in a separate market.

      • Thanks, TomH. One addition: PJM and the ISOs like it were mandated by the FERC precisely to level the playing field for independent generation companies like Panda. And the wholesale markets the ISOs operate do work. Panda’s Brandywine, MD NGCC plant has been online for years now; they are not inexperienced or naive about the role of natural gas generation in the PJM region over the financial lifetime of their Leesburg investment.

        “If Dominion needs more power and requests PJM.. does PJM pick a Dominion plant to come online or the Panda Plant? Is there a hierarchy ?” As TomH said, it’s economics. PJM picks the specific generating unit that has submitted the lowest bid to run that day that’s not already running. Did Panda Leesburg or Dominion Mt. Storm or some other plant operator submit the next lowest bid? Then they get the call.

        “does location matter? i.e. NoVa needs more power and the nearest Dominion site in 50 miles south of Richmond and Panda is nearer?” No, location generally does not matter. All generating units in PJM are in competition with one another and connected to the same Grid. The one qualification to that is, the computer that weighs these bids also takes into account the line congestion and losses that will be incurred if generating here, rather than over there, so as to achieve the lowest overall energy cost in the market. That’s why bids are compared in terms of “locational marginal price.” That’s usually a subtle effect and one you can disregard conceptually.

  2. I understand his opinion. It is not an uncommon one in the industry. That is why gas now occupies the largest segment of electricity generation, and I believe it will for some time. But it is the selection of new generation where my attention is. The new generation that was selected in the U.S. in 2016 by utilities and merchant generators was 68% solar and wind and 26% natural gas.

    I agree with his argument about land use, which is why I do not believe we should rely so much on utility-scale solar generation. If the majority of it was distributed, especially on commercial and industrial properties, you would have zero utilization of undisturbed land use for solar. Residential works fine too, it’s just a bit more expensive. Medium sized distributed solar is probably about the same cost as utility-scale if you counted the cost of transmission as part of the utility-scale project.

    Having a significant portion of solar and wind on the grid can make it more variable (although solar and wind make good complements) but it does not necessarily result in the grid being less stable. This is a misconception and is too often used as a knock against solar.

    He says “Battery technology is not at the point where batteries can store enough energy to meet large-scale power needs”. I can only assume he is talking about using current batteries for long-term baseload service. I would agree that lithium ion technology is not currently up to the task of long-term discharge uses. Typically this type of battery is used for applications requiring 4-5 hours of discharge per day. Compressed air or other technologies are being used for long-term discharge such as storing excess wind generation on the Great Plains.

    Every major battery manufacturer includes recycling old batteries as part of their business model. There are too many valuable materials that can be reused to dump them in a landfill. He is thinking like a homeowner throwing out flashlight batteries.

    I take issue with what he says about the comparative size and capacity factors of solar versus gas. All of that is factored into the cost of wholesale energy. For simplicity, let’s say the wholesale price of output from a new combined cycle plant is the same as the price of solar. The price of the output from the solar facility will be nearly constant over its 35-year useful life. For the gas-fired plant, it is probable that the price of its energy will only increase as fuel prices rise. Which is the better investment, a constant price or one that is likely to only go higher?

    The gas-fired plant will earn an extra amount from the capacity auction, but it also might face a carbon price sometime during its 40-year operating life.

    From a cost of energy perspective it doesn’t matter whether you have to build 2-3 times more nameplate capacity with solar to generate the same amount of energy as the gas plant. The cost of energy from solar will always be the same or cheaper than the combined cycle plant. With a majority of distributed units, the land use won’t be much of an issue.

    Panda and its investors are betting on an increase in demand that would require more baseload units. This is where I think their business case for a 40-year payoff breaks down.

    With future increases in natural gas prices, electricity prices will increase making energy efficiency even more attractive. At 2-3 cents per kWh, energy efficiency is far cheaper than electricity generated using natural gas. Even without public policies encouraging efficiency, commercial and industrial users have already caught on that efficiency is the cheapest source of energy. If our baseload demand stays relatively the same and renewables make further inroads as the price declines, renewables will displace conventional sources for serving some of the daytime baseload requirements, as is happening in California today. Coal and nuclear plants cannot adjust rapidly enough to that situation, so it will be the combined cycle units that will have to shut down.

    A combined cycle unit built by a merchant generator in Texas in 2014 just went bankrupt because of the low cost and high-percentage of wind and solar (recently coming on strong). Gas-fired baseload plants in California and Ontario are not being dispatched often enough to pay for themselves. A carbon price would only add to their troubles.

    Utilities in vertically integrated utility states like Virginia, can see the threat that renewables pose to their business models so they want to squash the free participation of third-parties and control the remaining development of solar themselves.

    Merchant generators and utilities that are proposing to build new combined cycle units must have the following occur in order for these new plants to pay for themselves:

    1. Significant levels of long-term load growth (in order to need all of the new units being built).

    2. Relatively stable or not too rapidly increasing natural gas prices. (Natural gas prices increased nearly 100% in the last 12 months and LNG exports are just getting started).

    3. A slow rather than a rapid decrease in the prices of solar, wind, storage and other modern grid technologies.

    4. The ability to control legislative and regulatory activity to continue to create obstacles to free market processes and maintain old regulatory schemes.

    I’ll leave it up to you as to whether you think any or most of these items will exist for the next 40 years. There are plenty of smart people with plenty of money, like Panda, betting that they will. I just read the tea leaves differently.

    Quite often when there are a large number of people betting on the market going in one direction, it signals that the market is about to move in the opposite direction.

    • TomH, I agree with you about all the problems new gas units face. In particular you are right to point out the trap for cycleable units is that they may be cycled off out of economic order if the alternatives are must-run. I would add, however, a fifth factor which goes the other direction:

      5. The rapid retirement of older lower-cost units, especially coal and nuclear, due to rising fuel and O&M expense and CPP/other environmental pressures.

  3. good analysis!

    I still wonder if solar can/should be developed independent and without coordination with gas……. and that solar will “run” without a control on it to reduce it when there is no easy way to ramp down other generation nearby.

    That’s why when folks like Panda say solar is “not ready”.. I’d like to hear more.. a detailed “here’s what needs to be done to make solar REALLY WORK” from the folks who actually do generate power. I do not really trust Dominion any more at least as a sole source of the info. That’s why I’d like to hear from the independent providers.

    The fact that Panda apparently is NOT building solar as part of their plant leaves a question as to whether solar is really not ready or that Panda also prefers to make money burning gas and maybe can’t profit as much from solar.

    All of these companies – are going to pick the options that best serve their own financial interests – and what I’m hearing is that solar is inferior to solar with regard to profit.

    so how am I wrong on this? educate me…again.

    • As Acbar and I responded to this previously, there is no advantage to building solar on the same site as a gas-fired plant except to share the substation and transmission lines and to occupy already paid for land that cannot be used for any other purpose except power production.

      The power plant cannot choose to vary its output according to the solar generation. The gas plant’s operation is totally under the control of PJM.

      I still don’t know how to answer your question about “how to make solar really work”. The market is saying that solar “really works” today and it will work even better tomorrow as the price of new units continues to decline. Families, businesses, IPPs and utilities are choosing solar more than any other source of new generation today because for them it is less expensive than any other alternative.

      Many who have been in the business of building generating stations for a long time, as Panda has, do not look on solar as favorably because it disrupts the business model for their conventional generators.

      Solar is as cheap or cheaper than a gas-fired plant today and its cost of energy will remain constant. Gas-fired plants are vulnerable to reductions in demand, higher priced fuel, and perhaps a carbon price.

      So many are rushing in to take advantage of this temporary low price of natural gas in an era of flat load growth, that I fear that there will be many that will not be able to recover the cost of their investment. Panda’s investors will be exposed to that risk. Dominion’s plants will be in the rate base and the ratepayers will have to bear at least some of the risk if those plants don’t pay off.

  4. here’s another question.

    Let’s say once Panda comes online it offers x amount of electricity and PJM coordinates bids for it – and it wins a contract with whoever bid.

    Let’s say for the sake of argument one of the electric cooperatives needed it , maybe one located near to a Dominion gas plant – but the Panda price was lower and the cooperative bought from them.

    Does that mean that Dominion could end up “delivering” the electricity from Panda to the cooperative and right past their own (idle) gas plant?

    Does Dominion “charge” for the use of their infrastructure? (like we see on our own bills… separate items for production and delivery?

    Can Dominion effectively undercut Panda – if Dominion adds delivery costs to the panda costs such that it will be cheaper for the cooperative to buy power from the closer Dominion plant?

    so I guess the real question might be for any independent generator like Panda – are there two costs for their electricity – their cost for generating it then a separate cost for delivering it?

    • Back to the basics. A wholesale customer is not bidding on the price of electricity from any particular source. The auction is run by PJM for PJM to purchase the necessary supply of electricity. The LSEs (the wholesale customers) pay for their electricity at any particular moment based on the clearing price of the energy market ( the price is lower during nighttime hours and higher during peak usage). The amount billed to the LSE also includes transmission considerations. This is called Locational Marginal Pricing. When creating its bill for retail customers, the utility also includes the cost of its transmission and distribution system and other factors.

      I know it is hard, but you cannot imagine that the grid operates like a highway or water system. Electricity generated in one location does not flow directly from one location to another.

      Operation of the grid is complex and requires sophisticated accounting to settle all of the factors fairly. This is the job of non-profit Independent System Operators (ISOs) such as PJM.

    • Yes, yes, to TomH’s answer. The Grid is less like a road system and more like a lake with multiple inputs and outputs.

      You must keep Dominion’s three “hats” separate. Dominion is a transmission owner, with a common carrier obligation to deliver whatever the LSEs connected to it buy, and the generators dispatched by PJM sell. Dominion also is an LSE (a big one, though not the largest in PJM) — Rappahannock Electric Coop is also an LSE, with identical rights and obligations as far as PJM is concerned. And, Dominion also happens to own generation in PJM — PJM doesn’t care whether that generation is connected to Dominion’s or someone else’s wires, or whether that generation is owned by an LSE, that is, someone with retail load-serving obligations. Every one of Dominion’s generators has to submit a bid to PJM daily, just like Panda’s units, and gets selected or not to run accordingly.

    • Each transmission owner in the United States is obligated to keep non-discriminitory “Open Access” tariffs on file with FERC clearly stating the rates they will charge any generator, including their affiliates, for transmitting power across their grids. They cannot discriminate in favor of themselves, in other words. A Panda unit has the same right of access to DVP’s part of the PJM grid as a DVP unit.

  5. Maybe the answer to Panda’s internal analysis is the same as that of many people when asked: What sources of energy (listing same from fossil fuel to renewables) does the United States need? All of the above. Same for Panda.

    And to Larry’s question about Dominion adding unreasonably high distribution costs to transport Panda-generated power to a coop for retail sale, that raises antitrust concerns. Dominion has a monopoly on transmission facilities, but not on power generation. It would likely violate the antitrust laws to attempt to use its control over transmission to hobble a rival competing in the power generation market. In that event, I would expect Panda to file an antitrust suit. And there is regulatory precedent that prevents a utility from recovering the cost of antitrust damages from ratepayers — in extreme cases, the costs of defending such a suit.

    • Many policymakers seem to like the “all of the above” solution because it makes everybody happy. But it is not good energy policy.

      I would also like to add a comment from Rowinguy that shows up in my email but not in this post. It is a good question and I can address both at the same time. He says:

      “Tom, one factor that I feel you fail to mention with regard to the construction of gas units is the ongoing retirement of baseload coal and even nuclear units. I see most of this new gas construction more as replacement power than a bet on rebounding demand. Given the comparatively low potential for wind as a resource in the eastern US, and the need for capacity, most of these units should be good bets to recover their investment.

      Now, out in Texas, interestingly enough, a Panda gas plant opened in 2012 has already gone belly up…..because of the thousands of MW of added wind in that market.”

      Rowinguy is correct in saying that the primary reason for the closure of nuclear and coal plants is the current low price of energy from natural gas-fired power plants. But this might create more problems in the long-run.

      Continuation of our 20th century system of large central station power plants has several disadvantages. The units can only be installed in big “lumps” that are not well matched to the small increases in demand we are likely to encounter in the future. Larger units have a higher investment risk than smaller increments that more closely follow load growth. They also require expensive and disruptive transmission lines.

      Perhaps most importantly, large gas-fired plants encourage the perpetuation of cost-of-service regulatory schemes and the incentive to increase load growth.

      Choosing a future based on energy efficiency and renewables does not mean we will abandon our current diversity of fuel supplies. Rather, we will slowly phase them out as they no longer serve us. Slow to respond central station power plants are not compatible with a rapidly responsive 21st century energy system.

      Currently, we are overbuilding new gas-fired plants and causing the premature retirement of coal and nuclear units. It will take about 10-15 years to make a transition to a modern energy system. That is about the remaining life span of many coal and nuclear units.

      From a total greenhouse gas perspective, gas-fired units have the same contribution to climate change as the coal plants they replace. Considering only carbon rather than GHGs gives us a false sense that natural gas-fired plants are actually contributing to the solution. If we let the nukes and coal plants retire on schedule, we would diminish the number of slow-to-respond baseload plants and replace them with energy efficiency. This would avoid the need to build more new gas-fired plants that produce the same climate effects as the coal plants they replace- but for 40 more years.

      We would continue to use the gas-fired plants that exist today for baseload and peakers to cover the variability of renewables.

      New York is using this strategy, even with the expense of subsidizing its nuclear plants, so that they do not have to build new gas-fired units. They do not want the greenhouse gas effects or the exposure to future stranded costs.

      The all-of-the above scenario creates a non-optimum environment for everything. The greater numbers of gas-fired plants are undercut in price by renewables and renewables and energy efficiency are opposed by utilities trying to protect their existing investments. Ratepayers pay much more for this confused approach and investors are at risk as well.

      Choosing to move to a 21st century system allows us to revise the role of utilities and give them a performance based payment system. Removing their incentive to build cuts the risk of stranded costs and allows them to concentrate on building a modern grid, and being well paid for it.

      The existing gas-fired units will be sufficient to meet baseload requirements and maintain grid reliability as greater amounts of renewables, storage and demand response technologies come into the grid. This lowers the cost to ratepayers, environmental costs and creates thousands more jobs than our current approach. A coherent strategy will lay the foundation for innovative new businesses and economic prosperity without environmental damage.

      I would not write-off the possibility of a significant contribution from offshore wind. There is a huge wind resource along the east coast and in the Great Lakes. But, as yet, we have not developed the infrastructure to make use of it economically.

      Allowing the over-building of gas fired generation, even if some is totally at the investors risk, ignores the economic and environmental consequences of this path. We will live with these decisions for 40+ years. It is not sensible to make such long-term choices when we see such dramatic changes from year to year in the declining cost of the alternatives.

      In times of uncertainty, the right approach is to make small incremental choices until the future becomes more predictable. We are making choices out of habit and desire for short-term economic gain with little intelligent consideration of the long term.

      • TomH – I’m puzzled by your comment that we will not see large increases in electric demand in the future. Granted we will likely see significant increases in efficiency – more output per kwh. But if we are on a track to replace many, if not most, gasoline powered vehicles with electric, won’t that cause a major increase in demand? And if we manufacture more and more products with printing-type construction, won’t that increase demand? I don’t see gas-powered computers.

        A decrease in gasoline/diesel will be matched by an increase in electricity consumed. I think we will be using “all of the above” for quite some time.

      • Ha, I wondered what happened to that comment I drafted last night. I tried to edit it to insert a link to a story about the Panda gas plant bankruptcy in Texas and the comment just evaporated

    • TMT, you are correct that would raise antitrust concerns. And countering that, the FERC requires that all transmission owners set out their rates for transmission services in a published tariff, for non- discriminatory use by all similarly situated customers. For this purpose Dominion and Panda as generators, and Dominion and REC as LSEs, are similarly situated. You know well enough what a common carrier obligation means.

      All the transmission owners in PJM were required, when they joined PJM, to grant all generators and all LSEs in PJM the same privileges to use what is called “network service” to deliver electric energy anywhere in PJM. Generators basically pay nothing for transmission; LSEs pay the average-embedded-cost transmission rate to the transmission owner to which their retail load(s) are attached based on the peak amount they consumed last year.

  6. well.. I don’t even know if that’s how it works… i.e. independent producers paying the utility that owns the infrastructure to move that electricity on their infrastructure. It’s certainly an additional cost to the generation cost and on my bill – I see separate charges for production and “delivery”.

    I’m sure that Dominion would discount that cost to their own power.. and charge more for others… is that an “anti-trust” issue or is it not the charge but how much over some amount that in some folks minds it ought to be?

    I also suspect , despite words to the contrary that proximity and distance are also issues.. it’s been talked around her in terms of “reliability” and points along the grid that could not handle “more” without being upgraded.

    Both Panda and Dominion would like to sell us a high-priced “spread” with a better profit margin and that means they’d both choose gas over solar…

    but we’re told solar can’t work because it’s “not reliable” and “too much’ of it will “destabilize the grid… well that sounds like the grid itself can’t handle too much of ANY kind of power regardless of how it is generated.

    • The generators don’t pay anyone to move their power. They only sell a specific amount of energy, at a price that varies throughout the day, to PJM.

      When PJM sells the power at wholesale to the entity actually serving the customer, proximity is an issue and is accounted for by the locational marginal pricing. PJM charges the various wholesale buyers for the use of specific transmission and pays the owners of the transmission lines for the amount their lines were used.

      Gas does not have a better profit margin than solar. Solar generates during the intermediate and peak load periods of the day when the clearing prices are the highest. A gas-fired plant operating during the same time of day would receive the same clearing price for its energy during this period.

      When the sun goes down, the solar facility will stop generating and stop getting paid. Assuming the gas plant continues to operate, it will get paid paid but at the lower clearing prices available during the night.

      The gas-fired plant will obtain higher revenues because it will run many more hours than the solar facility, but it will have a lower profit margin per kWh because it will get paid less for its nighttime generation. The gas-fired plant also receives a daily capacity payment for being available to be dispatched, renewable facilities do not.

      Portions of the grid can be become unstable because of over- or under-supplies of electricity. That is why the grid needs to be expanded to serve greater loads and to be upgraded to handle two-way flows of energy from distributed generation.

    • ” I see separate charges for production and “delivery”.” “Delivery” to an LSE like REC, your retail supplier, is the sum of (1) the transmission charge for PJM network service, and (2) the distribution charge for the LSE’s distribution system. These are usually combined on the retail customers bill and sometimes called the “wires charge.”

      “I’m sure that Dominion would discount that [delivery] cost to their own power.. and charge more for others…” NO!! One of the most basic things about utility regulation in this Country is that the utility has to charge those receiving the same service the same rate, and that​ rate has to be “filed” with the regulatory commission (available for public inspection). Dominion has to charge its executives the same retail electric rates as all non- employees and other customers; likewise, Dominion has to charge itself the same as REC for the use of its transmission system. All these transactions take place under filed rates.

      “Both Panda and Dominion would like to sell us a high-priced “spread” with a better profit margin and that means they’d both choose gas over solar…”. They are businesses. They estimate a profit margin tomorrow, and they estimate a profit margin over 40 years or so, the life of the investment. Maybe they figure they’ll make enough in 10 years to not care whether they scrap the unit or keep it around on spec for the next 30 or so. Maybe they figure profit over 40 years based on assumptions that are simply wrong. But yes, they have chosen gas over solar. But has it occurred to you, just as you argue elsewhere, a lot of solar demands a lot of cycling gas, and maybe they are both focused on supplying the cycling power figuring the competition to supply solar is too hot right now and they understand gas gen better? Running a business requires some decisions based on the gut. Anyway, it’s certainly not a conspiracy against solar. I agree with TomH, the wave of the future is distributed solar with grid based backup sources including batteries — but that’s a long way off — maybe a generating unit’s lifetime off.

  7. thanks Tom, much appreciated…. I’m sure others are also benefiting from your knowledge you’re sharing!

  8. I want to thank Acbar for his more complete knowledge of PJM operations than I have.

    I also want to acknowledge that what I propose is not in the mainstream of current energy policy. However, significant changes occur first at the edges. They gradually take hold until a tipping point is reached, then things change dramatically.

    I am making these points because I care about utilities, their shareholders and customers. I see hazards ahead and I am trying to get other people to look at these issues in a new way. This industry must work with longer lead times than are typical for other sectors and the choices are harder to change.

    The automobile industry is facing a similar sea change. Many people see electric vehicles as just another option for driving a car. In the early 2020s, a tipping point will be reached when autonomous driving becomes legal and the industry will rapidly transform into transportation-as-a-service providers. The usage of a single vehicle will become 10 times higher and manufacturers, dealers, mechanics, financiers, insurance companies, and Big Oil will be turned on their head.

    The nature of systems is that these changes usually happen rapidly and except for a few, the likelihood of change is apparent to most only in hindsight.

    I see a similar transformation occurring in the electricity sector in about the same time frame. I am speaking out, hoping to learn from others, so that together we can chart a more optimum course for the future. This industry has 100 hundred years of habit as momentum and will be as hard to turn as a supertanker. New federal policymakers seem poised to throw us even farther back into the past.

    • Ditto. And you, LarryG, although you can drive folks crazy with “dumb” questions, have the persistence to dig for answers that a glib passing reference or a “PC” brushoff won’t get in a forum like this. But now that you have absorbed a few (of what I hope are) correct answers about PJM etc., join us in educating others.

      I still think the greatest oversimplification is to dismiss people for assumed motives and biases they don’t really have. The electric utility industry really does have a strong public service component to it; the folks who do their stuff there are just as sensitive as the military and VDOT and your local fire department to unwarranted criticism — not that they don’t deserve it too at times. You may think they’ve reached some wrong conclusions over at Dominion, but rarely is it a matter of bad faith, or of doing something they really think will hurt the public in the long run. What TomH is doing is trying to respond to them at a level of detail and in a regulated medium they will understand and respect. We should all wish him well, and join him in asking both the regulators and the utilities we deal with to pay better attention to renewables and the other Grid changes coming at us so fast! Dominion’s recent rebranding effort suggests that message is sinking in.

    • I don’t think we are as close to transportation as a service as you suggest. Even assuming a robust 5G network build-out – which won’t happen anywhere except in dense urban areas and along restricted access highways, I don’t think we will have the network control software system complex enough to handle the job. Despite living in the highest networked area in the world, VDOT cannot even time stoplights effectively enough to more traffic into, out of and around Tysons. Heck the planned road and transit improvements for Tysons won’t all be in place until 2040-50. And it’s not alone. Most cities cannot move traffic efficiently. WMATA cannot operate Metrorail safely and on time.

      Also, we will face a transportation fleet that is mixed from old vehicles from the 20th Century to smarter vehicles from this decade. How do you operate self-driving vehicles in this environment? I can see some limited development in certain dense urban areas. But most of them have transit. I’m still going to take the Subway in NYC. Maybe a driverless cab. I think we are generations away from transportation as a service, especially when you consider the feeling of freedom that driving a car brings- except in rush traffic.

      • Once the hardware/software autonomous driving systems for the car is approved, the phone apps we use to hail a ride today will be sufficient.
        No 5G or sophisticated network will be required. The car will do all of the work. They will come and pick you up and deliver you safely to your destination whether they are surrounded by old “dumb” cars or some new “smart” ones. The lidar and vision systems detect any type of obstacle and safely avoid it.

        There will be a mix of services like Uber and Lyft. Car manufacturers will enter the fray too. Transportation services are a big part of Ford’s future business plan, and GM’s too. Tesla is offering owners of its cars access to an app that will let them gain income from offering their vehicles for use by Tesla to dispatch, with an income sharing agreement.

        I agree this will be used first and most in dense urban areas. Even in the early days, transportation-as-a-service (TaaS) will reduce the number of cars on the road and in parking lots. It will probably be used a small to moderate amount in smaller towns for commuting and by those who cannot afford cars. And not much in rural areas.

        I suspect that many two car families will soon own just one car for longer trips and family jaunts and use TaaS for commuting and errands where it is tough to park.

        These driverless cabs will be used in conjunction with updated transit systems to deal with the first-mile, last-mile problems that currently reduce transit use.

        Many people will enjoy the freedom of getting work done on the way to work or relaxing rather than experiencing the tension of rush hour traffic. People think having a driver and a limousine is a big deal. In the future, the car might not be as big, but the ease of taking your mind off the road will be the same.

  9. okay! so now how about the answer to distributed solar?

    is it connected to the grid and the grid receives whatever it generates and the utilities have to react or is solar connected/disconnected from the grid per some process?


  10. Distributed solar is by definition connected to the distribution grid, not directly connected to the transmission grid. Some “utility grade” solar will be interconnected at transmission voltages.

    Any power produced by the distributed solar facility that is not “sunk,” i.e., physically consumed, on the distribution circuit to which it is connected will eventually flow into the grid. This is an early harbinger of the “two-way”
    power system that Tom keeps describing. The grid operator (not individual utilities) will have to react to fluctuations in solar output during the day from solar units that increase in output as the sun rises higher and then decrease as it sets, or as clouds pass over. In PJM these power fluctuations are very manageable, but the story is more complicated in California and Texas.

    There are also certain distribution circuits that would need to be upgraded to handle power flowing the “wrong way” from solar on the distribution circuit back into the grid and not the other way around.

  11. okay so the interesting thing is that say someone fired up a 1000 mw gas turbine without clearing it with PJM.. there would be likely consequences for doing that.

    but in effect, if someone installs 1000 mw of solar – then that would have a similar impact to the grid – and how was it coordinated with PJM?

    does every install solar site have to be identified and known to PJM so they can coordinate? How does PJM at any point in time know what percent of output is coming from the 1000 mw – nameplate? is it 70% or 30%.. how would PJM know how much to compensate for?

    You wouldn’t fire up gas turbines willy nilly without PJM, right?

    but you would do solar that way?

    • It would not be possible to install 1000 MW of any sort of generation without approval from PJM to interconnect to the grid. Generation developers pay plenty to fund the interconnection studies needed to manage transmission grid upgrades necessary to accommodate their interconnection.

      And you are correct that there would be serious economic consequences for any generator to “fire up” a unit that had not been selected in the PJM auction process. In fact, it may not even be physically possible, as I believe PJM itself control the physical dispatch of all generation attached to its grid.

  12. Not sure why this story is a big deal. Merchant gas plants have been going up for years. In Pennsylvania, there are something like 50 on the board and working to get permits.

    Many are in the Mid-Atlantic to take advantage of Marcellus and Utica shale gas.

    But it does seem that these schemes have overcapacity written all over them — something not really mentioned in the press release, errr. story

  13. we actually have a merchant COAL plant just east of Fredericksburg.. and from the conversation here – it sounds like it could take days to come online..so I always thought it was up to Dominion to dispatch it but now it sounds like PJM… so if a plant is down but can be called up I wonder how they handle that in an auction… if it cannot be delivered until 2-3 days after the bidding on it.. I guess it is for planned shutdowns of other plants for maintenance or repairs… but I then one might wonder is a 24/7 coal plant more expensive to run than a 24/7 gas plant or for that matter solar during the day and gas plant at night.

    In this kind of environment where you have hundreds of plants in the region and each one capable of having it’s power purchased – at a specified time – by anyone else in the region – with caveats for proximity and places where there are infrastructure restrictions.. it is one complicated beast …

    take any single utility’s job of trying to keep up with the dynamic real time environment in it’s own service area – and multiple that times as many utilities there are in PJM..

    but I still wonder if someone has a 1000 mw solar facility if it is “dispatchable” (when it is available) and essentially can sit idle if there is no need for it.. as opposed to it feeding into the grid 24/7.

    surely at some point there will be more than enough solar in some places than the grid can handle – maybe that 30% number tossed around but that is an overall number in general and I suspect when you get down to sub-regions – it’s a more complex circumstance.

    For instance, a big solar farm right now to a big coal or nuke plant would not seem to “work” since neither coal nor nukes can modulate in response to solar.. i.e. you’d still need gas somewhere in the region to pick up where solar dropped.. while the coal/nuke continued to run 24/7 for baseload.

  14. TomH and Acbar, thanks for your clinics on how PJM dispatches electric power. They have helped clarify my understanding, such as it was.

    If I understand correctly, here’s what’s going on. Because solar and wind use a zero-cost energy source, they can underbid coal, nuclear and natural gas in PJM auctions. They can sell every kilowatt of electricity they generate. Given the way PJM structures its auctions, as more wind/solar is built, renewables will automatically cut into the market share of other energy sources. As coal/nuclear/gas plants lose market share, older, less efficient plants based on conventional fuels will be rendered uneconomical, and their owners will shut them down. (Either that, or states will have to subsidize them to keep them operating).

    At some point, the loss of coal/nuclear/gas capacity becomes a problem because solar is not dispatchable. The system needs to maintain significant dispatchable capacity to function reliably 100% of the time, not just 98% of the time or 99% of the time. If there is excess solar/wind in the system, someone must subsidize the backup.

    I realize that we are far from that situation in Virginia right now. But we’re talking about what kind of electric grid we want 20 to 30 years from now. What if the McAuliffe administration adopts the carbon-cap scenario for Virginia air regulation, as the environmental lobby wishes? And what if environmentalists scuttle the rehab of the Surry and North Anna nuclear units and block construction of the insanely expensive North Anna 3? What will that leave Virginia? Wind, solar and natural gas (with tiny bits of biomass and hydro in the mix). You can talk about upgrading to a smart grid and using battery storage, and that might work 99% of the time. But what happens the 1% of the time when another polar vortex strikes, or a hurricane blots out the sun for five days running?

    • JB, you are correct, this is a good summary, and I will try to answer your last paragraph when I get the chance later today.

      LarryG, you ask, “I still wonder if someone has a 1000 mw solar facility if it is “dispatchable” (when it is available) and essentially can sit idle if there is no need for it.. as opposed to it feeding into the grid 24/7.” No. But there are several things going on here.

      1. ALL generation on the grid has communications links to PJM to tell PJM what is actually being generated where. [There is a carveout for very small behind-the-meter distributed solar, as set out in Dominion’s tariff, to cut down on the cost of interconnections — but this is only for very small units.]

      2. Dispatchable simply means the generator is under local operator control and can adjust output as ordered by PJM. In an emergency, PJM can order the generator, or a section of the grid containing that generator, isolated through transmission switching. Dominion or REC may actually control these switches and operate them on orders from PJM; they have satellite control centers in close communications with PJM’s master control center.

      3. There are two kinds of dispatch. 3a. There is dispatch for economics. Solar is rarely dispatched off for economics because its marginal cost is zero — theoretically, if there were more zero-cost generation than the total load and there was nothing else to do with it like pump water uphill or charge batteries, some of it could be dispatched off or “dumped,” but that’s not in the cards today. 3b. There is dispatch for system control, particularly in an emergency. Solar MAY be dispatched off if there’s a local transmission or distribution overload, which is an emergency as far as the system operator is concerned.

      4. So does solar “sit idle when there’s no need for it?” No, unless it is dispatched off (or disconnected by remote switching control), it generates what it generates and doesn’t when it doesn’t. The PJM system operator has to deal with those fluctuations. Envision it this way: the operator is looking at the balance on the entire PJM system between generation and load, including flows into and out of PJM on transmission connections with other grids. If the total of all that demand rises above the total of all that generation, the a/c frequency of the system falls slightly below 60 Hz; the operator responds by increasing generation ever so slightly until the system frequency increases back up to where it ought to be. The system is “dynamic” — the load and the generation is constantly fluctuating a little. On the scale of PJM as a whole, one 1 mw distributed solar unit ceasing its output when a cloud goes overhead is “lost in the noise.”

      5. FYI, utility scale solar gen is 10-40 mw, whereas distributed solar is in the 1-5 mw range. The largest nuclear units are in the 1000 mw range — a 1000 mw solar plant would be the largest in the world. Dominion’s entire load peaks around 15,000 mw so let’s keep the size of an individual solar unit in perspective.

    • Jim, one further thing: the annual reliability criteria are not waivable; an LSE that does NOT bring sufficient generating capacity to the PJM table is reported to the FERC and will be ordered by the FERC to comply or be kicked off the PJM grid. But what does this mean to the LSE? Well, it must find sufficient generation on the PJM grid (or, to a limited extent, outside PJM but importable over transmission from elsewhere). What if there isn’t enough for sale? Well, there is a long-term capacity market in PJM and the price will get bid up in that market higher and higher until something gives. Maybe a generation owner in Texas decides, at THAT price he’ll truck a small diesel unit or two to Kentucky and sell its capacity inside PJM at an outrageous premium. But this doesn’t happen overnight or in a vacuum — there is a market for capacity deliverable several years out that developers can submit offers in, with time to build if the offer is accepted.

      I don’t want to get too far into the weeds, but this is why “energy” and “capacity” are two different commodity markets. An independent generator like Panda sells in both markets. He sells his capacity to an LSE in the next-year or long term PJM capacity markets, and, he sells his energy in real time in the PJM energy market. He controls how often his unit is dispatched in the energy market by what he bids as the price to dispatch it. He has to decide at what price he can run and make money (generally, he will bid to be dispatched whenever the energy market “running rate” rises above his marginal cost to operate). He gets paid the running rate as that rate varies above his bid from time to time, and gets dispatched off when the running rate drops below his bid. Dominion’s energy is sold the same way; obviously Dominion already owns its own capacity.

      It’s a nice economic arrangement for all concerned.

    • Many are saying that if we invest in more renewable generation that leads to the uneconomic performance of conventional units, we will not be able to meet our minimum nighttime loads (the base load). This is probably a scare tactic and reflects an incomplete understanding of where the grid is headed. We have an abundance of capacity. PJM currently has capacity that is 28.85% in excess of peak load. Their stated reserve capacity is 16.4% (although I have seen 17.5%). This leaves PJM with 17,800 MW of capacity beyond what is needed to meet reserve requirements. This is hardly a situation that would threaten reliability if we had more renewables, and it does not consider the massive amounts of new gas-fired capacity in the queue.

      The problem is that we do not have enough flexible capacity, which is what the future grid will desperately need. This is why continuing to promote the continued addition of new coal, nuclear, and to some extent gas-fired combined cycle units, does not make sense.

      It is possible that our entire market will be turned on its head. The energy market might become the cheapest during the daytime when a large percentage of renewables handle the load. Variations would be handled mostly by low-cost demand response rather than expensive peakers. Dealing with the nighttime load might become more valuable so that gas-fired units could run less often and earn more money.

      Virginia’s pumped storage plant would be pumped up during the day with low cost solar and discharged during the more expensive nighttime load. This would incentivize electric vehicles to be charged during the day, acting as controllable but cheap storage batteries. They could be discharged into their homes or the grid at night when their value might be the highest. We might even design low-cost thermal storage for nighttime heating and cooling that would reduce the need for electricity.

      Old conventional plants could earn money for being available during those 5 days without sunlight.

      There will be all sorts of possibilities that we have not yet considered. But we need to let go of all of the special interests and design a system that makes sense for everybody. Keeping our demand stable or declining will be an important part of that.

  15. Keep in mind many Northeast states (VA, MD, NY, NJ, New England states) historically import much electricity (from PA, WV, and Canada) and do not have too many in-state power plants. As coal declines and natural gas advances, VA is finding itself potentially getting more generation within our own state boundaries. This is an anathema for some who feel VA must reduce not increase CO2 emissions.

    But if we take a look at the bigger PJM regional picture, then CO2 is going down as coal power declines. We can also see the vast wind corridor PA thru WV getting many (thousands?) of wind turbines. So we need to look at the bigger regional picture, and recognize VA has a certain role based on our geographic setting.

    • Yes, this is correct. Your point, incidentally illustrates how foolish it is to regulate carbon emissions State by State when the “local” (PJM) electric grid already covers 13 States — except, given the choices left to the States by federal law and under the CPP, it had to be done State by State. Yes, we can’t escape the role of geography, particularly as to renewables generation.

      • Acbar, as you may know, Delaware, Maryland, and D.C. are members of RGGI, and New Jersey was originally a member until Gov. Christie decided to opt out. These are 4 of the original jurisdictions in PJM. There are also states in PJM that have deregulated generation and those like Virginia that have not. I agree that state by state regulation of GHG is infeasible, but it appears that it can be done at least to some extent regionally. PJM is I believe lobbying hard for each of its member states to approve a “carbon adder,” given the efforts of states such as Illinois, Ohio and Pennsylvania to enact various forms of support for the nuclear units in their states. Maryland and New Jersey tried to support instate generation construction but were successfully sued in federal courts by the independent power producers, PJM and others. The nuclear support mechanisms will undoubtedly face similar legal challenges.

        These adders are viewed as disruptive of the workings of the wholesale capacity and energy markets to send a proper price signal to the market regarding new unit construction and disruptive of the federal oversight of the wholesale interstate electricity markets as well.

        • Yes, I think RGGI was and is a good idea, and I know PJM has wrestled with how to accommodate it. There are, of course, lots of reasons why a particular generating unit has to operate with certain restrictions that are jurisdictional requirements or even unique restrictions. Some were conditions of licensing the plant; some are land use related; some are State policies; some are federal air or water requirements — etc. Of course anything that interferes with a unit’s ability to bid in the energy market can be viewed as a restriction on the energy market — though, personally, I think siting and land use and emissions restrictions are traditional areas of State interest that the FERC has stayed away from for common-sense political as well as jurisdictional reasons. . . . That said, the Court’s decision upholding FERC jurisdiction over sales from distribution customers into the wholesale energy market surprised me.

  16. I don’t think that environmentalists will scuttle the rehab of Surrey and North Anna or North Anna 3. I think that will be done by economics alone. A recent article from Yale notes that even nuclear enthusiasts believe the industry might be in its death throes.

    Except for China, most nations are moving away from nuclear (Britain is still hanging in a bit). Westinghouse is going bankrupt because of problems with its newest reactor design, the AP1000. The fallout is jeopardizing its parent company Toshiba in Japan so that it might not continue as a going concern. EDF, France’s and Europe’s biggest builder and operator of nuclear plants, is deep in debt because of its own technical mistakes. EDF’s latest plant is six years behind schedule and three times over budget.

    In the U.S., gas and renewables get cheaper, while the price of renewables only rises. TEPCO has no way of paying the more than $180 billion it has cost so far to deal with Fukushima. That accident caused Germany to decide to shut down its reactors by 2022. At one time these units generated 22% of Germany’s electricity. Siemans announced its exit from the nuclear industry.
    France, perhaps the nation most committed to nuclear, is cutting nuclear’s share of generation from 75% to 50% by 2025, with the gap to be filled by renewables.

    Based on the experience in Georgia and South Carolina, it does not look like anyone could make a legitimate economic argument to build a new unit. The retrofits for Surrey and North Anna are still a question. I think it is unlikely that plants designed to run for 40 years will be licensed to operate for 80 years without significant upgrades. These are likely to be expensive. Replacing the generation of these units with energy efficiency could be done at a fraction of the cost and in far less time than it would take to do the retrofits. Without changes to way Dominion is compensated, this would be a significant blow to its revenues. We need to explore alternative regulatory policies before we could make a decision that is fair to both the ratepayers and the shareholders.

    You are right to question how we maintain a reliable grid under any circumstances. Some people fear that with greater amounts of generation from renewables and a higher dependence on natural gas, our generating mix is getting less diverse. Actually diversity is increasing. Just 10 years ago, 50% of the nation’s electricity was generated from coal. Advocates for coal say that having a store of fuel in a pile on site aids reliability. But coal piles froze during the polar vortex and contributed to the problem of insufficient capacity. Coal now contributes about 30% of electricity generation, a close second behind natural gas. Those percentages might shift as natural gas prices rise.

  17. Jim,
    Solar and wind do not participate in the same auction as coal, nuclear and natural gas. However, their contribution of energy reduces the need for the conventional units to operate. You are correct about the economic consequences of operating less and the market distortion of state subsidies.

    “If there is excess solar/wind in the system, someone must subsidize the backup.”

    I don’t think a subsidy is necessarily required. It also depends on the definition of “excess”. Even in the states with the highest penetrations, renewables do not generate more than the system demand. They do sometimes generate enough so that conventional units might have to cut back on their output. If you are the owner of a conventional unit that is now operating less, you might consider it “excess”. But a customer, who now enjoys a lower cost of energy, might consider it to be just fine.

    The two areas where this is now occurring, California and Texas, are experiencing it partly because they are not well connected to larger geographic areas. ERCOT, the Texas ISO, is not part of the Eastern or the Western Interconnection. They stand by themselves and the lack of greater connections often requires generators to sell below their cost of production in order to keep operating.

    California has a somewhat similar problem. If they were properly integrated with the Northwest ISO, the excess solar production could be coordinated ahead of time with the hydro releases in the Northwest to maintain adequate stream flow for the fish and utilize the excess California output in the daytime and release more of the hydro to California in the evening as the sun goes down. This would be a better utilization of resources and would keep everyone’s prices down. This is a human problem of system design, not an inherent disadvantage of renewables.

    I’m not sure what policies will come forth from the Governor’s order. You have heard my opinion that by only considering carbon it does not fully recognize the GHG effects of natural gas-fired power plants. To have a state-wide carbon control program, you would have to also consider transportation and other uses of fossil fuels. As electric vehicles become a larger percentage of the fleet that could contribute to lowering carbon emissions depending on how the electricity is generated.

    If Virginia desires to deal with climate issues, the state might be better served by joining the Regional Greenhouse Gas Initiative (RGGI), a consortium of several states that has developed policies to reduce activities that contribute to climate change.

  18. Good Conversation but I still disagree with the idea that solar needs “subsidized backup”.

    Solar is an option to use when it is available but by definition there will be periods of time when none is available and those periods will require other fuels.

    that would the the very same situation as if there were NO SOLAR at all – you’d need X amount of baseload and Y amount of peak generation to meet demand when it exceeded baseload.

    The only thing that solar does – is – it can replace peak load – WHEN IT IS AVAILABLE.

    there is no “extra” generation or power plants needed… you need all the baseload and peak load to start with.

    The question is why would you burn gas for baseload during those periods when solar was available? Why would you build gas plants that could not decrease their output when solar was available?

    The modern combined-cycle gas turbines can be used for both baseload and peakload… so there is no conflict and again you’re not building an extra plants in order to use solar.. you need all the plants to meet demand when there is no solar anyhow.. but you don’t need MORE plants…

    the only difference is that your current plants – CAN IDLE .. when solar is available. SOLAR just saves burning gas – which is GOOD because not only is it cheaper but gas is a serious greenhouse gas contributor.

    Now take all this back to PJM… If it is a sunny day … anyone who is generating solar is going to be able to provide power – cheaper than gas.

    Why would any utility with a gas plant – choose to run it – at a higher cost than if they could “burn” solar instead?

    So .. I think you’re going to see gas plants throughout the PJM region … as well as solar .. and when solar is available – they’ll use it and idle the gas plants when they do. As soon as solar goes away- they’ll fire up the gas plants again.. and will be saving money for as long as they were able to use the solar and not the gas..

    None of this has anything to do with nuclear or coal.. because it takes hours/days/weeks for them to modulate.. and therefore impossible to run in tandem with solar.

    The key to solar – is gas… sometime maybe storage but until then – it’s gas.

    • Right! That is where we are, and where we will remain for a while. The gamble for someone investing in yet another gas generator is, will it be dispatched enough to pay for itself? How much of the financing of the cost of construction can be paid off quickly (in the first 10 years or so) before that much solar is built? If it’s the cheapest gas unit on the grid, it will probably run most of the time. If its marginal cost is higher, it will be dispatched off except at night. Is running only at night by itself profitable, given the energy market prices that are available at night on a future grid that’s mostly nuclear and gas units at night? How much more will the occasional system emergency contribute to profits? How much can be made just by selling the capacity value of the unit even if it rarely runs? This is what the Panda investors are thinking about.

  19. Jim Bacon, for the second time, I tried today to post a comment/answer to your fourth-paragraph-above posted question and WordPress “ate” it. Perhaps you received it anyway? For now, just accept, there is an answer.

  20. re: what Dominion wants versus what PJM is doing – with regard to solar .

    so it appears that DOminion and the electric co-operatives in Virginia will be presented with the option of buying solar when it is available – instead of burning gas…

    .. and when solar is not available – to buy gas-generated power from PJM and Dominion the ability to offer gas-generated power to the PJM auctions.

    So whatever arrangement Dominion has with the Va GA regarding solar, and 3rd party solar – it effectively does not control the ability of the independent electric cooperatives to buy solar from PJM no matter what Dominion is doing.

    In other words – what PJM does with regard to solar is going to supersede whatever Dominion and Virginia do… unless there are provisions in the Virginia code that prohibit the electric cooperatives from purchasing solar from PJM when it is available.

    If it works that way then we’d have the potential of customers of the cooperatives paying less for electricity than the customers of Dominion if Dominion chooses to essentially generate power from it’s new baseload gas plants to PJM and buy it back itself to sell to it’s own customers rather than purchase solar other states generators from PJM when available.

    what have I got wrong in the above logic?

    • The fundamental flaw in what you have described is that no one buys “solar” or “gas” from PJM. They purchase wholesale electricity whose price is set by the marginal price in the market. Solar helps to lower that price by displacing more expensive units that normally serve the intermediate and peak loads.

      But you make a good point. That point was made to the SCC in last year’s IRP hearing. Dominion was arbitrarily constraining their purchases from PJM in order for their model to identify that a new gas-fired plant was needed. With the surplus in generation within PJM growing with more new combined cycle plants in the PJM queue, prices of purchased energy are likely to get cheaper. Greater penetration of renewables in the PJM system will also lower the price.

      Building more new gas-fired plants in Virginia at this time will only increase rates through RACs. They do not appear to be necessary to meet an unsubstantiated increase in demand. But Dominion wants to build more because it increases their revenues.

      This is why we need to modernize our regulatory policies to harmonize the interests of the shareholders with the interests of the ratepayers.

      • Yes, yes, your first paragraph is exactly the point. Dominion can build solar or not; it has no control whatsoever over what REC buys.

        There are two PJM markets here: generating capacity, and energy.

        Capacity is bought annually, and every LSE (Dominion and REC are both LSEs) must have enough capacity (owned or under contract) to meet its forecast peak load plus PJM’s reserve margin (around 13%). REC buys its capacity from ODEC so that’s under contract. Dominion owns all of the capacity it needs for its LSE function. There are other LSEs in PJM which need to buy capacity from 3d parties and those are Panda’s capacity market.

        Energy, in contrast, is bought as needed, what’s called “requirements service,” implicitly, simply measured as the sum of all deliveries to all of that LSE’s retail customers from the grid. This energy comes from all the commingled resources of PJM; it does NOT come from specific resources, and certainly does NOT come just from those generating resources being claimed as “capacity” above. Rather, it comes from those resources dispatched by PJM because they bid low enough in the day-ahead market auction to run the next day. PJM may or may not dispatch Dominion’s resources, or ODEC’s, or Panda, depending entirely on how high they bid. [Of course generation owners can’t bid too low or then they will be required to run at a loss; and they can’t bid too high or they won’t get to run at all; it turns out the usual best bid is approximately equal to the marginal cost to fuel and operate the generator, but that’s up to the owner to decide]. The owner is paid the marginal market price from time to time for sales to the market — which may rise substantially higher than the bid price while the owner’s unit is being dispatched — any amount paid higher than the owner’s bid is “gravy.” The LSE is charged the same marginal market price as it varies from time to time.

        Now, what Dominion-the-LSE will buy is capacity at whatever internal price is fixed by Dominion as a charge to its LSE’s retail ratepayers; and it will buy energy at PJM’s market price. Why would it go to the SCC and forecast its need for new generation and the economics for new gas units by modeling its system as though supplied ENTIRELY from its own generating capacity? That’s not only wrong as a forecast of the future, it’s not the way things are working right now, today. Today, Dominion as a stand-alone system isolated from the rest of PJM (and dependent solely on its own generation) does not exist!

        I fault the SCC for letting Dominion get away with that erroneous representation of reality.

        • Dominion did not include any arbitrary constraints on purchases in this year’s IRP. Which might be part of the reason they dropped one of the two combined cycle plants and added much more solar.

  21. well the fact that Panda , an independent producer using investor money “thinks” they can build a base-load gas plant and make money at it – is not that different than Dominions view .. but if more and more solar is built – and then offered via PJM at prices below not only coal but also gas.. then what is the strategy?

    Does Panda as well as Dominion think their plants will be in demand after the sun goes down and or rainy days?

    Are newer combined-cycle gas plants more efficient than older ones and thus they can provide power cheaper than older gas plants?

    that, actually would not surprise me.

    • Yes, that is exactly right. The industry knows that the price of gas is likely to go up, so the manufacturers are continually researching ways to make slight improvements in efficiency. That is why Dominion advertises its Greensville plant as the most efficient in the world. They will be buying the latest model combined cycle plant. But so will many other generators.

      If the price of gas goes up too much, coal becomes more competitive and more coal plants will run 24 hours a day.

      I would guess that the independent power producers expect that their new combined cycle units will have an annual capacity factor of 70-85% with a financial breakeven in the neighborhood of 60%.

      The challenge with greater amounts of solar is that large contributions from solar during the day could totally fulfill the peak and intermediate loads and cut into the baseload requirements (as is happening in California). The nuclear and coal plants cannot respond quickly enough, so it is left to the combined cycle units to curtail their output, perhaps by just running the combustion turbines and not the steam generator, or by going into spinning reserve or shutting down entirely. In any case, this reduces their revenues and can increase maintenance expenses from less than optimal operation.

  22. This last comment TomH is extremely relevant in these discussions.

    ” greater amounts of solar is that large contributions from solar during the day could totally fulfill the peak and intermediate loads and cut into the baseload requirements”

    if this happens – then it would seem the utilities have a dilemma since solar is not compatible with coal/nuke baseload.. and if BOTH are “running” and in excess of demand – then either solar or baseload will have to idle (spin).

    I don’t see that as that big a problem as long as the utilities do not cut their coal/nukes below the level than the gas plants can pick up if solar drops.

    that’s not a “fatal flaw” of Solar as Bacon sometimes seems to imply when using California as an example of relying too much on solar… that’s more of a logistics issue with the utility not planning adequately for what happens ANYTIME generation capacity falls below demand.

    That’s even less of a problem in the PJM region where availability of additional power is much more assured than in California where the sharing region is larger with fewer generators.

    This is why I continue to assert that SOLAR is all about GAS until and unless we get utility scale storage.

    As long as you have enough GAS plants to pick up – 100% of the demand over your coal/nuke baseload… you are fine… and it also means you are free to use as much SOLAR as you have GAS… but that you don’t reduce coal/nuke baseload below the point that GAS can cover the gap… that’s just not smart.

    the day will come when there is so much solar available that it will be tempting to reduce nuke/coal and gamble that you won’t lose more solar than you have gas to cover… but again – that’s just not smart… and I’m quite sure that NERC and PJM would not find it smart either.

  23. You are on the right track here. Virginia’s generators that serve the baseload are nuclear, coal, and gas-fired combined cycle units.

    Some of the output of these generators is used to pump up the pumped storage facility at night for use during the next day’s peak. This helps the coal and nuclear plants run 24 hours per day and, even with the loss of efficiency pumping the water up, the difference in peak load pricing makes it worthwhile.

    As more and more solar comes into the market in PJM, the daytime wholesale prices will decline. This lowers the revenues to all generators, but especially to solar units because it is the only time they can generate.

    Solar and wind might contribute enough at some point in PJM so that renewables begin to displace some of the capacity serving the baseload. If this occurred during the shoulder seasons (fall and spring) when baseload demand is the lowest, there could be days when mostly coal and nuclear units are serving the baseload demand. If solar input was high enough to supply all of the peak and intermediate demand, any excess would cut into the need for the coal and nuclear units and they would not be able to vary their output rapidly enough to deal with it. Probably output from the solar units would have to be shed on these occasions which would penalize the ratepayers or PJM could export energy to other ISOs and keep everyone running.

    That is why our future grid will value flexible generation and why I recommend that no new coal or nuclear units should be built (among other reasons). Over the next 15 years coal and nuclear units could be replaced by energy efficiency as they retire. This would provide a much lower cost substitute, with no emissions and high reliability. Depending on the efficiency project it also might reduce some of the peak load requirements as well.

    We have time to figure this out. There is such a surplus of generation in PJM, we have no issue with reliability for some time if we don’t build anything new (although many want to).

    There are so many competing interests for subsidies and special policies it will be hard for our politicians and policymakers to retrain themselves from disrupting the markets that are emerging to help decide what comes next.

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