A digital roundtable with four senior members of diverse generating companies reveals that regulations aren’t the top concern at the moment. Instead, decisions are being driven both by customer desires and by the costs and advantages of the latest technologies.
In late November, the four current members of POWER’s Generating Company Advisory Team—whose companies vary by geography, ownership, size, fleet, and market—responded to a set of emailed questions. Their responses reflect those differences as well as similarities in addressing industrywide trends. Participant titles and brief company descriptions can be found in the sidebars. POWER greatly appreciates all the members who took the time to participate and share their perspectives for this article.
A new president takes office in January for the first time in eight years. What effect do you anticipate the results of the November election will have on your company in particular and on the U.S. power generation sector generally in the near term?
Bill Alkema, Salt River Project (SRP): Although it is really too early to tell what the new administration will bring, now that we know who the president-elect is, we should anticipate a less-aggressive regulatory environment affecting our fossil fleet. We are not making major changes in our course until more is known.
Steven H. Mills, Xcel Energy: Xcel Energy will continue to pursue energy and environmental strategies that appeal to policymakers across the political spectrum because we focus on renewable and other infrastructure projects that reduce carbon emissions without increasing prices or sacrificing reliability. We will continue to work with policymakers at all levels of government and other stakeholders to develop and implement energy policies that benefit our residential and business customers, as well as our communities.
Mark McCullough, American Electric Power (AEP): I don’t believe we will see any large impacts in the near term. Most of the regulatory issues we have been dealing with now are firmly in place. AEP is in the midst of an important transition to support a cleaner energy economy. We are transforming the transmission grid to be responsive to new generation resources and technologies, while at the same time balancing our company’s resource portfolio to provide new, cleaner energy and technology options for our customers. That will not change with a change in the administration.
Sarah Orban Salati, AES: AES is focused on growth opportunities leveraging the technological transformation in our industry. As a company, we have not historically relied on regulation and government incentives (or lack thereof) to find the right solutions to solve energy-related problems and help our customers innovate. We see three major opportunities for innovation in the near term: building a clean, unbreakable grid; creating a safer, smarter workplace; and considering the full energy value chain when seeking solutions to meet significant challenges for humanity.
With any incoming administration there’s always excitement around future policy direction. Given that electricity is a valued infrastructure for our society, the only prediction we could make at this point would be that the government will continue to want this infrastructure to be reliable, robust, secure, and affordable.
We’re still waiting for a final decision on whether the Clean Power Plan will go into effect, but there are also other factors affecting unit retirement and new-build decisions. What’s the primary driver at your company for asset changes, and if you are adding resources, what percentage is wind, solar, or energy storage?
Alkema: Many factors go into unit retirement and new-build decisions. In many cases, there is no single primary driver because resource decisions must strike an appropriate balance between many competing factors including cost, reliability, and environmental stewardship. With regards to environmental stewardship, SRP has a carbon intensity reduction commitment that predates the Clean Power Plan and will be a primary driver in resource mix decisions going forward. With regards to resource additions, SRP doesn’t have a predetermined mix of resource types. Such decisions will be governed by economics, technological maturity, and our publicly elected board’s policy. That said, solar and natural gas generation will likely represent the majority of resource additions over the next 10 years.
Mills: Our customers, stakeholders, and company values all drive our clean energy strategy. Current economics and customer demand are major forces, combined with the environmental benefits. Wind and solar power play a vital role in our future as we reduce emissions. As part of our renewable energy strategy, we have plans to grow our wind portfolio by 1,500 MW in the Upper Midwest, and we are proposing to own at least half of this new wind generation. In Colorado, we’re adding 600 MW of new wind at Rush Creek, which will be one of the largest and most cost-effective wind farms in the state.
Steven H. Mills, Energy Supply VP, Operations, Xcel Energy Inc. Xcel Energy is an investor-owned energy company serving 3.5 million electricity customers in eight states with owned capacity of approximately 17,400 MW.
We’re locking in low-cost wind energy and taking advantage of federal tax credits to get our customers the best price possible. As a result of our strategy, we’re on track to reduce carbon emissions by 30% in the next four years, and we expect renewables to make up more than 30% of our energy mix in 2020.
McCullough: Certainly, future carbon regulation of some form has to be an element of our generation strategy. We account for that by including a proxy carbon tax in all of our option analysis. Customers may be the primary driver, however. More of them desire, and some even require, renewable energy.
Salati: We consider multiple factors in our growth investment decisions, but the economic viability of the plant or business on a standalone basis is primary. We also consider the impact an asset change will have on helping us build a clean, unbreakable, and affordable grid. We were the first company to put a lithium-ion battery on the U.S. electricity grid and are now the world leader in grid-scale battery energy storage, with 432 MW in operation, construction, or late-stage development.
We have over 8 GW in our renewable portfolio and are continuing to expand our renewable development efforts because sustainability is integral to our strategy and because it makes economic sense due to declining renewable costs. Through strategic portfolio management, upgrades, and retirements, we have already reduced our global carbon emissions by 17% from 2012 to 2015. We will continue to advance energy solutions that improve environmental performance in our markets.
In 2015, the U.S. Department of Energy predicted hydro development would have a new renaissance, in part, as a way to help nations meet their Paris Agreement emissions reduction goals. How important is hydro—especially new small-scale capacity additions—in your operating territory or regional market?
Alkema: Hydro generation is part of SRP’s legacy, and we see it as extremely important going into the future. The use of some of our hydro facilities for energy storage has been extremely valuable for our energy management and operations. However, new small-scale hydro is not currently in our integrated resource plan.
Mills: While small-scale hydro continues to play a role in providing our customers’ power, it is not a focus of future resource plans. Today’s regulatory environment and the economies of scale for operations and maintenance are generally not attractive for a regulated company like ours. The price point compared to true renewables makes developing small hydro prohibitive for us today. Xcel Energy does have a project underway to upgrade a pumped-storage hydro facility in Colorado. Originally built in the 1960s, the Cabin Creek Hydro plant provides valuable backup power for our system.
McCullough: Hydro has potential, but represents a high capital cost and long installation time. That introduces a level of risk to the equation that will make it difficult to justify hydro development relative to other renewable options.
Mark McCullough, Executive Vice President–Generation, American Electric Power (AEP) AEP is an investor-owned utility serving nearly 5.4 million customers in 11 states with approximately 31,000 MW of generation.
Many generating companies are reconfiguring their businesses in both obvious and subtle ways to adapt to new market realities. Is your company’s business model changing—why or why not?
Alkema: Yes, the business model is changing with the market. Obviously, our generation resource portfolio is changing as we make the adjustments in order to comply with existing regulation. We continue to look for ways to optimize costs and have adjusted how we perform or contract maintenance and consequently the benefits of a roving maintenance crew are being tested as well. Also, we have recently formed a division that is focusing on grid modernization. Within that new group we are ensuring that we are able to maximize the benefits of future distributed generation and energy storage within our distribution system.
Mills: Xcel Energy is addressing the traditional regulatory rate-making process by seeking multi-year rate plans that will increase price stability for customers. The plans establish a mutually beneficial cost structure that allows the company to manage expenses and investments in a prescribed approach while minimizing the repetitive rate-case filings that are used to “catch up” due to regulatory lag created by a historical-year rate-case process. This also allows the company to manage to the approved rate plan, control cost impacts to customers, and provide stability to our shareholders.
McCullough: We are becoming more customer-focused. We named a chief customer officer in June and will be pursuing a number of “customer experience” objectives in the near future. We also are rebalancing our company’s resource portfolio to provide new, cleaner energy and technology options for our customers.
Salati: AES has a history of innovation. This began with our founding as one of the first U.S. independent power producers. We have always considered customers’ evolving needs and the full energy value chain in our business model.
Sarah Orban Salati, Managing Director of New Energy Solutions, The AES Corp. The AES Corp. is a Fortune 200 global power company that provides affordable, sustainable energy to 17 countries through a diverse portfolio of distribution businesses as well as thermal and renewable generation facilities. Its workforce of 21,000 people is committed to operational excellence and meeting the world’s changing power needs. AES’s 2015 revenues were $15 billion, and it owns and manages $37 billion in total assets and 36 GW of capacity.
Fleet profile: Coal (40%), gas (33%), renewables (23%), other (4%)
AES has helped the Dominican Republic reduce its dependence on expensive and less-environmentally sustainable heavy fuel oil by introducing the country’s first liquefied natural gas terminal in 2003, and we now have a second terminal under construction in Panama coming online in 2019. In the last two years, our distributed energy business has partnered with corporate and industrial customers to meet their renewable energy targets with solar energy, and our energy storage business has partnered with utilities to stabilize the grid, tap into existing capacity, avoid expensive transmission and distribution buildout, and better integrate renewables with our Advancion Energy Storage product. Additionally, our utilities, in Brazil and El Salvador, have partnered with customers to improve their operations through recently launched energy efficiency consulting services. We have and will continue to innovate and adapt our model and services with our customers’ changing needs.
Market issues seem to be increasing in prominence, regardless of the type of wholesale market generating companies are in and what their assets look like. Briefly describe the nature of your market and what concerns, if any, you have.
Alkema: SRP does not currently participate directly in an organized wholesale market, but it does transact with the California ISO. Beyond transacting with the California ISO, SRP buys and sells wholesale energy at multiple market hubs on a real-time, day-ahead, and forward basis. In the forward market, SRP executes both physical and financial contracts. Transactions are executed both on the Intercontinental Exchange and bilaterally in the OTC market. We have no significant concerns with the wholesale market at this time.
Mills: Lower natural gas and renewable energy prices, combined with more energy-saving consumer products, have allowed Xcel Energy to explore opportunities beyond traditional baseload fossil facilities. As we transition to a renewable-driven fleet, we’re continually improving operating procedures and adapting the workforce to be flexible to respond to the cyclic demand on fossil resources. It also requires additional periodic training and increased business knowledge for the workforce.
McCullough: Capacity markets are ineffective. They appear to be effective during a short window of time, but the lack of value recognition for fuel security and other issues leads the market toward one technology and fuel choice. This will be manageable for some period of time, but will certainly have economic and energy security issues over the long term.
Salati: While demand growth in the U.S. is relatively modest to flat, we are fortunate to have a presence in many other markets that continue to experience more robust growth in demand for electricity. Demand growth in countries such as Chile, Colombia, Mexico, Panama, the Dominican Republic and the Philippines compares favorably to the U.S. And in places like Vietnam and India, we continue to see growth in the mid to high single digits. Stronger demand bodes well not only for our existing businesses but also for growth opportunities that we continue to develop, primarily in natural gas and renewables.
If you could add one new type of generation or energy asset without any regulatory or cost concerns, what technology would it use and why?
Alkema: There is no single type of generation that is capable of meeting all of our system needs, irrespective of cost or regulatory concerns. The strength of a resource portfolio is founded in diversity and flexibility. Over time, the appropriate balance of resources will shift based on a variety of factors.
Mills: Xcel Energy is interested in bulk energy storage in the form of either compressed-air energy storage or pumped-hydro storage, which enable us to continue adding low-cost renewable energy onto our systems.
McCullough: It would not be any one type. We need to maintain a diverse portfolio of high-efficiency, low-emission, dispatchable and intermittent, central and distributed resources.
Salati: This is an interesting question because it presupposes that cost and regulation are significant constraints for otherwise attractive energy assets. Technology has now enabled clean, affordable, and reliable energy solutions. Adding more energy assets with free and abundant renewable fuel supported by battery capacity would be my pick. Also, I would have to say electric vehicles. Electrifying the transportation sector would benefit the electricity grid making it even more clean and resilient while also reducing vehicle emissions.
What major plant maintenance or upgrade projects are planned for the next year or two, and what makes them priorities?
Alkema: For the immediate future, one to two years, we have no ongoing major projects since we have completed most of the mandatory upgrades. These have included NOx, sulfur, and mercury controls on our coal units. We are in the process of changing out the selective catalytic reduction catalysts at all our 2000-vintage combined cycle (CC) plants. SRP recently purchased a gas-fired power block at a proximate natural gas CC facility. We will be addressing a number of reliability projects at the facility to ensure its run reliability meets our standards.
Mills: Xcel Energy is pursuing “accelerated steam turbine start-up enhancements” to support increased flexibility and quick response to the variability of wind or solar generation. Older fossil-fired steam turbines typically were not designed for repetitive starts or fast-ramp rate loading of the machine. Xcel Energy has several units that were repowered as a combined cycle, and the steam turbine is the limiting factor in shorter loading periods. Improving the ability to control the heat distribution in the steam turbine and limit significant cycling through operating process improvements will reduce maintenance expenses and improve system demand response time.
McCullough: No real major upgrades. A few gas and steam turbine upgrades, but nothing major.
Salati: We have 3.4 GW currently under construction globally and are upgrading a number of our assets to be more efficient. In the U.S., we are repowering 1,284 MW of our Southland gas plants in California, and are building a new 670-MW combined cycle gas turbine and converting 630 MW from coal to natural gas at our utility in Indiana. In the Dominican Republic, we are closing the cycle on our existing gas-fired plant to increase capacity by 122 MW. In the U.S. alone, our construction projects and completed partnerships are expected to reduce AES’s carbon emissions by 20% to 30% from 2012 to 2018. Again, all of these are helping improve environmental performance in our markets.
Digital tools, especially some of the newest internet-connected ones, can enable simplified operations and business analysis. What digital technologies has your company recently deployed or considered?
Alkema: For a number of years SRP has been using an advanced pattern recognition system to monitor health in all of our fleet so as to predict potential operational issues before they become problems. In conjunction with this initiative and other power system needs, we are now implementing an enterprisewide data collection and repository system. This should enable additional data analytics, as well as better real-time reporting throughout the company.
Mills: For the last several years, Xcel Energy has been working on multiple fronts to improve our forecasting capabilities with our partners Global Weather Corp. and the National Center for Atmospheric Research. Advanced wind forecasts are designed to help utilities make better commitment and dispatch decisions, including opportunities to power down less-efficient power plants when sufficient winds are forecasted to help meet customer electric demands.
Wind generation is difficult to forecast due to its variability, and inaccurate forecasts are costly. This precise forecasting service has significantly reduced forecast error, allowing Xcel Energy to better determine when to turn up or turn down coal- and natural gas–fired power plants, saving customers millions of dollars in fuel costs.
McCullough: We are using monitoring and diagnostic tools to allow for predictive maintenance; however, they are not internet-connected. We also are considering a number of technologies around the edge of the grid.
Salati: Digital tools, including the future benefits of machine learning, will help us optimize the performance of all our assets and systems. We are just at the beginning in terms of computing power coupled with data. Real time, we are globally installing performance and condition monitoring systems for heat loss identification, plant modeling, anomaly detection, event logging, and advance vibration detection as well as including online technical learning and the tracking of technical competency profiles. The latter will help us leverage the knowledge and expertise of our people more globally. Other systems are improving integration and interface between strategic sourcing, maintenance, capital project management, and financial planning.
Additionally, we’ve been deploying the Advancion product in markets in the U.S. and around the world since 2014. Advancion combines everything we’ve learned in eight years designing, developing, and operating energy storage into one integrated digital platform. It leverages our proprietary software and architecture to deliver the most proven, safe and reliable, and best performing battery-based energy storage solution in the industry.
Despite technology innovation, qualified people remain essential to the safe operation of power industry assets. Are staffing issues likely to be more or less of a challenge in 2017 than in the past couple of years?
Alkema: The most significant staffing issue over the last few years has been the retirement of craft personnel and finding qualified replacements. We expect that to continue into 2017; however, it is conceivable that the closure of many facilities across the country will relieve this issue as personnel become available, but that remains to be seen.
Mills: Xcel Energy is always looking to attract and retain new and talented employees, especially as we see the baby boomer generation begin to retire. We offer tremendous opportunities for millennials who are interested in the energy industry. We actively promote our internship opportunities and visit high schools to talk to students about careers in the energy industry. Xcel Energy has also expanded recruiting efforts to attract engineers and technical degree candidates. The company has migrated to tablets, computer-based learning courses, and increased standardization for course content in the craft skill apprenticeships.
McCullough: Staffing will continue to be a challenge for us over the next several years as baby boomers retire. We’ve taken some innovative approaches to addressing this challenge, including creating Credits Count. Credits Count is a scholarship program that targets students in rural and urban areas and encourages them to consider science, technology, engineering, and mathematics (STEM) classes in junior high and supports dual enrollment to allow students to earn college credit while still in high school.
Salati: Over the next several years, the power industry will face the challenges of an aging workforce. However, it is a unique time to be in the sector. We are able to combine recent graduates’ new skills around digital and emerging technologies with seasoned professionals’ technical expertise and knowledge. Codifying this institutional and career knowledge in models is a wonderful marriage of the seasoned and entry level professionals. We see new professionals entering the industry with the ambition to make a difference. They realize that the power grid is one of the most complex and innovative systems ever designed by man—and they have the opportunity to participate in its upgrade and redesign. For many new candidates, it’s this challenge that they find most attractive.
What aspects of your career in the power industry do you value the most, and do you think they would appeal to younger, future workers?
Alkema: Yes, I do think the power industry can have appeal to younger workers. The utility industry offers such a variety of talent and leadership needs, and requires the professionalism, structure, and discipline that many young workers are looking for today. SRP has an established and successful rotational engineering program. This program provides great opportunities for learning the many different business and technical skills that will develop a prosperous career; subsequently, many engineers are given the chance to get into leadership positions. Our experience has been that individuals can become engaged and valuable assets quickly, which is appealing and an attraction for future talent. In my personal experience, the business and technical opportunities have been wide-ranging and interesting; this has developed into a satisfying career.
Mills: The skills that I value most are learning to recognize alternative opportunities and leading change for a large organization. The traditional utility has been very stable. Changes did not occur often, and it was easier to learn the process and execute with certainty over a long period of time. Today, the business changes quickly, regulation is increasing, competition is here, and the customer is driving products and services. The business today provides the framework to apply increased services using proven technologies and customer demands have evolved from reliable, low-priced energy to a wide spectrum of convenience offerings that provide real-time customer satisfaction. The customer of today expects more for less!
McCullough: The challenges are new and different every day in our industry. Future workers should see our industry as an opportunity to be a part of a dramatic advancement and improvement effort over the next couple of decades. The grid and its major components will be much more interactive and efficient, bringing more value to our customers.
Salati: AES’s mission is to improve lives, focused on delivering a valuable infrastructure to society. Electricity is fundamental to prosperous communities, from supporting economic growth by powering factories to supporting education by providing light over a table at night for a child to do her homework. It is really only when electricity is absent that we realize how valuable it is. While technology is transforming every industry, technology’s potential to multiply its benefits to humanity within the electricity industry is profound. Who wouldn’t want to be part of that transformation and have that level of impact? ■
—Gail Reitenbach, PhD is POWER’s editor.