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TVA weighs renewables, grid resilience in latest resource planning

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The 1,132-MW Allen combined-cycle plant, a gas-fired facility that started commercial operations last month. The Tennessee Valley Authority is analyzing the relationship between centralized power plants and distributed energy resources.
Source: Tennessee Valley Authority

The Tennessee Valley Authority is attempting to assess the risks posed by adding renewable resources and distributed generation growth as it embarks on the latest round of long-term resource planning.

The U.S. government-owned power supplier's latest integrated resource plan, or IRP, process comes as American electric utilities work to reduce emissions and modernize infrastructure. But as Moody's Investors Service noted in a recent report, public power entities, such as the TVA, and municipal and cooperative utilities face different risks than investor-owned utilities when managing the decarbonization of their generation mixes.

Many public power entities are taking a careful approach to this, and that caution was evident during a May 15 presentation by the TVA updating stakeholders on the agency's progress in drafting its IRP. Brian Child, a senior manager in the TVA's enterprise planning division, likened the plan to a compass, rather than a GPS, and described the document as presenting suggestions for the years ahead, not exact determinations of when and where to install new generation.

The TVA's current IRP, published in 2015, recommended by 2023 a portfolio including 150 MW to 800 MW of new large-scale solar, 50 MW of additional hydro capacity, 900 MW to 1,300 MW of energy-efficiency savings and 450 MW to 575 MW of demand reduction. The plan also called for continuing planned coal retirements, and more if necessary, along with capacity boosts at nuclear units.

The agency has 13,900 MW of gas capacity; 8,400 MW of coal; 7,800 MW of nuclear; 5,800 MW of hydro; 1,580 MW of wind, solar and biomass; and 1,300 MW of avoided capacity through energy efficiency and demand response measures.

In 2015, utilities had to contend with the Obama administration's Clean Power Plan and the prospect of an international climate accord. Under President Donald Trump, the regulatory regime looks very different. Hunter Hydas, an IRP project manager, said that while the TVA will not require a certain level of renewables in its 2019 IRP, they still represent a "key resource."

"We'll include renewables with all resources to make sure they're on a level playing field where their individual characteristics and strengths can play into the model for determining what the optimal portfolio may be," he said. "We're really in a position where we're able to let the resources compete in our model to determine what the optimal level would be without setting a specific target."

The TVA's self-described "theme" of its 2019 IRP is a focus on distributed energy resources. And while the agency is federally mandated to pursue lowest-cost generation regardless of source, it still has other factors to weigh.

"We have to consider risk, and the lowest-cost option should then be chosen between competing plants of roughly equal risk," Child said. "Risk should be clearly understood, and then once understood, either consciously accepted or mitigated."

Those risks include fuel costs and asset availability, he said. While the cost of renewables is becoming more competitive with fossil fuels, their intermittent nature has led the TVA to consider the impact to grid resiliency.

Jane Elliot, senior manager of resource strategy, defined resiliency as an aspect of overall reliability and the ability to withstand and recover from disruptions. But she added the load changes can also be attributed to "having more distributed energy resources on our system ... So that's one of the reasons why this IRP will be focusing on flexibility as a key piece to providing resiliency."

Self-regulation is 'key' to carbon transition

The IRP process started sooner than anticipated, due to flat demand, technological advances, and the growth of distributed generation and renewable resources, the TVA has said. Child said the 2019 plan will inform the agency's next long-term financial strategy, with the goal to pay down debt to $21.8 billion by fiscal year 2023.

The TVA's board of directors earlier this month approved a new rate structure to address the demand challenge, implementing a grid access charge that critics say will raise bills and stifle renewables.

The agency claims that the new structure is revenue neutral but acknowledges the need for sustained income to service its grid. In a May 15 report, Moody's said this ability to self-regulate and set rates is necessary to maintain debt coverage and is a key advantage for public power entities to manage a successful carbon transition.

Proper cost recovery is needed to address the risk of a less-reliable grid in the face of rooftop solar users and energy-efficient customers not paying their share of fixed costs, along with increasing renewables and two-way power flows, wrote analysts led by Moody's Senior Vice President Swami Venkataraman.

"The ability to maintain a reliable grid and low prices are equal, if not more significant, considerations in determining what emission reductions are feasible in a given period," the analysts wrote.

Moody's also pointed out that investor-owned utilities are incentivized to spend on renewables and the smart grid via their returns on equity and thus improve credit metrics. Public power entities, on the other hand, "have no upside cash flow benefits from these investments."

Public power entities and generation-transmission cooperatives typically have a larger share of coal in their generation mixes, Moody's added, so they may face a greater risk of having to retire those assets before the end of their useful lives, depending on state and federal policies.

TVA President and CEO Bill Johnson announced earlier this month that more than half of the power supplied by the agency over the past six months came from carbon-free sources, due in part to the retirement of two coal plants and the boosting of capacity at a nuclear plant. The TVA also contracts 1,200 MW of wind power and 70 MW from biomass.

Child said the agency hopes to have over 50% of its own generating capacity be zero-emission by 2020. That figure is currently 42%.

Environmentalists have decried the TVA not being subject to the scrutiny of an independent regulator, while Johnson argues that its board properly supervises the agency's operations and investments.