Whoa! We Actually Need That Coal

 | Jul 05, 2013 | 5:00 PM EDT  | Comments
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The nation's power grids are beginning to feel some of the consequences of coal's exit from the wholesale markets. Early consequences are developing in the ancillary area called "black start" resources. In the long term, this surprise may allow some enterprising coal consuming utilities, such as NRG Energy (NRG), American Electric Power (AEP), PPL (PPL) and FirstEnergy (FE), to recover stranded assets.

What Are Black Start Assets?

Just as your car needs a battery to start its engine, a power plant needs power to start its generators. When there is a loss of offsite power (LOOP), power plants cannot start up and produce power unless they have access to black start resources.

Black start assets are simple power plants, which do not need outside electric power to start. They can be diesel engine-powered generators, small coal plants and even small gas turbines. If a transmission line remains intact, black start assets can take the form of hot transmission lines connected to distributed generation, including wind power and solar power.

From a grid management perspective, black start resources are important assets that are needed to assure system reliability. If there is an area-wide blackout, black resources will be needed to restore service.

Fukushima is a good example. Readers may recall a massive earthquake caused a LOOP at the same time Fukushima lost its black start assets from a tsunami. That combination led to the famous nuclear meltdown.

In the United States, commercial nuclear power plants already have black start assets built in. Each reactor has two or three standby diesel generators that are hard-wired into the nuclear plant's electric systems. The generators are redundant, independent, physically isolated and electrically isolated. Their fuel tanks are redundant, full and ready. It does not matter the plant's age; all operating plants have black start assets built in.

U.S. nuclear plants also have massive lead acid batteries hard-wired into their emergency busses. Since they float on the circuits, they are on constant standby and they provide uninterruptable power to facility's vital circuits. In nuclear power, batteries are a secondary black start asset, which helps the primary black start asset -- the redundant diesel generators.

Such is not the case for other large power plants. Outside black start resources are needed for large coal, combined cycle and gas boilers. Often, transmission lines can deliver limited amounts of black start power to remote power plants.

Here Is the New Problem and the Opportunity

U.S. grids are expecting to lose dozens of small coal-fired power plants. It turns out; many of these older plants had the duel purposes of providing energy and black start capabilities. Because of tougher state and federal emission regulations, many coal-burning assets will be exiting the market. With this exit, some grids like PJM Interconnection are concerned they will also become short black start resources.

Regional transmission grids like PJM are now soliciting bids for replacement black start assets. AES (AES) has been offering grid-connected batteries for other grid services. Under the right circumstances, these massive batteries could also be used for black start services.

Generating companies can consider the new opportunities. For a price, they can offer regional PJM and other transmission organizations black start assets. It could be a sweet deal.

Incumbents like NRG, American Electric, PPL and FirstEnergy can easily build small black start generators at their old coal facilities. They can reuse their land and infrastructure. They can reuse existing transmission lines. They can reuse existing air emission and land permits. Where natural gas is available, they can use gas turbines and avoid the expense of storing and handling fuel.

If they own the power line from their old coal site to the grid, they can keep that line, substations and appurtenant equipment as regulated assets. They may have to switch from state to federal regulators, but it may be worth it. As regulated assets, utilities can earn a healthy return on equity, which could become a second source of income on the previously stranded assets.

It is unlikely generating utilities could use traditional black start units as peaking plants. New emission rules -- particularly the new carbon rules -- will limit production hours. Financially, it does not matter. In some grids, generating utilities can sell their capacity and not worry about selling energy. For many, capacity becomes a third source for top-line revenue.

If the nation exits too quickly from coal, there could be unintended outcomes. Everything is fine until it isn't. That is when black start resources are badly needed. That is also when coal becomes an essential asset.

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