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Report sees dim prospects for Illinois coal plants

The Will County Generating Station in Romeoville, Illinois, is one of four plants the Sierra Club will no longer be economically viable to run. (Photo via Midwest Generation)

Two months after the parent company of Midwest Generation told investors it may shut down all its coal plants in Illinois, a new study by the Sierra Club says the plants aren’t necessary for grid reliability, and won’t be profitable to run under new pollution rules.

The Sierra Club’s report [PDF] – issued on Thursday, the day of Edison International’s annual shareholder meeting – found that Edison subsidiary Midwest Generation has no financial reason to continue running its six Illinois coal-fired plants. Two of those plants – the Fisk and Crawford facilities in Chicago – will be shut down over the next two years under an agreement with city officials.

Prospects for the four plants also got a little brighter as a result of the deal wherein Midwest Generation agreed to close the Chicago plants: Environmental groups, including the Sierra Club, withdrew their Clean Air Act lawsuit alleging all six Illinois plants had emitted unlawful amounts of particulate matter.

However, based on electricity price projections and the cost of pollution controls mandated by state and federal rules that will kick in by 2018, the Sierra Club study posited that none of the remaining plants will make a profit; and their closure will also not affect reliability on the PJM Interconnection, where the company sells its energy.

The Sierra Club is a member of RE-AMP, which publishes Midwest Energy News.

Midwest Generation spokesman Doug McFarlan dismissed the Sierra Club’s findings. He said the future of the four remaining Illinois plants is still being decided, and recent investments in pollution controls indicate at least some interest in keeping the plants running.

“We’re focused on the environmentally responsible operation of our plants and on helping lead the transition to new energy sources as the sixth largest developer of wind energy projects in the country,” said McFarlan. “We don’t rely on the Sierra Club to tell us what our costs are or what technologies to use. It is not relevant or useful to our decision-making or analysis…We are comfortable with our ability and expertise to judge the economic viability of our generating units and make decisions on retrofits or unit retirements. We have no interest in commenting on a study commissioned by an organization whose publicly stated objective is to shut down all existing coal plants.”

The impact of new pollution rules

The Sierra Club study, carried out by the firm Synapse Energy Economics, predicted that the cost of installing either of two types of technology to control sulfur dioxide emissions would make Midwest Generation’s plants unprofitable. Under a 2006 state of Illinois agreement and the federal Cross-State Air Pollution Rule (CSAPR), the plants would all need to install sulfur dioxide controls by 2018.

The Sierra Club study also analyzed increased operating costs per megawatt hour for SCR (selective catalytic reduction) limiting nitrogen oxide emissions, activated carbon injection to reduce mercury emissions, bag houses to reduce particulate emissions and upgraded cooling systems.

Holly Bressett, of the Sierra Club’s Beyond Coal campaign, said their estimates were based on the costs of installing new technology and operating and maintaining it on a daily basis. The specific cost estimates were based on data from the Environmental Protection Agency and the Chicago engineering consulting firm Sargent & Lundy. She said their analysis took into consideration whatever pollution control improvements the company has already made, according to its filings with the government.

McFarlan said all the plants have already installed activated carbon injection, “a technology we helped develop,” though two plants need upgrades. He said the company has also already invested $110 million in SCRs to achieve fleet-wide nitrogen oxide reductions required by a state law that took effect this year and is stricter than the federal CSAPR, which is under appeal in federal court.

In all, McFarlan said, the company has invested about $400 million in pollution controls on its Illinois plants since acquiring the fleet in 1999. The company would need to invest $860 million more, he said, to install technology to meet state and federal standards for sulfur dioxide and new particulate standards under the Mercury and Air Toxics Standards (MATS) rule, which takes effect in 2015.

Bressett said the Sierra Club analysis assumed capital costs of about $200 million for sulfur dioxide removal, a significantly lower estimate than McFarlan offered, meaning the plants could be even more uneconomical using the company’s own cost numbers.

“We have not yet made final decisions on any of these installations,” said McFarlan, adding that the company has obtained construction permits and done preliminary work for pollution control upgrades at its Powerton and Waukegan stations.

The Sierra Club report noted that Illinois’s relatively strong environmental provisions, including the state agreement with Midwest Generation, would put the company at a competitive disadvantage in the PJM spot market auctions, compared to generators in other states.

What about reliability?

The Sierra Club study also examined whether the closure of all six of Midwest Generation’s Illinois plants would affect the stability of the grid or the availability of electricity. Based on PJM predictions, it concluded that if Midwest Generation’s combined 6 GW of electricity were taken off-line, it would not cause electricity shortages or grid stability problems. There is already an oversupply of electricity available within the PJM and predicted supply will be more than enough to meet predicted demand in coming years – even without figuring in expected improvements in energy efficiency and demand-side management, the study said.

PJM has already analyzed the likely impact of closing Fisk, Crawford and several units at the other Midwest Generation plants, and found no risk to reliability.

In keeping with its national Beyond Coal campaign, the Sierra Club study concluded that there are economic – as well as environmental and public health – reasons for Midwest Generation to close all its Illinois plants:

“Synapse’s analysis strongly suggests retrofits will only make MWG’s plants less competitive and more uneconomic. Without the ability to competitively sell power, the company could face stranded investment in aging coal plants. The better outcome for public health and the environment, and arguably for the company, is to put the remaining MWG plants on a reasonable schedule for retirement.”

Bressett added:

“In a deregulated market like Illinois, the market chooses generating resources and the market is not choosing dirty and increasingly expensive coal…The old coal-based business model that MWG has used in the past has no place in this energy future.”

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