Engineering, procurement and construction (EPC) contracts are evolving as utilities seek to spread risks, contain costs, and execute their business strategies. As a result, turnkey contractors are...
Power-Plant Development: Raising the Stakes
Duke Energy’s Jim Turner and other utility executives weigh the odds on billion-dollar bets.
on energy efficiency and demand management,” Turner said.
Second, Duke Energy promised to retire Cliffside units 1-4 as part of the negotiation, which would take 200 MW of significantly older, less efficient units out of operation.
And third, Duke Energy said it would be “prepared to retire on a megawatt-for-megawatt basis older, less-efficient coal for every megawatt of demand-side reduction that [the utility] gains from new [demand-side] programs,” according to Turner.
While a verification system would need to be put in place, Duke Energy has promised to retire older, dirtier units (up to the full 800 MW of Cliffside) as the utility obtains and verifies new demand-side reductions. “I think that is indicative of some of the creativity you can get to meet carbon regulation,” he says.
In fact, many utility executives have been exploring using biomass to refuel their existing coal-burning plants to potentially mitigate CO 2 effects, according to Jim Rossi, vice president, Power Generation & Sustainables, at KEMA.
“It’s a very viable alternative as far as a partial replacement of the fuel. It’s not a complete replacement. But you can replace up to 15 percent of the fuel on an energy basis with biomass. That’s actually quite substantial. And the capital costs associated with that are generally not that large,” he says. Biomass is organic fuel such as wood, switch grass, peanut shells, or any replenishable fuel source.
Rossi explains that the costs of biomass for existing coal plants are nowhere near what it would cost to build a standalone 30-MW, 40-MW, or 50-MW biomass facility, which he says, “is very expensive and is just about cost prohibitive in most cases. You really couldn’t build one and generate electricity competitively.”
But fueling coal-fired plants with biomass, he says, is inexpensive since most of the equipment is already in operation. “You are adding very little new equipment, some storage silos, or pulverizing equipment.”
Whether it’s a viable option really comes down to your location.
“It is the location of the individual projects. Where they are located and how close they are to some good low-cost biomass resource,” he says.
Rolling the Dice on Commodities
Even as the industry decides how much they will bet on any power-generation technology, the containment of construction costs is first and foremost on the minds of utility executives. Many power-plant developers are not providing a fixed fee to utilities in their engineering, procurement, and construction costs due to the escalation in commodity input costs, experts say.
“There may be opportunities to do multi-prime type of arrangements where maybe you don’t completely rely on an EPC to do everything for you in the project. But you internally take on some of that risk and that management as well,” Duke Energy’s Turner says. He says what is important in such an environment is to keep regulators and ratepayers informed of what costs are fixed and which are not on particular commodities, or for particular services, or for particular labor costs.
“The commission already has asked that we update them basically every year on cost, but has invited