By guest columnist Branko Terzic
A white paper titled "Are Renewables Damaging Fossil Power Plant Assets?" asserts that the answer is "Yes!" The paper was produced by James R. Schetter, president of Renewable Impacts LLC.
The damage to fossil power plants is caused by cycling of power plants beyond their design parameters. This additional cycling increases operating and maintenance costs and causes a shorter remaining life for the power plant asset.
Schetter has developed a software tool to determine both the cost of cycling and the cause of the cycling including the additional power from large renewable sources of wind and solar.
I write about this additional cycling cost because it has regulatory consequences. This would especially be the case for power plants in rate base and under state PSC regulation. Merchant power plants would not necessarily have a regulatory issue as, it is assumed, the additional cost would be included in the market bids from the individual power plant units.
This is not the case for a power plant in rate base under cost-of-service regulation. Power plants in rate base, to obtain financial relief, will need to document the additional operational and maintenance costs. And to quantify the impact on the remaining life of the power plant asset in the regulated utility's depreciation study submissions to their state regulators.
A shorter remaining life implies a higher annual depreciation rate and thus higher annual depreciation expenses. Thus, the regulator will be faced with three higher costs due to this specific cycling: operating expense, maintenance expense, annual depreciation expense.
Once these costs are recognized and quantified (and that's not a sure thing), the regulator will be faced with the issue of whether they will continue to adhere to the traditional cost of service principle of the cost causer is the cost payer. The question becomes one of, should these new costs be apportioned to all ratepayers? And if so, on what basis should these costs be apportioned?
Even avoiding these current cost and allocation decisions, the regulator may want to consider these additional future costs as part of any analysis of the full cost of adding new renewable resources.
Branko Terzic, former commissioner at FERC and Wisconsin PSC; former CEO, Yankee Energy System; presently managing director, Berkeley Research Group.
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