Gas Plant Rejection Brings the Energy Transition Home to Indiana

Indiana utility Vectren South wanted to replace its baseload coal plants with a massive gas plant. In late April, regulators blocked that plan.

The surprise rejection of the 850-megawatt project, which had been estimated to cost $781 million, comes as regulators in other states have applied greater scrutiny to large capital investments that utilities are seeking to build. The critique holds that massive expenditures for large, centralized assets during a time of rapid change to the electricity industry could become a bad deal for ratepayers.

California has already rejected a few natural-gas plant contracts in favor of clean options like energy storage and renewables, but this is a new outcome for coal country. The Indiana decision joins a growing number of cases where state utility regulators have pushed utilities to consider more decentralized, lower-carbon grid planning.

New premium for flexibility

Vertically integrated utility Vectren South, whose parent company was recently acquired by Houston-based utility group CenterPoint Energy, serves 145,000 customers in southwestern Indiana.

Renewable energy investments are cost effective. The International Renewable Energy Agency released a new policy brief showing that renewable energy has become the most cost-effective way to generate electricity for hundreds of millions of people worldwide who are not on the grid. Read more here.

It controls 1,248 megawatts of generating capacity, 1,000 megawatts of which comes from coal sourced in-state. This old-school baseload fleet is having problems in a market that puts an increasing value on flexible operations.

“Instead of running continuously, Vectren South's units are now cycled up and down throughout the day, or are shut down altogether, decreasing unit efficiency and increasing wear and tear on the units,” the regulatory filing notes, paraphrasing Wayne Games, Vectren’s VP of power supply.

The old plants can’t keep up with today’s fast-paced market, so Vectren South decided to retire 730 megawatts of coal plants and replace them with a 700-megawatt combined cycle gas plant, combined with 150 megawatts of new peaking capacity to replace 135 megawatts that will retire.

Vectren South ran a request for proposal process and received bids for power-purchase agreements as well as build-and-sell deals, but opted to go a different route: building the plant itself.

The case made for some strange bedfellows. Environmentalist groups like the Sierra Club intervened to oppose the new gas plant because they want to limit new fossil-fueled infrastructure. Local coal industry groups opposed the gas plant, because they want the utility to keep burning coal as long as possible.

Just 1 wind turbine can generate enough electricity to power 1,400 homes.

Getting to "no"

In rejecting the utility-built gas plant proposal, the commissioners highlighted a disjoint between the 30-year or longer lifetime of a major gas plant investment, and the “environment of rapid technological innovation on both the utility and customer side of the meter.”

In light of those changes, which include increasingly low prices for renewable power and the maturation of energy storage, the regulators found Vectren South’s RFP to be “unduly restrictive."

“The narrow RFP with its focus on a large baseload dispatchable resource limited the options Vectren South evaluated to those larger than 600 MW,” the decision notes. “As a result, Vectren South foreclosed consideration of combinations of smaller resources that might have offered greater resource diversity, flexibility and cost efficiencies than reliance on the acquisition of a single large natural-gas facility.”

The utility overlooked possibilities for refueling existing plants in favor of building a new one, the order argues. The company also could have done more to explore the price and availability of renewables.

Fellow Indiana utility Nipsco recently did just that. It ran an all-source RFP to replace the coal fleet it’s shutting down by 2028, and solar and wind resources won out. It announced 800 megawatts of finalized wind contracts in February.

Vectren South’s alternative approach to renewables led to a warning for the future.

“We would expect Vectren South to ensure an enhanced consideration of renewable energy and customer-generator opportunities in future [integrated resource plans],” the decision states.

25% of the UK's population live in areas suitable for Geothermal District Heating using heat pumps.

More questions asked

The warning about relying too much on massive gas plants, to the exclusion of smaller and nimbler assets, echoes decisions from regulators across the country.

“I believe we’re right in the midst of a fast paradigm shift in terms of what is the grid we’re building,” said Bill Corcoran, a regional campaign director for the Sierra Club’s Beyond Coal initiative. “Commissioners and others are asking a lot more questions about how investments fit into a more complex system.”

Arizona utility regulators sent a rebuke to the state's utilities by declining to recognize their long-range plans in 2018. Along with that decision, the Arizona Corporation Commission imposed a moratorium on new gas plants, to prevent locking in large capital expenditures on behalf of ratepayers.

Since then, utility Arizona Public Service has focused on building large grid batteries to store solar generation and provide capacity in the evening peak hours.

Virginia regulators chastised utility Dominion Energy in December for overestimating the load growth it would need to meet with new generation resources. The decision also called for greater analysis of how forthcoming renewable and energy-efficiency deployments will affect the load forecast.

California regulators rejected permits for a 262-megawatt gas peaker plant in the city of Oxnard, prompting a new procurement that led Southern California Edison to award contracts last month to a portfolio of battery plants totaling 195 megawatts.

Unlike fossil fuels, renewable sources of energy like hydropower, wind and solar do not directly emit greenhouse gases. Did you know? Scientists believe that greenhouse gasses are the culprits behind global warming.