Blog Post; Economic Benefits of the Proposed CHP
Comprising about $18 million of the $45 million bond proposal, the Combined Heat and Power Plant (CHP or “peaking plant”) will provide critical local control to manage uncertainty in future power prices and enable MORE renewable energy purchases for Grand Haven.
Energy vs. Capacity
To understand the value of a peaking plant, it’s important to first understand the difference between “energy” and “capacity” when talking about the power industry. “Energy,” measured in kilowatt-hours (kWh), refers to actual power consumed by our community in running our businesses, homes, and streetlights. Just as you pay for your own “energy” usage, GHBLP also must pay for “energy” that we purchase from power suppliers across the region.
Now “Capacity,” which is often measured in kilowatts (kW), refers to the rated ability of a power plant (or renewable resource) to produce that energy. The State of Michigan requires every utility to have enough “capacity” to serve its community’s peak demands, plus a reserve margin above that peak, even if the actual hour-by-hour demand for energy is lower most of the time.
The proposed combined heat and power peaking plant provides our community with tremendous value for both “energy” and “capacity.” As a peaking plant, the plant will only run when our cost for “energy” from the market is very high and it’s more economical to produce power ourselves. This happens during the summer when air conditioning use is high on hot days or in the winter during an extreme weather event. In either case, the plant can save our community hundreds of thousands of dollars in just a week of use.
It is important to note that the energy produced at the plant will never displace the renewable energy we are buying when it is available. The plant will supplement and complement these renewable purchases in a more diversified portfolio, primarily when there is not enough “energy” coming from these other resources (when the sun is not shining or the wind is not blowing adequately to meet our load at that time).
The proposed plant will also function as a longer-term investment in the “capacity” market. As Michigan continues to shutter its coal plants, renewable resources are expanding, but renewables only receive partial credit for their rated output of “capacity” based on their demonstrated availability during past peak periods. By investing in our own capacity, we can avoid the cost of future “capacity” that is forecasted to keep increasing and these forecasts contain more uncertainty. We can also protect our community from such uncertainty and potential higher “capacity” cost by paying the embedded cost of the new facility. What’s more, by owning a portion of our “capacity” requirements locally, we can actually invest MORE in renewable resources because we’re hedged against their more intermittent, less predictable energy output.
The Future of Natural Gas
Henry Hub Natural Gas futures provide a price for natural gas for up to 10 years out. The market futures price takes into account the decreasing cost and increasing availability of renewable resources and a host of other regulatory and political pressures. Looking a full 10 years out, the futures price of natural gas remains very stable. This long-term stability and the intermittent vulnerability of wind and solar supports the utility’s decision to move forward with a natural gas peaking resource to supplement and complement GHBLP’s diversified power supply portfolio.
Working with multiple nationally recognized agencies such as Burns & McDonnell and ProgressiveAE, the BLP has conducted multiple economic and environmental studies before we reached the current iteration of the peaking plant and feel confident that it will serve as a critical asset for Grand Haven, providing reliable and affordable power, in the back-up and standby capacity role we envision for it, now and for years to come.