Electric cooperatives to build $2 billion in power plants to ensure system reliability

Buddy Hasten, president and CEO of Arkansas Electric Cooperative Corp. (AECC) and Arkansas Electric Cooperatives Inc. (AECI) said there would be at least $2 billion in new electricity generation capacity to meet energy demand as reserve margins rise and power plants close.

To pay for the new capacity, consumers can expect a 14% rate increase, spread over four smaller increases from 2025 to 2028.

On Monday (July 29), Hasten discussed the plans at the 2024 Directors’ Summer Conference hosted by the Electric Cooperatives of Arkansas at the Embassy Suites in Rogers. Little Rock-based AECC recently celebrated its 75th anniversary. Founded on July 11, 1949, it is the wholesale electricity supplier to the state’s 17 electric distribution cooperatives.

Hasten said the changes are needed to meet rising reserve margin requirements in the regional transmission organizations in which it operates. Reserve margin in the Southwest Power Pool (SPP) is expected to increase from 15% to 36% and from 9% to 26% in the Midcontinent Independent System Operator (MISO).

“AECC needs to add new power,” Hasten said. “By 2030, we need to add 1,850 megawatts. We need 850 megawatts in SPP and about 1,000 megawatts in MISO.”

The new capacity would more than offset two coal-fired power plants that were scheduled to close in 2028 and 2030. Together, the plants supply 1,168 megawatts. The remaining 682 megawatts would meet increasing reserve margin requirements. Reserve margin is needed to ensure the reliability of the system in the event of an outage or weather events that could increase demand. Requirements recently increased due to winter storms that caused demand spikes.

He said reserve margin percentages are rising, in part, because “the resources in the market are changing. As more nuclear and coal plants close, there are fewer and fewer of those assets in the market. And you have more and more wind and solar and other things, so the remaining … thermal assets, they have to work more perfectly because there’s less of them to spread problems against. That’s why we’re increasing the reserve margin in the market.”

He said AECC went from excess capacity to no excess. To meet short-term demand, AECC plans to add two gas-fired turbines to the 170-megawatt Thomas B. Fitzhugh Generating Station in Ozark. This will add about 100 megawatts to capacity.

Plans have yet to be announced to provide the remaining 1,750 megawatts of capacity needed to ensure system reliability. One challenge to meeting this demand is new environmental regulations that limit the use of large gas-fired power plants to just 40% of the time.

Hasten emphasized a large gas-fired plant that could generate electricity using steam. However, this plant would have to operate for a long time to justify the extra cost of building this plant. He said this type of plant with steam turbines would generate more power with lower emissions than traditional gas plants.

Asked about the challenges facing AECC in its 75th year, Hasten said they are similar to those in the 1970s, when gas could no longer be used to make electricity. That led the U.S. electric power industry to burn coal to produce electricity. Now, federal policy is putting pressure on the industry to reduce carbon emissions, leading to a switch from coal to gas. He noted that replacing a coal plant with a gas plant cuts carbon emissions in half.

“It’s more challenging that we’re in a higher interest rate environment,” he said. “We’re in an inflationary environment. So buying all those things, financing all those things, it’s more challenging in this environment than it would have been 10 years ago.”

LOAD GROWTH
The United States will consume about 4,000 terawatt hours of electricity in 2023. He said electricity consumption increased in the 1980s, 1990s and early 2000s. But it has been flat for about 20 years as the United States focused more on improving efficiency and much manufacturing moved out of the country.

“We’re starting to see real load growth again now,” Hasten said, noting that U.S. electricity consumption is expected to increase 27 percent by 2050. “We’re going from that 4,000 terawatt-hours to over 5,000 terawatt-hours. That’s a lot of load growth.”

A $630 billion investment in large shipments is projected in the near term, and production is driving the increase. The CHIPS and Science Act is expected to increase semiconductor production in the United States, and “Buy America” provisions are also boosting production.

Cryptocurrency mining accounts for another significant portion of electricity consumption, accounting for between 0.6% and 2.3% of electricity consumption in the United States.

“Bitcoin uses 172 terawatt-hours a year just to create digital currency,” Hasten said. “If you compare it to Visa, with one Bitcoin transaction, you can do 523,000 Visa transactions and use the same amount of electricity. … You can do 961,000 transactions and have the same carbon footprint.”

He said people are increasingly viewing cryptocurrencies as a kind of asset, like gold, and are trading them less and less for day-to-day transactions.

Hasten also discussed a recent report that found that data centers could use up to 9% of the electricity the United States produces by 2030. Demand for data centers is expected to increase from 17 gigawatts to 35 gigawatts, which is equivalent to about 400 terawatt-hours or about 10% of current electricity consumption. The rise of artificial intelligence is contributing to increased electricity consumption by data centers.

Hasten expects to see some bills filed in the 2025 legislative session to address load growth. AECC has 2,000 megawatts of new power applications in the queue. He said the summer peak is 2,659 megawatts, so that would nearly double the company’s load if the power applications were added. He noted that about half of the applications are for data centers.

“They would sign a contract right away if I signed it,” he said. “But I have to figure out how I’m going to feed them.”

When asked how AECC plans to meet the growing demand, he said he would do so in the short term with gas-fired power plants.

“If I had access to an infinite amount of capital at 0% interest, I would say my first choice to add all this energy that is needed 99% of the time, like data centers and things like that, would be nuclear because it is carbon-free,” Hasten said, adding that existing rules and regulations do not support it and would likely be too risky.

“I think nuclear is the answer because a nuclear plant runs at 100 percent capacity 93 percent of the time,” he said. “And it keeps running … and it’s the most reliable form of energy on the planet, bar none. … The problem is that we, as America, have forgotten how to build them.”

RULES, INCENTIVES
Jim Matheson is CEO of the National Rural Electric Cooperative Association, a national service organization representing more than 900 electric cooperatives and providing services to 42 million people in 47 states. Matheson was another speaker at the Directors’ Summer Conference.

He discussed environmental regulatory challenges, stayed in touch with the Kamala Harris and Donald Trump campaigns, and said insurance companies are pulling out of utility coverage due to wildfires. He also noted that incentives are available for electric cooperatives in the Inflation Reduction Act, which was successfully pushed through Congress by President Joe Biden. No member of Arkansas’s congressional delegation supports the bill.

The incentives would give the co-ops $9.7 billion for clean energy projects. The Department of Agriculture administers the program. Applicants were assessed based on carbon reduction, and the money is expected to be awarded this year. Hasten said the money has been awarded to 16 other states. Arkansas was ranked 18.

“Seventeen states had a more effective way to reduce carbon than we did, and that’s partly based on where you are in the country and what resources are there,” Hasten said. “The program was … successful when 16 people used all of their resources, and there are 22 people below that who are willing to do more.”

Another stimulus in the Inflation Reduction Act benefited Today’s Power Inc., an AECI renewable energy company.

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