Duke Energy sees slower demand growth but says it needs more new power plants

Charlotte Business Journal, October 20, 2015

Duke Energy’s latest long-term plans for the Carolinas show the company expects power demand to grow more slowly than previously projected. But plans still call for building more new generation than it did a year ago.

Critics contend Duke (NYSE:DUK) manipulated the calculation of how much reserve power it will need over the next 15 years to justify unnecessary plant construction. Charlotte-based Duke contends the larger reserves are necessary.

The latest projections are included in the Integrated Resource Plan for Duke’s two Carolinas utilities. The IRP is a report submitted annually to regulators in both states to lay out, in a general way, what the utilities see as their needs and expectations for power supply over the coming 15 years.

Utilities are required to have reserve margins in their power supply to ensure power is available in case of unexpected outages. In the Carolinas, utilities determine those margins, but their calculations must be approved by the N.C. Utilities Commission and the S.C. Public Service Commission.

Suspicious timing

For 2015, Duke Energy Carolinas and Duke Energy Progress have proposed reserve margins of 17%. That is up from 14.5% in 2014.

Jim Warren, executive director of the environmental advocacy group NC WARN, says the timing of Duke’s decision that reserve margins should increase is suspicious.

“Demand is down, and we’ve complained for some time that there is a glut of juice available in the Southeast,” he says. “What better way to claim under these circumstances that you still need to build new plants than to inflate the reserves needed and claim you need a boost in standby power.”

Duke spokesman Randy Wheeless says there is no manipulation. The two Duke utilities commissioned a new study of reserve margins that showed the need for additional capacity.

One key consideration, he says, is that the utilities now find themselves in what had once been the unusual situation for Southeast utilities of hitting the highest demand of the year in the winter months rather than in the summer months.

“When you start peaking in the winter, some resources for responding to those peaks are not available as they would be in the summer,” he says.

‘New reality’
Solar power, he points out, is a good example of that. On an average summer day, there is plenty of solar capacity operating during the peak demand times in the late afternoon and early evening. But in the winter, the peaks are likely to be in the early morning as customers are starting their day. At that point, temperatures are at their lowest and the sun has not yet risen.
Also, Wheeless says, Duke has extensive demand-side management programs to control air-conditioning demand in the summer. Those are of no use in the winter.
“This is just a reflection of the new reality for us,” he says.
However, the IRPs also show peak demand growth dropping in both the summer and winter for the Duke utilities.

By the numbers
The arguments over needs for new plants and expanded capacity can quickly get technical. And Duke says the plan is more of a snapshot of current expectations than a detailed road map for new construction.
The bottom line is that its two utilities would build 480 megawatts more capacity by 2029 under this year’s plans, filed last month, than they would have under the 2014 long-range plans, despite the lower load growth.
And each utility is projected to build a large natural gas plant — each more than 820 megawatts — in 2030, the year beyond the projection made in the 2014 long-range plan.
Here are the raw numbers: Duke Carolinas and Duke Progress project overall demand to grow an average of 1% per year over the next 15 years. That is down from the projection of 1.2% annually in 2014.
That’s a small amount each year. But by 2029, it is the difference between demand growing 16% since 2015 and growing 19.6%.

Less demand, more supply
There is no such drop in the new generation capacity Duke expects to add at its two utilities.
At Duke Progress, the amount of new generation projected through 2029 is up 6.1% from what was projected in 2014. That year, Duke Progress projected it would need 4,147 megawatts worth of new plants and improvements to existing plants. The latest report calls for 4,417 megawatts.

The adjustment is not so large at Duke Carolinas, but it is still significant. The increase would be 4.3% of additional capacity by 2029 over what had been projected a year ago.
That is the difference between 4,833 megawatts worth of new plants and improvements projected in the new plan and the 4,623 megawatts projected a year ago.
Challenge likely
NC WARN can be expected to challenge the assumptions in Duke’s latest IRP. The organization is a constant critic of the power company and its policies. And for years, it has taken issue with Duke’s projections for growth and the company’s insistence that its utilities will need to build significant new capacity.
Warren, in fact, says his organization thinks that Duke’s new, lower estimates for growth in demand are still too high.
He points to national figures that show lower overall growth in power demand than Duke is projecting. And he even cites Duke’s former CEO, Jim Rogers, who has said on numerous occasions that demand growth is flattening out in the country.
Duke, however, says that national averages and trends do not necessarily predict what the growth rates will be for any particular state or service area. Duke anticipates different growth rates, for instance, in Florida and the Midwest than it does in the Carolinas.

Coal capacity
Warren also objects that Duke has more existing capacity that is not using. He notes Duke’s existing coal fleet, once the base-load workhorse for its utilities, is not operating at anywhere near full capacity.
He cites figures from Duke that show only three units out of 20 at Duke’s seven remaining Carolinas coal plants are operating near capacity. One unit each at Marshall, Belews Creek and Roxboro are operating at 70% capacity or above (“full” capacity would generally be 75% to 80%). The new unit six at the Rogers Energy Complex in Cliffside, built just three years ago, operates at 63% capacity, and some large units operate at much lower levels.
Warren argues more of that capacity could be used to meet the demand Duke says justifies construction of new plants.
At the same time, using coal plants more would increase the carbon emissions for Duke’s fleet. And any significant increase could make it difficult, if not impossible, to meet the carbon restrictions built into the Environmental Protection Agencies Clean Power Plan.

Hazy future
The large natural gas plants Duke Carolinas and Duke Progress project for 2030 were not in the 2014 plan, which forecast only as far as 2029. But those would be significant additions to the Duke fleet.
Duke Carolinas would need an 895-megawatt plant in 2030, says its IRP. Duke Progress would need an 828-megawatt plant.

Wheeless notes that as the projections move further into the future, they become inherently less reliable as circumstances get harder to predict five, 10 and 15 years out.
But the IRPs are important planning documents that are considered by the utilities, regulators and other stakeholders as proposals for new plant, transmission and distribution construction are made.