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In early June, Exelon announced that they were planning to retire two of their six Illinois nuclear electricity generating stations over the next 24 months. It can be debated whether this is just a negotiating tool with the Illinois state legislature to force legislation that would allow these plants to be compensated for the carbon-free attributes of nuclear electricity generation. We will know in the next year whether these plants will retire or not.
What is not open for debate is the fact that many fossil fuel electricity generating stations have been retired or are scheduled to be retired during the 2015-19 timeframe. The majority of the announced retirements are in the Midwest Independent System Operator (MISO) part (southern) of the state. Though the ComEd area is in the PJM Regional Transmission Organization (RTO), it is important to recognize that the prices in both areas are highly correlated.
The central and southern parts of Illinois have always been highly dependent on coal-fired electricity generation, but that is really starting to change. There are over 3300 Megawatts of coal-fired electricity generation scheduled to be retired between now and June 2017. There are also another 1500 MWS of other possible retirements that are being discussed. When combined with the possibility of the retirement of the Clinton and Quad Cities plants, that is over 7,000 MWS of electricity capacity that could be lost in the coming years.
This all could provide some upward pressure to further dated forward electricity prices in both Ameren and ComEd. It has also been stated that MISO could begin to experience a possible reserve margin shortfall as early as 2018, which could have a significant impact on capacity prices in both PJM/ComEd and MISO/Ameren (see story above about MISO capacity market). When that much generation is removed from the generation stack, it can cause reliability problems. While there has been an additional 3842 MWS of wind electricity generating capacity added in Illinois over the last 12 years, it is an intermittent source, so, from a reliability standpoint, it cannot always be pointed to for the full amount of capacity.
The addition of wind energy is certainly part of the problem for coal. Wind electricity generation has high installation costs but clearly has no fuel costs. The poor environmental attributes of coal-fired electricity generation combined with the still existing Wind Electricity Production Credit of $23.00 per MWh (it will be phased out incrementally by 2020) just makes coal less competitive. The irony of the situation is that once the wind production credit fades, wind generators may not accept such a low price for their production, which could be an additional fuel for higher prices.
Analyst – David Mousseau
Information Sources Energy Information Administration (EIA) and CONSTELLATION ENERGY
