November 30, 2010 - coal-burning Salem Harbor Power Station to close?

To generate electricity, humans rely on a variety of different technologies, ranging from burning coal to make steam, to combined-cycle natural gas turbines, to renewable resources like hydroelectricity and solar photovoltaics.  Over time, the portfolio of energy resources upon which we rely may shift to less environmentally harmful assets.

For an example of how certain generation technologies may fall out of the generation mix, take the planned closing of the Salem Harbor Power Station.  Located in Salem, Massachusetts (a city that sports solar photovoltaic-powered trash compactors on its sidewalks), this plant is one of several coal-fired power plants closing scheduled for the coming years.  Since it started operations in 1951, the Salem Harbor Power Station has expanded and now generates 745 megawatts by burning coal and oil.  Although the plant, currently owned by Dominion Resources, Inc. has increased its pollution control systems over the years, it was listed as one of the state’s “filthy five” dirtiest power plants in 2000, a hard reputation to shake.  A study by Harvard University researchers at about the same time blamed the plant for 30 premature deaths annually, primarily due to air emissions.

Dominion, which purchased the plant in 2005, took steps to reduce emissions such as switching to lower the sulfur content of the coal burned there.  However, the Salem plant has reportedly received $12 million in investments from Dominion since 2005—a marked contrast with the more than $1 billion Dominion invested into its 1,547 megawatt coal plant at Brayton Point in Somerset, Massachusetts.

As it is often the case, declining investments may result in the demise of production operations.  Also, I have seen in similar context, the declining investments arise in part from declining economics that are to be seen at that facility.  In the case of the Salem Harbor Power Station, the fact that Dominion could not shift the costs of new pollution controls to rate payers made further investment in the plant uneconomic.  As a merchant generator in the ISO New England system, Dominion takes a market clearing price for its power, and thus cannot raise its rates over other resources to cover future increases in pollution control expenses.

The Salem Harbor Power Station is also a good example of how an increase in environmental regulation may lead to higher costs for certain kinds of generation units (in this case, coal-fired generation stations).  Regulatory requirements to improve pollution control result in higher operational costs; these higher costs may in turn make even a relatively low fuel cost unit (such as coal) comparatively uneconomic.  By comparison, once pollution controls are imposed on coal-burning units, the fact that renewable units such as wind or hydro or natural gas-fired units may not require such expensive pollution controls makes them relatively more economic.

Over time, it seems the balance has shifted, the generation mix will shift piece by piece as less economic units such as the Salem plant close, and new more economic units come online.  Note that this does not always mean that the price of power goes down; rather, in this case, it is not that wind and hydro got cheaper, nor natural gas, but rather that the cost of coal now includes more expensive pollution control requirements, making it less economic.  In 2009, coal fueled 12.8% of the New England portfolio; we shall soon see what 2010 has brought.

One other note on what happens if the Salem Harbor Station goes dark:  ISO New England is now studying how to replace the plant, and true to its mission, is considering increasing transmission system upgrades in the region.  This is an interesting example of how ISO New England focuses on transmission solutions — perfectly natural given its mandate — to replace a generation asset.  While not all generation assets can be effectively replaced by transmission solutions, transmission between a remote generation resource and load may serve to replace at least some generation assets.  Whether this will be correct in Salem remains to be seen.  Within five years, the Salem station may be closed.