Drought and high power costs

TENNESSEE - Only 6 percent of TVA energy comes from hydroelectric, and TVA just finished spending $1.8 billion on a nuclear plant, but the utility blames drought for a rate surcharge for January.

What's up with that? What's up is peak demand, and what's down is river flow, the cheapest way to meet that demand. Hydroelectric accounts for a small part of the Tennessee Valley Authority's energy portfolio, but it historically has played a major part in meeting peak demand. Increasingly, TVA is turning to natural gas to meet peak demand.

Recently, it paid $180 million to a California company to begin the design and construction of "peaking plants" that produce electricity from natural gas. "Peak demand" is a wallet-draining concept that describes humans' irregular use of electricity. You don't turn your oven on at 3 a.m., or your lights, or your dishwasher.

Instead you do all those things at the same time everyone else does, generally after 4 p.m. On January 7, peak load for the TVA system was about 22,000 megawatts. The minimum load that day was about 16,500 megawatts.

For TVA, that creates a problem.

Its main power sources - coal and nuclear - cannot safely be turned on and off every day. Once the turbines are turning, they want to be left alone.

If TVA produces enough electricity with coal and nuclear to meet demand at, say, 8 p.m., it has too much at 3 a.m. That excess production not only would be inefficient, it would damage the components of the grid.

If it generates something less than enough for peak demand times, however, it has to have a way to crank up the power for a few hours at a time. TVA has three basic sources of power that it can turn on and turn off quickly.

Two sources - combustion turbines and combined-cycle turbines - are fueled by natural gas. The other, hydroelectric power like that produced at Wheeler Dam, is the king of all power sources. Pull the stopper from your bathtub drain. How long before the flow starts? A hydroelectric dam enjoys the same characteristic: immediate ramp-up. And, of course, river water comes cheap.

So it is 4 p.m., and TVA figures you are about to go home and turn on your oven. No problem; it pulls the stopper. But what if the bathtub is empty? In 2003 the average annual flow of the Tennessee River at Wheeler Dam was 67,981 cubic feet per second. It has dropped every year since.

In drought-ridden 2007, water crawled down the riverbed at 20,167 cubic feet per second, less than a third of its rare only four years previous. The king of TVA's power sources is crippled. TVA's hydroelectric generation was 24 percent below normal in 2006 and 31 percent below normal in 2007. Keep in mind that hydroelectric is king not because of the amount of energy it produces in the TVA portfolio, but because of its cost and ramp-up speed.

When the bathtub runs dry, TVA needs another power source, but not just any source will do. It needs a source that it can turn on for peak demand and turn off when the peak is over. That eliminates coal plants and nuclear plants, the cheapest power source after hydroelectric. What it leaves is natural gas-fueled plants: combustion turbine and combined cycle.

Combustion turbine plants are relatively inexpensive to build and TVA can ramp them up to full power quickly, but they are inefficient. That means the incremental cost of operation - the cost of turning them on when you and your neighbors turn on your lights every evening - is high.

TVA owns 83 combustion turbine plants, but aims to leave them offline 95 percent of the time. "They are for the peak of the peak," said TVA Vice President of Transmission and Reliability Bob Dalrymple. Combined cycle plants use natural gas more efficiently than combustion turbines. They are expensive to build, though.

Calpine's Decatur Energy Center is a combined cycle plant. Pursuant to a contract with TVA, it stands ready to deliver power to its sole customer on demand. J.D. Sellers, head of Decatur Energy Center, explains that for the limited role that his plant plays in TVA's portfolio, the expense is worth it.

"Within minutes, I can have (electricity) for them. All I've got to do is light off the turbine, warm it up a few minutes, and it's ready to go online," Sellers said. "I'm standing by for them 24 hours a day."

The impact of dropping rainfall over the last few years, and the resultant drop in river flow, is that at times of peak demand TVA must substitute its cheapest power - hydroelectric - with its most expensive, natural gas-turbine power. "When hydro is down," said Dalrymple, "you're generally going to replace it with a natural gas-fueled asset."

Your light bulb is as bright no matter the power source, but the cost to TVA - and eventually to you as a ratepayer - varies dramatically.

The cost (ignoring capital costs like plant construction) to TVA of its various power sources, calculated by megawatt hour, covers a wide range.

- Natural gas combustion turbine: $100.

- Natural gas combined cycle: $65.

- Coal: $43.

- Nuclear: Below $35.

- Hydro: Lower yet.

Even as TVA has had to replace cheap hydro with expensive natural gas to handle peak demand, it has had to deal with ever-increasing peak demand in the Tennessee Valley. Peak demand is increasing at about 2 percent a year, with non-peak demand increasing almost as much. "One nuclear unit can offset about two years of power demand growth," explained TVA spokesman Brooks Clark, referring to non-peak demand.

Another complication for TVA is inherent in its heavy reliance on nuclear power for its base (non-peak) load. Every time a nuclear plant shuts down - and Browns Ferry Unit 1 has been doing that a lot since its start-up in March - TVA has to scurry to eplace the power, and it has to do so immediately.

As in peak demand situations, TVA needs a power source with a quick ramp-up. In many cases federal regulations require that it be able to replace the power within 15 minutes. Where do you go when Unit 1 drops from generating more than 1,000 megawatts of power to none in a few seconds? Cheap hydroelectric if you have it.

Expensive natural gas if you don't. With King Hydro ailing and demand increasing, natural gas has to suffice when TVA needs quick power. Replacing the cheapest power source in TVA's portfolio with the most expensive increases rates. So if you drive by the river on the way home and see the river is low, do us all a favor. Don't turn on the lights.