NRG officials are enthusiastic about building a combined cycle natural gas power generation facility at the current Dunkirk location, but its future hinges on many contingencies and complex market factors.
NRG's Vice President and Northeast Regional President Lee Davis spoke to a crowd of about 20 people at the Energy Conference and Expo at the Clarion Saturday morning.
County Executive Greg Edwards introduced Davis and praised NRG for being "forthcoming" with regional officials in its dealings over the last six years.
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OBSERVER Photo by Shirley Pulawski
NRG’s Vice President and Northeast Regional President Lee Davis (left) and County Executive Greg Edwards (right) discussed plans and contingencies for NRG’s future in the region.
Davis began with a great deal of history of the company and the rise in production and drop in cost of natural gas in the region, which has made selling energy from coal-fired power plants financially unprofitable.
The low price of natural gas has caused a drop in the cost to produce energy from plants using natural gas. Davis explained combined cycle technology, the type of natural gas plant NRG is considering for Dunkirk. A combined cycle plant not only uses an energy source which costs less than coal, it operates much more efficiently. As engines, which Davis said are much like jet engines found on an airplane, burn gas to turn rotors which create electricity, a great deal of heat is produced. The heat, generally considered a loss of efficiency, is then used to convert water into steam, which then can spin a separate turbine to produce electricity.
Edwards and Davis both said combined cycle technology is not only more efficient, but will also reduce emissions. Davis said another advantage is the system can provide energy to the grid within ten minutes, versus 16 hours on average with the current coal system. Further, because the highly efficient plants cost far less to operate and are more efficient, they generally run more frequently according to Davis, which means a heating loop could is also a possibility for the Dunkirk area. A heating loop is a way to transfer heat from energy production to provide heat to homes and business in close proximity to the plant. One such loop is used in Jamestown to provide heating downtown.
The cost to build the new plant will cost about $700 million and would take several years to complete. NRG said it will pay for the cost entirely.
Governor Andrew Cuomo has developed an energy task force which is researching energy needs and its means of production and delivery within the state and has set goals to reduce emission, increase efficiency, modernize old power plants, improve transmission efficiency, reduce electricity prices in high-cost markets such as New York City and other goals. The task force requested information from energy-related companies in the state to become part of the "energy highway" Cuomo wishes to develop. NRG submitted information, and last week, the task force submitted its initial "blue print." NRG's proposals to the task force passed the first stage and are included in the blue print, but it is unclear what the next steps the state will take.
Edwards said building the new gas plant is contingent on Governor Cuomo's decisions about the plant and approval of the company's plan, but according to Davis, there are other contingencies.
Because the price of natural gas in the future is unknown, Davis said one contingency required to build would be to secure a 30-year purchasing agreement contract to buy natural gas at a fixed rate. "We can't be at the mercy of the market," he explained.
Another contingency is securing a power purchasing agreement large enough to keep the plant operating at a high capacity. Requests for proposals (RFPs) by those interested in purchasing electricity will be issued late this year and early next year, but contracts will be awarded to the lowest bidders. Davis said once a proposal is submitted, it will take at least six months or more to learn if its bids are accepted, beginning in June at the earliest. If NRG's proposals do not provide the lowest bids to interested entities, contracts will not be awarded. Davis suggested securing contracts would affect NRG's decision to move forward with building the new combined cycle facility.
Because of lack of profitability for coal generated power, Davis explained the company's decision announced in March was originally to mothball all four coal-fired units at the Dunkirk plant. After a study of need was conducted by the Public Service Commission (PSC), the company was forced by the commission to keep two of the units operating until at least May of 2013. It is unknown whether that contract will be renewed in May. In September, the mothballing process began for two of the four units.
Mothballing the units, Davis explained, is a way to store the units in a manner which keeps parts from corroding or otherwise becoming unusable. "If the market changes and we have a situation where natural gas prices go up and coal becomes profitable again, then we can put those units back into service," Davis told the crowd. however, he later added New York state does not have policies which favor coal-fired power plants. Currently, less than four coal-fired plants remain in the state.
In Ohio, Davis said most coal-fired plants are being retired and many have already closed, creating high energy costs through lack of supply and a lucrative market for energy sellers in the Cleveland area market, but transmission lines aren't available to route the energy produced here to that market.
"We manufacture a product, and that product is electricity. We have to get our goods to market," Davis said about the energy producer's reliance on electrical transmission lines. He said the Cleveland market is beginning to develop new transmission lines, but whether or not that would create opportunities for NRG to sell its product to that area is unknown, so the company is currently focused on supplying to the New York City area, where energy costs are also high.
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