NV Energy to ditch plans to build $1B plant, will buy cheaper one in Arizona

By Daniel Rothberg

Thursday, May 5, 2016 | 2 a.m.

NV Energy does not expect to build a new fossil fuel power plant in the next decade, making it unlikely that it will go forward with a controversial $1 billion natural gas plant that the utility had proposed last fall.

The utility, instead, signed an agreement early last month to purchase an existing Arizona natural gas plant, according to a recent federal regulatory filing. Pending state and federal approval, NV Energy would close on Calpine’s South Point Energy Center no later than the first quarter of 2017. That same year, NV Energy is scheduled to complete a shutdown of the Reid Gardner coal-fired plant and will lose another power source with the expiration of a 10-year contract with a natural gas plant in Arizona. While the purchase of the South Point plant was largely done to replace the natural gas power that will be lost from Arizona, it comes when state energy leaders are grappling with whether the utility should invest more in renewables.

Details of the sale were not disclosed in Calpine’s filing.

The South Point plant, built on tribal land, became operational in 2001. In 1999, a federal environmental report estimated construction would cost about $250 million with yearly operation costs from $3 million to $6 million. NV Energy declined to release the sale price but said the cost was far below the $1 billion price tag of the plant that the utility had proposed to build.

“It’s way, way, way less than that,” Kevin Geraghty, vice president of energy supply, said, noting that the utility would always weigh whether it is more efficient to buy or build facilities. “I think it’s unlikely NV Energy will build any new fossil resources in the next 10 years.”

Despite considerable volatility in prices during the 2000s, the price of natural gas has remained relatively low in past years due to factors that include steady production and large supply. For that reason, Geraghty said it would be unlikely and, in some cases, inefficient for the utility to build a new gas plant. While a new plant might be included in planning the utility is required to submit to state regulators, it would be a “placeholder.”

NV Energy’s agreement with Calpine, a Fortune 500 firm based in Houston, would help the utility make up for dwindling capacity as a contract for natural gas expires and it retires its coal plant at the end of 2017.

Though NV Energy had long said it was only studying whether to build a $1 billion natural gas plant in North Las Vegas, the request last fall spurred concerns about rate hikes and the utility’s financial motives.

Several state energy leaders worried that the utility had not evaluated other options of how to source the roughly 700 megawatts of power the plant would have provided. Because the utility is guaranteed a rate of return on its investments, some accused it of picking the most profitable option.

But in early January, the utility began looking into other options. It issued a solicitation for 400 to 700 megawatts in capacity of fossil fuel or renewables. All of the responses were from natural gas providers.

On April 1, NV Energy entered into a sale agreement with Calpine. More details about the pending purchase are likely to be included in an NV Energy filing with the Public Utilities Commission of Nevada in July.

The sale of the South Point Energy Center, in the Mojave Valley, will provide NV Energy with a capacity of about 500 megawatts. NV Energy plans to obtain an additional 135 megawatts of capacity from renewable sources.

The move to acquire a new natural gas plant comes as state officials, the utility and renewable advocates are debating the future of clean energy in the state. The governor’s New Energy Industry Task Force could recommend legislation on a variety of clean energy policies.

A spokesperson for residential solar giant SolarCity’s effort to restore the rooftop solar market here criticized the utility for not pursuing an option that allows for more flexibility — not being locked into a new power plant — and private investment rather than ratepayer investment.

“We should be able to have the flexibility to meet growing demand with whatever is the least cost for ratepayers,” said the spokeswoman, Chandler Sherman, arguing that by the time ratepayers pay off the cost of the new plant, solar will have proven to be a cheaper, stabler and more efficient option for the grid.

Rooftop solar, she said, could also decrease the need for the new energy.

Some have pointed to Hawaii as an example of how solar companies can work with utilities to develop alternatives that address capacity. A Hawaii utility recently partnered with SolarCity to use Tesla storage batteries so that solar could provide customers with energy in the evening.

Geraghty said it would be difficult for NV Energy to meet the 700-megawatt need with solar alone. Solar, he argues, is less efficient later in the day when demand for energy is often at its peak. In the bidding process, he said NV Energy was looking for the least expensive resource that could provide hundreds of megawatts during all times of the day. Though energy storage devices, like the batteries in Hawaii, would have made solar available in the evening, the utility said that the technology had not progressed to the point where it was a cost-competitive option.

The South Point plant will operate year-round but run most heavily in the summer.

In the coming months, the utility might find itself under more pressure to acquire renewable resources. A subcommittee of the energy task force is discussing the state’s renewable portfolio standard on May 16 and could recommend legislative changes. Clean energy advocates argue that the standard does not encourage in-state renewable development because the utility can purchase and apply credits from out-of-state projects to show that it is in compliance.

Under the current requirement, the utility is tasked with ensuring that 25 percent of its retail sales come from renewable energy by 2025. While the utility surpassed the 20 percent requirement for 2015, critics have said the energy it generates from renewables is closer to about 14 percent.