How the Second-Largest US Utility Can Cut Both Costs and Carbon
A new RMI analysis reveals an opportunity for Southern Company to save its customers money and chart a faster path toward its climate targets by making changes to how it operates its coal fleet.
Southern Company is the second-largest utility in the United States (based on number of customers) and its subsidiary, Georgia Power, (itself the fifth largest US utility) operates one of the largest coal-fired power plants. The scale of these power giants ensures their climate and emissions decisions reverberate across the entire US energy sector.
Like most major utilities, Southern Company has climate goals, specifically, to achieve net-zero carbon emissions by 2050. Simultaneously, states in the southeast, including all Southern Company-operated states, suffer from some of the highest energy bills in the country.
A new RMI analysis reveals an opportunity for Southern Company to save its customers money and chart a faster path toward its climate targets by making changes to how it operates its coal fleet. Between 2015 and 2020, changes in coal plant operations by Southern Company utilities could have saved customers $140–$430 million per year, resulting in $1.5 billion in cumulative customer savings.
Between 2015 and 2020, changes in coal plant operations by Southern Company utilities could have saved customers $140–$430 million per year.Tweet
Making the Switch to “Economic Dispatch”
Power plants are ideally operated in an order going from least cost to highest cost — their “merit-order.” This practice, which we refer to as “economic dispatch,” ensures that consumer costs for electricity are as low as possible by using the cheapest generation first.
Outside of the Southeast, there are independent system operators (ISOs) that run wholesale power auctions to ensure economic dispatch. These auctions provide a liquid and transparent market that help other utilities make decisions about which plants to operate or shut down. But no such market exists in the Southeast, making it much more difficult for utilities like Southern Company to take advantage of lower-cost resources that might be available.
Reducing Coal Operations
Drawing on data from RMI’s Utility Transition Hub, RMI’s analysis found that Southern Company’s coal fleet could have saved almost $1.5 billion between 2015 and 2020.
Over that same period, Georgia Power customers could have reaped most of these benefits: reducing output from the Bowen coal-fired power plant could have potentially saved customers $885 million over the same period. In 2020 alone, operating Bowen less could have saved customers $80 million.
The data shows that two Georgia Power plants, Bowen and Scherer, represent the largest opportunity for Georgia Power to reduce emissions and save customers money at the same time. While they were operated economically year-round in the early 2010s, that is increasingly rare, and now is a great time for Georgia Power to consider changing the way these plants operate, relying less on the expensive coal plants and taking advantage of lower-cost resources from its neighbors.
Differences in how the two plants operate explain their comparative economics. Historically, Bowen has been used as a high-capacity resource that runs year-round, including when it was not the least-cost option. Comparatively, Scherer is primarily used more sparingly to meet peak demand and operates less often than Bowen. Because Scherer operates less it loses less money and the economics appear more favorable than Bowen. Even so, during the last two data years (2019 and 2020), there wasn’t a single month when it was cheaper to operate Scherer compared to alternatives.
Decreased Coal Operations Means Fewer Losses
Overall, Georgia Power’s gross losses decreased as a result of reduced coal plant operations. Although generation continued to decrease through 2020, the volatile energy market complicated matters. In 2019, low natural gas prices drove average wholesale market prices down. Coupled with reduced demand throughout pandemic lockdowns, only the very lowest-cost coal resources remained economically viable, resulting in gross losses for 23 out of the 24 months during the last two years of data.
Looking forward, decreasing coal generation and focusing on economic dispatch can reduce costs and drive consumer savings. The three most recent years of data show us that Georgia Power’s decreased coal generation has already resulted in savings. By 2020, Georgia Power limited net generation in coal plants to 41 percent of 2015’s net generation resulting in a 61 percent reduction in gross losses compared to 2015, and savings in the hundreds of millions of dollars.
Had Southern Company imported cheaper energy from the surrounding regions, instead of relying so heavily on its own coal fleet, they could have passed along those savings to customers. Without access to a transparent and liquid day-ahead energy market, Southern Company, and its subsidiaries, have struggled to take advantage of lower-cost energy resources owned by neighbors.
Enabling Access to Lower-Cost Resources
Importing cheaper energy where it’s available will translate into customer savings on electric bills. Creating a transparent and liquid day-ahead energy market with locational pricing can give utilities the market information needed to help ensure economic dispatch, reducing energy costs by hundreds of millions of dollars annually.
The Southeast proposal a partial solution as it will improve price signals, however, this proposal does not include centralized dispatch and commitment optimized over multiple balancing authorities, therefore limiting the benefits that could be achieved with a wholesale market.
Reducing reliance on coal, and replacing that energy with cleaner, cheaper resources already available on the market will help the company reduce carbon emissions without retiring any of their existing resources. Prioritizing economic dispatch has the potential to save Southern Company customers hundreds of millions of dollars which would provide the first large step to relieving this energy burden.
Southern Company has an opportunity to accelerate progress toward its climate objectives and alleviate energy burden by changing coal plant operations. Dispatching resources based on least cost will help Georgia Power achieve current corporate climate commitments to investors and actualize potential savings.
One important thing to note: Southern Company doesn't lose money when it opts to run its own power plants instead of pooling resources and importing lower cost energy from neighbors. In fact, a utility's profits will be identical if they do or don't change how they operate their coal fleet. That’s because the company’s profits are based on capital expenses not operating expenses. But customer bills cover both capital and operating costs, so they can stand to benefit — demonstrating why leadership from state regulators is the critical factor in addressing this issue.
The best part of this strategy is that it doesn’t require building new resources or retiring existing ones; it just requires Southern Company to cooperate with its neighbors and import cheap energy when it’s available — with no impact on reliability or the company’s bottom line.