Navigant Research Blog

In Eastern Tennessee, the Future of Electricity Generation Takes Shape

Richard Martin — September 4, 2013

It’s been a cool, wet summer in the Southeastern United States, which has meant lower power sales for the Tennessee Valley Authority (TVA), the federally owned utility that serves 9 million customers across seven states in the region.  The TVA said last month that it sold 4% less power and took in 6% less revenue in the third quarter than the same period in 2012, mostly because of the mild weather, a weak economic recovery, and lower fuel prices.

TVA, which brought electricity and running water to much of the Southeast in the decades following the Great Depression, is facing many of the challenges that big utilities across the country face, and it has responded (or has been forced to respond) by beginning to phase out its coal-fired units in favor of gas-fired generation at modern combined cycle plants, including one at the John Sevier power station in Rogersville, Tennessee.  In 2011, the TVA signed a landmark agreement with four states, several environmental groups, and the U.S. Environmental Protection Agency that calls for the retirement of 18 units at three power plants, including the huge Johnsonville Fossil Plant in Tennessee, the Widows Creek Fossil Plant in northern Alabama, and the Sevier plant.  Two of the four units at Sevier have been idled, and the other two will either be equipped with modern emissions control equipment, converted to biomass-fired generation, or retired by the end of 2015.

The agreement, which was spurred by a lawsuit filed by the state of North Carolina over air pollution from TVA plants, also levied a $10 million civil penalty on the utility and calls for $350 million in investment in new pollution controls over the next 5 years.  The Sierra Club called it “one of the largest pollution reduction agreements in the nation’s history.”

Shifting to Gas

The transition at the Sevier plant was not a conversion, per se; TVA determined that switching the existing units to gas-fired generation would be much more costly than simply idling the coal units and building a new combined cycle plant.  The new John Sevier Combined Cycle plant went into commercial operation last year and has 880 MW of total capacity – about 490 MW in single cycle mode and another 390 MW in combined cycle – in which excess heat from the primary gas turbine system is recycled to drive a secondary steam turbine.  TVA says that, compared to the old coal units, the new gas-fired station will produce 40% less air pollution – half the carbon dioxide and 1% sulfur dioxide.

Last year the TVA said it had signed a lease-purchase agreement with an investor group known as John Sevier Combined Cycle Generation LLC, under which the utility will lease the $820 million to the company for $1 billion over 30 years.  Such complicated financing arrangements are a necessary strategy for the TVA, which lost $203 million on revenue of $7.9 billion in the first 9 months of this year.  Pressured by tightening regulations, market forces, and public demand for cleaner power, TVA, like many big utilities, is facing wrenching changes in the coming years.  Switching to advanced natural gas-fired power stations, like the new Sevier plant, offers one way forward for the TVA and for U.S. utilities in general.

For an in-depth examination on switching coal-fired generation capacity to natural gas, please join us for the Navigant Research webinar, Coal to Natural Gas Plant Conversions, on Tuesday September 10 at 2 p.m. Eastern time.

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