YVEC's Commitment Amin Rising Power Costs
The entire electric industry is seeing tremendous upward pressure on rates. There are a number of factors contributing to this, and no easy solutions are in sight. While some entities may weather this rate disruption storm better than others, no one will go unscathed.
The decommissioning and dismantling of coal generation plants has created a massive need for new electricity generation sources. The disappearance of coal generation hasn’t just created a void; it has occurred at a time when the demand for electricity, for the first time in twenty years, is soaring. Artificial Intelligence, Data Centers, Crypto mining, electric yard implements, electric vehicles, etc., are all contributing to the electricity demand boom.
Coal plants provide baseload power, meaning they run constantly to meet the base needs of our society. Replacing them absolutely requires reliable alternatives. Volatile sources like wind and solar are intermittent sources of power, which complicate grid stability. Without “spinning reserves” or backup power sources, those sources simply can’t stand alone or be baseload power.
The concerted effort to construct new power plants has manifested in a build-out of new gas-fired turbine generators. There are a couple of types of gas turbines: F-class turbines, a technology from the 2000s, are basically simple-cycle peaking applications, not base load. Advanced class turbines are 450 megawatts for a single combustion turbine and are used for base load generation.
Combined-cycle plants couple a combustion turbine with a steam turbine, resulting in 750 megawatts of generation. However, supply is scarce. If you started planning a generation plant today and ordered the turbines, you could possibly secure some delivery spots for 2030.
There are only three vendors: Siemens, GE, and Mitsubishi, and among the three, they can produce about 100 advanced-class turbines annually for the world. Thus, the backlog. Additionally, other components are long lead-time items. The power transformers needed to step the power up to transmission voltage for transport are 48+ months out.
It does not take long to figure out that with electric supply down and demand up, prices are increasing. Combine that scenario with the prospects of new, reliable generation being 4 to 5 years away, and we find ourselves in an era of tremendous uncertainty and rate pressure.
The generation plants that are currently under construction or close to becoming commercially available are coming online at prices well beyond previous baseload generation. Again, the demand for equipment and recent inflation run have ushered in an entirely new wholesale price for power generation.
The starting price is about 9 cents per kilowatt hour, and that is with tremendously cheap natural gas. Most new plants will come online at about 10 cents per kilowatt hour, wholesale. That is more than double the price from just 10 years ago.
In Montana, we are in the crosshairs of this energy transition. While we still have a considerable amount of coal generation producing power, we too are short on supply. The solution, either coupled with wind or standalone, is advanced-class and combined-cycle natural gas turbines.
Our main supplier is Basin Electric Power Cooperative. They have about 7,000 megawatts of generation in their portfolio and are currently 700 megawatts short. They need to build new and are in the midst of building the Bison Generating Station, a 750-megawatt natural gas plant in North Dakota. Additionally, in order to raise capital for current and future needs, they have communicated a rate increase to members, like YVEC.
We will do everything we can to manage this increase and focus on efficiency. As wholesale power is 55-60% of our entire expenses, we will have to react to this increase in power costs. We will do so very responsibly, knowing our members depend on our reliable and competitively affordable power.
Thank you,
Brandon J. Wittman
Chief Executive Officer