Local utility Evergy Inc. has been criticized in recent months for not doing enough to welcome more renewables-based energy generation. But according to company officials, adopting 100% renewable energy isn’t as straightforward as it sounds.
Elliott Management Corporation, a New York-based hedge fund with a history of shareholder activism and about a 5% stake in Evergy, claimed in a letter to the company’s board of directors earlier this year that the utility’s carbon reduction targets are “inadequate.”
About a week after Elliott’s letter was made public, Evergy announced a plan to expand its wind portfolio by 660 megawatts and reduce its carbon emissions by 80% below 2005 levels. The utility expects to meet those goals by 2050, around the same time it intends to retire all but one of its five operational coal plants.
Elliott, however, argued those goals were “uninspired and economically inefficient” and said Evergy lags behind peers who have pledged to reduce similar percentages of carbon emissions by 2030.
The hedge fund isn’t alone in its criticism.
In August 2019, the Sierra Club — an environmental advocacy organization with headquarters in California — released a report in which it claimed Evergy’s coal fleet lost more than $260 million from 2015 to 2018 relative to market energy pricing. The report also noted that monetary losses from the coal plants are expected to continue and that those losses could be placing greater financial burden on ratepayers.
The Sierra Club argues Evergy should seek “cleaner and less-expensive” energy options in Kansas — one of the top wind-producing states in the country.
In response to the report, Evergy claimed the Sierra Club’s findings were “dangerously misleading,” suggesting the transition away from coal-based energy is a more nuanced process than expected.
“This is a very complex industry,” said Chuck Caisley, Evergy’s senior vice president of marketing and public affairs, when he testified before the Kansas Senate Utilities Committee on Feb. 6. “It’s a very complex finance underneath it.”
The energy Evergy provides to customers is generated from four sources: coal, renewables, natural gas and oil, and nuclear.
By the end of 2020, coal is expected to account for about 40% of the utility’s energy portfolio — compared to 52% in 2010. Renewable sources, such as wind and solar, make up about 27% — up from 1% 10 years ago.
According to Gina Penzig, Evergy’s manager of external communications, it’s important for the utility to have a mixed bag when it comes to energy generation. She said each method of generation has its pros and cons.
“While coal comes with environmental concerns, it’s very predictable, and our ability to turn the generation up when customer demand is highest and when air conditioners are running and you want to stay comfortable — it’s very good at that,” Penzig said.
“Wind and solar have much less environmental impact because they’re using natural, renewable resources,” she added. “However, we’re also kind of at the whim of those natural resources, the wind and sun, as far as when they’re producing energy.”
Evergy currently owns four operational coal plants — three in Kansas and one in western Missouri. According to Penzig, those plants employ about 1,000 people, not including contractors hired by Evergy to work with plant staff on special projects.
She said most of Evergy’s coal plants are set to reach the end of their useful lives between 2040 and 2050, and the utility has announced plans to retire the plants as they do.
Penzig said retiring plants slowly allows Evergy to provide workforce transition for its employees. In the past, she said, Evergy has avoided layoffs by offering employees other jobs in the company or by offering voluntary exit and early retirement programs.
However, in his Feb. 6 testimony, Caisley said multiple entities have suggested Evergy retire its coal plants sooner.
“We’ve got two stakeholders out there asking for retirement as early as 2030,” Caisley said. “Here are some facts: We can’t do that. We cannot do that and not replace that generation — because we wouldn’t have enough generation to meet our obligation under federal law.”
According to Penzig, Evergy is required to have the capacity to generate more than the amount of energy used by customers during peak demand times — which usually occur in August or September when school is starting back and air conditioner use is frequent.
Caisley said speeding up closures of Evergy’s coal plants would leave the company with a pretty significant energy gap to fill — a gap that couldn’t be filled entirely by renewables at this point in time.
“If we were to speed our plant closures for coal up to 2030, first of all I don’t know if it would be possible, just from a construction and permitting and all that kind of thing,” Caisley said. “But second of all, we would have to replace it — some with natural gas and some with wind.”
And that would undoubtedly cause customer rates to go up, he said.
In his testimony, Caisley admitted that Evergy is “heavy on coal.” He said over the last 12 years, Evergy officials have had to decide whether to retrofit existing coal plants or invest in new infrastructure by building natural gas plants to meet demand.
The utility chose to retrofit, or reinvest in already operational coal plants and update their systems. It’s a decision, Caisley said, that made sense at the time.
“Natural gas was, and still is, more expensive and much more volatile in terms of fuel price than coal,” Caisley said. “And while what actually occurred as a result of fracking is a historic decline in both natural gas and oil production prices — it is still more volatile and it is still more expensive to generate electricity with this fuel source.”
Widespread adoption of renewables doesn’t appear to be something Evergy strongly considered at the time. A big reason for that could be the lack of affordable energy storage.
“One of the challenges with wind and solar is that large-scale storage really hasn’t become a cost-effective, reliable resource,” Penzig said. “There are a lot of utilities out there that are doing pilot programs with it, looking at different ways that they can work in different applications, but as far as getting to the point where a wind farm could replace a base plant because you’ve got a storage mechanism there — that just hasn’t been developed yet.”
According to Daniel Bresette, executive director of the Environmental and Energy Study Institute, scalable battery storage technology does exist but remains costly.
“Generally speaking cost is the constraint,” Bresette said. “And for something as big as a wind farm in the middle part of the country, you’re talking about many many kilowatt hours that would need to be stored.”
Bresette said renewables and storage technology go “hand in hand.” As renewable energy sources have become more prevalent, storage costs have declined — and he expects that trend to continue.
But he said there is also a bigger factor to consider — the country’s energy grid as a whole.
“You’ll hear some say, ‘No, you can’t go to all renewables because you need base load power from nuclear or natural gas or coal,’” Bresette said. “That may be true if you’re only thinking about a piece of the system, but that’s not how the grid works. The grid works in a big system, and the ability to move energy around the big system is what makes it work.”
Penzig said Evergy is keeping that in mind as it adds wind to its energy portfolio.
“One of the things that can be important as we continue to add wind, something that balances out the intermittency of wind energy, is being able to have wind farms in different areas of the state,” Penzig said, “so that way if wind has died down in south-central Kansas, maybe it’s a somewhat windy day in northeast Kansas.”
Ultimately, providing reliable energy is a balancing act, with several moving parts.
“Any power source you build, you’re looking at an investment that really should serve customers for decades,” Penzig said, “so you want to look as far forward as you reasonably can in making sure that’s going to be the right investment for today and for in the future.”
And with long-term plans, she added, “there’s always a lot of unknown that’s involved there.”