Dive Brief:
- Maryland's Public Service Commission has given two power plants the go-ahead to start construction this year, while a further two are pending approval, with a fifth site soon to join them.
- The glut of new generation will help relieve a gap in the state's capacity as two of the state's coal units prepare to shut down in 2018, reflecting a larger trend in coal plant closures.
- Maryland imported about 42% of its generation from other states in 2010, according to the Commission, which not only drove up costs (Maryland has the 13th highest electricity costs in the U.S.) but also created transmission line congestion on the PJM Interconnection grid, resulting in $90 million in penalty charges last year.
Dive Insight:
Maryland's rate payers paid out $190 last year for capacity, which was far above the PJM jurisdiction average of $77 for 2013. It is hoped that by increasing local generation, the amount of imported energy will fall and the state's energy market will be reinvigorated.
Abigail Ross Hopper, director of the Maryland Energy Administration, said building the new plants "just make sense" for the state.
Kimberley Frank, an attorney at a firm which represents state utility commissions in federal proceedings, said "The result of competition … should be falling prices. That's the only reason we deregulated markets in the first place."
Critics disagree, saying that the only companies that really stand to benefit from the new push for generation are the larger utilities in the state such as Exelon. To try and encourage investors to put their money into generation facilities, often seen as a high-risk investment, the Maryland Public Service Commission had written in a 20-year contract guarantee, proposing rate payers would pay for any lost revenue. However, this provision was struck down by a federal court in June and is now being considered for appeal.
Meanwhile, PJM Interconnection doesn't think there is a problem with generation capacity in the state. In an analysis the grid operator found that importing energy was "just frankly the cheaper alternative" to new generation, according to Stu Bresler, PJM's vice president of market operations.
There may be another issue: The increasing amount of regulation faced by new generation facilities, particularly those planning to use traditional fuel resources such as coal, has meant that these facilities tend to cost far more to construct, and may ultimately prove unprofitable in the longer term. Although there may be demand for in-state generation, if the state needs to reduce carbon emissions and other greenhouse gases from electricity generation and use, then it may be better off to hold off on the construction process a little while longer.