Electric cooperatives to build $2 billion in power plants to ensure system reliability

Buddy Hasten, president and CEO of Arkansas Electric Cooperative Corp. (AECC) and Arkansas Electric Cooperatives Inc. (AECI), said at least $2 billion in new electricity generating capacity would meet energy demand amid rising reserve margins and power plant retirements.

To pay for the new capacity, consumers can expect a 14% rate increase, split into four smaller increases from 2025 to 2028.

On Monday (July 29), Hasten discussed the plans at the 2024 Directors’ Summer Conference that the Electric Cooperatives of Arkansas hosted at Embassy Suites in Rogers. Little Rock-based AECC recently celebrated its 75th anniversary. It was incorporated on July 11, 1949, and is the wholesale power provider for the state’s 17 electric distribution cooperatives.

Hasten said the changes are needed to meet rising reserve margin requirements in the regional transmission organizations in which it operates. The reserve margin in Southwest Power Pool (SPP) is expected to increase from 15% to 36% and from 9% to 26% in Midcontinent Independent System Operator (MISO).

“AECC needs to add new power supply,” Hasten said. “By 2030, we need to add 1,850 megawatts. We need 850 megawatts in SPP and about 1,000 megawatts in MISO.”

The new capacity would more than offset two coal-fired power plants set to close in 2028 and 2030. Combined, the plants provide 1,168 megawatts. The other 682 megawatts would meet the rising reserve margin requirements. The reserve margin is needed to ensure system reliability in the event of an outage or weather that can cause demand to surge. The requirements recently rose due to winter storms that caused demand to peak.

He said the reserve margin percentages are rising, in part, because “the resources in the market are changing. As more nuclear plants and coal plants close, there’s fewer and fewer of those assets in the market. And you’ve got more and more wind and solar and other things, so the remaining…thermal assets, they’ve got to run more perfectly because there’s fewer of them to spread out problems against. So therefore, we’re raising the reserve margin in market.”

He said AECC went from excess capacity to not having any excess. To meet short-term demand, AECC plans to add two gas-fired turbines to the 170-megawatt Thomas B. Fitzhugh Generating Station in Ozark. This will add about 100 megawatts to the capacity.

Plans have yet to be announced to meet the remaining 1,750 megawatts of capacity needed to ensure system reliability. A challenge to meet this demand is new environmental regulations restricting the use of large gas-fired power plants only to run 40% of the time.

Hasten highlighted a large gas-fired plant that could generate electricity in part using steam. However, it would need to run for a long time to justify the added cost of building this plant. He said this type of plant with steam turbines would generate more power at lower emissions than traditional gas plants.

Asked about the challenges AECC faces in its 75th year, Hasten said they are similar to ones it faced in the 1970s when gas could no longer be used to make electricity. This led the U.S. electric industry to burn coal to produce electricity. Now, federal policy is pushing the industry to reduce carbon emissions, leading to a switch from coal to gas. He noted that replacing a coal plant with a gas plant reduces carbon emissions by half.

“It’s more challenging that we’re in a higher interest rate environment,” he said. “We’re in an inflationary environment. So purchasing all those things, financing all those things, it is more challenging in this environment than if it had happened 10 years ago.”

LOAD GROWTH
The United States used about 4,000 terawatt-hours of electricity in 2023. He said electricity consumption increased in the ‘80s, ‘90s and early 2000s. But it’s been flat for about 20 years as the United States became more focused on improving efficiency, and a lot of manufacturing left the country.

“We’re now starting to see real load growth again,” said Hasten, noting that U.S. electricity usage is projected to rise by 27% by 2050. “We’ll go from that 4,000 terawatt-hours up to over 5,000 terawatt-hours. That’s a lot of load growth.”

A $630 billion investment in large loads is projected in the near term, and manufacturing is driving the rise. The CHIPS and Science Act is expected to increase semiconductor manufacturing in the United States, and “Buy America” provisions are also boosting manufacturing.

Cryptocurrency mining accounts for another significant portion of electricity use. This comprises between 0.6% and 2.3% of the electricity consumption in the United States.

“Bitcoin uses 172 terawatt-hours a year just to make digital currency,” Hasten said. “If you compare it to Visa, with one Bitcoin transaction, you could do 523,000 Visa transactions and use the same amount of electricity. … You could do 961,000 transactions to get the same carbon footprint.”

He said people are starting to see cryptocurrencies as an asset like gold and moving away from them for daily transactions.

Hasten also discussed a recent report showing that data centers could use up to 9% of the electricity the United States produces by 2030. Data center demand is expected to rise from 17 gigawatts to 35 gigawatts, which equals about 400 terawatt-hours or about 10% of existing electricity use. The rise in artificial intelligence is contributing to increased data center electricity consumption.

Hasten expects some bills to be introduced in the 2025 legislative session to address the load growth. AECC has 2,000 megawatts of new power requests in its queue. He said its summer peak is 2,659 megawatts, so this would nearly double the company’s load if the power requests were added. He noted that about half of the requests comprise data centers.

“They would sign a contract this second if I would sign it,” he said. “But I have to figure out how I’m going to feed them.”

Asked how AECC plans to meet its demand growth, he said with gas plants over the near term.

“If I had access to an infinite amount of capital at 0% interest, I would say that my first choice to add all this power needed 99% of the time, like data centers and stuff, would be nuclear because it’s carbon-free,” said Hasten, adding that existing rules and regulations don’t support this and would likely be too risky.

“I think that nuclear power is the answer because a nuclear power plant runs at 100% power 93% of the time,” he said. “And it just runs and runs … and they are the most reliable form of energy on this planet, bar none. … The issue is we, as America, forgot how to build them.”

REGULATIONS, INCENTIVES
Jim Matheson is CEO of the National Rural Electric Cooperative Association, a national service organization representing more than 900 electric cooperatives, providing service to 42 million people in 47 states. Matheson was another speaker at the Directors’ Summer Conference.

He discussed environmental regulation challenges, remaining in touch with the Kamala Harris and Donald Trump campaigns and that insurance companies are pulling back from covering utilities because of wildfires. He also noted the incentives available to electric cooperatives in the Inflation Reduction Act, which was successfully pushed through Congress by President Joe Biden. No member of Arkansas’ Congressional delegation support the Act.

The incentives would provide the cooperatives $9.7 billion for clean energy projects. The Department of Agriculture administers the program. Applicants were rated based on carbon reduction, and the money is expected to be obligated this year. Hasten said the money has been obligated to 16 other states. Arkansas was ranked No. 18.

“Seventeen states had a more effective way of reducing carbon than us, and some of that’s based on where you are in the country and what resources there are,” Hasten said. “The program was…successful when 16 people consumed all the resource, and there’s 22 people below that willing to do more.”

Another incentive in the Inflation Reduction Act benefited Today’s Power Inc., a renewable energy company of AECI.