Most of us don’t understand where our electricity comes from. We think somehow our houses and businesses are connected directly to power plants that send us our electricity.
In fact, the situation is very different. Electricity is “dispatched” by regional transmission organizations from a wide range of generating plants depending on the minute to minute cost of the power produced by those plants. This is the principle of economic dispatch designed to insure that the lowest cost electricity is always being sent to customers.
In debates and discussions concerning renewable power, opponents of wind power, both the coal and nuclear industries and so-called environmentalists, claim that wind power is too expensive and is never used by electric companies. In fact, because wind power has no fuel costs, it is almost always dispatched first, when it is available.
Here is an excellent description of the impact of the cost of generation on RTO dispatch policies from the DoE’s EIA. The article also includes this very helpful graph that illustrates how cost and dispatch interact at different levels of demand.
Here is the EIA’s discussion of current dispatch trends:
The exact order of dispatch varies across the United States, depending on such factors as fuel costs, availability of renewable energy resources, and the characteristics of local generating units. The type of generators with the lowest variable costs are nuclear, hydroelectric, and renewable power (wind and solar). For economic and technical reasons, nuclear plants in the United States are almost invariably operated as baseload units at maximum output. While wind and solar plants have very low operating costs, their availability is limited by the availability of the resource (i.e., whether the wind is blowing or the sun is shining). Some electric power systems dispatch these variable resources, others do not, and wind generators are sometimes curtailed to keep electric supply in balance with demand.
Although hydroelectric plants also have very low variable costs, their dispatch patterns are influenced by many factors, including: current and projected reservoir levels, environmental factors, timing output to maximize revenues, and the need in some locations to balance variable wind and solar output. For these reasons hydroelectric dispatch patterns can be complex.
The variable cost of generating electricity from fossil-fueled units is primarily a function of the fuel price and the efficiency of the plant’s conversion of the fuel into electricity. Historically coal plants have operated as baseload units while natural gas-fired plants in many regional power markets have have met intermediate and peak load needs. This was a function of the low cost of coal fuel compared to natural gas. This fuel cost advantage was sufficient to overcome the efficiency advantage of the new vintage of gas-fired generators built beginning in the 1990s. However, more recently gas prices have declined, and these efficient gas-burning combined cycle plants have begun to displace coal as baseload generation.
Peaking generators typically have the highest variable operating costs, appearing on the far right of the supply curve, and are dispatched during the hours when demand for electricity is highest. Peaking unit technology includes diesel generators and, most commonly, combustion turbines (CTs) fueled by natural gas. Combustion turbines have been used for many years, and older units are inefficient. However, the newest units have greatly improved efficiency, to the point that, with the advantage of low gas prices, the newer CTs have begun to back-out some coal generation. This dispatch pattern has only been seen in recent years.
Note that even in the US, highly efficient combined cycle natural gas plants are now beginning to displace coal plants for base load power. Also note that wind turbines are shut down by RTOs not because they are too expensive, but because nuclear base load plants can’t be shut down to allow for less expensive wind-generated power.
From this account of dispatch practices, you can also see why AEP and other coal-fired power companies are closing their high cost, obsolete coal plants. It’s not because of the EPA. These old, high operating cost plants are now being displaced by gas-fired power as base load. These obsolete plants are only able to sell power profitably when demand is high enough to raise prices. Because coal plants’ steam turbines take a long time to ramp up and shut down, it doesn’t make economic sense to only run them a few days a week or for an hour a day, essentially the way gas “peaker” plants are run.
Thanks to Grounded for highlighting these EIA features.