Yesterday I heard about a new investor group raising $1B to buy coal plants in the U.S. with the goal of converting (‘repowering’) them to solar.
They’ve got a nifty finance trick: they solve the interconnection time-to-market problem for solar using existing coal plant transmission, while continuing to collect the ‘capacity’ payments coal plants get for just existing as a backup.
What a great trick!
Of course these coal capacity payments are dumb and shouldn’t be happening – just bad money after bad.
But why not game them while you can?
Here’s how it would work:
- Investor buys coal plants with deteriorating economics, gets cheap price because current owner wants out. These coal plants are running less and less because the more they run, the more money they lose (buying coal and moving it around is too expensive, no longer cost competitive)
- Investor stops running the coal plants, stemming losses while continuing to collect the fixed ‘capacity’ payments the coal plants get just to exist, as an emergency grid backup.
- Investor builds cheap solar and storage capacity on-site, or nearby, and uses the coal plants’ fat transmission wires to immediately get that solar energy to market, avoiding multi-year interconnection approvals.
- Investor shutters coal plants altogether once capacity payments no longer make the fixed cost worthwhile.
If the numbers pencil out, this is ingenious, accelerating decarbonization with cheap clean tech while still getting paid for the disused but politically desirable coal storefronts. True, capacity payments seem to be on their way out, for example on PJM. But apparently they’re still sweet enough not to ignore.
Maybe repowering is a better name for this than switcheroo? More on repowering later.