Key Findings
TVA’s decision to close Paradise 3 was clearly correct in view of a number of economic considerations.
The cost of generating power at Paradise 3 has been high in recent years— significantly higher than it would have cost any party to buy the same energy in MISO or PJM, the two organized markets in which Paradise 3 would compete if it were operated as an independent entity.
Given the plant’s age, rising capital expenditures for major maintenance projects are to be expected. But the past couple of years have been particularly troublesome for Paradise 3, contributing significantly to TVA’s decision to close the plant.
Executive Summary
The decision by the Tennessee Valley Authority’s board of directors to close the Paradise Unit 3 coal-burning power plant in 2020 made perfect sense: Economically, the aging facility simply could not compete with the utility’s new combined cycle natural gas units and enhanced nuclear generation capacity. As Bill Johnson, the TVA CEO at the time, said in announcing the February 14, 2019 decision: “It is not about coal. This decision is about economics. It’s about keeping rates as low as feasible.” That view was seconded by TVA’s incoming CEO, Jeff Lyash, who said on April 12, 2019, that the closures had nothing “to do with a ‘war on coal’ or anything else. It has to do with deciding what’s best for the Tennessee Valley.”
Indeed, the data clearly shows that keeping the Paradise plant open would not be in the best interests of TVA or its customers. It is a warning that potential outside investors who may now be considering a purchase should take to heart: The plant’s economics do not stack up in today’s competitive environment, as we will demonstrate in this research brief.
Among the many specific issues at the plant are:
- Its capital expenditures and non-capital production costs (that is, operations and maintenance expenses) topped $76 per megawatt-hour (MWh) in TVA’s 2018 fiscal year—well above the utility’s system-wide wholesale rate.
- Continued operation would require capital investments of more than $200 million to repair and upgrade Unit 3’s generation equipment.
- The plant’s performance during the past three years, as measured by its equivalent forced outage rate, has been significantly worse than comparable units in the U.S.
TVA made the right decision in closing Paradise 3. Any effort to reverse course and keep the unit running (including at the behest of some prospective new owner) would necessarily imply significant and continual financial losses. Capital should be invested elsewhere, not wasted on an old, unneeded, uneconomical unit.
Please view full report PDF for references and sources.
Press release: IEEFA brief: Paradise 3 coal plant merits retirement
