Dive Brief:

A study funded by coal giant Peabody cautions against shutting down Arizona's Navajo Generating Station in 2019, finding it could hurt reliability in the Southwest if the state faces disruptions to natural gas supplies for generation. Peabody supplies the coal to the plant.

The study, completed by Quanta, examined three scenarios where blackouts could occur, including the loss of the 4,100 MW Palo Verde Nuclear Station or difficulties with two gas pipelines, the El Paso Natural Gas Pipeline or the Trans-Western Gas Pipeline.

In February of this year, NGS' four utility owners, led by operator Salt River Project, decided to shut down the plant by 2019, after determining that it could not compete with cheaper natural gas-fired plants.

Dive Insight:

Peabody is pulling out all the stops to keep the Navajo plant running past 2019, offering fuel discounts, searching for a new owner and indicating it believes the plant could be run profitability if system inefficiencies are eliminated.

Previously, Peabody hired Lazard to try and find a buyer for the plant. Lazard Managing Director Juan Correa told local media there is "plentiful evidence" of efficiencies that could be found at the facility.

The new Quanta report is the coal mining company's latest effort. The study concludes there are three scenarios where the absence of the Navajo station would lead to "stress the Arizona electric grid with unacceptable overloads." The most severe disruptions would be seen in population centers like Flagstaff, Phoenix, Vail, Scottsdale and Tucson, Ariz.

In addition to the Palo Verde scenario, Quanta said a disruption on the El Paso gas pipeline could lead to the loss of 6,825 MW, while the failure of the Trans-Western line could mean the loss of 6,180 MW.

"Reliability risks increase with retirement of baseload coal-fueled plants due to loss of inertia and dynamic reactive capability," Quanta concluded.

If Navajo is kept open, it would break with a recent trend of coal retirements. The Trump administration has been trying to revive the industry, and the U.S. Department of Energy asked the Federal Energy Regulatory Commission to consider rules to provide cost recovery for power plants that keep a 90-day supply of fuel onsite—largely aimed at struggling coal and nuclear plants. But it's unclear how that could be expanded to vertically integrated states, such as Arizona. And the utilities who plan to shutter the plant did not express fears about hurting reliability.

An analysis from the National Renewable Energy Laboratory noted the cost of power generated at the facility hit $38/MWh, compared with $32 in 2015. After 2019, that cost will rise to $41/MWh, reflecting terms of a new lease, and then $51/MWh in 2030 due to emissions standards if the Trump administration does not rescinde them. For context, fellow Western utility NV Energy just signed power purchase agreements for two 25 MW solar plants at a levelized cost of $34.20/MWh.

However, Arizona Corporation Commissioner Andy Tobin sent a letter to Interior Secretary Ryan Zinke asking for federal help to keep the plant running for at least five more years by picking up half the maintenance costs. Tobin pointed to potential job losses on the Navajo Nation as impetus for operating the plant.