Cost of Energy Resources

TEP can’t take a one-size-fits-all approach to serving our community’s energy needs. We need multiple resources working at the same time to keep your power both reliable and affordable. As we retire coal plants, we’ll need to ramp up our use of efficient natural gas resources. As we expand our portfolio of intermittent renewable resources, we’ll need fast-responding resources such as batteries and reciprocating engines to help us balance the grid.

This chart reports the “levelized cost of energy” in dollars per megawatt-hour for each type of resource in TEP’s portfolio. That amount reflects the total cost of that resource divided by the quantity of energy it is expected to produce over its lifetime.

This calculation takes into account costs for required infrastructure, operation and maintenance, fuel and power transmission. However, it does not include costs related to intermittency or complying with potential future environmental regulations, and it doesn’t reflect certain system benefits such as the contribution the resource makes to the overall adequacy of the local grid.

Costs are shown in 2017 dollars and are based upon figures reported in TEP’s 2017 Integrated Resource Plan, with modifications for certain existing resources.

Levelized Cost of Energy ($/MWh)

Non-Energy Resources
(Conditional)

Fossil Fuel Resources
(Controllable)

Renewable Energy Resources
(Intermittent)

Resource definitions

Non-Energy Resources (Conditional)

These resources do not actually generate energy. They either reduce energy consumption or store power produced from a different source for later use. These resources are “conditional” because TEP cannot ensure their availability.

Customer Energy Efficiency – Includes a wide range of programs and measures that reduce energy consumption.
Battery Storage – Batteries respond rapidly to changes in energy demand, making them ideal for balancing renewable energy intermittency and providing grid support. Batteries are typically charged from the grid and then supply power as needed for periods ranging from less than a minute to several hours.
Customer Demand Response – Programs that offer incentives to customers for reducing their energy use upon notice from their utility, typically during on-peak periods. Some demand response programs give utilities the ability to control these usage reductions through remote adjustments to thermostats or other means.

Fossil Fuel Resources (Controllable)

These resources produce energy through the combustion of fossil fuels under the control of TEP’s system operator. Energy from these resources falls into three main categories:

“Baseload” resources, traditionally from coal-fired plants, produce a steady amount of energy continuously to meet the minimum level of electricity that customers demand around the clock.
“Load-following” resources, traditionally from natural gas combined cycle plants, produce varying amounts of energy in direct response to variations in the amount of electricity being used at any one time.
“Peaking” resources, traditionally from natural gas combustion turbines, are used infrequently to supply energy during periods of high customer demand.

These resources include:

Natural Gas Combined Cycle – One or more natural gas-fired combustion turbine generators paired with equipment that uses the exhausted hot air to heat water into steam that drives a turbine generator. The use of exhausted heat significantly improves the plant’s efficiency, providing low-cost baseload energy.
Pulverized Coal – Existing generating units where coal is crushed into a fine powder and injected into a large boiler lined with water pipes. The combusted coal heats the water into steam that drives a turbine to produce electricity.
New Reciprocating Engines – Fast-responding reciprocating internal combustions engines are designed to flexibly dispatch energy to meet changes in energy demand, making them ideal for balancing renewable energy intermittency. Reciprocating engines operate on a four-stroke cycle to convert pressure into rotational energy, which drives a generator.
Natural Gas Steam Turbine – Existing generating units where natural gas is injected into a large boiler lined with water pipes. The combusted gas heats the water into steam that drives a turbine to produce electricity.
New Combustion Turbine – These units burn natural gas with compressed air, producing exhaust that drives a turbine. An electrical generator connected to the turbine converts rotational energy to electrical energy.

Renewable Energy Resources (Intermittent)

These resources produce energy using renewable fuels, such as sunlight and wind. Because their energy production is directly related to the available sunlight, wind or other renewable fuel, these resources are not generally controlled by the system operator.

Utility-Scale Solar PV – Single-Axis Tracking – Large (10-100+ megawatt) solar facilities developed by TEP or by a third party under a purchase power agreement. These systems use photovoltaic (PV) panels with inverters and include tracking equipment that allows the panels to “follow” the sun throughout the day.
Utility-Scale Solar PV – Fixed-Tilt Panel – Large (10-100+ megawatt) solar facilities developed by TEP or by a third party under a purchase power agreement. These systems employ inverters and PV panels that remain at a fixed angle.
Utility-Scale Wind – Large (10-100+ megawatt) wind farms developed by TEP or by a third party under a purchase power agreement. Wind pushes against the blades to produce rotation in the turbine, which is connected to an electrical generator.
Residential Solar PV – Residential systems typically installed on a rooftop. These systems include PV panels and an inverter to convert direct current (DC) to alternating current (AC) power.

Cost of Energy Resources

Resource definitions

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