TAKING CHARGE
Calpine’s Andrew Novotny on fine-tuning to generate every extra megawatt
Last year was a record-setting one for Calpine Corp., the nation’s largest generator of natural gasfired electricity and Houston’s biggest private company, ranked by revenue. Power prices repeatedly topped out at $9,000 per megawatt hour, the state’s maximum, and a focus on maintenance kept the company’s generators humming.
Calpine, which also sells power under the brand name Champion Energy, earned $770 million in 2019, a sharp increase from $10 million in 2018, according to reports the company files with securities regulators.
The big boost in profitability comes after the company, which was suffering from lackluster earnings and sagging stock prices, went private two years ago. A group of investors led by the New Jersey private equity firm Energy Capital Partners acquired the business in a deal valued at nearly $17 billion, including the assumption of Calpine’s debt.
Andrew Novotny, executive vice president and co-head of commercial operations, sat down with the Chronicle to talk about the challenges the company is facing and how it’s coping with the spread of coronavirus which has sent many employees home to work remotely. His edited remarks follow.
Q: What contributed to the strong year Calpine had?
A: In several of our key markets, specifically Texas and California, they’ve begun to to recognize the value that flexible gas-fired generation can play in the integration of renewables and the general decarbonization of the grid. When we look to the future, probably the best way to provide real economy-wide decarbonization is to actually increase the electrification of buildings and vehicles while at the same time continuing to retire the coal fleet.
Demand growth from this electrification will be met by new renewables but their intermittency requires flexible gas generation to fill in the gaps. As the markets begin to recognize this it has been reflected in the value of our assets, which is probably a key reason why 2019 was really good.
Our geothermal portfolio, which is a renewable asset that provides power around the clock, continues to work well. We’re really proud of that. Our retail business also did well. I think our customers like our very straight-forward, no fine-print approach.
Q: Your earnings grew in 2019 compared to the previous year. What role did $9,000 per megawatt hour power play?
A: Texas was a contributor to it. But almost all the power we sell is sold well ahead of time and I think that is probably true for most large companies that operate in Texas. We’re not taking huge amounts of electricity and selling it on the real-time market.
Looking at the overall year, gas-fired generation was generally more valu
able because markets are recognizing the potential for scarcity does exist in periods where wind is low. Last August was hot, and we had low wind generation but we had put forth a significant effort well ahead of the summer to ensure that 100 percent of our generation would be available when we needed it the most. And that effort paid off.
The Texas market is really designed to only pay high prices when the power is needed the most. And it reinforced the idea that renewable resources need to be backed up by flexible and reliable gas-fired generation. That was a contributor to our financial success. I’m really proud of the effort of the operational team to be 100 percent available on those really critical days.
Q: Are you investing more in renewables these days?
A: We have a contract for a 200-megawatt solar power purchase agreement. So, right now in Texas we have decided to enter the renewables space. We are letting others build, but we’re out there seeking those contracts by taking that power and repackaging it and selling it to our retail customers.
We also have a wind effort. Going forward, we will be focusing less on building wind and instead purchasing power from others who are in the development of it.
Q: What did you do last summer to make sure operations were ready to handle the hot weather when you really needed the generation?
A: We spent a significant amount of time during the spring to get every single aspect of our Texas power plants working as well as they possibly could. It was a significant effort at the plant level and all the way up to the executive management level making sure we spent the right amount of money and had the right executive focus to make sure every one of these plants could wring out as many megawatts as they possibly could so we had 100 percent availability and had the highest level of generation possible.
We’ve done the same thing again this summer. We’ve faced additional challenges given the situation with COVID. It’s been a real undertaking and we’re very proud of the efforts we’ve put in so we can have great availability this summer.
Q: Is there one thing you can point to that made a significant difference?
A: For this summer, as well as the following summer, we have found different ways to upgrade our turbines to get 5 megawatts or 10 megawatts here and there in an intelligent way to get even more megawatts out of our existing fleet. We are dedicating capital to get better performance and higher availability.
Q: How are you handling the uncertainty in power demand from residential, commercial and industrial customers that has been created by the spread of coronavirus?
A: When everything is difficult and everything is uncertain, there is always opportunity. It’s been important to us to understand how that demand is shaking out.
There is definitely a scenario where we are going to see lower demand this summer, and therefore we may see one of the lower Texas grid summer prices that we’ve had in the last couple of years. On the flip side, if the demand is back and it’s hot we may see high prices like we did last summer. You don’t know right now which way this will go but this is the kind of thing we spend a lot of time monitoring and attempting to predict.
Q: Has managing people working from home been challenging?
A: Our real-time dispatchers cannot work from home, just like power plant operators in the control room. For others there is that opportunity, and we have attempted to deploy technology to stay connected. We’ve used technology such as Cloud 9, which provides an open line to everybody and is kind of like being on a really good conference call. We’ve also had skeleton crews in the Houston office. Just like everybody else, we’re finding new ways to make this work.
If you would to have asked me how this would go a year ago, this has gone far better than I would have predicted. We have been able to adapt.
Q: What is your goal for 2020?
A: It’s COVID-19. Our goal is steady performance despite all these headwinds.