As AES Indiana abandons coal, capacity questions arise

PETERSBURG—For nearly six decades, the 800-acre Petersburg Generating Station in southern Indiana has helped keep the lights on in Indianapolis. It has powered homes, factories and office towers.

It has also been called a “super polluter” by environmental groups for violating its water permits hundreds of times in recent years, the most of any power plant in Indiana. Even the Indianapolis City-County Council passed a resolution in 2017 calling for owner AES Indiana to cut back on coal and the resulting carbon emissions.

Now, the Petersburg Generating Station is closing in on a sweeping change.

If all goes to schedule, the huge power plant about 125 miles southwest of Indianapolis will convert to natural gas and burn its last load of coal by the end of 2026.

The conversion is expected to occur without significantly increasing the plant’s capacity to produce electricity, raising questions about what more must be done to meet the state’s increasing power needs and whether those needs could slow the state’s move away from fossil-fueled power plants.

At the Petersburg plant, the mountains of coal in the yard will disappear. So will the conveyor belts that haul the coal into the plant and the machinery that pulverizes it into power. More than a dozen buildings and large tanks on the sprawling campus that remove pollutants from the coal will be shut down or repurposed.

“If we convert to natural gas, we won’t need any of this,” John Bigalbal, chief operating officer for generation at AES Indiana, said with a wave of his hand during a driving tour of the power plant.

AES Indiana still needs a green light from state utility regulators. But if they approve the change, the utility is poised for a $300 million conversion of the plant to burn natural gas, considered a cheaper and somewhat cleaner fuel.

The move would make AES Indiana the first large utility in Indiana to abandon coal as a fuel source.

The natural gas will heat water into steam, which will spin a turbine, power generators and produce electricity.

Along with the “repowering” plan, AES Indiana is installing on the Petersburg campus a $300 million battery-storage operation, capable of storing and delivering 200 megawatts of electricity for four hours to help meet demand during peak times. And it is building a “Petersburg Energy Center,” a 250-megawatt solar operation, at a cost of $500 million, a few miles away.

Altogether, AES plans to invest $1.1 billion in Petersburg, a town of about 2,300 people, to keep the plant running and keep about 240 workers employed.

The utility is asking state regulators for permission to recover the money by raising electricity rates on its customers’ monthly utility bills.

But the plan is running into opposition from some, including the coal industry, which says AES Indiana’s Petersburg projects will burden customers with higher bills without generating much new grid capacity.

Data center drain

That’s even as demand for electricity is soaring around the state as new factories and data centers pop up.

“We believe this project does not add capacity to the grid,” said Jon Ford, president of Reliable Energy, a trade association formed in 2020 by Alliance Coal and Hallador Energy. “Any project that ratepayers are asked to fund should increase grid capacity.”

AES Indiana acknowledges that converting Petersburg from coal to natural gas will likely result in little to no change in output.

In June, the Midcontinent Independent System Operator, a not-for-profit that manages the grid across 15 states, including Indiana and the Canadian province of Manitoba, warned of a growing capacity deficit beginning next year.

MISO said its recent survey reflects a potential range of large load additions “such as data centers and large manufacturing sites” that could be added to the system in the near term.

It said the energy community needs to work together to accelerate more supply, monitor large load additions and delay resource retirements.

“Ensuring a reliable energy supply is more critical than ever,” Josh Byrnes, president of the Organization of MISO States, said in written remarks.

In recent months, a host of Big Tech companies have rolled out major announcements about upcoming projects in Indiana. Amazon Web Services said it plans to build an $11 billion data center in St. Joseph County. Microsoft announced it is planning a $1 billion data center in La Porte. Google said it is planning an $845 million data center in Fort Wayne.

The state has aggressively been courting data centers, which house computers, servers, digital storage and cooling systems. In recent years, Indiana has been offering “data-center incentives,” a series of tax breaks, often worth hundreds of millions of dollars, which can be locked in for up to 50 years.

But the data centers operate around the clock, guzzling huge amounts of electricity to run the computers and servers, and some experts worry they could strain the system.

In 2023, data centers across the globe consumed 7.4 gigawatts of power, a 55% increase from 2022, according to Cushman & Wakefield, a global commercial real estate services firm.

“Data centers have a huge number of systems and equipment working relentlessly around the clock, which consume a lot of power,” according to Data Center Knowledge, a trade news site.

Indiana impact

No large data centers have yet been announced in Indianapolis, the area served by AES Indiana, but the utility said it is having “a lot of conversations.”

AES Indiana has a maximum capacity of 3.9 gigawatts of electrical supply at its three power plants—Petersburg, Harding Street in Indianapolis and Eagle Valley in Martinsville. But even one huge data center, known as a “hyperscaler,” could ramp up consumption by 1 gigawatt, said Brandi Davis-Handy, president of AES Indiana.

“That’s going to take additional generation,” she said. “There’s no doubt that additional generation will be needed.”

The Indiana Chamber said it is keeping a close eye on the wave of projects headed for Indiana. It said it supports economic development but would not necessarily support an unlimited number of energy-guzzling data centers.

“If those projects all come to fruition and they locate in Indiana, we’re going to need more sources of electricity,” said Greg Ellis, the chamber’s vice president of energy and environmental policy. “I think that we would like to see it generated here, but we also know that sometimes it can be bought off the grid, and sometimes it’s more economical to do that.”

Citizens Actions Coalition of Indiana, a consumer group, said it was “generally supportive” of AES Indiana’s plan to build the battery storage and solar projects.

“The battery storage project in particular is a major milestone for Indiana,” said Ben Inskeep, the group’s program director, in an email to IBJ. “It could be the first, or among the first, utility-scale [greater than 100 megawatts] battery storage systems in Indiana.”

But the group was less supportive of the utility’s plan to convert the power plant from coal to natural gas, calling it a missed opportunity to “make a clean break” from fossil fuels.

And it called the new demand for electricity by data centers one of the biggest threats to Indiana’s transition to clean energy and affordability. It said just two or three hyperscalers could use as much power as the city of Indianapolis.

“The sudden, massive increase in demand under existing supply constraints could drive energy prices much higher, lead to current ratepayers subsidizing new data centers and be used as justification to build more fossil fuel power plants and keep coal plants open longer,” Inskeep said.

Petersburg is happy

Yet in Petersburg, community officials and plant workers sounded jubilant during AES Indiana’s announcement earlier this month of the $1.1 billion worth of investments.

R.C. Klipsch, the city’s mayor, called the utility’s investment “huge” and worthy of a big celebration. “The announcement today of spending this kind of money is phenomenal,” he said.

AES Indiana is also donating $100,000 to the city to support construction of the Petersburg Community Center downtown to house recreation, health, education and social activities.

The utility news wasn’t always good in Petersburg. In 2014, Hoosier Energy, an electric cooperative, closed its Frank E. Ratts Generating Station in Pike County, about a mile downstream on the White River from the Petersburg power plant. The move threw dozens of people out of work.

The shutdown was the result of a consent decree between Hoosier Energy and the U.S. Environmental Protection Agency, which had found the plant in violation of the Clean Air Act.

“It was devastating for our community,” Klipsch said. “And it was a much smaller power plant than AES was at that time. So for a community this size, AES is obviously the biggest and most important employer we have. … You can imagine a company of this size ceasing to be here—what it would do to county government, schools, everything involved.”

Ashley Willis, executive director of the Pike County Economic Development Corp., said she was grateful AES Indiana plans to invest in the plant rather than shuttering it—an option frequently mentioned at business meetings and around town. In fact, the utility retired two other generating units at the plant within the past three years.

“There were different scenarios. Some were, it would convert to natural gas, but they also had scenarios where they could completely shutter the Petersburg generating station, which would be the worst possible scenario,” she said.

‘Coal is a dinosaur’

Some plant workers told IBJ they might have to learn new skills when the plant converts to natural gas, but the company has pledged to offer training to any worker who needs it.

“Coal is a dinosaur, I suppose,” said Danny Walker, a plant worker and business manager of the International Brotherhood of Electrical Workers Local 1395. “I mean, it’s great the company is making a commitment to keep this place open. That’s the biggest thing.”

On the day of the plant tour, workers tended different jobs, from engineering and electrical work to safety management and operations.

Zachary Harbin, a control operator, sat in front of about a dozen screens in the control room and kept a close eye on a wide assortment of gauges for water, air and fuel.

“We’re at full capacity at this unit,” he said. “So I’m just watching everything, looking for upsets and issues.”

A few dozen yards away, in a huge room down the hall, the massive turbines, generators and other equipment revved like a jet plane preparing for takeoff. The two generating units at Petersburg are capable of powering more than 170,000 homes.

“I’ve got five coal feeders running right now,” Harbin said. “If one of those gets a big chunk of rock in it or something, the unit gets upset. My guy in the field will go out and address that issue for me, take the rock out, get everything back.”

A couple of years from now, if state regulators agree, Harbin and the other operators won’t need to worry about coal feeders, pulverizers or milling equipment. And other workers won’t have to keep tabs on the desulfurization systems or other maintenance-heavy cleanup of coal, considered the dirtiest fossil fuel.

“I wouldn’t say it’s old technology,” said Bigalbal, the AES Indiana COO for generation. “It’s just not needed on natural gas. And we hope that’s the future of this plant.”•