EPA Proposed CO2 Pollution Standard – Gas more impactful near-term
EPA 2013 Proposed Carbon Pollution Standard for New Power Plants has made some news with much of the focus on coal. I believe the coal issue could be quite a smokescreen given the current economics of coal as it relates to gas. The coal limits are not likely going to impact much of anything over the next few years – perhaps not even in the next 5+ years. For the current impact the devil is in the details.
The natural gas limits probably could use more discussion for its near term relevance to prices for the consumer. For baseload gas plants, the limit is a non-issue (heat rate of 8.4 to 9.2 mmbtu/MW). However anyone with some/limited experience in the power markets realize the diversity of plants is needed not just on fuel perspective, but on a performance perspective. Load can be quite volatile and spiky. There is no need to build a baseload plant for a few hours of the year. Therefore the industry builds peakers to meet these events. Peakers attributes are a cheap unit that is not required to run a lot, therefore variable cost less important than fixed cost and that they need to turn on and off quickly.
Peakers have generally been very high heat rate units as the variable performance was not important. As noted in a paper I lead for the National Petroleum Council – ELECTRIC GENERATION EFFICIENCY – “The efficiency of a new power plant is largely a function of economic choice. The technology is well understood in order to produce a highly efficient plant. In order to produce higher efficiencies, higher pressure and temperatures are required. This increases the cost of the plant as special alloy materials will be needed.”
Therefore higher efficiency is not a leading attribute for a unit expected to run only a few hours in year. The additional expense of higher capital and higher operational cost is not worth it. Currently the average natural gas peaker heat rate in the country stands at 11.3 mmbtu/MW. There are new “peakers” being built at heat rates around 8, but they are not really being built for peaking operations as described above. They do cost more and therefore are anticipated to operate more often. This new carbon standard will first impact capacity markets. As an example the PJM capacity market is using a Cost of New Entry (CONE), the peaker attribute used to calculate CONE is at 10-10.3 mmbtu/MW. This will need to be changed, which will increase the cost of the CONE, therefore increase the cost of the capacity markets. The cost will go directly to the ratepayers.
I am not saying the standard is wrong in any way and that we should not be doing any risk mitigation for carbon. I am just pointing out the real impact of the standard that will likely be felt in the short-term. As long as society knows its cost and benefit and is in agreement than the standard is appropriate. Adding a CO2 hourly limit standard for peaking plants seems in-appropriate. They could have put in a daily limit for small gas plants so that they could still run a few hours and be within the standard. This small amount of CO2 emissions will not do much risk mitigation, but may add more cost than benefit.
In the long-term, this pretty much puts a nail in the coffin into new coal plants. The effective heat rate being asked of a coal plant which cannot be achieved even by a gas plant is 5.4 mmbtu/MWh. This essentially requires some sort of carbon capture and sequestration/storage (CCS). Being involved in CCS at AEP, the cost is extremely high and there are some serious risks. The risk/reward profile is not there for an investment in new coal plants even if gas prices were to be $6+/mmbtu. Once gas prices rise closer to $7+/mmbtu, partial capture could make economic sense as noted by the EPA. However the world of $7+/mmbtu prices currently seems far away.
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