#2 Clean Power Plan Assessment – Market & Engineering Perspective

#2 Clean Power Plan Assessment – Market & Engineering Perspective

Before I continue with my assessment of the Clean Power Plan, I want to reflect and comment on what I have discussed in the first post.  Let me make this clear, there is NO congressional action needed to make this happen.  This is all being done through the Clean Air Act.

The fact that EPA is using a rate based mechanism does not preclude it from hitting a ton reduction given this is being applied to the existing fleet. Plus, they are limiting the new plant options.   The only way to exceed the tonnage barrier is to add to the denominator of the rate (lb/MWh).  Energy efficiency programs (EE) and renewables can be counted to the MWh.  The limits they proposed from their Excel spreadsheet are based on very aggressive and large reduction-given they are starting with the 2012 lowest gas to coal price spread. (as noted in the previous discussion) Then, they modify the coal to be more efficient plus re-dispatch more gas and then adding Nuclear, Renewable, and EE/DSM efforts to the denominator to produce state by state CO2 rate lb/MWh.   Because this calculation is only on existing units, it is not likely to be able to increase significant volume of CO2 from those plants as some discuss.  The rate will be highly dependent on being able to achieve and/or over achieve the Nuclear, Renewable, and DSM/EE efforts as they calculated.  This leaves room for total tons of the entire fleet (new and old) to be greater, but this will not come from the existing fleet.  Also, given the renewable and DSM are quite high targets, the tonnage level will not likely exceed to what they are targeting-which is “Nationwide, by 2030, this rule would achieve CO2 emission reductions from the power sector of approximately 30 percent from CO2 emission levels in 2005.”

This is a perfect transition to continue with the assessment of the Clean Power Plan.   The next BSER and the most impactful block is  “Reducing emissions from affected EGUs in the amount that results from substituting generation at those EGUs with expanded low- or zero-carbon generation.”

In this section, they discussed the role of nuclear.  This is the smallest impact, even less than the coal unit efficiency improvement.  Adding CO2 cost will likely keep many of the nuclear fleet from retiring.   The re-license cost has grown for nuclear fleet given all the recent issues with nuclear.  Some estimates show cost to re-license greater than 4X the cost of a brand new gas plant.  Given the limited impact of nuclear, I will limit the discussion and move on to the largest piece of the puzzle, Renewable. 

EPA is focused on wind and solar renewable.  They note they left out biomass.  The renewable piece is a tale of two calculations.  The effects of the option 1 BSER, according to the EPA IPM results, are minimal on the actual renewable capacity.  Less than 10% change in capacity was observed from the base to option 1.   Producing a CO2 price should certainly incentivize more renewable and nuclear generation.  On an annualized basis, non-hydro renewable generation is growing 2% a year. This certainly seems to be reasonable-if not conservative-given the last ten years has seen double digit growth in renewable generation.  However, there is a big difference in the IPM file and the Excel spreadsheet.   In the Excel spreadsheet, renewable generation is shown as almost 50% higher than the IPM option1 case.  I am not sure what to make of the difference.   In the spreadsheet case, it is still not unreasonable to assume a 4% growth in renewable generation in a year.   This would require artificial support which could be in the form of Renewable Energy Credits (REC), CO2 price, and/or tax credits. In terms of incremental cost over the IPM model, if we assume the difference in MWh, the associated capacity factor of 0.3, and the capital cost for renewable of  ~$2000/kW this calculates 63 GW at cost of $127 Billion. 

My concern is more in the distribution of the renewable versus the total.   EPA initially examined the renewable potential by 6 regions.  In their own words: “EPA estimated the aggregate target level of RE generation in each of the six regions assuming that all states within each region can achieve the RE performance represented by an average of RPS requirements in states within that region that have adopted such requirements. For this purpose, EPA averaged the existing RPS percentage requirements that will be applicable in 2020 and multiplied that average percentage by the total 2012 generation for the region. We also computed each state’s maximum RE generation target in the best practices scenario as its own 2012 generation multiplied by that average percentage. (For some states that already have RPS requirements in place, these amounts are less than their RPS targets for 2030.) For each region we then computed the regional growth factor necessary to increase regional RE generation from the regional starting level to the regional target through investment in new RE capacity, assuming that the new investment begins in 2017, the year following the initial state plan submission deadline,153 and continues through 2029. This regional growth factor is the growth factor used for each state in that region to develop the best practices scenario. Finally, we developed the annual RE generation levels for each state. To do this, we applied the appropriate regional growth factor to that state’s initial RE generation level, starting in 2017, but stopping at the point when additional growth would cause total RE generation for the state to exceed the state’s maximum RE generation target.”

This all makes sense until you think about the market perspective and the actual reality of this approach.  Historically, the areas with the greatest renewable development generally have two characteristics – high power price and/or an abundance renewable generation opportunity.  The barrier to jump to alternative power source was minimal, such as the case in California compared to states with low power prices Kentucky and West Virginia.  These states with much lower prices will have a greater impact in moving to a more renewable system.  Their economy is not centered on high power prices.  The jump to this higher value will be significant.  West Virginia growth in renewable is 1000+%.  In West Virginia’s case, EPA is asking the state to invest in a more expensive, but cleaner power source.  If we assume the same assumption above, then WV’s needs ~3.6 GW of wind capacity with a total cost of $7 billion dollars.  If we spread the cost with West Virginia retail sales over the next 20 years it would still cause a rate impact of 14%. I did a state by state analysis on this renewable piece – if you are interested email medkb@allenergyconsulting.com

Let me pause here for further digestion before moving onto the EE/DSM portion of the plan.

We can help the policy discussion in terms of running independent assessment and helping develop strategies to best plan for the future.  


Please contact us 614-356-0484 ordkb@allenergyconsulting.com


Your Inspired Energy Consultant,

 

David


David K. Bellman
Founder & Principal
All Energy Consulting LLC
“Independent analysis and opinions without a bias.”
614-356-0484
dkb@allenergyconsulting.com
blog: http://allenergyconsulting.com/blog/category/market-insights/

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