{"id":1130,"date":"2014-06-12T08:16:14","date_gmt":"2014-06-12T13:16:14","guid":{"rendered":"https:\/\/allenergyconsulting.com\/blog\/?p=1130"},"modified":"2014-09-15T08:11:35","modified_gmt":"2014-09-15T13:11:35","slug":"2-clean-power-plan-assessment-market-engineering-perspective","status":"publish","type":"post","link":"https:\/\/allenergyconsulting.com\/blog\/2014\/06\/12\/2-clean-power-plan-assessment-market-engineering-perspective\/","title":{"rendered":"#2 Clean Power Plan Assessment – Market & Engineering Perspective"},"content":{"rendered":"
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Before I continue with my assessment of the Clean Power Plan, I want to reflect and comment on what I have\u00a0discussed in the first post<\/a>.\u00a0 Let me make this clear, there is NO congressional action needed to make this happen.\u00a0 This is all being done through the Clean Air Act.<\/span><\/p>\n

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.\u00a0\u00a0 The only way to exceed the tonnage barrier is to add to the denominator of the rate (lb\/MWh).\u00a0 Energy efficiency programs (EE) and renewables can be counted to the MWh.\u00a0 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\u00a0previous discussion<\/a>) 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.\u00a0\u00a0 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.\u00a0 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.\u00a0 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.\u00a0 Also, given the renewable and DSM are quite high targets, the tonnage level will not likely exceed to what they are targeting-which is \u201cNationwide, by 2030, this rule would achieve CO2 emission reductions from the power sector of approximately 30 percent from CO2 emission levels in 2005.\u201d<\/span><\/p>\n

This is a perfect transition to continue with the assessment of the Clean Power Plan.\u00a0\u00a0 The next BSER and the most impactful block is \u00a0\u201cReducing emissions from affected EGUs in the amount that results from substituting generation at those EGUs with expanded low- or zero-carbon generation.\u201d<\/span><\/p>\n

In this section, they discussed the role of nuclear.\u00a0 This is the smallest impact, even less than the coal unit efficiency improvement.\u00a0 Adding CO2 cost will likely keep many of the nuclear fleet from retiring.\u00a0\u00a0 The re-license cost has grown for nuclear fleet given all the recent issues with nuclear.\u00a0 Some estimates show cost to re-license greater than 4X the cost of a brand new gas plant.\u00a0 Given the limited impact of nuclear, I will limit the discussion and move on to the largest piece of the puzzle, Renewable.\u00a0<\/span><\/p>\n

EPA is focused on wind and solar renewable.\u00a0 They note they left out biomass.\u00a0 The renewable piece is a tale of two calculations. \u00a0The effects of the option 1 BSER, according to the EPA IPM results, are minimal on the actual renewable capacity.\u00a0 Less than 10% change in capacity was observed from the base to option 1.\u00a0\u00a0 Producing a CO2 price should certainly incentivize more renewable and nuclear generation.\u00a0 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.\u00a0 However, there is a big difference in the IPM file and the Excel spreadsheet.\u00a0\u00a0 In the Excel spreadsheet, renewable generation is shown as almost 50% higher than the IPM option1 case.\u00a0 I am not sure what to make of the difference.\u00a0\u00a0 In the spreadsheet case, it is still not unreasonable to assume a 4% growth in renewable generation in a year.\u00a0\u00a0 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 \u00a0~$2000\/kW this calculates 63 GW at cost of $127 Billion.\u00a0<\/span><\/p>\n

My concern is more in the distribution of the renewable versus the total.\u00a0\u00a0 EPA initially examined the renewable potential by 6 regions.\u00a0 In their own words: \u201cEPA 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\u2019s 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\u2019s 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\u2019s maximum RE generation target.\u201d<\/span><\/p>\n

This all makes sense until you think about the market perspective and the actual reality of this approach.\u00a0 Historically, the areas with the greatest renewable development generally have two characteristics \u2013 high power price and\/or an abundance renewable generation opportunity.\u00a0 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.\u00a0 These states with much lower prices will have a greater impact in moving to a more renewable system.\u00a0 Their economy is not centered on high power prices.\u00a0 The jump to this higher value will be significant.\u00a0 West Virginia growth in renewable is 1000+%.\u00a0 In West Virginia\u2019s case, EPA is asking the state to invest in a more expensive, but cleaner power source.\u00a0 If we assume the same assumption above, then WV\u2019s needs ~3.6 GW of wind capacity with a total cost of $7 billion dollars.\u00a0 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 \u2013 if you are interested email medkb@allenergyconsulting.com<\/a><\/span><\/p>\n

Let me pause here for further digestion before moving onto the EE\/DSM portion of the plan.<\/span><\/p>\n

We can help the policy discussion in terms of running independent assessment and helping develop strategies to best plan for the future.\u00a0\u00a0<\/span><\/p>\n


\n<\/span><\/p>\n

Please contact us 614-356-0484 ordkb@allenergyconsulting.com<\/a><\/span><\/p>\n<\/div>\n

\n


\n<\/span><\/p>\n

Your Inspired Energy Consultant,<\/span><\/p>\n

\u00a0<\/span><\/p>\n

David<\/span><\/p>\n<\/div>\n


\n<\/span><\/div>\n
David K. Bellman
\nFounder & Principal
\nAll Energy Consulting LLC
\n“Independent analysis and opinions without a bias.”
\n614-356-0484
\ndkb@allenergyconsulting.com<\/a>
\nblog:\u00a0https:\/\/allenergyconsulting.com\/blog\/category\/market-insights\/<\/a><\/span><\/div>\n","protected":false},"excerpt":{"rendered":"

Before I continue with my assessment of the Clean Power Plan, I want to reflect and comment on what I have\u00a0discussed in the first post.\u00a0 Let me make this clear, there is NO congressional action needed to make this happen.\u00a0 This is all being done through the Clean Air Act. The fact that EPA is […]<\/p>\n","protected":false},"author":1,"featured_media":16,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1,3,6,17],"tags":[279,30,280,187,281],"class_list":["post-1130","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-market-insights","category-natural-gas","category-power","category-renewables","tag-clean-power-plan","tag-epa","tag-rate-impact","tag-renewable","tag-state"],"_links":{"self":[{"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/posts\/1130","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/comments?post=1130"}],"version-history":[{"count":4,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/posts\/1130\/revisions"}],"predecessor-version":[{"id":1133,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/posts\/1130\/revisions\/1133"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/media\/16"}],"wp:attachment":[{"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/media?parent=1130"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/categories?post=1130"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/tags?post=1130"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}