{"id":1685,"date":"2015-03-26T11:33:36","date_gmt":"2015-03-26T16:33:36","guid":{"rendered":"https:\/\/allenergyconsulting.com\/blog\/?p=1685"},"modified":"2015-03-26T13:43:46","modified_gmt":"2015-03-26T18:43:46","slug":"clean-power-plan-will-double-coal-retirements-unequally","status":"publish","type":"post","link":"https:\/\/allenergyconsulting.com\/blog\/2015\/03\/26\/clean-power-plan-will-double-coal-retirements-unequally\/","title":{"rendered":"Clean Power Plan will Double Coal Retirements Unequally"},"content":{"rendered":"

The article I wrote in the October 2014 issue of Public Utilities Fortnightly \u201cEPA Clean Power Plan \u2013 An Unequal Burden\u201d (Click for free copy)<\/a> has been cited in numerous responses by commissions around the country.\u00a0 In this article, I will clarify the intent and introduce another layer of analysis.<\/p>\n

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The analysis was not funded by any entity.\u00a0\u00a0 The development of the analysis came from pure intellectual curiosity and the enthusiasm of solving a puzzle.\u00a0 All Energy Consulting has not received any payment or business as a result of the analysis done on EPA Clean Power Plan.\u00a0 The article is not intended to argue the merits of global warming.\u00a0 The article is also not intended to absolutely quantify the cost of the plan.\u00a0\u00a0 The main intention of the report was to demonstrate that the cost of the plan will vary significantly among the states.\u00a0 In order to do this, as noted in the article, we used the implicit EPA calculations for Blocks 3 & 4.\u00a0\u00a0 In addition, we used our highly sophisticated and very well calibrated power modeling platform – Power Market Analysis (PMA)<\/a>.\u00a0 PMA is used to quantify risk in the futures power markets for hedge funds to end-users. PMA was used to calculate an impact of Block 2.\u00a0\u00a0\u00a0 Block 2 per EPA involves the re-dispatching of the system with gas generation over taking coal generation.\u00a0\u00a0 PMA uses the software AuroraXMP by EPIS which allows us to input our knowledge in a relative easy manner and produce numerous runs in a short time span.\u00a0\u00a0 We had to produce hourly dispatching results for the entire N. America with at least 15 plus simulations to produce the analysis.\u00a0 For the analysis, we re-dispatched the system using state by state carbon prices in order to achieve the CO2 emission rates targeted by EPA for Block 2 \u2013 see process flow figure below.<\/p>\n

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There are limitations with this analysis for use outside the intended use of demonstrating large economic disparity among states as result of the Clean Power Plan.\u00a0 Given our goal of showing large differences in state economic impacts, we did not do a full cost analysis of the plan.\u00a0\u00a0 EPA simple analysis did not do this either.\u00a0 They just assumed the substitution of generation from coal to gas would be sufficient given the perceived underutilized capacity factors of gas plants.\u00a0 However, a full cost analysis of the plan would involve an iterative approach to retire units no longer economically sustainable.\u00a0 As the CO2 costs rise, many of the existing units no longer produce enough power to be economically supported given their fixed cost of operation.\u00a0\u00a0 This leads to retirements in the system.\u00a0 There will be stranded cost issues with early retirements of plants.\u00a0 Our initial analysis did not go that far.\u00a0\u00a0 The cost derived from CO2 prices to drive those retirements represents a conservative cost that will occur in order to substitute with new technology.\u00a0\u00a0 In many cases, the cost will even be higher than the CO2 impacts of driving units \u2013 mainly coal \u2013 out of the system given replacement power needs an economic hurdle to get a project developed.\u00a0\u00a0 We can certainly do this analysis at All Energy Consulting, but we were limited by time and the need to pay the bills.\u00a0\u00a0 Given this analysis was done free of charge, and our intellectual goal was to demonstrate large state disparity, we were able to achieve this without a retirement sequence analysis.<\/p>\n

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We were given more time recently and did do the next sequence of the analysis \u2013once again for pure intellectual curiosity – no payment.\u00a0 Taking the output from our 100% Block 3 & 4 case from the article, we did a unit by unit analysis and identified the units that are no longer economically viable vs. the no CO2 case.\u00a0\u00a0 This amounted to nearly 60 GW of generating units with almost 90% being coal \u2013 see map below.\u00a0 This is on top of the already planned retirements.\u00a0\u00a0 In our base simulation, we have nearly 60 GW of coal plants retired from 2010 to 2016.\u00a0\u00a0 Gas units are under economic pressure if the plant is located in a state with high carbon prices relative to the surrounding states.\u00a0 There will be gas plant casualties as a result of plant location as electricity flows do not know state boundaries.<\/p>\n

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We then retired those units and re-dispatched the system and went through the process as noted above to converge upon a CO2 rate that would meet EPA rate limits.\u00a0 This took almost 20 simulations given the need to also re-compute the retirement economics as we lowered carbon prices.<\/p>\n

As expected CO2 prices do fall down relative to the previous results as coal units disappear from the system.<\/p>\n

\"\"<\/a><\/p>\n

Reliability concerns are likely, but can be managed with transmission investments.\u00a0 These costs are not trivial and will show up in retail rates not wholesale prices.\u00a0 Retirements will be balanced by the large expansion of solar, wind, and energy efficiency programs and likely new gas generation from neighboring states.\u00a0 Wholesale power prices in this case are lower than in the previous case given the lower CO2 prices, but for Texas as 24% of the retirements came from there \u2013 see below.<\/p>\n

\u00a0\"\"<\/a><\/p>\n

Texas is expected to get a large dose of wind generation so the wholesale prices are likely to come down and potentially driving even more retirements \u2013 see below.<\/p>\n

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Obviously a crucial element was the outlook of the spread between gas and coal prices.\u00a0\u00a0 Staying with the Fortnightly analysis we used the forward curve projections of 2016 in June 2014.\u00a0\u00a0 Henry hub averaged $4.26 with CAPP coal prices at $65\/ton.\u00a0\u00a0 Both those benchmarks are much lower now \u2013 25% lower for Henry and 20% for CAPP.\u00a0\u00a0 Lower spreads likely means more coal retirements.<\/p>\n

The next step of the analysis is to create a build profile to meet the requirements in Block 3 & 4 and re-disptach it within the system.\u00a0\u00a0 This will have significant cost plus significant dispatch implications.\u00a0 One of the areas, we are reviewing is the large solar penetration in the west which will likely drive peak power prices negative in the shoulder months.\u00a0 All Energy Consulting can do this analysis, but we are looking for interested parties to fund this stage of the analysis.\u00a0\u00a0 The result will be a comprehensive cost of the plan.\u00a0 In addition, we will be able to address some of the impacts of such large renewable penetration.\u00a0\u00a0 Those interested in funding the analysis will get customized views of the results.<\/p>\n

If you enjoy this type of analysis, please do consider supporting All Energy Consulting by contacting us for your energy consulting needs.\u00a0\u00a0 We are able to offer these types of analysis because of the support we get from our clients.\u00a0 All Energy Consulting offers a pragmatic but enlightening approach to analyzing the energy markets.\u00a0\u00a0 Our focus will always be for your success.<\/p>\n

Your Enthused Energy Analyst,<\/p>\n

David<\/p>\n

Contact Information:<\/h3>\n

David K. Bellman
\nFounder\/Principal
\nAll Energy Consulting LLC
\ndkb@allenergyconsulting.com<\/a>
\n614-356-0484<\/p>\n

Background David Bellman was the former Managing Director Strategic Planning at American Electric Power (AEP).\u00a0\u00a0 He also worked as a consultant in Deloitte Consulting and Purvin & Gertz \u2013 now part of IHS.\u00a0 All Energy Consulting was formed in 2011 focused on energy analytics in order to add insights to the energy markets.<\/p>\n","protected":false},"excerpt":{"rendered":"

The article I wrote in the October 2014 issue of Public Utilities Fortnightly \u201cEPA Clean Power Plan \u2013 An Unequal Burden\u201d (Click for free copy) has been cited in numerous responses by commissions around the country.\u00a0 In this article, I will clarify the intent and introduce another layer of analysis. The analysis was not funded […]<\/p>\n","protected":false},"author":1,"featured_media":1689,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1,3,6,17],"tags":[236,279,19,32,368,30,113],"class_list":["post-1685","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-market-insights","category-natural-gas","category-power","category-renewables","tag-carbon","tag-clean-power-plan","tag-co2","tag-coal","tag-coal-retirements","tag-epa","tag-gas"],"_links":{"self":[{"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/posts\/1685","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=1685"}],"version-history":[{"count":4,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/posts\/1685\/revisions"}],"predecessor-version":[{"id":1697,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/posts\/1685\/revisions\/1697"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/media\/1689"}],"wp:attachment":[{"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/media?parent=1685"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/categories?post=1685"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/tags?post=1685"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}