Investment in new natural gas-fired electric generation will be a “key compliance strategy” under the Environmental Protection Agency’s (EPA) Clean Power Plan (CPP), according to an analysis published by Black & Veatch Insights Group.
In a white paper titled “Market Impacts of the Clean Power Plan,” Black & Veatch noted that, despite EPA’s omission of investment in new natural gas combined cycle (NGCC) plants as a building block of compliance with CPP, states are likely to look to gas as a cost-effective way to reduce carbon emissions.
“The EPA’s stated reason for not specifically including new NGCC units as a compliance measure is that such assets are long-lived, and adding additional fossil fuel capacity to the power system is counter to the long-term goal of reducing CO2 emissions,” Black & Veatch said. “However, given that a combined-cycle gas turbine offers significant reduction in carbon emissions compared to coal generation and we continue to forecast low natural gas prices, new combined-cycle gas turbines continue to be an attractive compliance tool.”
Under CPP, utilities could be affected by “upside pressure on commodity energy prices” that could “further exacerbate rate increases driven by significant new transmission and distribution (T&D) investments,” Black & Veatch said, noting that “over the past seven years utilities have benefited from the impact of low natural gas prices on power prices which have effectively masked increases in T&D costs upon customer rates.”
Now that President Barack Obama and the EPA have released the final CPP (see Daily GPI, Aug. 3), the rule is almost certainly going to be challenged in court. Significant legal questions surrounding CPP and whether EPA has the authority to promulgate it under Section 111(d) of the Clean Air Act will have to be answered.
But Black & Veatch noted that a final ruling from the Supreme Court likely won’t arrive until 2017 or 2018, making it prudent for affected stakeholders to plan for compliance now instead of waiting on a resolution in the courts.
“Given the uncertainty of any potential litigation of the rule, we suggest that affected parties focus on evaluating the impact of the rule, as proposed, on their facilities, formulate compliance strategies that minimize impacts and proactively engage their states to embrace their proposals,” the firm said.
Black & Veatch said it expects many states to look to comply through carbon allowance trading programs, either through new programs or through the expansion of existing programs in California and in the Northeast.
Renewable energy is also expected to expand under CPP, Black & Veatch said.
“Given the improving economics of renewable energy resources, and progress made in grid integration issues surrounding intermittent resources, the expansion of renewable capacity will be a widely used compliance option,” Black & Veatch said.
Additional focus on energy efficiency could lead to other changes to the grid, the firm said, potentially “accelerating the transition to a new distributed utility model based upon customer choice and including energy efficiency and distributed generation.”
The CPP aims to reduce carbon emissions from U.S. power plants by 32% by 2030 based on 2005 levels.
Under Black & Veatch’s base case, carbon emissions are projected to decline 14% by 2030 compared to 2012 levels without CPP, due primarily to increased renewables, coal-fired retirements “and the overall market shift to natural gas for electricity generation.”