The federal Clean Power Plan (CPP) could result in the retirement, starting in 2022, of at least 4,000 MW of coal-fired generation capacity -- with natural gas making up most of the shortfall -- but the plan alone could hike energy costs for consumers up to 16% by 2030, according to a revised analysis by the Electric Reliability Council of Texas (ERCOT).
Although the U.S. Environmental Protection Agency (EPA) first proposed the CPP in June 2014, it didn't unveil the final version of the rule until last August (see Daily GPI, Aug. 3; June 2, 2014). That compelled ERCOT -- an independent system operator (ISO) that manages electric power for most of Texas -- to conduct a second, revised analysis of the CPP. The ISO made its first analysis of the CPP last fall.
"There are many unknowns at this time about the implementation of the CPP," ERCOT Director of System Planning Warren Lasher said in a conference call with the media on Friday, the same day it released a 14-page report on the CPP. "[Our] study results from this analysis indicate the same potential reliability issues we noted in our study from last fall."
According to Lasher, the new report by ERCOT was necessary because the EPA had modified the final compliance limit for Texas -- beginning in the year 2030 -- and interim compliance targets, moving the start of the program from 2020 to 2022. He said the EPA had also established "specific targets that become increasingly stringent for the period from 2022-2030."
In ERCOT's latest report, the ISO modeled four scenarios covering the 2016-2030 timeframe. They are:
A base case without the CPP for comparison purposes;
A simulation where the ERCOT system is allowed to make selections to comply with the CPP limits at the lowest cost;
The aforementioned second scenario, but with an added price for carbon dioxide (CO2) emissions, with the intention of reducing such emissions in power generation; and
The aforementioned third scenario, but with the added impacts of compliance with the EPA's proposed Regional Haze Federal Implementation Plan (FIP) for Texas.
Lasher said the latest ERCOT study identified the same concerns as the first. Chief among them, that at least 4,000 MW of coal-fired capacity, about one-quarter of the ISO's current capacity, would be retired due to CPP requirements.
"Although the CPP requirements do not start until 2022, these coal unit retirements may happen sooner if resource owners have to make capital investments in their plants to continue operations, or to comply with other regulations," Lasher said. "The loss of this capacity could lead to periods of reduced generating reserves and increase the risk of emergency operations during periods of peak customer demand, such as the hottest days of summer."
Another concern, Lasher said, is that the retirement of coal-fired units may also lead to reduced reliability of the transmission system in localized areas, since new transmission lines may be needed to connect customers to new power plants. He added that it can take more than five years to build new major transmission lines in the region served by ERCOT.
Lasher said ERCOT also believes Texas will need to significantly increase its use of renewable energy sources in order to meet the CO2 targets in the CPP. But that's not an easy proposition.
"Integrating these intermittent renewables can be a challenge for grid operations, and can result in reduced grid liability if operators do not have sufficient tools in real time." Lasher said. "Our modeling also indicates that these changes to the grid will likely increase customer retail cost by approximately 16%." He said that doesn't include the cost for new transmission lines, increased operational reliability services, and the expected higher cost for natural gas in the region.
According to the report, ERCOT projects natural gas prices will break the $4.00/MMBtu plane sometime around 2017. The ISO also projects the price will exceed $5.00/MMBtu near 2022, and $6.00/MMBtu around 2028.
Assuming baseline capacity of 105,500 MW -- 56.2% of which (59,300 MW) comes from natural gas -- ERCOT projects 1,500 MW of coal-fired capacity will be retired by 2030 under the base case and lowest-cost scenarios. That increases to 5,500 MW under the third scenario with the price for CO2 emissions, and 6,200 MW with the additional FIP costs.
ERCOT projects that in 2022, 46% of power generation will be fueled by natural gas, followed by coal (27%), wind (15%) nuclear (10%) and solar (2%). But by the year 2030, natural gas for power generation is expected to grow the most -- by 5%, to 51% total. By comparison, during the same time frame solar is projected to grow 4% (to 6% total), and wind by 1% (to 16% total).
Conversely, coal is projected to fall from a cliff by 2030 for power generation, falling 9% to 18% total.
ERCOT manages the flow of electric power to 24 million Texas customers, representing about 90% of the state's electric load. The ISO schedules power on an electric grid that connects more than 43,000 miles of transmission lines and 550 generation units.