The implementation of four recently proposed or finalized U.S. Environmental Protection Agency (EPA) regulations affecting coal-fueled electricity generating units could prompt the retirement of as much as 12% of coal-fired capacity, with natural gas expected to replace much of that, according to a report from the U.S. Government Accountability Office (GAO).
“It is unclear how power companies will respond to the four key EPA regulations, in part because there is uncertainty about the regulations themselves and other factors affecting the industry, including future natural gas prices,” GAO said in its 105-page report.
While recent low prices make natural gas an attractive alternative to coal, “some stakeholders we interviewed raised concerns about the prospects for continued low natural gas prices, citing the potential increased future use of natural gas for electricity or more strict regulation of natural gas production that could affect the long-term outlook for domestic natural gas production and prices.”
Power companies may choose to retrofit many coal-fueled generating units with new or upgraded controls to respond to the EPA regulations, retire units or build new units, according to GAO. “Increased generation from natural gas could come from a combination of existing natural gas units being used more often and new natural gas units being built,” the report said.
Studies reviewed by GAO concluded that power companies would retire 2-12% of coal fueled capacity in response to the Cross-State Air Pollution Rule (CSAPR), the Mercury and Air Toxics Standards (MATS), the proposed Cooling Water Intake Structures (CWIS) regulation and the proposed Disposal of Coal Combustion Residuals (CCR) regulation. But some regions could see even more significant levels of retirements.
“For example, a study by the Midwest Independent Transmission System Operator Inc. (MISO), an RTO [regional transmission operator] that covers all or parts of 11 U.S. states and a Canadian province, projected that 18% of the coal-fueled capacity in the U.S. portion of its region could retire,” GAO said.
Some of the projected retirements likely would occur even if the regulations were not put in place, due to the age of the units and the price of alternative fuels, particularly natural gas. A study by an investment analysis firm “found that 7-11% of coal-fueled capacity may not be economic to operate in 2012 to 2014 at expected coal and natural gas prices,” GAO said. “This capacity could be at risk of retirement unless economic conditions change.”
But increasing reliance on natural gas would bring with it some risks, including potential reliability challenges based on the possibility of interruptions of gas deliveries to generating units.
“In particular, one stakeholder said that there can be other natural gas users on pipelines, such as homeowners in regions of the country where natural gas is used as a home heating fuel, who may also consume natural gas during periods of peak demand,” GAO said. “In these areas, constructing pipelines to improve the supply of natural gas to existing or new natural gas-fueled generating units could take time because of a range of financial and regulatory steps that must be taken. Without such upgrades, there may be inadequate natural gas supply in certain locations where it is needed for electricity generation.”
Although gas pipeline capacity is already being expanded in some regions of the country to accommodate rising demand, “several stakeholders raised concerns about gas-electric coordination in the industry,” GAO said, echoing recent comments by Federal Energy Regulatory Commissioner Philip Moeller (see Daily GPI, Aug. 13). EPA’s “aggressiveness and timeline could create serious reliability issues,” according to Moeller.
CSAPR, which was finalized last year, has helped lower nitrogen oxide and sulfur dioxide emissions from power plants by 16% and 34%, respectively, in states affected by the EPA regulation, thanks in large part to low-priced and abundant gas supplies, according to Bentek Energy LLC (see Daily GPI, Aug. 16). MATS was finalized in February, CWIS is scheduled to be finalized by June 27, 2013, and CCR is not yet scheduled for finalization.
In the midst of one of the hottest summers on record nationally, high natural gas demand in the electric generation sector continues to dominate U.S. energy markets, but how much of this continues when temperatures cool in the fall will depend on the relative price of gas to coal and economic dispatch decisions by grid operators, according to one energy industry analyst (see Daily GPI, Aug. 16).
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