Clean Power Plan: The state regulation

Author: 1,534Mw Sandow Station coal-fired electric power plant in Rockdale, Texas

Austin, July 7, 2014 — The Clean Power Plan is the most pervasive set of three interlocking regulations the EPA has ever put together. If adopted, they will cut atmospheric carbon dioxide emissions from fossil-fuel electric power plants by more than 30 percent.

The state regulation is the best known of the three newly proposed rules. It is complex. It includes goals, options, building blocks, and scads of “best system for emission reduction” (BSER) recommendations.

An initial look shows the proposed state regulation is more stringent and more expensive than publicized.

State regulation differs from McCarthy announcement

On June 2nd, EPA Administrator Gina McCarthy described the state regulation by saying, “In 2030 when states meet their goals, our proposal will result in 30 percent less carbon pollution from the power sector across the U.S. when compared with 2005 levels“. The EPA calls carbon dioxide – the essential molecule needed by all plant life and food production on earth – “carbon pollution”.

The final version of the proposed new state regulation (document 2014-13726 in the Federal Register) is more restrictive and more expensive than McCarthy said in her June announcement. Instead, it calls for a 31.4 percent reduction below 2012 emission levels by 2030. Especially noteworthy is CO₂ levels were already 12 percent lower in 2012 than in 2005.

Thus, the state regulation will be harder to achieve than EPA Administrator McCarthy said and, consequently, be more expensive. McCarthy said the entire plan will cost between $7.3 billion and $8.8 billion depending on state choices. However, just a cursory glance at the cost of partial building block solutions reveal the plan will cost a lot more than McCarthy thinks.

State regulation basics

The electric power sector produces 1/3rd of all carbon dioxide emissions in the United States. A 30 percent reduction in its CO₂ emissions would result in an overall 10 percent reduction in total carbon dioxide released by the United States. Keep that 10 percent figure clearly in mind when evaluating the cost/benefit of the Clean Power Plan.

The state regulation is unique because it doesn’t define specific actions states must take. Instead, it provides a menu of choices to pick from. States don’t even have to follow the menu. They can do anything they want, as long as they meet their interim and final 2030 carbon dioxide emission goals.

Each state will be required to submit a detailed plan to EPA outlining how they’ll meet their state specific goals by June 30, 2016 – just in time to be an issue in the next presidential elections.

The Table

A table listing individually defined state-specific CO₂ emission goals is the heart of the state regulation. According to the table, each state must reduce CO₂ emissions from its electric power plants by an average of 31.4 percent below 2012 levels.

However, there are huge and inexplicable differences between individual EPA defined state reduction goals. For example, North Dakota, which gets 78 percent of its electricity from dirty coal, is required to reduce its emissions by only 10.6 percent. It’s the lowest of any state.

Washington State, on the other hand, which gets 92 percent of its electricity from zero-emission sources, is required to reduce its CO₂ by 72 percent. It’s the highest percentage.

Why? A revealing analysis of that will be the subject of another Clean Power Plan article in this author’s series.

Option 1 and Option 2

The state standard proposes two options. Option 1 is the 30 percent reduction by 2030 that everyone talks about. Option 2 is a lower overall standard but has to be met sooner.

It is expected most states will chose Option 1 to meet their state obligation.

The Four Building Blocks

Instead of defining specific actions each state must take, the EPA provides a menu of four building block choices for constructing a state plan:

1. Improve plant efficiency
2. Make dispatch changes within existing systems
3. Increase renewable sources
4. Energy conservation

States are allowed to mix and match the building blocks to create an individualized state emission plan. Or, states can do other things, like banding together and/or implementing accelerated cap-and-trade plans to force industry to reduce emissions faster.

As long as states meet their individual goals, EPA does not care how it is done.

Building Block 1 – improve efficiency

One way to reduce emissions is to increase plant efficiency. EPA calls it “heat rate improvements”. Seems straightforward enough. Reducing the amount of coal or natural gas needed to produce the electricity and emissions decrease.

Prominently highlighted in the state regulation, the EPA references a 2009 study by Sargent & Lundy it commissioned to identify all the “best system of emission reduction” (BSER) choices that coal-fired power plants could use to increase efficiency.

The study contains a long laundry list of possibilities and, importantly, what each would cost. No one plant would ever need all the changes, but all plants will need some of them.

The study includes a revealing test case. Sargent & Lundy calculate the cost for a four percent emissions reduction to one existing 250Mw coal-fired power plant. According to the study, it would cost $13.3 million.

Assuming their example is typical for coal-fired electric power plant units then the total cost to reduce CO₂ by four percent nationally can be calculated with numbers derived from the state table described above. It would cost $16 billion.

A paltry four percent is far short of the 31.4 percent required. The cost to do more will be higher. Of course, there are long-term cost savings for sure, but the upfront costs must be paid first. Usually, part of those expenses are passed on to ratepayers.

EPA claims the entire Clean Power Plan will cost between $7.3 billion and $8.8 billion. This relatively minor change alone will cost double that amount before any savings are realized.

Building Block 2 – dispatch changes

This one is a tricky to describe. However, for practical reasons, it’s likely to be the most used building block that states will employ to meet their goals. It accelerates a process already underway since 2007.

The electric power grid has to be able to adjust to daily, seasonal and extreme weather conditions when electric usage spikes up or down. To do that two types of power plants are built. The first are base-load plants intended to be run 24X7 to supply a steady flow of current. The second are so-called “peaker” plants that are revved up to handle peak demand loads, then shut down when they are not needed.

Most peaker plants are natural gas-fired. They can quickly be started and stopped to level out the flow of electricity to prevent brownouts and, oppositely, grid overload. Most utilities have large coal-fired power plants used for base-load production.

Building block 2 recommends re-dispatching plant production between base-load and peaker plants when the peaker plant emits less CO₂/Mwh than does the base-load plant.

Natural gas already supplies 27 percent of U.S. electricity and is used for most peaker plants. It has about half the CO₂ emissions of coal. Replacing coal with natural gas is one of the main reasons CO₂ emissions have decreased by 12 percent since 2007.

Without saying so directly, this building block recommends replacing coal-fired electric production with existing natural gas peaker plants wherever possible. This is probably the most feasible, cost effective way for states to meet their goals.

The other two major regulations that affect new and existing power plants will greatly increase the cost of this building block and will be covered in another installment in this series.

Building Block 3 – Increase renewables

Author: 30Mw Webberville Solar Farm near Manor, Texas

Obviously, CO₂ emissions can be lowered by replacing any existing fossil fuel plant with zero-emission renewable sources, like wind and solar. The down side is cost.

New power plants have to be financed, built and paid for before they produce electricity. The coal-fired power plant pictured at the beginning of this article is a typical base-load power plant. It produces nearly nine times the usable electricity of the world’s largest solar farm, the newly opened 550Mw Topaz Solar Farm near San Luis Obispo, California.

To replace Sandow would require building nine Topaz-sized solar farms at an investment cost of $22.5 billion and need over 85 square miles of available sunny space for its 81 million solar panels.

Most of the $22.5 billion would be paid for by investors seeking profits derived after the plants are in production. To repay investors a non-trivial portion of the cost will have to be paid through higher electric bills.

The upfront cost to replace just one typical base-load coal plant with solar is three times the EPA estimate of the entire Clean Power Plan.

The up side is it will create a lot of much-needed construction jobs.

Building Block 4 – energy conservation

If consumers use less electricity for the same benefit then CO₂ emissions will drop. The EPA likes to describe this building block as reducing “demand-side” electricity.

For example, if homes and business are better insulated then they would need less electricity to heat and cool. If people bought and used energy efficient electric appliances, energy efficient light bulbs and started turning them off when they aren’t being used, then “demand-side” electricity decreases.

It has the added benefit of lower consumer electric bills. But, like all the other building blocks, there are upfront costs. The ones for energy conservation are hidden and paid by consumers, though some may be compensated through tax credits. Ultimately, though, someone has to pay to reduce demand-side emissions.

To get an idea how much conservation costs, consider the rooftop solar power system installed at the George Washington Carver Museum east of downtown Austin, Texas. It cost $463,250 in public and private grants and is estimated to lob $13,840/year off the demand-side electric bill. According to Austin Energy, the local power utility, that’s a 14 percent reduction in CO₂ producing demand-side electricity.

If correct, it will take 33 years for the system to pay for itself, assuming there are no finance charges, no inflation and it is 100 percent maintenance free. Since the levelized cost of electricity (LCOE) is usually figured over 20 years, then this solar system will cost much more than it saves.

Conclusions

The Clean Power Plan is a set of three intertwined regulations designed for one primary purpose, reduce CO₂ emissions from fossil-fuel electric power plants. In concert, the three regulations will reduce carbon emissions by at least 30 percent over the next 16 years, primarily by replacing coal-fired power sources.

One regulation is a non-specific, state-based mandate that requires states to reduce their carbon dioxide emissions by an average of 31.4 percent below 2012 levels by 2030.

A second regulation governs new power plant construction. A third covers modifying existing power plants. Both of those require a 50 percent emissions reduction in coal generated electricity. That is more than the state regulation requires.

The state regulation is the catalyst for reducing emissions. The EPA says the reduction standard is below 2005 levels and will cost $8.8 billion maximum. Neither appears to be correct.

The actual reduction standard in the proposed regulation is below 2012 levels, not 2005, which is considerably more difficult to achieve. The maximum EPA-estimated overall cost of the plan looks to be underestimated based on partial cost estimates derived from EPA and EIA data.

Future articles in this series will unravel the riddle of the state specific reduction goals, perform in-depth cost/benefit analysis on various aspects of the Clean Power Plan, analyze the effect of the other two regulations and do an evaluation of its health cost benefits.

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