The Environmental Protection Agency (EPA) has placed high hopes on greater use of natural gas combined-cycle (NGCC) plants in order to cut power sector carbon dioxide emissions 30% by 2030, and there could be a deep impact in the Southeast.
This is an observation offered by UBS Global Research Electric Utilities Analyst Julien Dumoulin-Smith in a June 16 look at the EPA Clean Power Plan, which was rolled out June 2.
EPA has said that it believes most new combined-cycle turbines installed in the past 15 years can be used 70% of the time, compared to the mid-40s found now for the average combined-cycle unit.
“As such, the greatest threat to coal dispatch appears to be in markets with meaningful ‘ability’ to switch to existing natural gas infrastructure. We see this as disproportionately impacting the Southeast states, along with the remaining Appalachian (Eastern) coals they consume, given the lower utilization of the gas portfolio in these regions,” according to the UBS analysis authored chiefly by Dumoulin-Smith.
The situation is “clearly negative for coal, especially PRB [Powder River Basin] generators which have high load factors already and higher carbon intensity than eastern peers,” said the UBS analyst. The rules are also clearly negative for lignite-fueled power plants particularly in Texas, according to the analysis.
The UBS analysis suggests that the value of combined-cycle gas power plants will increase as a result. There could also be a dramatic jump in the demand for natural gas. There is the potential for another 10 billion cubic feet per day (Bcf/d) of demand sometime around 2030, Dumoulin-Smith said.
If there is a consolation prize here for coal plants, it’s through higher gas prices, according to UBS’s Dumoulin-Smith. The UBS analysis says that EPA’s estimated 2% retail bill impact is likely underestimating the cumulative impact on bills from rising commodity gas prices.
The EPA CO2 plan for existing power plants should also improve the long-term economics of nuclear generation.
“We think the nuclear generators remain the primary beneficiaries, with states clearly under pressure to negotiate ‘packages’ to maintain all existing nuclear plants,” the analysis said. This should benefit big nuclear operators like Exelon (NYSE:EXC) and Entergy (NYSE:ETR).
“Moreover, with new coal out of the question, and prospects of gas prices making sparks less robust a meaningful carbon policy will inevitably raise the prospects for new nuclear again later in the decade (as well as the focus around extending existing nuclear licenses to 80-years from their already 60-year lives.)”
“Lastly, the rules add additional credibility to renewables, particularly across the Northeast, where rules indicate a substantial uptick off 2020 levels through 2030,” according to UBS.