The Electric Reliability Council of Texas (ERCOT) anticipates that implementation of EPA’s proposed Clean Power Plan will have a significant impact on the planning and operation of the ERCOT grid.
ERCOT estimates that the proposed CO2 emissions limitations will result in the retirement of between 3,300 MW and 8,700 MW of coal-fired capacity, which could result in transmission reliability issues due to the loss of generation resources in and around major urban centers, and will strain ERCOT’s ability to integrate new intermittent renewable generation resources.
In an analysis of the Clean Power Plan issued on Nov. 17, ERCOT said this CO2-reducing plan for existing power plants will also result in increased energy costs for consumers in the ERCOT region by up to 20% in 2020, without accounting for the costs of transmission upgrades, procurement of additional ancillary services, energy efficiency investments, capital costs of new capacity, and other costs associated with the retirement or decreased operation of coal-fired capacity in ERCOT.
ERCOT approached this analysis from the perspective of an independent grid operator in a competitive market which has achieved significant success in using competition to drive efficient outcomes. Existing market policies and investments in transmission in ERCOT have incentivized market participants to maximize the efficiency of the generating fleet and develop new technologies including renewable generation. With recent investments in transmission, more than 11 GW of wind capacity have been successfully integrated into the ERCOT grid.
ERCOT’s primary concern with the Clean Power Plan is that, given the ERCOT region’s market design and existing transmission infrastructure, the timing and scale of the expected changes needed to reach the CO2 emission goals could have a harmful impact on reliability. Specifically, implementation of the Clean Power Plan in the ERCOT region, particularly to meet the Pplan’s interim goal in 2020, is likely to lead to reduced grid reliability for certain periods and an increase in localized grid challenges.
There are certain grid reliability and management challenges that ERCOT will face as a result of the resource mix changes that the proposed rule will induce:
- The anticipated retirement of up to half of the existing coal capacity in the ERCOT region will pose challenges to reliable operation of the grid in replacing the dispatchable generation capacity and reliability services provided by these resources.
- Integrating new wind and solar resources will increase the challenges of reliably operating all resources, and pose costs to procure additional regulating services, improve forecast accuracy, and address system inertia issues.
- Accelerated resource mix changes will require major improvements to ERCOT’s transmission system, posing significant costs not considered in EPA’s Regulatory Impact Analysis.
These issues highlight the need for the final rule to include a process to effectively manage electric system reliability issues that may arise due to implementation of the Clean Power Plan, as well as include more implementation timeline flexibility to address each state’s or region’s unique market characteristics. With respect to the need to manage reliability issues, ERCOT said it supports the ISO/RTO Council (IRC) proposal for the inclusion of a reliability safety valve process in the context of the CO2 rule, as well the need for states to consult with ISOs/RTOs during the development of state implementation plans.
Some coal units may be shut due to factors outside the Clean Power Plan
The modeling results for the four Clean Power Plan scenarios analyzed indicate incremental unit retirements and incremental renewable capacity additions in the CO2 limit and carbon price scenarios compared to the baseline. In the CO2 limit and carbon price scenarios, the model retired 2,900 MW to 5,000 MW of capacity incremental to retirements in the baseline. Most of the incremental retirements were coal units, with between 3,300 MW and 5,700 MW of incremental coal unit retirements compared to the baseline. The amount of incremental coal retirements in the carbon scenarios is higher than the total amount of incremental retirements because of natural gas steam retirements that occur in the baseline but not in the carbon scenarios.
The fewer retirements of natural gas steam units in the carbon scenarios reflects the impact of both the Cross-State Air Pollution Rule and carbon dioxide limits on production from coal units, improving the economics of natural gas steam units during this period. In the baseline, 800 MW of coal capacity retires, corresponding to the already-announced retirement of CPS Energy’s J. T. Deely units 1 and 2 in 2018.
New capacity from mostly gas and renewables projects would make up for retirements. However, within the modeled timeframe there are some years for which the ERCOT capacity reserve margin may be considerably less than historically targeted for reliability, as capacity retires before new resources come online and energy savings from energy efficiency measures begin to materialize. In the model results, these shortages occur towards the beginning of the compliance timeframe, between 2020 and 2022.
Said the report: “EPA’s modeling results predict that there may be 9 GW of coal unit retirements in ERCOT due to the Clean Power Plan – most occurring before the initial 2020 compliance date. ERCOT’s modeling predicted up to 6 GW of coal unit retirements, but ERCOT believes that there could be up to 9 GW of coal unit retirements resulting from the Clean Power Plan due to additional factors not considered in the model. Similarly, both EPA’s and ERCOT’s modeling saw a major shift in the generation mix in 2020 to comply with the interim goal, with substantially increased production from natural gas generation resources and substantially decreased production from coal generation resources. However, EPA’s modeling resulted in much fewer renewable capacity additions compared to ERCOT’s results and significantly more new natural gas generating capacity. The lower amount of renewable capacity additions is due to EPA’s use of higher capital cost assumptions for new solar capacity. The larger amount of natural gas capacity additions is due in part to EPA’s modeling requirement that ERCOT maintain a 13.75% reserve margin. EPA’s modeling predicts more than 10 GW of new natural gas capacity by 2030 in the state compliance scenario, whereas ERCOT’s carbon scenarios added 1 to 2 GW of new natural gas capacity.”
In the modeling results for the carbon scenarios, there are several coal units already operating at low revenues and/or low capacity factors that would likely be retired, especially when other non-modeled factors are taken into account. One important factor not considered in the modeling is the capital and operating cost impacts of other pending environmental regulations including the Mercury and Air Toxics Standards, the Regional Haze program, the 316(b) Cooling Water Intake Structures Rule, and the coal ash rules. Based on a review of capacity factors and operating revenues for the remaining coal units ERCOT anticipates the retirement of an additional 2,000 MW of coal capacity and the seasonal mothball of 1,000 MW of coal capacity beyond what is specified in the model output, compared to the $25/ton CO2 modeled scenario. These results indicate the overall impact to the current coal fleet will be the retirement or seasonal mothballing of between 3,300 MW and 8,700 MW.”