The Electric Reliability Council of Texas (ERCOT) on Dec. 19 filed with the Texas Public Utility Commission, in a docket on greenhouse gas rules and their impacts, a Dec. 16 report it did about various new U.S. Environmental Protection Agency rules.
“There are several proposed or recently finalized U.S. Environmental Protection Agency (EPA) regulations that could have an impact on grid reliability in ERCOT,” the report said. “These rules include the Mercury and Air Toxics Standards (MATS), the Cross-State Air Pollution Rule (CSAPR), the Regional Haze program, the Cooling Water Intake Structures rule, the Steam Electric Effluent Limitation Guidelines (ELG) rule, the Coal Combustion Residuals (CCR) Disposal rule, and the Clean Power Plan. This study assesses the individual and cumulative impact of these regulations on generation resources in the ERCOT region, and potential implications for grid reliability.”
Coal units are the most affected by environmental regulations. “Without considering the Clean Power Plan, 3,000 MW to 8,500 MW of coal-fired capacity in ERCOT can be considered to have a moderate to high risk of retirement – due primarily to the costs of EPA’s proposed requirements for the Regional Haze program,’ ERCOT noted. “The results of this analysis also suggest potential impacts from CSAPR in the short-term. By comparison, the other regulations are not expected to have a significant system-wide impact, but could affect the economics of a small number of units.
“The implementation and regulatory timeline of the Clean Power Plan will impact decisions resource owners make about whether to retrofit or retire impacted units. Additionally, the Clean Power Plan itself may cause unit retirements, due to the need to meet stringent CO2 emissions limits on a state-wide basis. ERCOT’s modeling analysis suggests that the Clean Power Plan, in combination with the other regulations, will result in the retirement of up to 8,700 MW of coal-fired capacity.
“The results of this study indicate that the Regional Haze requirements and the Clean Power Plan will have significant impacts on the planning and operation of the ERCOT grid. Both are likely to result in the retirement of coal-fired capacity in the ERCOT region. Currently, resource owners are required to notify ERCOT no less than 90 days prior to the date that the unit is retired or mothballed. Given the competitiveness of the ERCOT market and the current uncertainty surrounding environmental regulations, it is unlikely that generators would notify ERCOT of potential retirements or unit suspensions before the minimum notification deadline. If ERCOT does not receive early notification of these retirements, and if multiple unit retirements occur within a short timeframe, there could be periods of reduced system-wide resource adequacy and localized transmission reliability issues due to the loss of generation resources in and around major urban centers. Additionally, loss of the reliability services provided by retiring units will strain ERCOT’s ability to integrate new intermittent renewable generation resources.
“The need to maintain operational reliability (i.e., sufficient ramping capability) could require the curtailment of renewable generation resources. This would limit and/or delay the integration of renewable resources, leading to a delay in achieving compliance with the proposed Clean Power Plan limits.
“The Clean Power Plan will also result in increased wholesale and consumer energy costs in the ERCOT region. Based on ERCOT’s analysis, energy costs for consumers may increase by up to 20% in 2020, without accounting for the associated costs of transmission upgrades, higher natural gas prices caused by increased gas demand, 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 the ERCOT region. Consideration of these factors would result in even higher energy costs for consumers. Though the other regulations considered in this study will pose costs to owners of generation resources, they are less likely to significantly impact costs for consumers.”
New air controls in the works for power plants in ERCOT
The ERCOT reported pointed out that the costs of retrofitting units to comply with MATS will vary depending on the control technology selected. The most common option in the ERCOT region is the installation of dry sorbent injection (DSI) and/or activated carbon injection (ACI) systems. A survey asked resource owners to report the capital and operations and maintenance (O&M) costs associated with outstanding unit modifications for MATS. Based on this information, ERCOT estimates an average capital cost for MATS compliance of approximately $10/kW, and an average O&M cost of $0.75/MWh. These costs are the averages of the information reported on the survey, and do not correspond to a specific retrofit technology.
The report noted that EPA’s newly-proposed federal implementation plan (FIP) under the regional haze rule would require seven coal-fired units in Texas to upgrade their existing scrubbers, and seven units (five of which are located in ERCOT) to install new scrubber retrofits. The owners of these units would have three years to complete scrubber upgrades and five years to complete scrubber retrofits, from the effective date of the final FIP rule. If EPA publishes the final rule as anticipated in 2015, then the scrubber upgrades and retrofits would be required by 2018 and 2020, respectively. By 2020, the power sector would also need to begin complying with the interim CO2 emissions limits in the proposed Clean Power Plan.
Owners of most coal-fired units in ERCOT have identified compliance strategies for MATS. The most common strategies reported were the installation of ACI or DSI systems. Though 21 units (14,500 MW) are anticipated to be compliant by the April 2015 deadline, 12 of these units (8,500 MW) have not yet completed the necessary modifications. The remaining 11 surveyed coal units (5,300 MW) have been granted compliance extensions to April 2016 by the Texas Commission on Environmental Quality (TCEQ), or plan to apply for extensions.
Based on the information available to ERCOT, there are two potential risks posed by the 316(b) cooling water rule. First, much of the capacity requiring modifications consists of older gas steam units operating at average annual capacity factors well below 10%. There is likely to be little opportunity for owners of these units to recoup the costs of complying with the 316(b) rule if significant capital investments are required. Although potential retirements would be phased over the 2018-2022 compliance period, the retirement of this much capacity over a short timeframe could impact grid reliability and transmission constraints. Second, in the final rule EPA gave permitting authorities discretion to require additional controls to address entrainment on a case-specific basis. To the extent that additional requirements are imposed in Texas, there could be implications for grid reliability, particularly during peak summer months.
ERCOT modeling results predict 2,800 MW of unit retirements in the baseline, including 2,000 MW of gas steam retirements and 800 MW of coal unit retirements. The 800 MW of coal retirements in the baseline corresponds to the announced mothballing of CPS Energy’s J. T. Deely units 1 and 2 in 2018. The natural gas retirements in the baseline are due to economics. There are a similar number of total retirements in the CSAPR limit scenario, but the retirements shift from natural gas steam to coal units. This is due to the impact of the CSAPR emissions limits, which makes natural gas-fired generation more economic compared to coal-fired generation. The addition of Regional Haze requirements results in almost 2,000 MW of additional coal unit retirements relative to the CSAPR limit scenario, or 3,000 MW relative to the baseline. Retirements increase further in the scenarios that include the Clean Power Plan, with 3,300 MW to 5,700 MW of incremental coal unit retirements compared to the baseline.