Duke Energy (NYSE: DUK) doesn’t know yet how much coal-fired capacity in North Carolina and Florida that it will have to retire to meet the U.S. Environmental Protection Agency’s proposed Clean Power Plan, but it will be a lot, and much of that capacity has already gotten recent costly retrofits to control other air emissions, said Paul Newton, the North Carolina President for Duke Energy.
Newton was one of several industry officials to testify at a March 11 Federal Energy Regulatory Commission technical conference on the Clean Power Plan’s impact on grid reliability in the eastern U.S.
Duke Energy owns more than 57,000 MW of electric generating capacity in states like Indiana, Ohio, Kentucky, North Carolina and Florida. Duke Energy’s utility business consists of a balanced generation capacity mix currently consisting of 35% coal, 36% natural gas, 14% nuclear, 13% solar, wind and hydro, and 2% oil.
“For more than a decade, Duke Energy has been aggressively moving forward with a strategy to modernize our generation and delivery systems,” Newton said in his prepared remarks. “By taking a thoughtful, deliberate approach, we have been able to reduce emissions from our fleet, including carbon dioxide emissions, all while keeping customer rates below the national average in all of our regulated jurisdictions and across all customer classes. Duke Energy has been growing its renewable portfolio, making more than $4 billion in investments in our commercial renewable energy business. We have also added a significant amount of natural gas generation to our fleet with the construction of five new natural gas combined cycle plants since 2011. In fact, Duke Energy has invested more than $9 billion in new generation across our systems, allowing for the retirement of about one-quarter of our coal-fired and large oil-fired fleet or 6,800 MW of capacity by 2018. This represents 18 power plants and 52 coal units.
“Duke Energy supports climate change policies that will result in reductions in greenhouse gas emissions at achievable rates over time while balancing impacts to our customers’ rates, the economies of our service territories and the reliability that our customers count on. After a thorough review, Duke Energy has identified numerous concerns with EPA’s proposed Clean Power Plan (CPP) as we detailed in comments submitted to the EPA. An area of particular concern, and one that I will address here today, deals with the reliability challenges likely to result from the interim compliance period targets and the requirement that many states must meet very stringent CO2 emission reduction targets beginning in 2020. Florida and North Carolina, in which Duke Energy operates, are two examples of this challenge. Requiring too much too soon, without time to effectively plan and build replacement generation or to address the infrastructure needed to support replacement generation places our electric system reliability at risk.
“The most effective way to avoid reliability problems associated with the CPP is to ensure that electric system reliability is properly factored into any final rule and that the rule sets emission reduction requirements on a schedule that is possible to achieve without significantly jeopardizing reliability. Duke Energy therefore urges the FERC to work closely with EPA to ensure that reliability is properly factored into any final rule requirements.”
EPA has front-loaded a lot of reductions by 2020 in North Carolina and Florida
Newton later added: “Under the CPP, the EPA has proposed that North Carolina and Florida achieve more than three quarters of their 2030 emission rate reduction requirements by 2020. Further, the proposed interim compliance period requires state plans to achieve the average of their 2020-2029 targets by 2029. Thus, the CPP front-end loads the required reduction, which means that states will not have the latitude to develop an implementation plan that starts slowly and works up to the final 2030 target at a pace that takes into account their unique needs and circumstances.
“With the CPP 2020-2029 averaging provision, a state that fails in the early years of the interim compliance period to achieve CPP interim period targets has no choice but to go beyond its final 2030 target in the later part of the interim compliance period in order to meet its 2020-2029 average interim compliance period target. Even then, the state may not be in compliance with its 10-year average interim compliance target. Therefore, the interim compliance period provides no relief for states with very stringent 2020 targets from having to meet those targets in 2020, which gives rise to our significant reliability concerns.
“Until we see how each state determines the utility compliance requirements, Duke Energy cannot know the amount of coal-fired generation it might need to retire by 2020 to comply with the proposed state targets. However, we can say with confidence that the proposed 2020 targets for North Carolina and Florida have the potential to drive coal unit retirements by 2020 in each state, as the EPA’s own modeling analysis of its proposed rule suggests will be the case. The EPA modeling of its proposed ‘preferred option’ shows a number of Duke Energy coal units shutting down by 2020. Duke Energy currently has no plan to retire the units the EPA modeling shows retiring. All of the units have recently been equipped with SO2 scrubbers and many of the units were recently equipped with selective catalytic reduction technology to control NOx emissions.
“A 2020 compliance date, especially for states like North Carolina and Florida which have very stringent 2020 targets, is not compatible with the regulatory timeline the EPA has laid out in its proposal, which could have states finalizing and submitting their implementation plans to EPA in mid to late 2017 or 2018, and the EPA ruling on the acceptability of those plans in mid to late 2018 or 2019. Simply put, the proposed implementation schedule does not provide the amount of time that will be needed to develop and implement by 2020 what will most certainly be very complex compliance plans. Very stringent 2020 targets place reliable, well controlled and economically viable coal-fired generating units at risk of premature retirement in order to meet the initial 2020 targets simply because there would not be sufficient time to do anything else that would have a sufficient impact on CO2 emissions. We cannot retire generation without adding replacement generation at the same time.”
The obvious solution to concerns about reliability is to allow each state to develop its own “glide path” for achieving its final 2030 target that reflects state-specific needs and circumstances, Newton wrote. “Only in this way will it be possible to accommodate the significant transformation that will be necessary to achieve the levels of reduction contemplated in the CPP without placing the reliability of the electric system at risk.”