EPA CO2 plan will be costly, according to report by Energy Ventures

The Environmental Protection Agency (EPA) Clean Power Plan will significantly drive up prices for both electric power and natural gas, according to a study by Virginia-based Energy Ventures Analysis (EVA) for the National Mining Association (NMA).

This analysis found that the impacts of the rule on electricity costs will be significant, with consumers paying an additional $214bn for electricity between 2022 and 2030 compared to the same period without the CPP. The report was publicly released by the NMA earlier this month.

Issued earlier this year, the Clean Power Plan would require states to cut power sector CO2 emissions 32% by 2030.

The Clean Power Plan cost premium begins in 2022 at $15bn. Forty-six states will face double-digit increases in wholesale electricity cost when the CPP is fully implemented in 2030, with 16 states projected to experience a 25+ percent increase, according to EVA.

“The analysis also examines the often-concealed, but still necessary, costs of replacing lower-cost power generation prematurely retired due to the CPP,” Energy Ventures said.

For example, wholesale electricity prices are expected to climb 23% in Arkansas, 27% in Illinois, 25% in Iowa, 24% in Nebraska and 31% in Ohio, the firm said in the report.

EVA’s analysis projects the EPA rule will cause the closure of 41 GW of coal-fired capacity, with some plants closing after 2022 as the rule becomes stricter. The 41 GW lost is enough capacity to serve about 24 million homes, or nearly three times the needs of Texas. The Clean Power Plan is expected to displace 40% of total coal generation.

The CPP represents EPA’s attempt to transform the nation’s electricity system under the Clean Air Act. In developing the CPP, EPA abandoned the longstanding interpretation of section 111(d) of the Clean Air Act, according to Energy Ventures Analysis.

“Rather than set an emission standard based upon what available technology could achieve at individual power plants, EPA constructed a hypothetical electric grid that would yield the level of carbon dioxide emission reductions the administration wants,” Energy Ventures said in the report.

EVA expects a higher increase in natural gas prices than those assumed by the EPA. Energy Ventures Analysis predicts that under the CPP natural gas prices will rise from $2.85/mmBtu today to $5.95/mmBtu in 2030.

Energy Ventures said that EPA failed to acknowledge the higher cost of natural gas required to substitute for coal-fired generation displaced in the baseload fleet. Also EPA did not acknowledge cost impact on natural gas customers outside the power sector, the firm said.

“Third, EPA does not fully account for the cost consumers will pay for power generation and transmission infrastructure necessary for replacing the coal generation that will be prematurely retired by the rule,” according to the EVA.

Concerns about consumer impacts in the wake of the CPP’s implementation have prompted more than half of the states to take legal action to stop the implementation of the CPP in court, Energy Ventures said.

This study focused on a state mass-based limitation including new unit complement with no inter-state trading. Should states elect to pursue a rate-based limitation and/or participate in inter-state trading programs, the lowest cost resource compliance plan would likely be different.

About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at wayneb@pennwell.com.