Transmission constraints, renewables affect Clean Power Plan, PJM says

Transmission infrastructure and the growing role of wind and solar in the PJM Interconnection (PJM) will play a big role in potential market compliance with the Environmental Protection Agency (EPA) Clean Power Plan, according to a PJM study released Sept. 1.

The document is titled “EPA’s Final Clean Power Plan: Compliance Pathways Economic and Reliability Analysis.” The 100-page-plus document analyzes seven different compliance scenarios. It concludes that a regional approach would be cheaper than state-by-state compliance.

The Clean Power Plan, currently being litigated in the courts, calls for states to reduce power sector carbon dioxide 32% by 2030.

The key factor that could change pricing relationships between compliance pathways is transmission congestion, according to the PJM report.

“Through 2025, PJM limited economic selection of thermal resources to those that were advanced in the interconnection queue process, or for which PJM’s interconnection analysis group determined there would be limited deliverability risks,” PJM said. “These resources have the highest likelihood of being developed with or without the CPP since they have a higher priority for transmission access than resources that submitted interconnection request at a later date.”

Despite, these projects’ status, the long-term model still retires existing generating units, and this can have an impact on transmission loading, PJM said.

Consequently, before running the Security Constrained Economic Dispatch (SCED) model, PJM performed a limited N-1 transmission flowgate screening analysis to ensure there were no NERC reliability criteria violations.

“While wind generators do not typically pay for transmission to support their energy capability, it was important to the evaluation to assess any new transmission constraints that arise because of specific resource siting in a particular area of the transmission system,” PJM said in the report.

“Unlike, the natural gas combined cycle new builds which consists of interconnection queue projects, new wind and solar sites were based on National Renewable Energy Laboratory sites that PJM identified as near (within 20 miles) stations that can deliver energy to the PJM 230 kV and above transmission system,” PJM said in the report.

Tax credits, renewable standards affect carbon-free sources

Utility-scale renewables are an output of the long-term economic model and thus reflect the extension of the federal Investment Tax Credit (ITC) and Production Tax Credits (PTC).

“During development of the long-term economic model, the ITC was 30% of qualifying capital investment through the end of 2016, 10% of qualifying capital investment thereafter,” PJM said in the report.

In December 2015, the U.S. Senate extended the ITC; it will remain 30% of qualifying capital investment through 2019, then decline gradually for two years before falling to 10% of qualifying capital investment.

Similar to the ITC, the PTC declines through 2019 to 40% of its 2016 value. For both these credits, PJM based the credit value on an assumed start of construction and not the actual date on which the model brings the resource online, which is consistent with the IRS tax provisions, PJM said.

In the long-term model, the PTC is represented as a decrease in the capital investment required based on the present value of credit revenue associated with future energy production.

“PJM region states have fully met their interim non-solar RPS targets with the exception of Illinois, where alternative retail electric suppliers are required to meet 50% of RPS with alternative compliance payments (ACPs),” PJM said.

With respect to solar targets, most PJM states fully achieved the targets over 2012-2014 with two exceptions. The District of Columbia faces inherent challenges of an exclusively urban market and, in Illinois, rules for alternative retail suppliers incentivize them to use ACPs for 100% of solar requirements, PJM noted.

On May 28, 2016, Maryland Gov. Larry Hogan vetoed the Clean Energy Jobs – Renewable Energy Portfolio Standard Revisions bill (SB0921/HB1106) due to cost to ratepayers.

The Maryland legislation would have increased the state’s Renewable Portfolio Standard to 25% by 2020 – up from the current obligation of 20% by 2022, while the solar requirement would have increased to 2.5% by 2020 – up from the current obligation of 2% by 2022.

The RPS bill passed in the House and the Senate earlier this year with veto-proof majorities, so there is potential for the bill to become law despite the governor’s veto. The veto override vote will not take place until January 2017 unless a special session is held before then.

On June 29, 2016, the D.C. Council unanimously passed B21-0650, the Renewable Portfolio Standard Expansion Amendment Act of 2016, on its second reading. Mayor Muriel Bowser signed the bill July 25 and it is now under Congressional review, with a projected enforcement date of November 2016.

The RPS expansion bill will increase the RPS and solar carve-out requirements to 50% and 5% by the year 2032, respectively, and increase alternative compliance payments (financial penalties) for electricity suppliers who fail to comply with RPS requirements.

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.