EPA Regulations Affect Coal

by Rob Patrylak, Black & Veatch

The U.S. Environmental Protection Agency (EPA) has proposed a series of new air, water and solid waste regulations that particularly will impact coal-fired power generation plants. Described by some as a “train wreck” or “perfect storm,” these new regulations are expected to result in the retirement of many older units. Now utilities can begin their impact assessments more clearly.

Owners of electric generation assets are confronting a series of decisions on how to optimize the value of their existing assets in the face of regulatory uncertainty. These new regulations will impact the economic viability of these assets. In many cases, the prospect of early retirement might be a better decision than facing the cost of environmental retrofits.

The environmental issues most coal plants face fall into two categories:

  1. Near-term air quality regulations that are poised to take effect in the next five years, and
  2. Upgrades or conversions of water and waste management systems by the end of the decade, as well as lingering uncertainty related to potential future greenhouse gas (GHG) regulations.

Here is a bullet list of new EPA regulations affecting coal generation assets:

  • Utility MACT (Maximum Achievable Control Technology) rules to reduce emissions of hazardous air pollutants such as mercury,
  • Clean Air Transport Rule to reduce ozone and particulate levels via control of nitrogen oxides (NOX) and sulfur dioxide (SO2) emissions,
  • Regional haze standards to improve visibility via reduction in NOX, SO2 and particulates;
  • National Ambient Air Quality Standards (NAAQS) with stricter revised standards for NOX, SO2, carbon monoxide, ozone and fine particulates,
  • Designation of combustion residues (ash) as either solid or hazardous waste,
  • Cooling water intake design and wastewater discharge standards, and
  • Greenhouse gas cap-and-trade: “if-and-when.”

And just to help keep everyone on their toes, further changes in regulations are likely, if not inevitable.

 

Looking at the issue broadly, asset owners might proceed with conventional capital investments or life-extension projects, or they might invest in a wide range of new environmental retrofits in preparation for the new regulations. They also might adjust their existing portfolios, which might include asset retirement, dispersal or acquisitions.

Wait and see is no longer an option; it’s time for decision-making. To assess alternatives, asset owners must implement a decision process for the go, no-go decisions on the asset retrofits vs. retirement conundrum. A simplified process model could look like the diagram.

Black & Veatch’s research has shown that the retirement decisions are driven by a few key factors. When looking at the assets themselves, you’ll see it is the smaller, older assets with shorter remaining lives and typically lower efficiencies that are much more at risk for retirement. In regulatory and market drivers, the retirement decision is influenced heavily by the severity of the regulations being developed now, the GHG regulations that might come later and the assumed price of natural gas. All of these are factors over which asset owners have little control but must face. Yes, that feels like a perfect storm to me.

Author
Rob Patrylak is managing director in Black & Veatch, management consulting.

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