Maintaining Electric Reliability While Reducing Air Pollution

by Michael J. Bradley, M.J. Bradley & Associates LLC, and Susan F. Tierney, Analysis Group

In the 20 years since the Clean Air Act (CAA) Amendments of 1990, U.S. electric power companies have deployed pollution-control technologies, new power plants with relatively low emissions, and demand-side measures to reduce electricity production air emissions.

The Environmental Protection Agency (EPA) has found, however, that despite this significant progress in reducing emissions, in 2008 some 127 million Americans still lived in counties with unhealthy air, many of which are along the Ohio River Valley in the Middle Atlantic and Southeast.

To address these issues, the EPA on Aug. 2 published its draft Clean Air Transport Rule regulating emissions in 31 Eastern states and the District of Columbia, where controlling emissions will produce the greatest public health benefit.

The EPA plans to implement the Transport Rule on Jan. 1, 2012. Additional rulemakings are underway to regulate hazardous air pollutants (HAPs), with the EPA under court order to promulgate its final utility maximum achievable control technology (MACT) rule by November 2011. According to the EPA, compliance would be required by early 2015.

These new rules regulating air emissions from fossil fuel-fired power plants will require certain uncontrolled plants to install pollution-control equipment.

Some coal plant owners may retire units rather than install pollution controls. About half of the nation’s coal-fired generating capacity has installed sulfur dioxide scrubbers, and many others plan to install scrubbers or retire.

This leaves about one-fourth of the nation’s coal-fired generation that needs to decide to add pollution controls, switch to a cleaner fuel, retire or explore other options.

Some in the industry have raised concerns about the reliability impacts of anticipated power plant retirements and outages required to install new pollution-control equipment. In our report, “Ensuring a Clean, Modern Electric Generating Fleet While while Maintaining Electric System Reliability,” we examine these issues and conclude that the EPA can move forward in a timely way on new air-quality rules for power plant emissions to improve public health without threatening the U.S. power system’s reliability.

There are three key reasons for this conclusion. First, even though some units likely will retire rather than comply with the new regulations, electric system reliability will not be compromised if the industry and its regulators proactively manage the transition to a cleaner, more efficient generation fleet.

Power system reliability relates to generation capacity and availability, consumption levels and patterns, and transmission capacity and use.

All these factors must be considered when assessing reliability impacts.

Foremost among these factors is that the existing power system capacity exceeds minimum reserve levels. Each North American Electric Reliability Corp. (NERC) reliability region has excess capacity, totaling more than 100 GW of excess capacity nationwide. Therefore, it appears there will be no capacity shortages, even if projected levels of coal unit retirements prove accurate.

Further, economic conditions have reduced the electricity demand for electricity in recent years, providing an additional capacity cushion to assist in managing any power plant outages required to install pollution controls.

And the industry has a proven record of adding new generating capacity and transmission solutions to address reliability concerns.

Between 2001 and 2003, the electric industry built more than 160 GW of new generation–about four times what analysts project will retire within the next five years.

In addition, many tools are available to the industry and regulators to assure regional reliability, such as capacity markets and reserve-sharing mechanisms. These tools complement the work the industry is doing to manage consumption through demand response, energy efficiency and smart grid programs.

Second, industry data counter concerns that it will cost the industry too much to comply with the EPA’s proposed air regulations, that pollution controls cannot be installed soon enough, or that the EPA regulations will lead to the closure of otherwise economically healthy power plants.

The proven technologies for controlling air pollution emissions, such as NO2, SO2, mercury and acid gases, are commercially available.

Some 65 percent of the U.S. coal fleet already has installed or plans to install scrubbers, advanced NO2 controls or both to meet federal and state emissions regulations, thus demonstrating that the costs can be managed.

Many of the coal units most likely to shut down are smaller, 40- to 60-year-old units nearing the end of their design life expectancy and already are economically challenged.

The most recent annual “State of the Market Report for PJM” by its Independent Market Monitor identified more than 11 GW of coal units at risk of retirement because they failed to recover their avoidable costs or were close to not recovering those costs.

This suggests that the coal units’ economics already place them at risk of shutdown, regardless of the EPA’s future air regulations.

In addition, the retirement of some existing generating capacity will create room on the transmission grid to accommodate new generating capacity without requiring transmission upgrades, which reduces the cost of transitioning to a cleaner, more efficient generation fleet.

Last, the EPA, Federal Energy Regulatory Commission (FERC), Department of Energy (DOE) and state utility regulators have an array of tools to moderate impacts on the electric industry.

The EPA may exercise its statutory authority under the CAA to grant time extensions to complete pollution control installations where appropriate.

It also can adopt regulatory approaches that allow for cost-effective compliance, such as the emissions-trading mechanism proposed in the Transport Rule.

Plus, the DOE has established processes, including the use of consent decrees, to keep plants operating for reliability purposes, pending necessary upgrades or generation additions.

Similar powers are available to the EPA and the president, and FERC has approved transparent, well-established market rules that provide regional transmission operators and state regulators with additional safety nets to help ensure adequate capacity.

The electric industry is well-positioned to respond to the EPA’s proposed road map to “help millions of Americans breathe easier and live healthier” without threatening electric reliability.

To do so, the EPA, the industry and other agencies must take practical steps to plan for these regulations’ implementation of these regulations and adopt appropriate regulatory approaches.

The nation can achieve an orderly transition to a cleaner generating system and a healthier future.

Authors’ report site: http://mjbradley.com/news_20100809_00.html.

Authors

Michael J. Bradley, formed M.J. Bradley & Associates LLC to provide private industry, nonprofit organizations and government agencies with insightful advice on strategic environmental policy development, use of innovative market systems and environmental regulatory and legislative issues. Reach him at mbradley@mjbradley.com.

Susan F. Tierney, Ph.D., is managing principal at Analysis Group. Reach her at stierney@analysisgroup.com.

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