ERCOT says coal plant retirements will drive up retail power prices

The Electric Reliability Council of Texas on Oct. 16 released its updated “Analysis of the Impacts of the Clean Power Plan,” based on the final rule released by the U.S. Environmental Protection Agency in August, and the study results indicate the plan could result in the retirement of at least 4,000 MW of coal-fired generation capacity in the ERCOT region, possibly beginning as soon as 2022.

2022 is the initial compliance year for the Clean Power Plan, pushed back from the original proposal of 2020. The final version of the plan calls for 32 percent CO2 reductions from existing power plants by 2030.

“We continue to have concerns about the potential impacts on planning and operation of the ERCOT power grid,” said ERCOT CEO Trip Doggett. “Based on our analysis, we are especially concerned about reliability risks associated with multiple unit retirements within a short timeframe. As new technologies emerge and market conditions change, the grid is changing. Our market is designed to encourage new, more efficient technologies, but that change needs to occur at a pace that supports continued reliability.”

ERCOT anticipates the impacts of these changes could increase retail power prices by up to 16 percent by 2030, not including the impacts of new transmission projects or other investments that could be needed to support compliance.

The analysis considers the impacts of the plan based on mass-based approaches (measuring tons of emissions) to achieve emissions targets for the ERCOT region, modeling four scenarios:

“-Baseline: This scenario is based on current trends in the ERCOT region and market and considers announced retirements and current regulatory requirements.

“-CO2 Limit: This scenario considers a system limit on emissions, allowing the model to select the lowest-cost resource option without regard to market design or other considerations associated with implementation.

“-CO2 Price: This scenario includes an estimated price for CO2 emissions that would cause the ERCOT region to achieve the compliance targets.

“-CO2 Price and Regional Haze: This scenario also includes a CO2 price and models the combined impacts of the CPP and the proposed Regional Haze Federal Implementation Plan within the ERCOT region.

ERCOT anticipates that about 4,000 MW of generation capacity would retire to achieve CPP compliance by 2030, increasing to about 4,700 MW when Regional Haze requirements are taken into consideration.

In scenarios that include a price for carbon emissions, study results indicate more than 14,000 MW of utility-scale solar power, 9,000 MW of wind power capacity and nearly 3,000 MW of new gas-fired combustion turbines would be added to achieve compliance within the ERCOT market.

The model, which is consistent with ERCOT long-range planning studies, assumes a gradual increase in natural gas prices over time, to a little more than $6 per MMBtu by 2030, and a continued decrease in capital costs associated with wind and solar development.

The report also highlights ERCOT’s specific concerns associated with the future generation mix and transmission needs. The retirement of a large portion of controllable generation capacity, combined with addition of a large amount of generation from intermittent solar and wind sources, could affect reliability of all generation resources as the system works together to maintain a balanced grid.

As with ERCOT’s previous modeling analysis of the CPP, this analysis uses stakeholder-vetted planning processes and methodologies consistent with ERCOT’s regional long-term system assessment studies. This analysis is focused on evaluating the potential impacts of the CPP, in combination with the Cross-State Air Pollution Rule and the currently proposed Regional Haze FIP for Texas.

It does not consider the impacts of other pending environmental regulations affecting generation resources, including the Mercury and Air Toxics Standards, which have more limited or unit-specific implications and are unlikely, by themselves, to impact overall trends on the ERCOT system.

However, these other regulations, in combination with the CPP, CSAPR, and the Regional Haze FIP, could result in additional grid operational impacts and reliability challenges. For example, a number of coal-fired units in the ERCOT region have compliance extensions until April 2016 from the Texas Commission on Environmental Quality for MATS compliance, the study noted.

There remains a risk that owners may choose to retire the affected units rather than comply with MATS next year, especially in light of the proposed Regional Haze FIP and eventual compliance with the Clean Power Plan. The implications of potential MATS-related retirements in 2016 are not considered in this analysis.

The model added new capacity to replace retiring units and meet forecasted demand. In the baseline scenario, the model added 13,000 MW of solar capacity, 1,000 MW of wind capacity, and 1,100 MW of natural gas combustion turbines. This analysis assumes the expiration of the production tax credit and stepdown of the investment tax credit, as per current law.

In the scenarios with the CPP, the model added an additional 4,000 to 9,200 MW of renewable capacity. There are also 1,500 to 1,800 MW of additional natural gas combustion turbines added in the CO2 price scenarios.

Compliance with the CPP results in shifts in the generation mix away from coal and towards natural gas and renewables. In 2022, the annual generation by fuel is very similar across the first three scenarios. In the fourth scenario, CO2 Price & Regional Haze, a decrease in generation from coal is made up by increased generation from natural gas and solar resources.

By 2030, the generation mix shifts more significantly as the CPP limits become more stringent. The share of generation provided by coal-fired capacity in the CPP scenarios is lower compared to the baseline, at 14 percent to 16 percent, versus 27 percent in the baseline. The difference is made up by increases in generation from natural gas and wind resources. As a result of increased generation from natural gas-fired capacity, in 2030 consumption of natural gas (in MMBTUs) is 14 percent to 18 percent higher compared to the baseline in the CPP scenarios.

The study said: “The modeling results suggest that compliance with the CPP could result in the retirement of at least 4,000 MW of coal-fired capacity in the ERCOT region. In addition to these retirements, several units in the modeling results operate at low capacity factors during off-peak months, and would be potential candidates for suspended operations during those months (seasonal mothball). Though overall fewer coal units are at risk compared to the number of units under the CPP proposal, due to the differing level of stringency in the final rule, there continues to be a risk that the ERCOT Region could see multiple unit retirements within a short timeframe, which could result in implications for reliability.

“The potential impacts to coal-fired generation increase when other environmental compliance requirements are considered. There are several environmental regulations for which owners of coal units will need to take actions to comply between now and 2022. With the implementation of the CPP to consider, resource owners may choose to retire units rather than install the required control technology retrofits to comply with these other rules.’

In a 2014 study, ERCOT considered 8,500 MW of coal-fired capacity to have some risk of retirement due to the proposed Regional Haze requirements. If ERCOT does not receive adequate notification of these retirements, and if multiple unit retirements occur within a short timeframe, there could be implications for reliability, the study said. Coal resources provide essential reliability services necessary to maintain the reliability of the grid. The retirement of coal resources will require studies to determine if there are any resulting reliability issues, including whether there are localized voltage/reactive power control issues and the necessity of potential transmission upgrades, the study added.

ERCOT’s modeling of the CPP final rule suggests impacts of a different magnitude compared to the proposed rule from last year. Though overall fewer coal units are at risk compared to the number of units under the CPP proposal, there continues to be a risk that the ERCOT Region could see multiple unit retirements within a short timeframe. When the impacts of the CPP are considered in combination with the requirements of EPA’s proposed Regional Haze FIP, there are additional unit retirements, many of which occur even before the start of CPP compliance in 2022. If ERCOT does not receive adequate notification of these retirements, there could be periods of reduced system-wide reserve margins and localized transmission reliability issues due to the loss of generation resources in and around major urban centers.

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Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy's Coal Report. He was formerly with Coal Outlook for 15 years as the publication's editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor's degree from Central Michigan University.

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