The Sky is Not Falling and The Lights Will Still Be On…

This week, NERC, the North American Electric Reliability Corporation—an industry-funded group charged with keeping the lights on—released a long awaited and much anticipated report on the impact of a number of potential EPA regulations for the power sector.  And guess what? Much to the chagrin of those who have said that we can’t keep the lights on and have clean air, today’s study puts to rest those fears, proving that implementing the Clean Air Act won’t be turning the lights out any time soon.

The NERC report analyzes four potential regulations—only two of which have even been proposed, and none finalized—which will control emissions of toxic air pollutants, sulfur dioxide (SO2) and nitrogen oxides (NOx), coal ash disposal and cooling water intake.   Since the content of most of these rules is still uncertain, NERC had to estimate what they would cover and how stringent they would be by hypothesizing a “moderate” and a “strict” case for each.

The coal industry and segments of the utility industry have been claiming for some time that the expected Clean Air Act regulations will cause a regulatory ‘train wreck’ that will strain electric system reliability.  However, NERC found that even the strictest possible formulation of these air regulations would not materially erode reserve margins (that’s NERC speak for getting close to turning out the lights). Congress in particular should take note that even the analysis of the power industry’s own reliability organization undercuts claims that clean air regulations will lead to the lights going out.

Of the four potential regulations, NERC finds that only the cooling water intake rule has the potential to impact generation reserve margins.   Ironically, this is also the rule for which EPA has the most discretion in both timing and implementation. NERC however assumed a very strict implementation of the cooling water rule and that EPA would not use any of its discretion or authorities to reduce cost and decrease the regulatory burden.  Nevertheless, NERC found that with sufficient time for compliance, even the water rule would not affect grid reliability.

What seems the most ironic though is that NERC’s analysis assumes a static system incapable of response.  Today’s power grid is more nimble than that would show. In fact NERC lists a menu of eight options available to mitigate possible constraints in the power grid resulting from the EPA regulations:

1. Advancing In‐service Dates of Future or Conceptual Resources
2. Addition of New Resources Not yet Proposed
3. Increased Demand‐Side Management and Conservation
4. Early Action to Mitigate Severe Losses
5. Increase in Transfers (from a region with more power to one with less)
6. Developing or Exploring Newer Technologies
7. Use of More Gas‐Fired Generation
8. Repowering of Coal‐Fired Generation

Focusing for moment on option 6, developing and exploring new technologies, NERC’s analysis assumes that companies use the most expensive control technologies available.  However many lower cost compliance options exist. For example, dry sorbent injection (also known as Trona) can achieve deep reductions in acid gasses for the air toxics rule potentially eliminating the need for very expensive scrubber installations that take time to install.

Even with these assumptions, NERC’s analysis shows that EPA’s upcoming clean air and ash rules will have a very limited impact on power plant retirements (range shows the ‘moderate’ and ‘strict’ cases):

• The utility MACT—2 to 15 GWs in 2015 and 7 to 15 GWs in 2018.
• The new Clean Air Transport Rule—only 2-5 GWs by 2015.
• The new Coal Ash Rule—only 80-380 MWs (1000 MWs to the GW) by 2018.

And no material effect on reserve margins.  See: www.nerc.com/files/EPA_Scenario_Final.pdf at pages 64-71 (Tables IV-8, IV-9 ,IV-10, IV-13, IV-14, IV-15, IV-18, IV-19, and IV-20).

By comparison, between 2004 and 2008, we have added over 92 GWs of capacity to the system.  The US power sector is full of small, very old, seldom used power plants. While not every plant NERC shows retiring is in this category, the vast majority are.  Getting rid of these dinosaurs would make space for new cleaner sources of generation and still not threaten the reliability of the system.

So, the take away from the analysis of the power industry’s own reliability organization is that EPA is yet again poised to issue a suite of new policies designed to reduce toxic pollution, protect public health and clean up our environment, and oh yeah, they plan on leaving the lights on.