Once again, opponents of the Clean Power Plan (CPP) are raising the specter that electric system reliability will be threatened if power plants are required to reduce their greenhouse gas (GHG) emissions. Discussions of system reliability will take center stage beginning this weekend when the National Association of Regulatory Utility Commissioners (NARUC) holds its Winter Meeting at which demand response under the CPP will feature prominently. Later in the week, the Federal Energy Regulatory Commission (FERC) kicks off a series of technical conferences discussing the implication of the CPP on electric reliability, wholesale electric markets and operations and energy infrastructure.
Upon careful consideration, however, these organizations should find that the very design of the CPP and a growing number of analyses demonstrate that the U.S. can cut power sector GHG emissions significantly while maintaining system reliability simply by making more efficient use of existing natural gas and electric transmission infrastructure and maintaining the current pace of infrastructure improvements. Further, one often overlooked option in implementing the CPP, broad subscription by states into an interstate allowance trading program – even if those states are different regions of the country – can help ensure that implementation will not be hampered if any local transmission constraints do arise.
EPA took electric reliability into account when designing state CO2 goals for the CPP, and the CPP allows states and power plants unprecedented flexibility to comply with the rule. When designing the rule, EPA determined that the country would maintain adequate electric generation resources to ensure reliability, despite retirement of some inefficient power plants. In fact, in a recent study DOE found that even under a scenario with significant coal plant retirements, additional infrastructure needs will be modest, and even lower than the rate of expansion over the past 15 years, due to a broad geographic distribution of natural gas supply and demand and the ability to increase utilization of existing natural gas infrastructure.
The Analysis Group also concluded in Greenhouse Gas Emission Reductions From Existing Power Plants: Options to Ensure Electric System Reliability that if states and power plants begin planning soon, they will be able to comply with the CPP and maintain reliability. The current industry trends, “low natural gas prices, significant existing under-utilized [natural gas power plant] capacity, relatively slow growth in demand for electricity, increased supply expected from low-carbon renewable energy, and retirements of many of the older and least efficient coal-fired power plants before the implementation dates,” will facilitate compliance with the CPP.
And, while the North American Electric Reliability Corporation’s (NERC) November 2014 Initial Reliability Review identified elements of the CPP that it suggested could lead to potential reliability concerns, particularly with regard to meeting the 2020 interim state targets, the just-released assessment of the NERC study by the Brattle Group finds that compliance with the CPP is unlikely to materially affect reliability. The study found that the “combination of the ongoing transformation of the power sector, the steps already taken by system operators, the large and expanding set of technological and operational tools available and the flexibility under the CPP are likely sufficient to ensure that compliance will not come at the cost of reliability.” The Brattle Group assessment goes on to recommend that, “further in-depth analysis should be conducted as the EPA finalizes the CPP so that any emerging reliability issues can be managed.”
An important tool for managing any possible reliability issue should be broad adoption by states of interstate allowance trading as part of their implementation plans for complying with the CPP. Interstate trading is often, and correctly, thought of as means of achieving least cost compliance with emissions standards. But, it also affords the opportunity to surmount local electric or natural gas constraints by giving owners of affected units the option of purchasing allowances on the market from affected unit owners in other states.
Assume, for example, that State A and State B have opted for mass-based compliance based on tradeable allowances. Assume further that State A is not able to retire as much coal capacity as quickly as expected, or is not able to get sufficient natural gas infrastructure in place quickly enough to increase reliance on its existing or new natural gas plants, or cannot install the electric transmission infrastructure quickly enough to connect to newly-developed wind resources. An emitter in State A that cannot demonstrate compliance through in-state measures would be able to purchase allowances from companies in State B, where there is the opportunity to increase the dispatch of its natural gas units sufficient to beat its targets, thereby generating surplus allowances for sale. Not only would this trade benefit both parties and reduce compliance costs, it would allow compliance by affected sources in State A without posing a threat to the reliability of its electric system.
Indeed, the Brattle Group analysis released this week demonstrates that regional cooperation, including allowance trading between noncontiguous states, can help ameliorate the reliability concerns that NERC raised in its review i.e., insufficient natural gas redispatch or disruption due to the deployment of variable energy resources (i.e., intermittent renewables like wind and solar).
EPA in its proposal duly recognizes the implementation cost advantage of regional compliance. 79 Fed. Reg. at 34,839. However, to date, EPA has not focused on broad inter-regional or even national interstate trading as a compliance option, nor has it recognized the benefits of interstate trading in ameliorating potential system reliability issues. States should request, and EPA should provide in the final rule, an easy-to-adopt mechanism by which states in different regions of the country can comply with the CPP through interstate allowance trading. Doing so can ensure timely and affordable compliance but also provide a measure of insurance for system reliability as states work to achieve their interim targets.