EPA CO2 Rule Threatens Electric Reliability

• EPA’s proposed power plant rule threatens electric reliability.

• Long generation and transmission construction lead times make short compliance deadlines impossible to meet.

• Switching coal-fired power plants to a seasonal peaking role puts them at risk, further undermining diversity of electric generation mix. 

Last month, the North American Electric Reliability Corporation issued a report concluding that the Environmental Protection Agency’s proposed rule regulating carbon dioxide emissions from existing power plants presents “reliability challenges” for America’s bulk power system.

NERC found that the rule would jeopardize electric reliability by accelerating a shift toward more natural gas and renewables. It would create aggressive deadlines that don’t allow sufficient time for building necessary infrastructure. It would change the use of remaining coal-fired generating capacity from baseload power to seasonal peaking power, eroding the economics of operating those plants. In total, 32 states have raised concerns about the rule’s impact on electric reliability.

Source: U.S. Chamber of Commerce

Short compliance deadline and long construction lead times

NERC is the nation’s official “electricity reliability organization,” overseen by the Federal Energy Regulatory Commission. Its mission is to ensure the reliability of the electric power generation facilities and high-voltage transmission systems that transport electricity around North America. In its review of the rule, it found that power generators would have to switch to using new resources such as renewables while still meeting increasing demand for electricity. It noted that the time required for new facilities to be developed and placed in service “may likely exceed the [rule’s] proposed compliance targets.”

The rule requires approximately 80 percent of total CO₂ reductions to be achieved by January 1, 2020. This is just two and a half years after the June 30, 2017 deadline for EPA to approve state plans. States must submit plans for EPA review by June 30, 2016; not even a year after the rule is expected to be finalized. The rule provides for extensions in submitting state plans, but no extension to meet the compliance deadline. A state that gets an extension, or decides to develop a regional program with other states, could be left with as little as six months to comply with the rule. 

The NERC report concluded that it is likely that necessary infrastructure will not be in service by that deadline. Up to 43 gigawatts of generation capacity will be retired under the rule between 2016 and 2020. Replacement generation capacity can take an average of four to five years to build. New transmission will have to be built in some areas. On average, it takes between six and 15 years to build a transmission project. These construction lead times pose a serious threat to electric reliability in the context of the rule’s 2020 compliance deadline.

Natural gas demand is expected to increase by 30 percent under the rule. This alone will require lots of new pipeline capacity, especially during winter when natural gas use for electric power competes with residential heating. The report found that “[l]ocal and regional pipeline infrastructure will be needed to relieve pipeline constraints.”

Competition for finite resources to build the needed generation and transmission infrastructure in the rule’s abbreviated timeframe will further complicate the ability of states and industry to ensure electric reliability. It is not at all clear that there is enough equipment – like generators, solar panels, wind facilities, transformers, and conductors – and resources like the skilled engineering and construction workers to do all of that work by the rule’s deadline.

The error of switching coal to a seasonal peaking role

NERC also found that under the EPA’s rule between 14 gigawatts and 22 gigawatts of coal-fired generation could remain online through 2030. In large part, those plants would be shifted from providing baseload power all of the time to providing peaking power only a few times a year for short periods during peak use seasons, such as summer. The plants would be operating at only a small fraction of their capacity. At that point, the fixed, start-up, and other costs would change the economics of running the plants at all, and many would be at risk of closing.

The rule expects that the efficiency, or “heat rate,” of coal-fired power plants can be improved by six percent. Yet by switching these plants from baseload to seasonal peaking operations, the rule may actually force them to operate less efficiently, making it less likely they will achieve the heat rate improvements EPA imagines. NERC questioned the ability of existing coal-fired power plants to improve their heat rates by six percent in its initial reliability review of the rule last November. In last month’s report, it estimated that heat rate improvements more like one percent may be possible, far less than what EPA expects.

If the coal-fired plants cannot operate profitably on a seasonal basis, and are forced to close, the reliability and affordability of electricity will be further undermined.

Electric industry concerns

NERC also examined analyses of the rule conducted by regional transmission organizations and independent system operators, all of whom have an interest in ensuring electric reliability. The studies concluded there would be higher electricity production costs under the rule. They also raised concerns about implementation timeframes under the rule and found that the simultaneous retirement of significant coal-fired generation would pose a major challenge.

In a September 2014 report, American Electric Power found that the rule created “severe, widespread reliability concerns” consisting of thermal overloads on transmission elements and voltage drops that could lead to cascading outages. The Electric Reliability Coordinating Council summarized the threat posed by the rule in a February 18 white paper. It noted, “preliminary analyses released by qualified experts point to one inescapable conclusion: EPA’s proposal puts the reliability of our nation’s electricity supply at risk.”

EPA could incorporate changes in the final rule to appear as if it is addressing electric reliability concerns. These could include extending the compliance deadline or whipping up a reliability assurance mechanism. If it were to do so, EPA would be admitting that it constructed the rule on a foundation of political ideology without any concern for the disastrous effects of undermining electric reliability. As a former general counsel and chief of staff of the Federal Energy Regulatory Commission wrote in Forbes on May 11, it would be “no different than acknowledging that there is going to be a major car wreck but saying that as long as there is a good auto-body shop down the road, all will be fine.”