pollution. Although other rules have
contributed to the increased expense of
owning and operating a coal-fired
power plant in the US – and therefore
to the decision to retire so much
capacity – three rules, in particular,
stand out.
The Mercury andAir Toxics Standard
(MATS) is the primary factor driving
retirements in the coal fleet beyond
cheap natural gas. It is designed to
reduce emissions of toxic air pollutants
from new and existing coal and oil-fired
generating facilities. Compliance options
are expensive, ranging from
US$500 – US$1500/kW, due to the
relatively inflexible Maximum
Achievable Control Technology mandate
of the rule.
Regulations covering NO
X
and SO
2
have culminated in the Cross State Air
Pollution Rule (CSAPR). These rules
have evolved over a period of 10 yr
through multiple iterations via
litigation and revision. They are
designed to curb the transport of these
pollutants across state lines and
primarily affect states in the Eastern
Interconnect, as well as Texas. Even as
uncertainty was the reality on the
ground during much of the last decade,
the industry has seen an emissions
control build out, which began in 2008,
increase scrubbed capacity by 88 GW,
with 65% of the coal fleet scrubbed in
2014. An additional 13 GW of scrubbed
capacity is currently either permitted or
under construction, which points
strongly to continued firm pricing for
high sulfur coal in the near future.
In September 2013, the EPA released
its proposal for new source performance
standards (NSPS) for new power plants
under section 111(b) of the Clean Air Act.
Under the proposal, any new coal or
fossil fuel-fired units would need to
meet a limit of 1100 lb of CO
2
/MWh
over a 12-month operating period – a
level that would require the units to
install carbon capture technology in
order to meet the standard. With CCS
technology still immature – and a great
deal of uncertainty about potential cost
reduction – it can be assumed that NSPS
essentially negates the potential for new
coal-fired generation over the next 25 yr.
In May 2015, the EPA submitted its final
NSPS to the Office of Management and
Budget (OMB), and our expectation is
that the limits for coal will be well above
those in the proposal. The picture should
be clearer by August.
The EPA Clean Power Plan
In June 2014, the EPA released its
proposal for existing source
performance standards (ESPS) and
modified source performance standards
based on section 111(d) of the Clean Air
Act. The proposed ESPS programme
identifies four building blocks to assist
states in their implementation plans.
The proposal seeks to reduce GHG
emissions based on a CO
2
intensity
lb/MWh basis with individual targets
for each state by 2030. The plan also
seeks interim goals beginning in 2020.
The four building blocks are:
n
n
Improve efficiency on existing coal
plants by 6%.
n
n
Improve the capacity factor
on natural gas combined-cycle
resources to 70%.
n
n
Improve energy efficiency by
1.5%/yr on average (varies by state).
n
n
Increase renewable energy
generation (varies by state).
Is the first building block
reasonable?
All of the building blocks reduce
coal-fired generation, but let us focus on
the first building block. Some experts
have pointed out that the 6% figure is
likely an overly optimistic assessment of
potential improvements. The Electric
Power Research Institute (EPRI)
suggests that the actual range is closer to
0.5 – 5% on a unit net generation basis.
Some of these improvements could be
additive, while many others are unlikely
to be.
EPRI and others have pointed out
that efficiency improvement potential
varies widely across states and regions,
raising questions about the application
of a nationwide average improvement.
3
They point to the impediment posed by
increased cycling of coal plants that
would be necessary under the
assumptions of increased renewable
penetration and increased combined
cycle capacity factors. Finally, some
efficiency improvements are likely to
trigger the New Source Review (NSR),
which would inevitably make such
improvements more costly – and, in
many cases, uneconomic.
Concerns about reliability
Concerns about the CPP’s potential
impact on reliability have also been raised
by several reliability and transmission
organisations. Apreliminary review by
the NorthAmerican Reliability Corp.
(NERC) raised reliability concerns
regarding the rapid retirement of coal
units and the associated increase in
reliance on variable renewable and gas
resources. The NERC also raised concerns
about the aggressive assumptions on
energy efficiency and the potential
consequences to reliability if targets are
not met, forcing additional reductions
from fossil fuel generation. They suggest
that the EPA’s time frame may be
inadequate to make adjustments to
maintain bulk power system reliability. In
contrast, a recent and extremely detailed
PJM study concluded that sufficient grid
flexibility would exist in 2026 to
accommodate 30% variable renewable
generation. Similar studies in California
andMinnesota found sufficient grid
flexibility at even higher penetrations of
variable renewable generation.
Potential impact on
coal‑fired generation
The potential impact of the EPA’s
proposal is large and near at hand. If
implemented as written, coal-fired
generation would likely be nearly 40%
lower in 2020 compared with theABB
base case. This reflects both lower
capacity factors and an additional 40 GW
of retirements beyond the 55 GW retired
in the base case. Increased coal
retirements and decreased generation
could reduce coal consumption from the
electric power sector by as much as
160 million t as soon as 2020. Figure 1
illustrates how this could break down
among the major coal basins. As written,
the plan could also require 10%more
natural gas in 2020 at precisely the same
time that demand for gas is expected to
grow significantly from exports and new
industrial demand, adding additional
price pressure and volatility.
Given the obstacles to achieving coal
efficiency improvements, ABB assumed
that coal-fired generation would be
62
|
World Coal
|
July 2015
