When Regs & Reliability Collide

By Robynn Andracsek, P.E., Burns & McDonnell and Contributing Editor

Food, water, air. To these basic human needs, I would also add electricity. American culture and civilization depend on ever-present, affordable electricity. However, it is no secret that coal-fired generation is under attack. Recent studies have reported on the vulnerability of this basic commodity in light of pending environmental regulation.

A barrage of pending and evolving Environmental Protection Agency regulations affect coal-fired utilities. Air emissions have long been a focus of our industry. Almost as soon as utilities decided upon their plan to comply with the Clean Air Interstate Rule (CAIR) and the Clean Air Mercury Rule (CAMR), these rules were whisked away by the courts. Replacement regulations—Clean Air Transport Rule (CATR) and Maximum Achievable Control Technology (MACT)—have been a long time in coming (over two years) and remain vulnerable to legal attack. EPA’s continued lowering of the National Ambient Air Quality Standards (NAAQS) is well established and accomplishes some of the same goals in a more subtle manner. Additionally, new cooling water and coal combustion residuals (CCR) disposal (for example, ash waste) regulations are pending, tied up in the courts and adverse to coal-fired boilers. Finally, the big unknown is exactly when and how greenhouse gases will be regulated.

A December 2010 report from the Brattle Group analyzed the economics of investing in expensive control devices versus simply retiring a coal-fired asset. If all coal-fired boilers were required to install scrubbers and selective catalytic reduction (SCR) by 2015, Brattle calculates that 40 to 55 GW of coal capacity (13 to 17 percent of the coal fleet) would find it economic to retire compared to 6 GW under a base case of no retrofit mandates. These retirements would be weighted toward merchant units whose profit margins are already low due to currently low power prices; while the regulated units focus more on the cost of replacement power in retirement decisions. Brattle predicts that these retirements would be centered in the southeastern North American Electric Reliability Corp. (NERC) regions, especially Texas.

To understand how these retirements affect national electricity supply, you must first understand how the national electric grid works. Operating as a single machine, the system of electricity generation, transmission and distribution spanning North America is subdivided and synchronized. The physics involved are more similar to a tilt table than a pipeline. Changes in generation or transmission at one point in the system can have unanticipated and poorly controlled effects at all other points. Additionally, transmission over long distances reduces capacity and reliability.

An October 2010 NERC report discusses how predicted retirements will affect planning reserve margins. The report’s authors conclude that aggregate effects of multiple regulations increase unit retirements, that more units are likely to be retired instead of retrofitted and that the majority of retirements will occur by 2015. Although NERC estimates the greatest impact is from the Section 316(b) cooling water intake structure rule, forced draft cooling tower construction is typically only about 20 percent of the cost of air pollution equipment. The impacts of MACT and CATR will likely dominate economic decisions. NERC estimates a loss of up to 19 percent of fossil fuel-fired steam capacity by 2018 with some NERC regions more affected than others, compounding the impact on grid reliability. It is worth noting that this NERC report does not include the effect of greenhouse gas regulation (the proverbial elephant in the room).

A distinct lack of coordination exists between these developing EPA regulations, especially in terms of timing. 2015, a critical year for MACT and CATR implementation, is now just four years away. The main timing impediments are permitting and labor availability, as well as outage schedules for units. Scrubber and SCR installations take years; it is simply not possible to retrofit all units simultaneously due to the nature of the transmission grid, not to mention equipment and labor availability. Also, the lack of rule coordination could mean that the “wrong” controls are installed. For example, MACT may require a level of particulate control so low that only a baghouse can comply. A plant that started early and built an ESP potentially spent a lot of money that still doesn’t comply with the regulations.

Most importantly, none of these rules is final. The power generation industry is left knowing that new regulations are coming that will severely impact their operation, yet uncertain of their final form. All the while, the deadlines for compliance are approaching while installation/replacement time is shrinking. Given these circumstances, can we really expect the vital commodity of electricity to remain stable? Will the compliance timeline and requirements provide markets time to respond through higher prices? Will reliability impacts be mitigated by new generation coming online?

Renewables are an acceptable supplement to the power grid, but they cannot replace coal and nuclear as its backbone. As long as the wind blows strongest in the Midwest and the population prefers to live on the coasts, renewable energy must be transmitted over great distances. In addition, wind energy potential tends to subside during the times of day when power demand reaches its peak levels. Unfortunately, the pendulum of public policy and opinion is not likely to swing back toward supporting dependable baseload power generation until after numerous blackouts and brownouts occur.

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