NewEnergyNews: TODAY’S STUDY: HOW THE OBAMA CLEAN POWER PLAN WILL WORK ON THE BIGGEST U.S. GRID

NewEnergyNews

Gleanings from the web and the world, condensed for convenience, illustrated for enlightenment, arranged for impact...

The challenge now: To make every day Earth Day.

YESTERDAY

  • TODAY’S STUDY: A Way For New Energy To Meet Peak Demand
  • QUICK NEWS, December 5: Trial Of The Century Coming On Climate; The Wind-Solar Synergy; The Still Rising Sales Of Cars With Plugs
  • THE DAY BEFORE

  • Weekend Video: Trump Truth And Climate Change
  • Weekend Video: The Daily Show Talks Pipeline Politics
  • Weekend Video: Beyond Polar Bears – The Real Science Of Climate Change
  • THE DAY BEFORE THE DAY BEFORE

  • FRIDAY WORLD HEADLINE-Aussie Farmers Worrying About Climate Change
  • FRIDAY WORLD HEADLINE-The Climate Change Solution At Hand, Part 1
  • FRIDAY WORLD HEADLINE-The Climate Change Solution At Hand, Part 2
  • FRIDAY WORLD HEADLINE-New Energy And Historic Buildings In Europe
  • THE DAY BEFORE THAT

    THINGS-TO-THINK-ABOUT THURSDAY, December 1:

  • TTTA Thursday-First Daughter Ivanka May Fight For Climate
  • TTTA Thursday-Low Profile High Power Ocean Wind Energy
  • TTTA Thursday-A Visionary Solar Power Plant
  • TTTA Thursday-EVs Have A Growth Path
  • AND THE DAY BEFORE THAT

  • ORIGINAL REPORTING: How The Clean Power Plan Drove The Utility Power Mix Transition
  • ORIGINAL REPORTING: How Utilities Are Answering The Distributed Energy Resources Challenge
  • ORIGINAL REPORTING: Looking At New Rates To Unlock The Utility Of The Future
  • THE LAST DAY UP HERE

  • TODAY’S STUDY: The Power Potential Of Personal Wind
  • QUICK NEWS, November 29: Climate Change Forces Hard Choices In Alaska; New Energy To Utilities-“Can’t-Beat-Us-So-Join-Us”; Fact-Checking Trump Hot Air On Wind
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    Anne B. Butterfield of Daily Camera and Huffington Post, f is an occasional contributor to NewEnergyNews

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    Some of Anne's contributions:

  • Another Tipping Point: US Coal Supply Decline So Real Even West Virginia Concurs (REPORT), November 26, 2013
  • SOLAR FOR ME BUT NOT FOR THEE ~ Xcel's Push to Undermine Rooftop Solar, September 20, 2013
  • NEW BILLS AND NEW BIRDS in Colorado's recent session, May 20, 2013
  • Lies, damned lies and politicians (October 8, 2012)
  • Colorado's Elegant Solution to Fracking (April 23, 2012)
  • Shale Gas: From Geologic Bubble to Economic Bubble (March 15, 2012)
  • Taken for granted no more (February 5, 2012)
  • The Republican clown car circus (January 6, 2012)
  • Twenty-Somethings of Colorado With Skin in the Game (November 22, 2011)
  • Occupy, Xcel, and the Mother of All Cliffs (October 31, 2011)
  • Boulder Can Own Its Power With Distributed Generation (June 7, 2011)
  • The Plunging Cost of Renewables and Boulder's Energy Future (April 19, 2011)
  • Paddling Down the River Denial (January 12, 2011)
  • The Fox (News) That Jumped the Shark (December 16, 2010)
  • Click here for an archive of Butterfield columns

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    Some details about NewEnergyNews and the man behind the curtain: Herman K. Trabish, Agua Dulce, CA., Doctor with my hands, Writer with my head, Student of New Energy and Human Experience with my heart

    email: herman@NewEnergyNews.net

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      A tip of the NewEnergyNews cap to Phillip Garcia for crucial assistance in the design implementation of this site. Thanks, Phillip.

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    Pay a visit to the HARRY BOYKOFF page at Basketball Reference, sponsored by NewEnergyNews and Oil In Their Blood.

  • ---------------
  • TODAY AT NewEnergyNews, December 6:

  • TODAY’S STUDY: How To Balance Competing Solar Interests
  • QUICK NEWS, December 6: Sliver Of Hope? Al Gore In Climate Change Meet With Donald Trump; The Opportunity In New Energy; Google Seizing New Energy Opportunity

    Tuesday, March 10, 2015

    TODAY’S STUDY: HOW THE OBAMA CLEAN POWER PLAN WILL WORK ON THE BIGGEST U.S. GRID

    PJM Interconnection Economic Analysis of the EPA Clean Power Plan Proposal

    March 2, 2015 (PJM Interconnection)

    Executive Summary

    At the request of the Organization of PJM States, Inc., PJM Interconnection has analyzed potential economic impacts on electric power generation in the PJM footprint resulting from the U.S. Environmental Protection Agency's Clean Power Plan. The plan, proposed by EPA in June 2014, seeks a 30-percent reduction in carbon dioxide emissions from the electricity sector by 2030 (compared to 2005 levels). PJM does not take positions for or against pending regulations but does provide independent expert analysis on the potential economic and reliability impacts of proposed regulatory rules and legislation.

    The Organization of PJM States, which represents state utility regulators in the region served by PJM, requested analyses of several scenarios including a comparison of regional compliance versus state-by-state compliance. PJM included additional scenarios with different assumptions in the analysis to provide modeled results covering a wide range of possible outcomes. In total PJM analyzed 17 distinct scenarios – each was evaluated with and without the implementation of the Clean Power Plan. The scenarios covered varying combinations and levels of renewable resources, energy efficiency, natural gas prices, nuclear generation and new entry of natural gas combined-cycle resources.

    This report is the first of two PJM evaluations of the proposed Clean Power Plan. It presents an analysis of the Clean Power Plan’s potential economic impacts, including the identification of fossil-fueled steam generation capacity thought to be “at risk” for retirement based only upon energy market simulation results. PJM has not attempted to simulate capacity market outcomes in conjunction with the energy market simulations. PJM will use the results of the economic analysis to conduct a reliability analysis to determine transmission needs resulting from potential generator retirements.

    The results of PJM’s analyses are not predictions of future outcomes; rather, they are assessments of possible impacts based on specific assumptions and tempered by uncertainties. Those uncertainties include future market conditions, the form of the final EPA rule and the manner in which states choose to comply. PJM’s analyses offer insights into the complex interactions between wholesale electricity prices, generation at risk for retirement, changes in natural gas prices, energy efficiency, renewable resources, nuclear generation and compliance costs associated with the Clean Power Plan. This analysis attempts only to quantify the change in production costs as a cost of compliance with the Clean Power Plan. PJM did not attempt to quantify the capital costs of renewable resources, energy efficiency, or new combined-cycle generation that may be associated with complying with the Clean Power Plan because such decisions may be due to existing state policies or to otherwise-economic decisions for new entry independent of the Clean Power Plan.

    High-level insights from the economic analysis include:

    • Fossil steam unit retirements (coal, oil and gas) probably will occur gradually. As the CO2 emission limits decline over time, the financial positions of high-emitting resources should become increasingly less favorable, with lower-emitting resources displacing them more often in the competitive energy market.

    • Electricity production costs are likely to increase with compliance because larger amounts of higher-cost, cleaner generation will be used to meet emissions targets.

    • The price of natural gas likely will be a primary driver of the cost of reducing CO2 emissions if natural gas combined-cycle units become a significant source of replacement generation for coal and other fossil steam units.

    • Adding more energy efficiency and renewable energy and retaining more nuclear generation would likely lead to lower CO2 prices; this could result in fewer megawatts of fossil steam resources at risk of retirement because lower CO2 prices may reduce the financial stress on fossil steam resources under this scenario.

    • State-by-state compliance options, compared to regional compliance options, likely would result in higher compliance costs for most PJM states. This is because there are fewer low-cost options available within state boundaries than across the entire region. However, results will vary by state given differing state targets and generation mixes. PJM modeled regional versus individual state compliance only under a mass-based approach.

    • State-by-state compliance options would increase the amount of capacity at risk for retirement because some states likely would face higher CO2 prices in an individual compliance approach.

    Introduction and Purpose

    On June 2, 2014, the U.S. Environmental Protection Agency (EPA) released the Clean Power Plan, its proposed rule for reducing greenhouse gas emissions in the form of carbon dioxide (CO2) from existing fossil-fueled electric generating units. On September 2, 2014, the Organization of PJM States, Inc., (OPSI) which represents state utility regulators in the PJM Interconnection footprint, requested PJM analyze some of the potential economic impacts of the proposed Clean Power Plan under a variety of scenarios. The OPSI-requested simulation outputs included: total emissions, emissions rates and resulting CO2 prices, locational marginal price (LMP) effects, changes in energy market payments by load, percentage of generation by fuel type, generator net energy market revenue, and compliance costs. Furthermore, using generator net energy market revenues to conduct an assessment of fossil-steam generation at risk for retirement (primarily coal, but also oil and gas steam) was also of interest. Finally, OPSI also requested analysis of regional compliance options versus state-by-state compliance options under a limited set of scenarios and years.

    In addition, PJM supplemented the OPSI-requested scenarios with eight additional scenarios related to different assumptions regarding natural gas prices, available energy efficiency, renewable energy resources, and available new entry of renewable energy and natural gas combined-cycle resources, plus three additional individual state compliance scenarios and an emissions rate based compliance scenario. PJM’s choice of additional scenarios to model was designed to supplement the OPSI request and to provide model results under a wide range of possible outcomes.

    In total, between the OPSI-requested and PJM additional scenarios there were 17 different assumption scenarios each run with and without the limits set forth in the Clean Power Plan proposal. The scenarios range from high penetration of renewable resources and energy efficiency and lower gas prices to limited new renewable resources and energy efficiency, high gas prices, reduction in nuclear generation, and limited new entry of combined-cycle resources.

    This analysis is the first of two parts of PJM’s evaluation of the effect of the EPA proposed Clean Power Plan on PJM’s markets and on potential reliability implications. Our economic analysis seeks to provide potential impacts of the proposal to help inform decisions at the state and federal levels. As indicated, this analysis focusses on the economic impacts of the Clean Power Plan on PJM’s energy market alone. The resulting identification of generation capacity “at risk” for retirement that will then be used in the subsequent PJM reliability analyses to determine the potential range of transmission reliability criteria violations that would require transmission upgrades. PJM’s labeling of generation as being “at risk” for retirement does not mean that the resources will in fact retire due to the proposed Clean Power Plan because PJM has not simulated capacity market outcomes associated with the energy market results. Moreover, the PJM analysis attempts only to quantify the change in production costs as a cost of compliance with the Clean Power Plan. PJM did not quantify the capital costs of renewable resources, energy efficiency or new combined-cycle resources that may be associated with complying with the Clean Power Plan as such decisions may be due to existing state policies or to otherwise-economic decisions for new entry independent of the Clean Power Plan.

    PJM as an Independent Source of Expert Information

    PJM is an independent source of expert information. It does not advocate particular energy or environmental policies, nor is it forecasting market outcomes. PJM takes no position as to the wisdom or legality of the proposed Clean Power Plan as that is not PJM’s area of expertise.1 PJM’s primary focus is on reliability, followed by the operation of efficient and non-discriminatory markets in which PJM is resource-, fuel-, age-, size-, and technology-neutral.

    Focusing on the Qualitative Results

    The outcomes of various scenarios were dependent upon the input assumptions and were designed to examine a wide range of potential states of the industry as they relate to demand, fuel prices, and energy efficiency and renewable energy penetration when the Clean Power Plan is in effect. PJM’s choice of additional scenarios to model were designed to supplement the OPSI request and to provide model results under as wide a range of possible outcomes as possible.

    Moreover, the Clean Power Plan has not been finalized and, even beyond that, state compliance plans will not be known for at least another year and a half, and could look very different from what has been reported in this paper. However, understanding the possible impacts early in the process is essential for PJM stakeholders and the PJM planning process in order to inform decision making and ensure grid reliability is maintained.

    Additionally, there are a multitude of other pending, implemented or recently finalized environmental regulations that will interact with the Clean Power Plan. Any attempt to analyze the Clean Power Plan along with these other regulations would only complicate the analysis and would make it more difficult to derive useful insights regarding the Clean Power Plan. A summary of other environmental regulations and possible interactions with the Clean Power Plan is provided in Appendix 2.

    While the modeling conducted for the analysis was very data intensive, and the results presented under various scenarios highlight specific changes to wholesale prices, load energy payments, net energy revenues for existing steam resources and compliance costs due to changes in resource dispatch, these numerical results are dependent on assumptions about industry conditions such as fuel costs, load growth, technological advancements and the form of state compliance plans in 2020, 2025 and 2029. Many things can change in the interim regarding industry conditions, as we have observed over the past eight years with a major recession, flat to declining demand, and the emergence of the gas production from the Marcellus shale.

    Consequently, in light of this uncertainty, the directional changes of wholesale energy prices, compliance costs, generation at risk for retirement due to changes in the levels of natural gas prices, energy efficiency, renewable resources, nuclear generators in service, and available new entry provide the greatest insight regarding the impacts of the proposed Clean Power Plan.

    Conclusions

    The results of PJM’s analyses are not predictions of future outcomes; they are assessments of possible impacts based on specific assumptions and tempered by uncertainties, including future market conditions, the form of the final EPA rule and the manner in which states choose to comply. Although this report presents specific results under various scenarios that highlight changes to wholesale prices, load energy payments, net energy revenues for existing steam resources and compliance costs due to changes in resource dispatch, these numerical results depend on assumptions about industry conditions such as fuel costs, load growth, technological advancements and the form of state compliance plans in 2020, 2025 and 2029. Many things can change in the interim regarding industry conditions.

    Significant qualitative results of PJM’s analysis of the proposed Clean Power Plan include:

    • Fossil steam unit retirements (coal, oil and gas) probably will occur gradually. As the CO2 emission limits decline over time, the financial positions of high-emitting resources should become increasingly less favorable with lower-emitting resources displacing them more often in the competitive energy market.

    • Electricity production costs and prices are likely to increase with compliance because larger amounts of highercost, cleaner generation will be used to meet emissions targets.

    • The price of natural gas likely will be a primary driver of the cost of reducing CO2 emissions if natural gas combined-cycle units become a significant source of replacement generation for coal and other fossil steam units.

    • Adding more energy efficiency and renewable energy and retaining more nuclear generation likely would lead to lower CO2 prices and could result in fewer megawatts of fossil steam resources at risk of retirement because lower CO2 prices may reduce the financial stress on fossil steam resources under this scenario relative to new entry alternatives.

    • State-by-state compliance options – compared to regional compliance options – likely would result in higher compliance costs for most PJM states because there are fewer low-cost options available within state boundaries than across the entire region. However, results will vary by state given differing state targets and generation mixes. PJM modeled regional versus individual state compliance only under a mass-based approach.

    • State-by-state compliance options would increase the amount of capacity at risk for retirement because some states would likely face higher CO2 prices in an individual compliance approach.

    While all simulation analyses of policies or regulations like the Clean Power Plan involve making assumptions, some modeling assumptions regarding how compliance takes place seem critical such as: (1) the exclusion or inclusion of new natural gas resources and combustion turbines operating below a 33-percent capacity factor under Clean Power Plan compliance and (2) whether state plans choose a rate- or mass-based approach to compliance. Additional analysis examining inclusion of new natural gas resources and combustion turbines into Clean Power Plan compliance as well as additional simulations to explore the differences between rate- and mass-based compliance may be desirable.

    In this analysis PJM has identified fossil steam generation capacity thought to be “at risk” for retirement based only upon energy market simulation results and comparing them to a Net CONE benchmark as PJM did in its analysis of the Mercury and Air Toxics Standards in 2011. For subsequent reliability analyses, however, it may be necessary to simulate capacity market outcomes (using the energy market simulation results as inputs) to further refine the identification of generation at risk for retirement.

    Given that PJM simulated only energy market outcomes, PJM quantified the change in fuel and variable operation and maintenance production costs related to redispatch from higher-emitting to lower-emitting resources solely as a cost of compliance with the Clean Power Plan. PJM did not attempt to quantify the capital costs of renewable resources, energy efficiency, or new combined-cycle resources that may be associated with complying with the Clean Power Plan because such decisions may be made in accordance with existing state or federal policies or may otherwise be a result of economic decisions for new entry independent of the Clean Power Plan. Still, a better understanding of trade-offs between capital-intensive and redispatch compliance options is necessary to gauge the full range of long-term impacts on PJMs markets.

    As the Clean Power Plan is finalized and state plans take shape, a number of additional environmental regulations will interact with the Clean Power Plan in ways that cannot be foreseen and may only be fully known as these other regulations take shape and are finalized in some cases. As information about the Clean Power Plan, state compliance plans and future industry conditions comes into sharper focus, PJM will refine this initial analysis to ascertain potential reliability effects and will continue to serve as a source of independent technical information on potential market implications to the PJM stakeholder community.

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