TODAY’S STUDY: STATES WILL DO BETTER WITH CLEAN POWER PLAN BY WORKING TOGETHER
SPP Clean Power Plan Compliance Assessment – State-by-State
July 27, 2015 (SPP Engineering)
Following the Environmental Protection Agency’s (EPA) June 2014 issuance of its draft Clean Power Plan (CPP) – which would cut by 30 percent existing power-plant carbon dioxide emissions from 2005 levels by 2030 – Southwest Power Pool (SPP) performed a reliability impact assessment evaluating the impacts of the plan’s projected generation unit retirements on the reliability of the SPP region’s bulk power system. SPP published its assessment and submitted comments based on that assessment to the EPA on October 9, 2014
In January 2015, SPP’s Strategic Planning Committee (SPC) directed staff to proceed with a second CPP assessment to identify impacts on existing and planned resources, identify at-risk generation in SPP’s region, evaluate resource planning measures to facilitate compliance with the proposed carbon emission goals, and estimate compliance costs. The SPC instructed staff to first assess compliance with the CPP under a regional approach, then to assess compliance under individual state-by-state approaches. SPP published a report of its regional compliance assessment March 30, 20152 . This report includes information and results from the state-by-state compliance analysis along with a comparison of the previously published regional compliance assessment, which was slightly revised based on information discovered through preparation of the state compliance analysis.
An estimate of SPP’s regional and state-bystate share of the EPA’s proposed state carbon emissions goals was used to evaluate a range of carbon reduction measures for the SPP region and member states3 . A vital part of the analysis was identifying and implementing an effective carbon-cost adder4 as a mechanism to effectuate dispatch of lower carbon-emitting resources, which, coupled with modifications to current resource plans, would indicate the implications of meeting SPP’s regional and states’ emissions goals by 2030. To determine an effective carbon-cost adder, SPP evaluated the relationship between emission rate reductions and carbon cost increases. As seen in Figure 1, a nominal $45/ton5 carbon-cost adder was determined to be most effective for the regional compliance assessment after evaluating the carbon emission rate reduction achieved per increase in carbon-cost adder applied. The nominal $45/ton carbon-cost adder was also determined to be reasonable for the state-by-state assessment mainly for the purposes of providing a consistent comparison of regional and state-by-state compliance approaches. The common nominal $45/ton carbon-cost adder optimistically assumes that the SPP Integrated Marketplace will provide the same level of benefits by minimizing production costs as a function of the emissions rate for each carbon-emitting resource in the simulation of SPP’s market footprint. An initial analysis indicated the Integrated Marketplace would yield its more than 115 participants an additional $131 million in annual net savings during its first year of operation in addition to the $170 million in annual net savings of the previous market, the EIS. SPP expects there will be a reduction in the savings that the SPP Integrated Marketplace provides in order to comply with the CPP under any implementation strategy, while a state-by-state approach would have a much more negative impact.
SPP’s assessments show that the SPP regional goal can be met under a 2030 regional compliance scenario and more so under a 2030 state-by-state compliance scenario. Unlike the state-by-state compliance scenario, the regional compliance scenario did not require all states to be compliant with their individual goals. This result can be attributed to different emission reductions for each state and the implicit nature of a regional scenario including more inter-state exchange of economic resources, emissions, and abatements.
Under the 2030 regional compliance scenario, carbon emissions in six of the 11 SPP states evaluated exceeded the individual SPP-calculated state emissions goals. For the 2030 state-bystate compliance scenario, additional resource changes were required at an incremental cost in order for each state to be compliant. These resource changes included additional coal retirements, conventional generation additions, and renewable wind generation additions in the SPP states with emissions in excess of their goals after application of the $45/ton carbon cost adder. SPP chose to use wind as a reasonable abatement measure in both the regional and stateby-state compliance assessments given the high wind potential for the majority of SPP states and to maintain a consistent approach for comparison purposes.
In the 2030 state-by-state compliance scenario, SPP’s analysis assumed approximately 4,700 megawatts (MW) of coal retirements incremental to those retirements already planned. Even with the incremental 2,500 MW of retirements above the 2,200 MW assumed in the regional analysis, this assumption may be conservative considering SPP’s analysis indicates nearly all existing coal-fired generation in the region would operate above an 80 percent capacity factor in the Business-As-Usual (BAU) model but approximately 13,400 MW of coal-fired generation would operate below an 80 percent capacity factor after application of a nominal $45/ton carboncost adder and other resource mix modifications needed to facilitate compliance with SPP state goals.
Based on the resulting coal fleet operations in the state-by-state compliance scenario and identification of an additional 1,700 MW of generation retirements contained in updated resource planning information, SPP concludes that up to 15,100 MW of generation retirements beyond that assumed in its most recent transmission planning models are at risk under a state-by-state compliance approach.
The table below details the incremental costs of meeting state-by-state compliance beyond the resources necessary to meet future demand absent the CPP. This includes the cost of additional resources necessary to reduce the each state’s emissions rate, offset potential retirements, and effectuate changes in the compliance scenario’s mix of future resources. The increase in the system’s total fuel and operations and maintenance production costs is also shown. This analysis assumed an additional 9.5 GW of capacity would be needed by 2030 at a total of $16.9 billion in capital costs incremental to a BAU resource plan. Including production cost, this equates to $3.3 billion per year in additional costs to comply with the CPP on a state-by-state basis.
The production cost referenced in the table does not include the costs directly resulting from the CO2 emissions cost adder. The analysis’ carbon-cost adder was used as a modeling tool to achieve a desired result; it was not meant to be reflective of SPP’s compliance expectations for the CPP.
The costs reported above are only reflective of one potential change in production costs and the SPP regional resource fleet’s capital costs to facilitate CPP compliance. The emissions targets can be met many ways. SPP is not suggesting this is the only path to compliance. Furthermore, this assessment did not consider the additional cost of transmission expansion, gas infrastructure expansion, and market enhancements that would be necessary to facilitate CPP compliance or the transmission congestion and losses that could result from CPP compliance.
Individual state-by-state plans will be difficult to manage and coexist. Each state has many options to choose from in order to meet their EPA mandated goals, and inter-operability challenges and impacts resulting from implementation of plans developed by states operating within the SPP Integrated Marketplace will be difficult to anticipate. Some states may choose rate-based approaches while others may choose mass-based approaches. Some states may choose to implement physical limitations while others may impose economic drivers. Coordinating individual state plans in a regional market where energy flows without respect to state boundaries and benefits are shared regionally will be extremely challenging and increasingly risky for the states. In addition to the increased cost shown by this analysis, a stateby-state compliance approach would also have a greater detrimental impact on the benefit realized from the SPP Integrated Marketplace, compared to a regional compliance approach.
A regional approach to compliance would be more cost effective and less disruptive than a stateby-state approach and may provide mutually beneficial opportunities for more efficient interstate exchange of economic resources, emissions, and abatements that are not available within state boundaries. Individual states working on their own to develop unique compliance plans that can be implemented efficiently will be complex; it will be difficult for states to anticipate how other individual state plans might impact their own through the SPP Integrated Marketplace.
Development of a stable, secure, efficient and effective bulk electric power system takes time and requires collaboration to continuously improve efficiency. Disruptive changes such as retirements, retrofits and/or changes in the operating characteristics of base load resources must be considered carefully and communicated clearly in a transparent, open process. Given some of the assumptions and difficulties performing the analysis, SPP expects that state-by state compliance plans will be more costly and will present more uncertainty and complexities for SPP stakeholders.
Both the regional and state-by-state assessments indicate varying levels of new generation will be necessary to meet the compliance requirements by 2030. A comparison of the regional and state-by-state assessments indicates additional generation will be needed for a state-by-state compliance. This assessment took a “copper sheet” approach that did not consider transmission constraints or interchange with adjacent pools and represents an optimistic scenario for state-bystate compliance in quantifying the costs for comparison. Although these assessments did not evaluate transmission expansion needs, SPP’s 2014 reliability impact assessment showed that additional infrastructure would be needed to facilitate compliance with the CPP. SPP also believes that a state-by-state compliance approach will require more transmission expansion than a regional compliance approach because the regional transmission planning process and assumptions that have been utilized to develop SPP’s current transmission system better align with a regional compliance approach. SPP will require more comprehensive planning efforts with stakeholders and new tools and metrics to fully identify the transmission, generation infrastructure and SPP Integrated Marketplace enhancements required. In addition, broader system assessments of the bulk power system and natural gas pipeline and storage systems based on environmental constraints will be required.
Individual state-by-state plans will be difficult to manage and coexist. Each state has many options to choose from in order to meet their own compliance and feedback between respective plans operating within the SPP Integrated Marketplace will provide challenges that will be difficult to anticipate. Coordinating different plans will be extremely challenging and not without risk for the states. In addition to the increased cost shown by this analysis, a state-bystate compliance approach would also have a greater detrimental impact on the benefit realized from the SPP Integrated Marketplace, compared to a regional compliance approach.
A regional approach to compliance would be more cost effective and less disruptive than a stateby-state approach and may provide mutually beneficial opportunities that are not available within state boundaries.