Power Industry Wins with Final Clean Power Plan

Though most power generators and states might have preferred to not deal at all with a new rule regulating greenhouse gas emissions, the final Clean Power Plan (CPP), released August 3, gives most of the power industry most of what it asked for in terms of revisions to the 2014 proposed plan. In any regulatory environment, that would count as a win. That doesn't mean complying with the new rule will be easy.

Revisions Add Time and Flexibility

The main changes between the proposed and final CPPs are added time and flexibility. Though the Environmental Protection Agency (EPA) said it took into account 4.3 million comments on the proposed plan, it's evident that industry comments were heard as loud and clear as those of environmentalists. The most obvious and important change is two more years until interim goals need to be reached (mandatory reductions begin in 2022) and a two-year extension for states to submit their implementation plans (until 2018). At every event and in virtually every comment since the proposed rule was made public, power industry leaders called for "a longer glide path" for compliance rather than what they saw as a "cliff." The EPA even used those memes in its fact sheets outlining the final rule.

States gained flexibility in choosing rate- or mass-based goals. They may also use a proposed "model" state plant developed by the EPA that is guaranteed to be compliant, rather than creating their own plan. And, should they choose to "just say no," a federal plan will go into play.

The major changes affecting actual power plants, which constitute wins, include these:

• Establishing source-specific CO₂ emission performance rates (for coal/oil and natural gas plants) so that "similar plants are treated the same across the country," as Administrator Gina McCarthy explained in an August 3 blog post.
• Dialing back assumptions about coal plant heat rate efficiency gains from 6% to 2.1% to 4.3%, "depending upon the region."
• Switching natural gas power plant efficiency assumptions from nameplate capacity to 75% of net summer capacity.
• Giving new nuclear capacity a more prominent compliance role.
• Making multistate CO₂ trading plans easier to establish.
• Adding a "reliability safety valve," allowing states to amend approved plans in emergencies.

(There are more changes than can be covered in this column, so if you aren't interested in reading all 1,560 pages of the rule, visit powermag.com for our coverage and the EPA's site for fact sheet summaries.)

Shifting Balance of Power for Fuels

No power sector got everything it wanted in the final plan. Even renewable capacity only counts toward state emissions reduction targets if it was added after 2012. The same goes for nuclear. But wind and solar did get more favorable treatment than in the proposed plan, and more love than nuclear, via early deployment credits available through the Clean Energy Incentive Program. The EPA explained its higher expectations of renewable generation are based on the lower cost and faster construction time frames for renewables versus nuclear capacity.

There will surely be more coal plant closures, and although nobody likes to lose a job or see part of their client base disappear, coal is not dead. Coal is still projected to account for more than a quarter of total generation in 2030. Even without the CPP, those older, less-economic units very likely would have been shuttered in short order. That's because already well-established trends-including compliance with other environmental regulations, increases in lower-cost renewable and natural gas capacity, state and local clean power plans, plus both small and large customer demands for renewable power-have already been forcing changes in the industry. For one example of the latter trend, see "NV Energy: Warren Buffett's Plan for a Structural Power Shift" online or in the forthcoming September issue, which addresses the need for utilities to respond to demands of large customers for 100% renewable power-or risk losing their business altogether.

One surprise is that natural gas appears to have lost ground in the final rule. The EPA explained that its analysis includes "more use of new renewable energy than at proposal based on up-to-date information clearly demonstrating the lower cost and greater availability of clean generation than was evident at proposal." There's been speculation that the agency's incentives for early adoption (prior to interim goals) of new renewables will sharply cut expected growth for natural gas-fired capacity and actually moves the balance of power from gas to renewables. By 2030, according to an August 3 White House briefing, renewables will account for 28% of total capacity. Generation is another story, and some sources peg it at about 20%.

However, each state will need to determine its best plan for meeting the rule's targets and ensuring reliability, which may require something other than what the EPA describes as best system of emissions reduction (BSER). Though the agency deemed combined cycle gas plants a BSER, when states and grid operators look at how to ensure reliability with added variable renewables on the grid, odds are that gas turbines and reciprocating engines will still have a role to play.

Compliance Strategy Clarity

In the meantime, power generators are left wondering what they should and shouldn't do in the near term. To help generating companies and their partners figure out how the CPP interacts with all the other recent federal regulations, and how to plan compliance strategy while keeping costs under control, POWER is hosting a one-day conference in Las Vegas on December 7. For details about "Navigating Legal Implications of Power Industry Regulations," visit powermagconference.com. Space is limited, and you won't want to miss a chance to hear the keynote by EPA General Counsel Avi S. Garbow.

-Gail Reitenbach, PhD is POWER's editor.

This editorial will appear as Speaking of Power in the forthcoming September issue of POWER.

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