Another Misleading Study on the Clean Power Plan: NERC Distorts Reality with False Premise and Assumptions

, Senior energy analyst | April 17, 2015, 12:25 pm EDT
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We are on the verge of another transition in how we supply energy to the modern economy. Economics and advances in renewable energy show we can adapt to a series of emissions control requirements affecting coal plants. But a new study of the EPA’s carbon policy excludes these lessons, and assumes the worst behavior of plant owners and state officials to paint an overly pessimistic view of how this transition will impact the reliability of our energy supply.

Transition in the electricity supply is inevitable. Soon, half the coal plants in the U.S. will be over 50 years old, and gas development is on another boom cycle. This graph shows that the heyday of U.S. coal plant construction, in red, ended over 30 years ago.

Coal plants, shown in red, were predominant choice in the 1960s and 1970s. Credit: Dan Mantena

Coal plants, shown in red, were the predominant choice in the 1960s and 1970s. Credit: Dan Mantena

The continued shift to gas and renewables expected from the EPA Clean Power Plan is not a new trend. Ever since competition and markets were allowed to influence the electric power industry, the dynamics of the power supply have been shaped by economics. And the economics have been favoring wind farms and gas plants.

New study coming, with half the story

NERC, the North American Reliability Corporation, is mandated by regulators and Congress to maintain rules for the reliability of the electric power grid. NERC also provides assessments of grid reliability as circumstances and environmental regulations change, including the EPA Clean Power Plan (CPP).

NERC is again looking at the potential reliability impacts of the Clean Power Plan, but again has chosen to leave out renewable energy as a means of complying with the carbon targets.

NERC does not have expertise in economics or predicting investment in new power plants. Its assumptions about future changes in the electricity sector exclude economic growth from renewable energy or efficiency. NERC also makes arbitrary assumptions about the economic decisions to close older plants.

Since the future supply of electricity will be determined by these decisions, assumptions about the addition of new power supplies and the maintenance of old power plants are critical. (Grid operator PJM began its assessment of carbon rules by studying this.)

NERC is using unrealistic  assumptions, which inevitably lead to unrealistic projections. In fact, NERC’s own board raised the concern this week that NERC’s results are determined by these assumptions.

False premise at the heart of NERC’s analysis

NERC’s analysis of CPP impacts on reliability is based on a false premise—that the rule requires plants to close. Just as changing economics gradually reshapes the electricity market, the new EPA rule is different from the recent past.

The CPP requires the fleet of existing electric generators to reduce fuel use, and reduced running times. This is a change from the requirement in the recent Mercury and Air Toxics rule that plants either close or make retrofits. In fact, EPA provides significant freedom for states to adopt a wide range of changes, but NERC has ignored most of these. (See Brattle Group report on NERC’s earlier missed options.)

There are complicated economics in a plant closing decision, and NERC has chosen to depart from its area of expertise and authority to make assumptions about economics. Power plant owners secure the economics of plant ownership in a variety of ways; e.g. contracts, capacity payments, and state regulatory approval of costs. (See Analysis Group describing this.)

When NERC assumes that coal plants will close due to the Clean Power Plan, rather than assuming the plants stay open and run less, NERC is painting the electric power industry into a corner. In effect, NERC portrays power plant owners as prepared to walk away from contracts and revenues, and state energy regulators as uninterested in maintaining their own electricity reliability.

We look for NERC to discuss how uncertain is its assumption of plant closings, how closings will be spread across many years, and how the options of efficiency and renewable energy mitigate the situation.

If NERC includes a realistic recognition of the revenues that may keep plants open, the flexibility provided by the EPA’s rule, and the added supply that renewable energy offers, this will be a meaningful report. If NERC does not include the range of options available to plant owners and state regulators, the NERC assessment will greatly distort the situation. NERC can’t be credible if they just assume plant owners will dash into retirement and leave the states to violate reliability standards.

At other times, NERC has provided the industry and policy makers with projections of the contribution from renewable energy and guidance on how to meet consumer demand for renewable electricity in a reliable manner. In this current assessment, NERC contradicts the practices of numerous NERC members and the actual real-world experience with how renewable energy provides reliability.

If NERC were making these assessments with participation of its stakeholders, and allowing the states to continue to choose renewable energy, we might be able to trust the NERC results. Given that NERC has denied both of these elements to its process, we can not trust this portrays the reliability impacts. It does not.

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  • Actual Concerned Scientist

    Mike Jacobs how does it feel to look kinda stupid now? Looks like NERC in their actual report said that 14 GW of coal capacity would stay open and run seasonally rather than base load, EXACTLY what you said they wouldn’t say…. That’s what happens when you publish blog post about reports without even reading the report first. Reporting well done, indeed. It’s a shame people actually listen to you and read this blog. I am starting to miss the actual scientists in the “Union of Concerned Scientists”…

    • Mike Jacobs

      In reply to “Actual”-
      On page 13 of the report, 40 GW are said to be retired. On page 14, higher number of cumulative retirements is given, at 85 GW. If we use the lower number of 40 GW, and the 14 GW you pointed to, then your point of view on seasonal operation relies on 26% of the affected plants. I’ll use the 74% that support my point.
      NERC is not releasing their assumptions until next week. How should we describe that, in scientific terms?

  • Mike Jacobs

    TexasRick- You have said it well. Even inside the small group that NERC convened, there was dissent and dispute which was over-run by those seeking to portray a forceful message.

  • TexasRick8444

    So basically electricityguy is saying that his own little clique of regulators, engineers, etc. reviewed the parameters of the study and everyone was on board with the assumptions? Talk about working in an echo chamber. That’s hardly the stuff of effective analysis.

  • Richard Solomon

    If the NERC is mandated by regulators and Congress to perform its duties, should the regulators or Congress require that they redo their report?

    Are the regulators engaged enough with this process to do this?

    Do the Congressional committees involved in the oversight of these issues have the time and expertise to do this?

    What can UCS members do regarding this issue?

    • ElectricityGuy

      Sure, FERC could always order NERC to “redo” the report. But how would they redo it? Use different assumptions?? Then those would be critiziced. FERC would never do that because they don’t know what assumptions to use either–do you think they have the technical expertise to perform these studies???
      Did you know NERC used two contractors and two different models for their study? That’s right, NERC used the same contractor and the same model as the EPA, which actually resulted in LESS coal retirements than the EPA had predicted.
      FERC is involved with NERC and has direct oversight on their functions.
      NERC meets regularly with congressional committees and staffers.
      UCS members should focus on the technical aspects of ensuring the electricity grid remains secure and reliable and let the science and engineering lead you to a valid conclusion.

  • electricityguy

    Very poorly written article and even more inaccurate. I worked with NERC on the analysis as part of an advisory team–there were several members of clean energy companies on the team, and all assumptions were agreed upon and vetted through that committee. The writer just wants the headline to smear the good work of the organization and the people who are responsible for keeping the lights on.

    • Mike Jacobs

      ElectricityGuy: I appreciate the feedback. NERC has several vital duties regarding reliability standards. The Standards are developed with discussion and transparency. But I’m not sure we are talking about the same thing on the Clean Power Plan assessment.
      NERC has, as you say, limited who could see or comment on the assumptions. The central issue, how to predict the closing of plants that run fewer hours, is going to be determined by contracts, by state cost-recovery decisions, and by economics. While NERC has deep expertise in engineering, these non-engineering elements are going to determine the reliability impact of this rule. There have been coal plants that became less useful, and less utilized. This will happen to more coal plants. Assuming they will close early is an assumption.

      • ElectricityGuy

        No Mr. Jacobs–coal plants retired in NERC’s study because of the economics associated with running coal plants at very low capacity factors. Imagine an amusement park operator–do you think Disney could be open for only 5 days out of the year and still be profitable?? Absolutely not, because the fixed costs are so high, not to mention you have to keep all of the equipment safe and reliable. This is the same idea and you don’t need to be an economist to figure that out. Again, I would add that ALL of NERC’s assumptions were vetted by experts from various companies including Nextera and Exelon, who highly support the rule. Finally, NERC doesn’t question whether the rule is possible, all they really say is that the industry is going to need a little more time to make the transition from coal to gas. Get your facts right, Mr Jacobs.

  • As it comes to most polluting energy source, coal is worst …

  • JASing

    Thomas Edison in 1931 stated the only viable clean energy path we have when saying:
    “I would bet all my money on the SUN ans SOLAR ENERGY!! What an incredible and never-ending source of power!! I hope that we don’t have to wait until all the coal and oil run out before we can tackle that fine idea”
    I add that we could be making hydrogen our principle fuel by using sunlight and a catalyst to split water, thereby, eliminating all hazards to humans and the environment with mining messes. AND there would be no adding to problems of waste products.
    James Singmaster, III, Ph.D., UCDavis 76, Environmental Chemist, Ret., Davis, CA

    • Mike Jacobs

      Solar is on the rise. We can add great amounts before we put hydrogen to use. But that will come.