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.
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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