CSAPR & MATS: What Do They Mean for Electric Power Plants?

Transcription

1 CSAPR & MATS: What Do They Mean for Electric Power Plants? 15 th Annual Energy, Utility, and Environment Conference (EUEC 2012) Phoenix, AZ January 31,2012 Amlan Saha

2 Presentation Outline 1. Regulatory Road Map 2. CSAPR and MATS 3. Impact on Coal Plants 4. U.S. Coal Fleet Profile and At Risk Capacity 5. Reliability 6. Appendices a. U.S. electric sector capacity and output b. Comparison of the MATS standards and actual plant data c. A subset of plants that are compliant with all the MATS standards at once 2

3 EPA Regulatory Roadmap for the Electric Sector MATS Develop MATS Pre-compliance Period 112(i)(3)(B)* Compliance with MATS Criteria Air Pollutants Develop CSAPR CSAPR stayed Compliance with CSAPR Interim CAIR Develop Supplementary CSAPR (TR2) Estimated Compliance Develop Criteria NSPS Provision Develop Revised NAAQS Compliance with Revised Criteria NSPS for new and modified sources SIP provisions developed in response to revised NAAQS (eg, Ozone, PM2.5, SO 2, NO 2, NO x /So x, CO) GHG Compliance with Federal GHG Reporting Rule PSD/BACT and Title V Apply to GHG Emissions (PSD only for new and modified sources) Develop GHG NSPS for new, modified, and existing Pre-compliance Period Compliance with GHG NSPS (existing sources) CCB 316(b) Develop Coal Combustion By-Products Rule Pre-compliance Period Compliance with Federal CCB Regulations Develop 316(b) Regulations Pre-compliance Period Phase-In of Compliance Effluents Develop Effluent Regulations Phase-In of Compliance (5-year NPDES cycle) * Sec. 112(i)I3)(B) authorizes EPA/states to provide up to one additional year to comply with standards if necessary for the installation of controls 3

4 A Tale of Two Rules Cross-State Air Pollution Rule (CSAPR) Finalized on July 6, (Additional technical revisions to nine state budgets proposed on Oct 6.) Mercury and Air Toxics Standards (MATS) Also known as the Utility Toxics Rule, finalized on Wednesday, December 21, To reduce SO 2 and NO x emissions from power plants in the eastern United States. To limit mercury, acid gases, and other toxic pollution from power plants. Replaces the Clean Air Interstate Rule (CAIR), originally issued by EPA on March 10, 2005, but which was subsequently remanded (without vacatur) by the U.S. Court of Appeals for the D.C. Circuit (D.C. Circuit) on December 23, Stayed by the D.C. Circuit on December 30, 2011 pending judicial review; CAIR left in place. Projected to result in the elimination of more than 90 percent of the mercury in coal used at power plants. Replaces the Clean Air Mercury Rule (CAMR), originally issued by EPA on March 10, 2005, but which was subsequently vacated by the U.S. Court of Appeals for the D.C. Circuit on February 8,

5 Plants Must Comply With Cap and Trade (ie, buy allowance or reduce) Command and Control (ie, comply or retire) Plant Type NO x 2012 (2014/15) CSAPR SO (2014/15) MATS Particulate Matter Mercury HCl HF Coal lb/mmbtu or 0.30 lb/mwh 1.2 lb/tbtu or lb/gwh lb/mmbtu or lb/mwh Oil Natural Gas CSAPR Budget: 1.3m (1.2m) CAIR Budget: 1.5m (1.3m) 2010 Emissions: 1.4m CSAPR Budget: 3.5m (2.2m) CAIR Budget: 3.3m (2.3m) 2010 Emissions: 4.2m lb/mmbtu Not Affected Continental: lb/mmbtu or lb/mwh Non-Continental: lb/mmbtu or lb/mwh Continental: lb/mmbtu or lb/mwh Non-Continental: lb/mwh or lb/mwh Other (Nuclear, Hydro, Renewable, etc.) Not Affected 5

6 What Are The Options? Business As Usual Retrofit Repower Retire Already Controlled Trading of Allowances Averaging Provision Limited Capacity Factor Upgrade ESP Upgrade/New Fabric Filter SCR Scrubber (Wet, Dry, or DSI) ACI Natural gas or other fuels Partial Replacement of Plant Full Replacement of Plant Existing plant is not replaced Market purchase of capacity and energy (eg: PJM s RPM and LMP) Long-term Power Purchase Agreements 6

7 Decision Time Key Principle: Net present value (NPV) of future operating cash flows over the remaining useful life of a plant must remain positive at all times. Electricity Demand Natural Gas Price Unit Age Carbon Legislation Outlook Unit Size Renewable Energy Mandates Existing Coal Unit Decisions Existing Controls

8 Coal Plants Face Strong Economic Head Winds Low natural gas prices, by reducing the marginal cost of electricity production, have resulted in sharply declining electricity prices in most U.S. electricity markets. Prevailing economic conditions, by dampening overall demand for electricity, has lowered capacity prices in general. Heightened focus on energy efficiency and demand side management has further exacerbated this trend. Surging demand for U.S. coal from Asia is providing support to coal prices, even as coal consumption declines in the U.S. This further compresses gross operating margins of coalfired generators in the U.S. Greater integration of renewable generation has also contributed to push wholesale electricity prices lower. Availability of renewable energy on the grid reduces the revenue of conventional generation in two ways by curtailing the amount of time they are called to generate electricity; and, by lowering energy clearing prices. Even without any further EPA regulations coal-plant economics are already being severely challenged. Many of the smaller, old, and uncontrolled units are barely recovering their operating costs under current market conditions. 8

9 Gas v. Coal Price Trends Even as gas prices trend downwards, coal prices remain high. Central Appalachian Coal futures are at a premium on an electricity equivalent basis. Coal v. Gas Prices ($/MMBtu) NYMEX Futures ($/MMBtu) $10 $9 Avg. Henry Hub Spot Price Avg. Central Appalachian Coal Price $5 Henry Hub Natural Gas $8 $7 ESTIMATE $4 Central Appalachian Coal $6 $3 $5 $4 $3 R² = 0.49 $2 Henry Hub Natural Gas Elec. Equivalent $2 R² = 0.33 $1 $1 $ $ Note: Electrical equivalents assume average heat rates of 7,000 Btu/KWh for a natural gas combined cycle facility and 10,000 Btu/KWh for a coal-fired unit. Sources: Bernstein Analysis, NYMEX (based on settlements from Jan 25, 2011 trade date), MJB&A Analysis 9

10 Profile of Existing U.S. Coal-fired Fleet Installed Capacity (GW) GW 71 GW 1 94 GW 35 GW Extensive Controls High Level of Controls Some Controls Minimal Controls 120 GW 38% of U.S. Coal Capacity 109 GW 5 GW 71 GW 22% of U.S. Coal Capacity 63 GW 4 GW 33 GW <1 GW GW 10% 19 GW of U.S. Coal Capacity 1 95 GW GW 30% 75 GW <1 GW of U.S. Coal Capacity Total U.S. Coal-fired Capacity: 320 GW GW ACI Scrubber SCR/SNCR ESP/Baghouse Scrubber SCR/SNCR ESP/Baghouse Source: MJB&A Analysis, EPA NEEDs 4.10 Scrubber SCR/SNCR Scrubber ESP/Baghouse Scrubber SCR/SNCR ESP/Baghouse 1 Capacity with the capability to burn subbituminous coal rank. These units may be able to use DSI, a low-cost alternative relative to scrubbers, as a compliance option. 2 Capacity with the highest risk of retirement SCR/SNCR ESP/Baghouse No Controls 10

11 Location of At-risk Coal Plants 120 GW 71 GW 1 94 GW 2 Extensive Controls (ie, Scrubber, Advanced Nox Control, and Baghouse) Total U.S. Coal-fired Capacity: 320 GW High Level of Controls (ie, At least a Scrubber) Capacity with the capability to burn sub-bituminous coal rank. These units may be able to use DSI, a low-cost alternative relative to scrubbers, as a compliance option. Some/Minimal Level of Controls Shown on this map 35 GW Capacity with the highest risk of retirement Source: MJB&A Analysis, EPA NEEDs 4.10, Ventyx Velocity

12 CSAPR: Potential Range of Impact on Variable Cost of Electricity Illustrative Impact of CSAPR on Variable Cost of Electricity $35 $30 $25 $20 $31.66 ($/MWh) SO2 Ozone Season NOx Annual NOx H: High 2 L: Low 2 $15 $10 $5 $4.98 $4.61 $7.61 $0 $0.36 $0.04 Source: MJB&A Analysis. Notes: Coal Gas CC Gas CT Oil 1. Analysis assumes illustrative electricity generating units with heat rates of 10,000 Btu/KWh for coal-, oil-, and gas-fired (CT) units. A heat rate of 7,000 Btu/KWh is assumed for combined cycle facilities. 2. High (H) and Low (L) correspond to the highest and lowest reported emission rates, respectively, among CSAPR affected units in EPA s 2010 Acid Rain Program database. 3. Allowance prices are from the Remedy Scenario of EPA s modeling of CSAPR: $500/ton for annual NOx, $1,300/ton for Ozone Season NOx, and $1,000/ton for SO 2. $0.07 $0.43 H L H L H L H L 12

13 MATS: Capital Cost of Control Technologies Control Technology Capital Cost $/kw $800 $600 $400 $200 $0 FGD (W) FDG (D) SCR SNCR Fabric Filter ACI DSI 500 MW $496 $424 $178 $14 $151 $7 $ MW $573 $491 $193 $19 $167 $11 $ MW $783 $670 $240 $35 $205 $28 $125 Source: EPA 13

14 Is There Consensus on How Much Coal Capacity May Find Retrofitting Uneconomic and Retire? Retirement projections vary widely among studies primarily because of differences in assumptions 1.Natural gas price and outlook 2.Control technologies available, especially DSI 3.Flexibility in EPA rules 4.Capital cost of control technologies 5.Scope of regulations considered NERC Brattle Group Utility Toxics Rule Proposed: Mar 16, EEI 54 Bernstein Research 10 EPA 29 CERA 36 5 EIA 48 Median Median NERA Bipartisan Policy Center Retired Capacity (GW) Citi Date Released Oct 2010 Dec 2010 Jan 2011 Mar 2011 Mar 2011 Apr 2011 Apr 2011 May 2011 Jun 2011 Jul 2011 Regulations Considered Baseline Exclusions Air, Water, Ash 13 GW of announced retirements (may include noncoal units) Air, Water 6 GW of retirements Air, Water, Ash 22 GW of retirements Air 12 GW projected to retire due to unit age Air (Toxics Only) 13 GW of retirements Air, Water Figure indicated above is the assumed total Air 9 GW of retirements Air 5 GW of retirements Air, Water, Ash GW of retirements Air, Water, Ash Figure indicated above is the assumed total 14

15 Reserve Margins Not Projected to Fall Below Minimum Levels Because of CSAPR and MATS NERC released an assessment of the potential reliability impacts of several EPA environmental rules on November 28, The report evaluated four rules: (1) coal ash rule, (2) mercury and air toxics rule (MATS), (3) cross-state air pollution rule (CSAPR), and (4) Section 316(b) rule. NERC found that no reliability region will fall below its minimum reference level in 2015 as a result of any or all of these rules. Two regions Texas and New England that, on an anticipated reserve margin basis (a conservative measure that includes only existing and planned resources certain to be available), are projected to fall below their NERC reference levels do so regardless of any additional retirements as a result of EPA s environmental rules. EPA s environmental rules, according to NERC s assessment, would reduce regional reserve margins, on average, by just 1 percentage point in Assessment Area NERC Reference Anticipated Reserve Margin (%) Margin Level (%) 2015 Reference Case 2015 Policy Case ERCOT (TRE) 13.8% 10.8% 10.4% FRCC 15.0% 23.3% 22.9% MISO 15.0% 19.4% 17.7% MRO-MAPP 15.0% 28.5% 28.4% NPCC-New England 15.0% 11.9% 11.1% NPCC-New York 15.5% 39.0% 38.6% PJM 15.0% 20.7% 18.6% SERC-E 15.0% 19.4% 17.4% SERC-N 15.0% 20.9% 19.1% SERC-SE 15.0% 20.4% 17.2% SERC-W 15.0% 26.1% 25.8% SPP 13.6% 24.5% 23.8% WECC 14.2% 37.5% 37.2% U.S. Electric Regions Sources: NERC 2011 Long-Term Reliability Assessment, Nov 2011 (Moderate Policy Scenario) 15

16 Compliance Timing Options MATS CAA s Three Year Compliance Track MATS 2015 Compliance Deadline (unless extended) Fourth Year Extension Track under Section 112 One year extension requests filed with states States grant 4 th year extensions (by ~March 2015) MATS 2016 Compliance Deadline (unless AO obtained for reliability critical units) Fifth Year Extension Track under CAA Section 113 ~March 2013: Companies anticipating an AO must submit compliance plans for owned/operated EGUs Upon learning of installation delay: submit notice of length of delay and request AO for reliability critical units ~ September 2015: request AO for units retiring but reliability critical ~March 2016: EPA issues AOs for reliability critical units MATS 2017 Deadline (unless case by case extension) 16

17 Announced Retrofit Plans Company Planned Retrofits Coal Capacity to Retrofit (GW) SCR 3.4 DSI 2.4 AEP ACI 4.1 FGD 4.6 Fabric Filter 3.1 FGD Upgrade 3.4 Edison International DSI and Fabric Filters 5 FGD 1.2 ACI 16 Southern Co. Fabric Filter 7 Scrubbers 3.5 Louisville Gas & Electric New Scrubbers and Scrubber Upgrade 1.5 ACI and Fabric Filters 2 Kentucky Utilities ACI and Fabric Filters 3 Kansas City Power & Light Fabric Filter, SCR, and Scrubber 1.6 NextEra Energy ESPs on Oil Units

18 Announced Retirements Timeline Since July 2010, when CSAPR was proposed, about 30 GW of coal plants retirements have been announced. 40,000 35,000 30,000 Cumulative Retirements Announced (MW) CSAPR finalized MATS finalized 25,000 20,000 15,000 MATS proposed 30 GW 10,000 CSAPR proposed 5, Sources: MJB&A Analysis, EIA (2010), EPA NEEDs v

19 Key Takeaways CSAPR and MATS would regulate the emissions of five air pollutants SO 2, NO x, particulate matter, mercury, and hydrochloric acid. Coal-fired power plants, being the largest source of emissions, will account for a majority share of the emission reductions. Plant owners will consider many factors in deciding an appropriate compliance strategy. These include policy and market outlook as well as existing plant characteristics. Even without any further EPA regulations many coal plants are likely to retire as their economics are already being severely challenged. Smaller, older, and uncontrolled units are barely recovering their operating costs under current market conditions. Some uncontrolled plants may be able to continue operating with little to no modifications by taking advantage of the flexibilities provided by the rules. Those choosing to retrofit will find several proven control technologies to help them meet the emission limits. Reliability studies indicate that reserve margins in no region will fall below the minimum reliability reference level as a result of the two rules. 19

20 Appendices 20

21 U.S. Electric Sector: Capacity and Output (2009) Capacity (GW) U.S. Total: 1,122 GW Output (TWh) U.S. Total: 3,950 TWh Oil 63 6% Renewable 44 4% Nuclear 107 9% Hydro 78 7% Other 32 3% Gas % Coal % Renewable 144 4% Oil 26 1% Hydro 273 7% Nuclear % Gas % Other 31 1% Coal 1,756 44% Source: EIA 2009

22 Comparison of MATS Standards to ICR * Data: Mercury 56% of coal-fired units in ICR * dataset reported emission rates that are compliant with the final standard Reported 4.00E Mercury Emission (lb/tbtu) 3.50E E E E Neither Scrubber nor ACI Scrubber + ACI ACI (No Scrubber) Dry Sorbent Injection Scrubber - Wet Scrubber - Dry PM Type ESP PM Type FF Summary of Source Units No. of total sources in subcategory No. of source units in subcategory in ICR database No. of source units in ICR database that reported emission rates below the EPA proposed limit 1, E E E E % 89% 78% 66% 55% 44% 33% 21% 10% 2.00E E-06 Final Limit: 1.2 lb/tbtu 1.00E E E % 89% 78% 66% 55% 44% 33% 21% 10% Bituminous & Sub-bituminous Coal-fired Units in ICR* Dataset (%) Sources: EPA, MJB&A Analysis *Information Collection Request 22

23 Comparison of MATS Standards to ICR * Data: Hydrogen Chloride 73% of coal-fired units in ICR * dataset reported emission rates that are compliant with the final standard Reported HCl Emission (lb/mmbtu) Neither Scrubber nor ACI Scrubber + ACI ACI (No Scrubber) Dry Sorbent Injection Scrubber - Wet Scrubber - Dry PM Type ESP PM Type FF Summary of Source Units No. of total sources in subcategory 1, No. of source units in subcategory in ICR database No. of source units in ICR database that reported emission rates below the EPA proposed limit % 90% 81% 72% 63% 54% 44% 35% 26% 17% 8% Final Limit: lb/mmbtu % 90% 81% 72% 63% 54% 44% 35% 26% 17% 8% Coal-fired Units in ICR* Dataset (%) Sources: EPA, MJB&A Analysis *Information Collection Request 23

24 Comparison of MATS Standards to ICR * Data: Filterable PM 85% of coal-fired units in ICR * dataset reported emission rates that are compliant with the final standard Reported Filterable PM Emission (lb/mmbtu) PM (filterable) Neither Scrubber nor ACI Scrubber + ACI ACI (No Scrubber) Dry Sorbent Injection Scrubber - Wet Scrubber - Dry PM Type ESP PM Type FF Summary of Source Units No. of total sources in subcategory No. of source units in subcategory in ICR database No. of source units in ICR database that reported emission rates below the EPA proposed limit 1, Final Limit: 0.03 lb/mmbtu % 88% 77% 65% 53% 42% 30% 19% 7% Coal-fired Units in ICR* Dataset (%) Sources: EPA, MJB&A Analysis *Information Collection Request 24