J.Pollock Blog

Grid operators warn US EPA’s interstate smog plan could hurt grid reliability EXTRA

Tuesday, June 28, 2022 4:12 PM CT

By  Zack Hale
Market Intelligence

Power sector players are pushing back against a U.S. Environmental Protection Agency proposal targeting smog-forming emissions.
Source: JJ Gouin/Getty Creative via Getty Images

Regional grid operators and power companies warned that the U.S. Environmental Protection Agency’s latest cross-state air pollution plan will threaten the nation’s already-stressed electric grid if the proposal is finalized as written.

The EPA’s plan, unveiled in March, is aimed at ensuring 25 U.S. states do not interfere with their downwind neighbors’ ability to comply with the 2015 National Ambient Air Quality Standards, or NAAQS, for ground-level ozone.

Issued under the Clean Air Act’s “good neighbor” provision, the EPA’s proposal would set statewide nitrogen oxide emission budgets that would build on an existing cap-and-trade framework. The new budgets would effectively require coal-fired units with a nameplate capacity of 100 MW or greater that lack selective catalytic reduction, or SCR, controls to install that technology by 2027, find other means of compliance or retire, according to the EPA.Nitrogen oxide, or NOx, is a key ingredient in ground-level ozone, also known as smog.

The EPA estimated its proposal would drive approximately 18 GW in incremental coal-fired power plant retirements by 2030. The agency also projected the plan would prevent approximately 2,000 hospital and emergency room visits and 1,000 premature deaths annually starting in the 2026 compliance year.

But regional grid operators and power plant owners called for additional compliance flexibilities while cautioning that the March proposal could cause power supply shortfalls during periods of peak demand.Comments on the proposal were due June 21.

Reliability allowances

The Electric Reliability Council Of Texas Inc. said it modeled the EPA’s proposal to quantify risk for summer 2026. ERCOT assumed the retirement of 10,800 MW of coal- and gas-fired generation, concluding that the plan would increase the likelihood of inadequate power supplies between 7 p.m. and 8 p.m. from 4.5% to 40% at some point that summer, a ninefold increase.

“Increasing the likelihood of firm load shed to such an alarming level would be problematic at any time of year, but to do so during the summer months in Texas, when temperatures at 7 p.m. can still be at or near 100 degrees, creates a particularly acute vulnerability,” ERCOT said.Citing grid reliability concerns, ERCOT joined with the Midcontinent ISOPJM Interconnection LLC and Southwest Power Pool in submitting joint comments recommending “some form of a ‘reliability safety valve'” in a future final rule.”

To be clear, the [safety valve] would not be a blanket exemption from compliance,” the grid operators said. “Rather, it represents certain tools and processes that would be available to address reliability issues that might arise during the implementation of a final rule.”

PJM specifically recommended a “dedicated bank of reliability allowances” specific to each U.S. region, should grid operators and balancing authorities project a potential shortfall in reserves over the summer season.

Supply chain, timeline issues

Xcel Energy Inc. warned that the EPA’s proposed 2023 allowance allocation only amounts to 60% of its anticipated needs for affected units in Minnesota, Texas and Wisconsin.”

Discussions with peer utilities in our states indicate they have been given a similar allocation,” Xcel Energy said.

Power plant owners such as OGE Energy Corp. subsidiary Oklahoma Gas and Electric Co. and NiSource Inc. subsidiary Northern Indiana Public Service Co. voiced concerns over the EPA’s estimated 36-month timeline to install SCR technology.

Oklahoma Gas and Electric said its power transformer project lead times have increased from 26 to 32 weeks to more than 80 weeks since the start of the coronavirus pandemic.

Northern Indiana Public Service Co. pointed to recently announced plans to delay retiring its coal-fired R.M. Schahfer plant due to uncertainty around the availability of solar panels.

Berkshire Hathaway Energy, the top U.S. owner of coal-fired capacity lacking SCR technology, said the EPA’s proposed timeline is unrealistic. With 8,181 MW of generation capacity implicated by the proposal, Berkshire Hathaway Energy estimated it could be forced to implement 84 total weeks of generator outages before May 2026.”

Given the stresses the electrical grid is facing nationwide, and particularly in the West, [Berkshire Hathaway Energy] does not believe the grid can sustain the impacts of such significant generation going offline over such a short time frame without reducing the stability of the grid, perhaps catastrophically,” said the company, whose portfolio includes western U.S. utilities PacifiCorp and NV Energy Inc.

Further concerns

Power sector trade groups also identified a range of concerns with the EPA’s plan.

The American Public Power Association, representing municipal utilities, said the EPA’s regulatory impact analysis significantly underestimated the cost of installing SCR technology.”

This is due in part to EPA’s decision to assign a 10-year life for recovery of SCR capital costs, which has the effect of lowering the incurred cost-per-ton of NOx removed through the use of that technology,” the American Public Power Association said. “A five-year life for recovery of capital costs is more realistic and may double the incurred cost-per-ton.”

The National Rural Electric Cooperative Association said the proposal would disproportionately harm rural co-ops, which were required to make significant investments in coal-fired generation under since-repealed federal legislation.

“Given the investments in coal-capable generation mandated by the federal government, coal-fired electric generation remains the dominant source of electric generation for [generation and transmission] cooperatives, comprising approximately 50% of self-generation in 2020, compared to a nationwide average of 27% in that year,” the National Rural Electric Cooperative Association said.

The Edison Electric Institute, the nation’s investor-owned utility trade group, recommended that a final rule include compliance flexibilities for states centered on the electrification of buildings and vehicles.

“Consistent with the tremendous potential benefits of utilizing electrification to reduce emissions in other sectors, EPA should consider creating an abbreviated [state implementation plan] pathway for states to take advantage of the continued progress of the electric sector and the electrification of both non-[electric generating units] and mobile sources,” the trade group said.

The EPA expects to issue a final cross-state air pollution plan in March 2023, according to the latest version of its regulatory agenda.

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