2010 Special Reliability Scenario 2010 Special Reliability Scenario Assessment: Resource Adequacy Assessment: Resource Adequacy Impacts of Potential U.S. Impacts of Potential U.S. Environmental RegulationsEnvironmental Regulations

John MouraJohn MouraTechnical Analyst, Technical Analyst, Reliability Assessment Reliability Assessment & & Performance AnalysisPerformance Analysis

2

Overview

About NERC

About Future EPA Regulations

Scenario Design

Assessment & Conclusions

Recommendations

About NERC: MissionAbout NERC: Mission

Develop & enforce reliability standards

Assess current and future reliability

Analyze system events & recommend improved practices

Encourage active participation by all stakeholders

Pursue mandatory standards in all areas of the interconnection

To ensure the reliability of the North American bulk power system

3

NERC Reliability Assessments

Peak Demand Forecasts

Resource Adequacy

Transmission Adequacy

Key Issues & Emerging Trends Impacting Reliability

Regional Self-Assessment

Ad-hoc Special Assessments 4

Emerging & Standing Issues

5

Emerging Issues Risk Evolution:

Consequence

Lik

elih

oo

d

High

HighLow

Greenhouse Gas Regulations

Cyber Security

Transmission Siting

Variable Generation

Issues

Reactive Power

Energy Storage

Economy Issues

1-5 Years6-10 Years

Workforce Issues

Smart Grid & AMI

Like

liho

od

ConsequenceLowerLower

HigherHigher

HigherHigher

About this ReportAbout this Report

Purpose

• Identify potential outcomes of future EPA Regulations

• Quantify potential impacts to Planning Reserve Margins

• Examine unit retirement triggered by financial constraints

• Provide the results to NERC’s stakeholders, industry leaders, policymakers, regulators, and the public

Highlights the affected Regions/Subregions

BackgroundBackground

The EPA is promulgating new environmental regulations in addition to sulfur dioxide (SO2) and nitrogen oxide (NOx) emission controls

• Clean Water Act – Section 316(b), Cooling water Intake Structures

• Title I of the Clean Air Act – National Emission Standards for Hazardous Air Pollutants (NESHAP), or Maximum Achievable Control Technology (MACT) Standards

• Clean Air Transport Rule (CATR)

• Coal Combustion Residuals (CCR)

Clean Water Act – Section 316(b), Clean Water Act – Section 316(b), Cooling Water Intake StructuresCooling Water Intake Structures

Regulates intake structures for surface waters in the U.S. and calls for best available control technology (BACT) to minimize adverse environmental impact (AEI)

Steam generating units employing once-through cooling systems could be required to replace their cooling water systems with closed-loop cooling systems

Planning Reserve margins in two ways: • 1) the cost of such retrofits may

result in accelerated unit retirements

• 2) closed-loop cooling retrofitting results in derating a unit’s net output capacity, due to additional ancillary or station load requirements to serve generator equipment

Title I of the Clean Air Act Title I of the Clean Air Act – – National Emission National Emission Standards for Hazardous Air Pollutants (NESHAP), or Standards for Hazardous Air Pollutants (NESHAP), or

Maximum Achievable Control Technology Maximum Achievable Control Technology (MACT) (MACT) StandardsStandards

EPA is now obligated under a consent decree to propose a MACT rule by March 16, 2011 and to finalize the rule by November 16, 2011

MACT requires coal-fired plants to reduce their emissions of air toxics, including mercury

Under the Clean Air Act, EPA is obligated to implement stricter standards within three years after the regulation becomes final

Clean Air Transport Rule (CATR)Clean Air Transport Rule (CATR)

CATR would sharply reduce emissions of sulfur dioxide and nitrogen oxide from power plants in 31 states and the District of Columbia

EPA proposed three program options for public comment:• the EPA preferred option which sets state emission budget caps

and allows intrastate trading and limited interstate trading among power plants;

• the EPA Alternative 1 option which sets state emission budget caps and allows intrastate trading among power plants within a state; and

• the EPA Alternative 2 option which sets a pollution limit for each state and specifies the allowable unit-specific emission limit

Coal Combustion Residuals (CCR)Coal Combustion Residuals (CCR)

In May 2010, EPA proposed two options to regulate coal combustion residual disposal

• Regulate the coal fly ash as a special waste under subtitle C (hazardous waste) of the Resource Conservation and Recovery Act (RCRA)

• Regulate ash disposal as a non-hazardous waste under subtitle D of RCRA

EPA MACT Final Rule late 2011

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Cooling Water Intake316 (b) Coal AshClean Air Transport Rule

Air Toxics - MACT

Final CATR ProgramMar 2011, Starts 1/1/2012

New CATR Budget Limits 2014 - 2018

EPA MACT Draft March 16,2011 EPA MACT Implementation

late 2015

CATR Draft Rule July 2010

EPA 316 (b) Draft Rule June 2010 EPA 316 (b)

Final Rule 2012

316 (b) Implementation 2014 - 2018

EPA Coal Residual Impoundment Draft Rule April 2010

Coal Residuals Final Rule 2011

Coal Residuals Implementation

2014-2018

Timeline for EPA Regulations Timeline for EPA Regulations Impacting the Energy and Utility Impacting the Energy and Utility IndustryIndustry

316(b), MACT, CCR, and more strict CATR standards begin implementation within a close timeframe, creating the need for organized, nationwide construction effort towards compliance to maintain short-term grid reliability.

Scenario ModelScenario Model

Unit Definitions• “Economically Vulnerable” for Retirement

• Retrofit results in unit derating

Depicts a “Snapshot” of U.S. Effected Generation Units and Potential Impacts to Planning Reserve Margins for three Modeled Years

Highlighted Assumptions• Excludes committed or announced Plant Retirements

(13GW) and Generation Units not included in the NERC 2009 Long Term Reliability Assessment

• Excludes the Ability to permit, engineer, finance, and build the required environmental controls within timeframe

• Includes Capital O&M Costs; excludes Replacement Power Costs and effects of demand increase

Explanation of CalculationsExplanation of Calculations

A unit is assumed to retire if :

(CC+FC+VC) / (1-DR) > RC

• CC = Compliance Cost

• FC = Current Fixed O&M

• VC = Variable O&M

• RC = Replacement Cost $/MWh

• DR = Derate Factor (incremental energy loss)

($50)($25)

$0 $25 $50 $75

$100 $125 $150 $175 $200

0 50 100 150 200 250 300 350 400

2013

Rep

lace

men

t Cos

t Min

us P

lant

Cos

t Be

fore

Ret

rofit

s (20

10$/

MW

H)

Cumulative Capacity (GW)

Replacement Cost Minus Plant CostBefore Any Retofits

Combined Case

- Moderate and Strict of Aggregate

Regulations

316(b)

• Moderate Case Conversion cost curve for retrofit • Ranges from $170-440

gpm• Strict Case

• 25% increased cost

CATR• Moderate Case

• EPA preferred option• Limited interstate trading

until 2014• No rate limitations

• Strict Case• No trading • Strict rate limitations

MACT• Moderate Case

• Conversion cost curve for emission controls

• 60% of upgraded units will receive waivers

• Strict Case• 25% increased cost• No waivers-all units must

comply by 2015

CCR• Moderate Case

• $30 M per unit• Disposal costs - $15/ton

• Strict Case• Disposal costs increased

to $37.50/ton

Two Cases AssessedTwo Cases Assessed

WECC- -NM-SNV

316(b)316(b)

Greatest Potential Impacts of All Regulations Greatest Portion of Capacity Retired by 2018 Mostly Affects Older Oil/Gas-Steam Units Smaller Units More Likely to Retire

316(b) Impacts - 2018 Moderate Case Strict Case

Derated

(MW) Retired (MW) Total

Derated (MW)

Retired (MW) Total

ERCOT 322 5,055 5,377 316 5,295 5,611

NPCC-NE 194 2,504 2,698 180 2,904 3,084 NPCC-NY 347 3,011 3,357 327 3,618 3,946 RFC 1,532 5,503 7,035 1,526 5,661 7,187

9 SERC-Delta 282 5,524 5,806 282 5,524 5,806

FRCCMRO

SERC-Central

SERC-GatewaySERC-SoutheasternSERC-VACARSPP WECC-CA 227 5,055 5,283 182 6,881 7,063

AZWECC-NWPPWECC-RMPA TOTAL 4,954 32,522 37,476 4,848 36,366 41,214

177 862 1,039 164 1,367 1,531 400 1,259 1,659 400 1,264 1,664

388 71 45 388 71 459

296 526 822 295 543 838 209 469 678 209 469 678 378 664 1,042 377 689 1,066 143 933 1,076 141 994 1,135

5 773 778 5 773 778 40 129 169 40 129 169 16 184 200 16 184 200

MACTMACT

Moderate Case and Strict Case impact estimates show a high degree of disparity, due to the implementation rules assumed to be enforced by the EPA

Resulting impacts highly dependent on waivers extensions past the 2015 "hard stop" compliance deadline

Will mainly affect coal-fired generation

Derated (MW)

Retired (MW) Total

Derated (MW)

Retired (MW) Total

MRO 125 202 327 144 764 908

RFC 103 1,061 1,164 1,060 5,493 6,553SERC-Central 61 71 132 305 1,000 1,305

SERC-Southeastern 33 140 173 337 1,208 1,545SERC-VACAR 0 465 465 255 2,649 2,905

WECC-AZ-NM-SNV 49 0 49 49 1,580 1,629

ERCOT 73 0 73 73 0 73FRCC 0 0 0 78 121 199

NPCC-NE 0 0 0 32 616 647NPCC-NY 0 11 11 16 694 710

SERC-Delta 69 18 87 69 95 164SERC-Gateway 84 35 119 110 365 475

SPP 127 0 127 130 52 181WECC-CA 0 15 15 3 15 17

WECC-NWPP 72 39 111 73 129 202WECC-RMPA 10 4 13 10 100 110 TOTAL 806 2,061 2,867 2,746 14,879 17,625

MACT Impacts - 2015

Moderate Case Strict Case

Combined RegulationsCombined Regulations

Potential loss of approximately 40-76 GW (retrofit plus retired) capacity by 2018

Potential coordination issues to acquire and install the necessary environmental controls in the short-run may create significant future impacts

Aggregate effects of multiple regulations increases unit retirement

Estimates predict the

majority of retirements

occur by 2018

More units predicted to be

retired rather than retrofit

Scenario ResultsScenario Results

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

Rese

rve

Mar

gin

(%)

(APCR) Reserve Margin - Reference Case

(APCR) Reserve Margin - Moderate Case

(APCR) Reserve Margin - Strict Case

0.00%

2013 Reserve Margin Levels2015 Reserve Margin Levels2018 Reserve Margin Levels

NERC Reference Level

Impending HurdlesImpending Hurdles

Potential EPA regulation timing

Environmental control retrofit constraints

• Skilled construction labor

• Financing

• Materials

Capacity replacement

• Demand Response\Energy Efficiency

• Construction and Siting\Permitting new generation

Other potential EPA regulations\CO2 Legislation

Tools and Actions for Mitigating Tools and Actions for Mitigating Resource Adequacy IssuesResource Adequacy Issues

•Generation resources may be able to advance their in-service dates where sufficient lead time is given.

•Accelerated construction may be possible.•Existing market tools, such as forward capacity markets and reserve sharing mechanisms, can assist in signaling resource needs.

Advancing In-service Dates of Future or Conceptual Resources

•Smaller, combustion turbines or mobile generation units can be added to maintain local reliability where additional capacity is needed.

•Additional distributed generation may also mitigate local reliability issues.

Addition of New Resources Not yet Proposed

•Increased Energy Efficiency may offset future demand growth.•Increasing available Demand Response resources can provide planning and operating flexibility by reducing peak demand.

Increased Demand-Side Management and Conservation

•Planning and constructing retrofits immediately will aid in preventing the potential for construction delays and overflows, mitigating the risk of additional unit loss.

•Managing retrofit timing on a unit basis will keep capacity supply by region stable.•Combating the regulations early demonstrates industry's willingness to comply, potentially dampening the EPA severity of promulgated regulations.

Early Action to Mitigate Severe Losses

Tools and Actions for Mitigating Tools and Actions for Mitigating Resource Adequacy Issues Cont.Resource Adequacy Issues Cont.

• Regions\subregions that have access to a larger pool of generation may be able to increase the amount of import capacity from areas with available capacity, transfer capability is sufficient. and deliverability is confirmed.

• Additional transmission or upgrades may enable additional transactions to provide additional resources across operating boundaries.

Increase in Transfers

• Other technologies exist, such as trona injection, that will allow companies to comply with EPA air regulations without installing more scrubbers.

Developing or Exploring Newer Technologies

• Existing gas units may have additional power production potential, which can be expanded during off peak periods. This capacity can assist in managing plant outages during the installation of emission control systems.

Use of More Gas-Fired Generation

• Some coal-fired generation have the potential to repower their units with combined-cycle gas turbines and reducing emmisions.

Repowering of Coal-Fired Generation

RecommendationsRecommendations

Regulators

• Consider pace and aggressiveness of regulation timing and impacts to the bulk power system

Industry

• Employ tools to mitigate potential issues

NERC

• Further assess the implications of regulations as greater certainty emerges around industry obligations, technologies, timelines, and targets

Questions?