Grid operators warn US EPA proposal could lead to 'significant power shortages'

Regional grid operators outlined a range of reliability and market concerns with the US Environmental Protection Agency's proposal to require new and existing fossil fuel-fired power plants to implement carbon capture or green hydrogen blending.

The EPA's proposal, unveiled in May, would effectively require existing coal-fired power plants without 90% carbon capture to cease operating by 2035. It would also require new and existing gas-fired generating units with a nameplate capacity of 300 MW or larger and an annual capacity factor greater than 50% to co-fire with 30% green hydrogen by 2032, ramping up to 96% by 2038, or achieve 90% carbon capture by 2035.

The proposed rule was designed with an eye toward a 2022 ruling by the US Supreme Court in West Virginia v. EPA, which stated that the Clean Air Act does not permit the EPA to require broad shifts in the nation's generation mix without explicit authorization from Congress.

The rulemaking represents the third attempt under the last three presidential administrations to set the first-ever CO₂ limits for the nation's second-largest source of climate pollution.

In its proposal, the EPA took into account the generous tax credits for carbon capture and sequestration and green hydrogen production in the Inflation Reduction Act. The agency's regulatory impact analysis also projected a relatively modest impact on the existing US generation fleet, with only 37 GW of existing natural gas-fired capacity expected to be implicated by the proposed rule by 2035.

However, the 13-state PJM Interconnection LLC, 15-state Midcontinent ISO, 15-state Southwest Power Pool and the Electric Reliability Council of Texas Inc. expressed alarm with the EPA's proposed requirements in joint comments submitted Aug. 8. The ISO New England also flagged potential reliability concerns for its six-state region, while the single-state California ISO urged the EPA to provide additional compliance flexibilities in a final rule.

4 grid operators voice retirement concerns

PJM, MISO, SPP and ERCOT noted that they are responsible for ensuring reliable electric service to 154 million customers in geographic footprints that collectively cover all or parts of 30 states and the District of Columbia.

With that in mind, the four grid operators warned that the EPA's proposed rule "could result in material, adverse impacts to the reliability of the power grid."

"If the technology and associated infrastructure fail to timely materialize, then the future supply of compliant generation — given forced retirements of non-compliant generation — would be far below what is needed to serve power demand, increasing the likelihood of significant power shortages," the grid operators said.

PJM, for example, noted that 40 GW of dispatchable thermal generation, representing 21% of its current installed capacity, is at risk of retiring by 2030. New capacity additions made up almost entirely of weather-dependent resources may not be sufficient to keep pace with retirements by the end of the decade, according to PJM.

The EPA's proposed rule could force an incremental 15 GW of coal-fired capacity in PJM to retire early, pushing the overall level of at-risk generation to 29%, PJM said. Roughly 22% of PJM's installed capacity comprising "the most-efficient, dispatchable gas-fired generation" would also be forced to "undertake expensive control options or significantly reduce operations under the proposed rule," the grid operator said.

SPP also warned that the ongoing retirement of thermal generators within its footprint is straining its system.

Nearly 2,800 MW of thermal generation in SPP retired between 2019 and 2022. Those retirements coincided with an increase of 257 system alert hours in 2022, amounting to nearly 11 days, compared to 2019, SPP said. If SPP's historical gross load were to increase by only 3%, the region would have "no margin for additional retirements," SPP said.

Citing the results of its own reliability analysis, MISO noted that dispatchable, non-weather-dependent capacity may need to triple by 2031 and quadruple by 2041 to compensate for days when solar generation is unavailable.

ISO-NE analysis finds proposal would 'shift the generation burden'

The ISO-NE used Energy Exemplar's PLEXOS power market simulation platform to quantify the impacts of the EPA's proposal by 2032. The model assumed "significant increases" in power demand from vehicle and heating electrification.

Under the proposal, annual generation output from gas-fired units 300 MW or larger with capacity factors of greater than 50% would decline 19%, while smaller combustion turbines would increase 119% in operation, according to the ISO-NE's simulation.

"It can be concluded that the enforcement of the proposed EPA rule would not reduce fossil generation; rather, the proposed EPA rule would shift the generation burden from larger, more efficient natural gas plants to smaller and less efficient" natural gas- and oil-fired generators, the ISO-NE said.

Moreover, the grid operator found that the proposed rule would significantly increase active demand response in New England. Active demand response, a term used to describe voluntary reductions in customer demand when energy prices hit $1,500/MWh, would increase from 4 GWh annually to 37 GWh, according to the analysis.

"Seeing [active demand response] dispatch more frequently when the EPA rules are simulated is indicative of a system that is running out of dispatchable resources," the ISO-NE said.

Recommendations

To help address their concerns, PJM, MISO, SPP and ERCOT proposed an additional "reliability-based subcategory."

"This subcategory would be populated with specific units or locations as identified by the [grid operators] where unit retirement would cause significant reliability challenges until other longer-term solutions, such as transmission, demand response, or new generation resources, would obviate the need for those units," they said.

As proposed, each grid operator "would provide a public explanation of the methodology it would use to determine which units, or classes of units, qualify for inclusion in this subcategory and the process for identification of such units." The identified units would then be exempt from compliance until they are no longer needed to maintain grid reliability.

CAISO backed that idea in its own brief comments. "EPA should also consider establishing additional pathways in any final rule to allow resources to operate on a temporary basis notwithstanding compliance schedules, if needed to support electric grid reliability," CAISO said.

PJM, MISO, SPP and ERCOT also recommended a "complementary approach" under which the remaining useful life of a generating unit could be considered in a manner similar to the EPA's coal ash regulations.

In addition, the four grid operators urged the EPA to further clarify that states can include emission allowance trading in their compliance plans. Although the proposed rule would allow voluntary allowance trading, it "does not provide sufficient guidance on how effective interstate trading could be utilized as a compliance strategy," they said.

The ISO-NE asked the EPA to consider the use of other low-carbon fuels in its current proposal and a future rulemaking covering the remaining natural gas fleet.

"For example, low-carbon fuels such as synthetic methane and synthetic/renewable natural gas can be used as a direct replacement for fossil gas and are compatible with existing natural gas infrastructure," the ISO-NE said.

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