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PJM expects lower gas prices to lead to CO2 emissions lower than EPA targets

If naturalgas prices remain low, the PJM InterconnectionLLC region could expect to have emissions far lower than targets setby the Clean Power Plan, the grid operator said in an early analysis report.

At PJM'sTransmission Expansion Advisory Committee meeting April 7, PJM presented an earlyreport of its ongoinganalysis of compliance with the EPA's mandate to cut carbon dioxide emissions nationwideby 32% from 2005 baseline levels by 2030. "Sustained lower gas prices willresult in CO2 reductions through retirements and new combined-cycle entry,"said the report.

If naturalgas prices remain low through 2030, the report envisioned a scenario in which regionalcarbon dioxide emissions fall from about 350 million tons to about 290 million tonsafter expected retirements of coal plants through 2020. According to the report,the combination of low natural gas prices and the impact of various PJM states'renewable portfolio standards would reduce emissions further by roughly 10 milliontons. Those levels, which remain steady through 2030, are far below Clean PowerPlan targets to cut CO2 emission from just under 430 million tons in 2022 to lessthan 350 million tons by 2030.

The reportsaid low avoidable costs — once a natural gas plant is built — and high capacityprices will continue to enable natural gas, combined-cycles to enter the marketdespite depressed energy market prices.

"Lowergas prices will lead to greater dependence on the capacity market for cost recoveryby coal and nuclear resources," the report predicted. According to the accompanyingexplanation: "Newinvestment is challenging for non-natural gas resources because of natural gas combinedcycle resources' low capital costs and efficiency of operation, and the abilityof natural gas combined-cycle to significantly influence or set price in both capacityand energy markets."

The reportshowed that even with low gas prices, renewable portfolio standards could driveup capacity market prices to almost $350/MW-day by 2030. Energy market prices insteadcould rise to above $35/MWh by 2030, with or without the aid of renewable portfoliostandards, the report said.

"Existingresources with the highest going forward costs, primarily coal and nuclear but othersteam resources as well, face the greatest economic risks in the early years ofthe simulation, due to gas prices being at their lowest point," the reportadded. However, it said coal plants appear to be at a greater risk of exiting themarket than nuclear because "lower natural gas prices mean not only lower marginsin the energy market but also reduced run hours."

The lowerenergy prices will also place greater dependence on revenues from the capacity marketfor energy resources to remain in commercial operation to maintain resource adequacy,the report said. While existing resources with high costs going forward and newentrants with high up-front costs will depend more on the capacity market, thosethat do exit the market and shut down will increase capacity prices and, in turn,provide an opportunity for more solar to enter the market even in the absence ofrenewable portfolio standards, the report said. "Solar can take advantage ofresource retirements more effectively than wind due to higher capacity value (38%vs. 13%)."

Likewise,under a low gas price scenario aided by renewable portfolio standards, renewableenergy credit prices could increase until leveling off at $40/REC by 2028at about 64,000 GWh. States'solar renewable energy credits on average across the PJM region could peak in 2020at almost $50 per credit and then decline to zero dollars by 2030 at about 2,500GWh, the report said.