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Proposed US EPA rule to have significant impact on power grid: ERCOT analysis

Highlights

The Electric Reliability Council of Texas anticipates that implementation of the US Environmental Protection Agency's proposed rule for reducing greenhouse gas emissions will result in the retirement of up half of ERCOT's coal generation capacity, raise retail energy bills up to 20% and lead to a greater likelihood of rotating outages.

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ERCOT Monday released its analysis of the impact of the Clean Power Plan, saying it "is evident that implementation ... will have a significant impact on the planning and operation of the ERCOT grid."

"ERCOT's primary concern with the Clean Power Plan is that, given the ERCOT region's market design and existing transmission infrastructure, the timing and scale of the expected changes needed to reach the CO2 emission goals could have a harmful impact on reliability," according to the report. " ... it is unknown, based on the information currently available, whether compliance with the proposed rule can be achieved within applicable reliability criteria and with the current market design."

EPA released in June proposed rules on limiting greenhouse gas emissions, calling for reductions equivalent to 30% from 2005 emissions levels by 2030. The proposed Clean Power Plan provides state-by-state interim CO2 reduction goals to be achieved by 2020 and final goals to be accomplished by 2030.


For Texas, EPA has proposed an interim goal of 853 lb CO2/MWh to be met on average during 2020-2029, and a final goal of 791 lb CO2/MWh to be met from 2030 onward.

A decrease to the ERCOT reserve margin is a major concern stemming from the rule because it would lead to a greater likelihood of having to resort to rotating blackouts, said Warren Lasher, ERCOT's director of system planning. ERCOT has initiated rotating outages four times in its history: The first in 1989 and the latest in October.

Other concerns include the need for significant upgrades to the transmission system, significant buildout of renewables and the cost of new transmission lines, Lasher said.

According to ERCOT's analysis, the proposed CO2 emissions limitations will result in the retirement of up to 8,700 MW of coal generation capacity, which could result in transmission reliability issues from the loss of generation resources in and around major urban centers. It also will strain ERCOT's ability to integrate new intermittent renewable generation resources.

"In the next five to seven years, ERCOT is likely to lose up to half of its coal generation capacity," Lasher said.

The retirement of coal resources will require reliability studies to determine if there are any voltage/reactive power-control issues that can only be mitigated by those resources; how to replace frequency response, inertial support, and ramping capability provided by retiring units; and the necessity of potential transmission upgrades, ERCOT stated in the report.

The generation from retiring coal capacity will mostly be replaced by increased production from existing natural gas capacity, according to ERCOT's report. While ERCOT is not currently affected by natural gas supply issues, the increased use of natural gas nationally could cause increased market dislocations, such as seen last winter.

Consumers will eventually bore all of these costs on their energy bills, Lasher said, adding 2020 retail energy bills are expected to increase as much as 20%.

The issues involved with implementation of the plan highlight the need for the final rule -- due to be released in June -- to include a process to effectively manage electric system reliability issues that may arise due to implementation, as well as include more implementation timeline flexibility to address each state's or region's unique market characteristics, according to ERCOT's report.

"With respect to the need to manage reliability issues, ERCOT supports the [independent system operator/regional transmission operator] Council proposal for the inclusion of a reliability safety valve process in the context of the CO2 rule, as well the need for states to consult with ISOs/RTOs during the development of state plans," ERCOT stated.

ERCOT will release a more comprehensive report December 16 to present its analysis of several proposed or recently finalized environmental regulations that could affect future generation resources in the ERCOT region.

--Kassia Micek, kassia.micek@platts.com
--Edited by Valarie Jackson, valarie.jackson@platts.com