NERC Issues Preliminary Warning: Time Is Insufficient to Implement EPA’s ‘Clean Power Plan’

NERC found the 2020 date to be insufficient time to accommodate reliability enhancements. EPA’s CPP requires electric utilities to reduce carbon dioxide emissions from existing plants by 30 percent from 2005 levels by 2030, but includes substantial carbon dioxide reductions as early as 2020. For example, according to the EPA’s Regulatory Impact Assessment, generating capacity would be reduced by 108 to 134 gigawatts by 2020 -- power that would normally supply 68 to 84 million homes. NERC is careful to indicate that the report’s “findings are not intended to: (1) advocate a policy position in regard to the environmental objectives of the proposed CPP; (2) promote any specific compliance approach; (3) advocate any policy position for a utility, generation facility owner, or other organization to adopt as part of compliance, reliability, or planning responsibilities; (4) support the policy goals of any particular stakeholder or interests of any particular organization; or (5) represent a final and conclusive reliability assessment.”[1] NERC’s caution probably stems from the very contentious nature of EPA’s proposed regulations, which represent the most significant proposed involvement in history by the agency into the operation of the North American energy grid, commonly referred to as “the most complex machine in the world.” A small, non-political professional service organization that works closely with and is answerable to the government is understandably reluctant to weigh into such a highly politicized matter as a sitting President’s “legacy project” on global warming (which is what EPA’s electrical grid takeover via the CPP clearly is).

Nevertheless, NERC is issuing an initial warning that 4 to 5 years is too short a time for electric utilities to plan, obtain approval from EPA and implement the 2020 requirements of this rule that would remove a great deal of existing generating capacity and require enough new generating capacity to be built to ensure adequate operation of the nation’s electric grid.

NERC’s Report

NERC examined EPA’s four building blocks that states can use to comply with the Clean Power Plan:

• Building Block 1: Heat rate improvements
• Building Block 2: Dispatch changes among affected electric generating units
• Building Block 3: Using an expanded amount of less-carbon-intensive generating capacity
• Building Block 4: Demand-side energy efficiency

NERC found that EPA’s assumed heat rate improvements for existing generation may not be achievable “since many plant efficiencies have already been realized and economic heat rate improvements have been achieved.” Because multiple incentives are already in place to operate generating units at peak efficiency and periodic turbine overhauls are already a best practice for electric generating plants, NERC believes site-specific engineering analyses would be required to determine any remaining opportunities for economic heat rate improvement measures, rather than assumptions made by EPA analysts. In other words, plant operators are already operating their plants at peak efficiency because it is in their interest to do so, and EPA is simply “back seat driving.” NERC sees greater reliance on intermittent renewable resources and natural gas-fired generation to comply with building blocks 2 and 3. Both technology types will require greater infrastructure which will increase cost and take time to construct. Increased renewable energy generation will require additional transmission to access areas that have higher-grade wind and solar resources, which are generally located in remote areas. Increased natural gas generation will require pipeline expansion to maintain a reliable source of gas, particularly during the peak winter heating season. As can be seen from New England’s inability to have sufficient natural gas during the past two winters, pipeline constraints and growing gas and electric interdependency ‘impede the electric industry’s ability to obtain needed natural gas services.’ Further affecting building block 3 is the expected reduction by EPA of between 108 and 134 gigawatts of existing generating capacity by 2020. While this amount is a tremendously large loss by 2020, NERC cautions that the number may be conservative if EPA’s assumptions prove to be unachievable. Developing suitable replacement generating capacity to maintain adequate reserve margin levels represents a significant reliability challenge due to the short time period for implementation. According to NERC, building block four in EPA’s analysis assumes extremely rapid expansion of energy efficiency, which displaces electricity demand growth through 2030. The EPA assumes up to a 1.5 percent annual increase in efficiency savings[ii]—EPA expects energy efficiency savings programs to expand from 22 terawatt hours in 2012 to 108 terawatt hours in 2020 and 380 terawatt hours by 2029. The aggressive energy efficiency expansion assumptions mean that energy efficiency will grow faster than electricity demand in EPA’s analysis, with total electricity demand being reduced after 2020. If these assumed energy efficiency growth rates cannot be attained, additional carbon reduction measures would be required through the other building blocks and most likely through additional reductions to fossil-fired generation, putting more strain on reliability. NERC believes essential reliability services will likely be strained given the above. Changes in the resource mix and new dispatching protocols will require comprehensive reliability assessments to identify changes in power flows and essential reliability services: load and resource balance, voltage support, and frequency support. NERC sees new reliability challenges from the integration of the new generating capacity with different characteristics from the capacity that is being shuttered. The new resource mix will introduce changes to operations and expected behaviors of the system, requiring more transmission and new operating procedures to maintain reliability. NERC concludes that more time would be needed to accommodate the needed reliability enhancements. State and regional plans, which must be approved by the EPA, can take up to a year, leaving just six months to two years to implement the approved plan. Constructing new generating capacity and transmission enhancements represents a significant challenge given the constrained time period for implementation. According to NERC, “While the EPA provides flexibility for meeting compliance requirements within the proposed time frame, there appears to be less flexibility in providing reliability assurance beyond the compliance period.”

NERC’s Plan for Further Reliability Assessments

This NERC report includes a preliminary review of the assumptions and potential reliability impacts from EPA’s proposed Clean Power Plan. NERC is planning to develop a more specific reliability assessment in April 2015 that will focus on evaluating generation and transmission adequacy and reliability impacts before release of EPA’s final rule expected in June 2015. Then, NERC plans to provide a more comprehensive reliability assessment in December 2015 -- before the states submit their State Implementation Plans to EPA by either 2016 or 2018, depending on whether they are individual plans (2016) or multi-state plans (2018). And, NERC tentatively plans to assess the finalized state plans around December 2016. (See NERC’s chart below on its timeline for further study.) Source: North American Electric Reliability Corporation,

Conclusion

NERC has provided a preliminary assessment of the reliability challenges that would result from EPA’s Clean Power Plan were it to be implemented as originally designed and released to the public in June 2014. NERC finds that the 2020 requirements of the plan do not allow sufficient time to provide for adequate and reliable power due to a number of factors that include constructing the needed infrastructure for the additional transmission lines required by the intermittent renewable capacity and the additional natural gas pipelines that would be required by the natural gas capacity that would replace retiring fossil fuel plants. Also, NERC is suspicious about a number of EPA assumptions that if incorrect would mean more retiring capacity and more infrastructure requirements to meet the mandated reductions in carbon dioxide emissions. NERC has three other studies planned by December 2016 that will provide more specific assessments based on additional compliance information. NERC was very diplomatic in its approach to EPA’s grid takeover via the CPP. However, what NERC is not saying is that EPA’s proposed “Clean Power Plan” to run the nation’s electricity production and delivery system will be costly, confusing and disruptive to all users of electricity. It could lead to severe shortages of electrical capacity. It is a disaster waiting to happen. [1] Potential Reliability Impacts of EPA’s Clean Power Plan, November 2014, North American Electricity Reliability Corporation, [ii] Regulatory Impact Analysis for the Proposed Carbon Pollution Guidelines for Existing Power Plants and Emission Standards for Modified and Reconstructed Power Plant, June 2014, Environmental Protection Agency