Clean Power Plan Will Double Coal Retirements Unequally

 In this article, I will clarify the intent and introduce another layer of analysis.

The analysis was not funded by any entity. The development of the analysis came from pure intellectual curiosity and the enthusiasm of solving a puzzle. All Energy Consulting has not received any payment or business as a result of the analysis done on EPA Clean Power Plan. The article is not intended to argue the merits of global warming.The article is also not intended to absolutely quantify the cost of the plan. The main intention of the report was to demonstrate that the cost of the plan will vary significantly among the states.  In order to do this, as noted in the article, we used the implicit EPA calculations for Blocks 3 & 4. In addition, we used our highly sophisticated and very well calibrated power modeling platform – Power Market Analysis (PMA). PMA is used to quantify risk in the futures power markets for hedge funds to end-users. PMA was used to calculate an impact of Block 2. Block 2 per EPA involves the re-dispatching of the system with gas generation over taking coal generation. PMA uses the software AuroraXMP by EPIS which allows us to input our knowledge in a relative easy manner and produce numerous runs in a short time span. We had to produce hourly dispatching results for the entire N. America with at least 15 plus simulations to produce the analysis.  For the analysis, we re-dispatched the system using state by state carbon prices in order to achieve the CO2 emission rates targeted by EPA for Block 2 – see process flow figure below.

There are limitations with this analysis for use outside the intended use of demonstrating large economic disparity among states as result of the Clean Power Plan. Given our goal of showing large differences in state economic impacts, we did not do a full cost analysis of the plan. EPA simple analysis did not do this either. They just assumed the substitution of generation from coal to gas would be sufficient given the perceived underutilized capacity factors of gas plants. However, a full cost analysis of the plan would involve an iterative approach to retire units no longer economically sustainable.  As the CO2 costs rise, many of the existing units no longer produce enough power to be economically supported given their fixed cost of operation. This leads to retirements in the system. There will be stranded cost issues with early retirements of plants. Our initial analysis did not go that far. The cost derived from CO2 prices to drive those retirements represents a conservative cost that will occur in order to substitute with new technology. In many cases, the cost will even be higher than the CO2 impacts of driving units – mainly coal – out of the system given replacement power needs an economic hurdle to get a project developed. We can certainly do this analysis at All Energy Consulting, but we were limited by time and the need to pay the bills. Given this analysis was done free of charge, and our intellectual goal was to demonstrate large state disparity, we were able to achieve this without a retirement sequence analysis.

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