Clean Power Plan Will Double Coal Retirements Unequally

We were given more time recently and did do the next sequence of the analysis –once again for pure intellectual curiosity – no payment. Taking the output from our 100% Block 3 & 4 case from the article, we did a unit by unit analysis and identified the units that are no longer economically viable vs. the no CO2 case. This amounted to nearly 60 GW of generating units with almost 90% being coal – see map below. This is on top of the already planned retirements. In our base simulation, we have nearly 60 GW of coal plants retired from 2010 to 2016. Gas units are under economic pressure if the plant is located in a state with high carbon prices relative to the surrounding states. There will be gas plant casualties as a result of plant location as electricity flows do not know state boundaries.

We then retired those units and re-dispatched the system and went through the process as noted above to converge upon a CO2 rate that would meet EPA rate limits.  This took almost 20 simulations given the need to also re-compute the retirement economics as we lowered carbon prices.

As expected CO2 prices do fall down relative to the previous results as coal units disappear from the system.

Reliability concerns are likely, but can be managed with transmission investments. These costs are not trivial and will show up in retail rates not wholesale prices. Retirements will be balanced by the large expansion of solar, wind, and energy efficiency programs and likely new gas generation from neighboring states. Wholesale power prices in this case are lower than in the previous case given the lower CO2 prices, but for Texas as 24% of the retirements came from there – see below.

Texas is expected to get a large dose of wind generation so the wholesale prices are likely to come down and potentially driving even more retirements – see below.

Obviously a crucial element was the outlook of the spread between gas and coal prices. Staying with the Fortnightly analysis we used the forward curve projections of 2016 in June 2014. Henry hub averaged $4.26 with CAPP coal prices at $65/ton. Both those benchmarks are much lower now – 25% lower for Henry and 20% for CAPP. Lower spreads likely means more coal retirements.

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