The EPA’s ‘Clean Power’ Mess By Benjamin Zycher

Posted By on June 8th, 2015

http://www.wsj.com/articles/the-epas-clean-power-mess-1433715694

The plan will ensure that energy plants operate like cars in stop-and-go traffic, cutting efficiency.

‘Flexibility” is the advertised hallmark of the Environmental Protection Agency’s proposed Clean Power Plan, which by 2030 would reduce carbon-dioxide emissions from U.S. power plants by 30% from 2005 levels. The central feature of the plan is a forced shift away from inexpensive coal-fired power. Not to worry, says EPA Administrator Gina McCarthy: “With EPA’s flexible proposal, states choose the ways we cut carbon pollution, so we can still have affordable, reliable power to grow our economy.”

Under the plan, the EPA will set a carbon-dioxide-emissions target for every state, and give each state roughly a year to develop and implement a “state plan” to meet it. Of course, the EPA must approve the plan before it can go into effect. How is that flexible? The EPA allows states to choose any combination of four “building blocks” to reach its target—reducing coal, increasing natural-gas, more renewables and nuclear energy, and enhancing energy-efficiency standards.

So if the Clean Power Plan is so flexible, why has the Federal Energy Regulatory Commission, in a May 15 letter to the EPA, voiced its concerns over the “flexibility” and potential impact on the “reliability” of America’s electricity grid once it is implemented? Signed by FERC Chairman Norman Bay and all four commissioners, the letter recommends a “Reliability Safety Valve,” which is defined as “a process through which the affected entities can petition the EPA for temporary waivers or adjustments to the emissions requirements or compliance timelines in an approved state plan to preserve Bulk-Power System Reliability.”

FERC and those in the industry it regulates seem to realize what the EPA does not: that the agency’s “building blocks” are mutually inconsistent. The recommended 6% efficiency improvement for coal plants is prohibitive in cost because their individual operating characteristics—the types of coal they use, operating pressures, emissions equipment, etc.—are predetermined in their designs and extremely difficult to change. Few if any owners of coal plants will be willing to make that huge investment. Moreover, the recommended increase in the capacity utilization of natural gas combined cycle (NGCC) turbines to 70% from roughly 45% today means reduced output and a smaller market share for coal.

The coal-efficiency path is made even more difficult by the EPA’s recently implemented Mercury and Air Toxic Standards. Compliance with this new rule requires the installation of costly scrubbers and other equipment that reduce operating efficiency.

The increase in the utilization of natural-gas plants also conflicts with the increase in wind and solar power. Because renewables are unreliable, they must be backed up by coal- and gas-fired plants, which must be cycled up and down depending on whether the wind is blowing or the sun is shining. This cycling reduces efficiency for the backup coal and gas plants in much the same way as stop-and-go driving cuts automotive fuel efficiency, and this will make it more difficult for gas plants to achieve higher capacity utilization.

The “energy efficiency” path means a reduction in demand for both coal- and gas-fired power, again inconsistent with investment in improved coal efficiency, and with the envisioned increase in the utilization of gas plants.

No one knows how this demand reduction will affect power consumption at peak periods relative to off-peak ones. This will exacerbate the uncertainties regarding investment in new power plants, which will again increase costs and create significant risks to the reliability of the grid.

The operators of electricity systems have always used the cheapest power first and then more-expensive power as demand increases through a given day. How will costs and reliability change when they are forced to adopt a convoluted system combining operating cost and greenhouse gas considerations? No one knows.

Put aside that neither the Clean Power Plan nor the administration’s larger climate policy would have a measurable effect on temperatures. The reality is that the plan is so inflexible and costly that states heavily dependent on coal power will suffer an artificial competitive disadvantage, and will be forced to join regional cap-and-trade emissions trading systems. Since those states disproportionately are red ones—Mississippi, North Dakota and Texas, for example—the dominant effect will be payments for emissions credits from red states to blue ones.

There are good reasons to doubt that the EPA understands how a modern power system works. Such are the fruits of regulatory zealotry and the haste driven by the prospect that the next administration might place a greater emphasis on economic growth.

Mr. Zycher is a resident scholar at the American Enterprise Institute.

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