EPRI s Comments on the Federal Plan

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1 EPRI s Comments on the Federal Plan Victor Niemeyer Senior Technical Executive Resources for the Future Forum on Comments on the EPA s CPP Federal Plan and Trading Rules January 27, 2016

2 EPRI Comment Topics 1. Inclusion of Energy Efficiency 2. Evaluation, Measurement, and Verification (EM&V) for Energy Efficiency 3. Credit for Nuclear Life-extension 4. Reliability 5. Choice of Rate vs. Mass Final Plans 6. Allowance Allocation 7. Allowance Banking 8. Output-based Set-asides (OBS) for NGCCs in the Mass Model Rule 2

3 EPRI Comment Topics 1. Inclusion of Energy Efficiency 2. Evaluation, Measurement, and Verification (EM&V) for Energy Efficiency 3. Credit for Nuclear Life-extension 4. Reliability 5. Choice of Rate vs. Mass Final Plans 6. Allowance Allocation 7. Allowance Banking 8. Output-based Set-asides (OBS) for NGCCs in the Mass Model Rule 3

4 3. Credit for Nuclear Life-extension EPRI suggests that EPA consider explicitly allowing generation from existing nuclear units that have undergone a life extension on or after 2013 to count as a source of ERCs This is consistent with EPA s treatment of nuclear unit uprates, and new nuclear units, as a life extension essentially is a new source of zero-co 2 generation At this time, a real possibility exists to extend the license for nuclear plants out to 80 years The decision to seek license extension and to operate a nuclear plant for a longer period of time is a deliberate one and is weighed against other generation options 4

5 Evolution of U.S. Nuclear Fleet: Extending 75% of Units to 80 Years Maintains 80GW through Remaining Nuclear Generation Capacity by License Limit 100 Generation Capacity (GW) year 60-year 5

6 Energy & Environmental Analysis REGEN Reference Scenario Assumes 80-year Nuclear License Limit TWh 6,000 Reference Scenario Generation 5,000 4,000 3,000 2,000 1,000 Existing Nuclear EE + Price Response Solar Wind Hydro NGCS New Gas Existing Gas Coal CCS New Coal Existing Coal Other Geothermal New Nuclear Existing Nuclear Scenario Load 6

7 With 60-year Nuclear License Limit New Natural Gas Generation Makes up Over 80% of Loss (+ wind/solar) TWh 6,000 Nuc 60 Scenario Generation 5,000 4,000 New Gas 3,000 2,000 1,000 Existing Nuclear EE + Price Response Solar Wind Hydro NGCS New Gas Existing Gas Coal CCS New Coal Existing Coal Other Geothermal New Nuclear Existing Nuclear Scenario Load 7

8 REGEN Simulation of Additional Emissions Under 60-year License 250 Incremental CO2 Emissions with 60-year License Limit 200 Cumulative electric sector CO2 emissions 2.3 billion tons higher by 2050 CO2 (millions of tons)

9 8. Output-based Set-asides for NGCCs in the Mass Model Rule EPA can greatly simplify the mass-based Federal Plan by dropping the requirement to have an OBS program for existing NGCCs, at no significant increase in total CO 2 emissions The OBS program for existing NGCC units offers no benefit unless it facilitates participating units to operate at a loss In practice, challenges such as risk, uncertainty, and time delays for receiving the required subsidies will likely limit participation Simulations suggest limited opportunities to increase NGCC output in an environment already strongly incentivizing NGCC use 9

10 The Effect of Output-based Set-asides for NGCCs (~zero) 3,500 Fossil Generation 2030 (US48) 3,000 Gas CTs 2, New NGCC 2,000 TWh 1,500 1,170 1,199 1,218 1,184 Exst. NGCC 1, , ,001 Coal 0 ExMass-NoOBS FedPlanOBS 2X OBS OBS no 50%CF 10

11 The Effect of Output-based Set-asides for NGCCs (~zero) 2,000 1, CO2 Emissions (million short tons) 1,801 1,795 1,791 1, Gas CTs New NGCC 1, Ex NGCC , ,004 Coal 11 0 ExMass-NoOBS FedPlanOBS 2X OBS OBS no 50%CF

12 Together Shaping the Future of Electricity 12

13 OBS for NGCCs 13

14 Allocation Method to Incentivize Existing NGCCs Pool of allowances set-aside to give to existing NGCCs (0-20%, depending on the state) Existing NGCC can claim 1030 pounds of allowances per MWh, for any MWh generated over 50% of the unit s capacity factor Allowances are not awarded until the following compliance period Rate is fixed, and not subject to pro-rata reductions These allowances are in addition to the unit s share of allowances due to historic generation Existing NGCCs sell allowances at the market price to obtain their subsidy 14

15 How would a smart owner of an existing NGCC think about the OBS incentives Lots of uncertainty, but maybe some of money Thinking easier if there are really good forward markets for power (by time segment) and for CO2 allowances (in current and future time periods) Key decision is when to operate Normally only operate when power price > dispatch price But now get a future (uncertain) pay-off if operate > 50% CF so maybe should operate in additional hours when current power price is below units dispatch price Needs to think about these decisions on a compliance period basis, not just yearly 15

16 Price Duration Curve Provides a Framework for Understanding Dispatch Decision 2024 Alabama Price Durataion Curve Price duration curve shows distribution of prices over time period $/MWh ,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 Hours per Year PDC 16

17 Sample Dispatch Strategy for NGCC Named x Alabama Price Durataion Curve 80 Margin $/MWh Dispatch price of NGCC x X3 dispatches 50% capacity factor 0 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 Hours per Year PDC ngcc-x3 50% CF ngcc-x3 hrs 17

18 Sample Dispatch Strategy for NGCC Named x Alabama Price Durataion Curve $/MWh Cumulative operating margin X3 dispatches 50% capacity factor Dispatch price of NGCC x ,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 Hours per Year PDC ngcc-x3 50% CF ngcc-x3 hrs 18

19 Sample Dispatch Strategy for NGCC Named x Alabama Price Durataion Curve $/MWh Cumulative operating margin X3 dispatches Loss getting to 50% CF Subsidy pmts once above 50% CF 50% capacity factor Dispatch price of NGCC x ,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 Hours per Year PDC ngcc-x3 50% CF ngcc-x3 hrs 19

20 Sample Dispatch Strategy for NGCC Named x Alabama Price Durataion Curve $/MWh Cumulative operating margin X3 dispatches Loss getting to 50% CF Subsidy pmts once above 50% CF 50% capacity factor Dispatch price of NGCC x3 Net payoff once output > 50% CF 0 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 Hours per Year PDC ngcc-x3 50% CF ngcc-x3 hrs 20

21 TWh 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, ,318 1,177 1,025 1,096 OBS Generation 2030 (US48) NoOBS EE Other New Solar Ex. Solar New Wind Ex. Wind Hydro / Geo Nuclear Gas Turbine New NGCC Ex. NGCC CCS Gas CCS Coal 21

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24 Observations on OBS for NGCC Wow, this is a tough business But incentives are clear Also, incentives work better for NGCCs already > 50% CF Larger modeling problem not shown here is setting the incentives to exhaust the EPA-mandated supply for the state s mix of generators We can do this Probably reasonable to believe our calculations will be an upper bound on the real OBS-induced NGCC output 24

Electricity Technology in a Carbon-Constrained Future

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