22 Dec 2011

Option for reducing reliability risks from retiring U.S. coal-fired power plants: market-based compliance credits

Written by Jim Pierobon

What if there were an incentive to retire dirty, coal-fired power plants in the U.S. years ahead of new mercury and toxic emission standards and compliance dates issued by the U.S. Environmental Protection Agency (EPA) December 16?

Such an incentive could make it profitable for forward-thinking energy utility executives, using tradable credits, to hasten the transition to cleaner sources of electricity. And it could help pay for new plants using natural gas and renewable sources.

New mercury and air toxics limits are expected to shutter dozens of coal-fired power plants by 2015. CREDIT: Conservaton Law Foundation

Marc Chupka, an economist at the Brattle Group in Washington, DC active on electric regulatory compliance and reliability issues, has tossed this concept into the ‘ring’ with a filing at the Federal Energy Regulatory Commission. It would offer credits for the amount of time between when a coal plant was early-retired and the compliance date. The value of the credit would be a product of the megawatt capacity of a power plant multiplied by the time differential.

The credit would be transferable and could be used to extend the a compliance deadline on other power plants to ensure reliability provided there were compensating environmental improvement elsewhere in a utility’s generation mix. Credits could be bought and sold producing a price reflecting its value in the marketplace at a particular point in time.

A 200 megawatt units that is retired 18 months before the compliance deadline would earn a credit of 3,600 megawatt months.

The Mercury and Air Toxics (MACT) Standards that were announced Wednesday in Washington (after they were signed into law Dec. 16) provide three years to comply. The standards allow authorities to make a fourth year broadly available for technology installations.  If still more time is needed, an exception could be carved out for a well-defined pathway to address any localized reliability problems.

Go here for a map of the coal- and oil-fired power generating plants affected by the new standards.

Under Chupka’s concept, compliance extensions could only be earned by early and assured environmental improvements elsewhere in a utility’s system. If only a few units retired early, Chupka acknowledges in his filing they would not generate many compliance time credits. But they would he stated, be available to provide power during extended outages of plants needing pollution controls under the new Standards.

“If many units retired early, then the risk to regional generation adequacy could be mitigated by the widespread availability of compliance time credits for (power plants) that opt to install controls at a later date, enabling a more gradual retrofit schedule,” Chupka said.

He said a four-year deadline would provide much better opportunity for a this type of a market-based approach and possibly lower the overall cost of complying with the standards.

“Rather than going through some messy administrative process to divine which units deserve what kinds of waivers under what types of conditions, I thought that early retirements might provide an environmentally acceptable way to earn the time needed, and to inject some much needed flexibility into a rather rigid compliance timetable,” Chupka told The Energy Fix.

Leave it to some Republicans on Capitol Hill to attack the Standards and try to undo the countless hours spread over 20 years devoted to finding a workable solution to the dangerous emissions from oil- and coal-fired power plants. Sen. Jim Inhofe (R-Okla.) plans to introduce a disapproval resolution under the Congressional Review Act aimed at stopping EPA’s utility MACT standards, according to POLITICO. The resolution would require 30 signatures to be placed on the Senate calendar and cannot be filibustered.

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