Environmental Issues in System Planning Jim Platts – ISO New England NARUC Summer Meeting – New York City July 15, 2007

Environmental Issues in System Planning

Jim Platts – ISO New England

NARUC Summer Meeting – New York CityJuly 15, 2007

Environmental Issues in System PlanningNARUC Summer Committee Meeting July 15, 2007

© 2007 ISO New England Inc.

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Presentation Objectives

• Summarize key environmental regulations andpolicies affecting electric generating plants inthe Northeastern U.S.– Air emissions– Thermal discharges

• Discuss their potential significance on systemplanning and reliability



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Principal Regulated Power Plant Air Emissions and Water Discharges

• Air– SO2

– NOX (ozone)

– Particulates– Mercury

– CO2

• Water– Plant water intake and thermal discharge



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Air Regulations – Federal

• 1990 Clean Air Act Amendments (CAAA)– Set U.S. SO2 Caps for 1995 and 2000 (9 million tons)

– NOX Reasonable Available Control Technology (RACT)

– Established Ozone Transport Region

• Clean Air Interstate Rule (CAIR) EPA 2005– Affects Eastern U.S.

– Sets lower regional SO2 Caps 2010, 2015

– Sets lower regional NOX Caps 2009, 2015

– Particulates

• Clean Air Mercury Rule (CAMR) EPA 2005– Sets caps in 2010 and 2018 for all coal plants



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EPA Clean Air Interstate Rule (CAIR)

• Covers 28 eastern states plus Washington DC

• Health benefits estimated by EPA by 2015 at $85 to 100 billion and prevention of 17,000 premature deaths

• SO2

– By 2010: reduce 28 state total to 3.6 million tons

– By 2015: reduce by another 1.1 million tons to 2.5 million tons

– Reduces total power plant SO2 emissions by 77% from 1990 to 2015: from 15.7 million tons to 3.5 million tons

• NOX

– By 2009: reduce 1.5 million tons

– By 2015: reduce another 0.4 million tons to 1.3 million tons

– Reduces total power plant emissions 67% from 1990 to 2015: 6.7 million tons to 2.2 million tons

• Establishes federal cap-and-trade framework and states can choose their own cap and trade system



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Source: http://www.dnr.mo.gov/env/apcp/cair_camr/8-17-05mtg/epa_mdnr_cair_camr_ii.pdf

CAIR Affected Region and Emission Caps



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National NOX and SO2 Power Plant Emissions: Historic and Projected with CAIR



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EPA Clean Air Mercury Rule (CAMR)

• Applies “standards of performance” for mercury emissions from all existing and new coal plants

• Creates a market based cap-and-trade program to reduce mercury emissions in two steps– By 2010 reduce total U.S. emissions from 48 to 38 tons. Will be

achieved by the “co-benefits” of CAIR’s SO2 and NOX reductions

– By 2018 reduce to 15 tons– New coal plants (starting construction after 1/30/04) will have

stringent new mercury emission standards in addition to cap– States allowed flexibility on how to implement rule

• U.S. coal plants currently contribute about 1% to worldwide mercury emissions (Source: EPA)



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Regional Greenhouse Gas Initiative (RGGI) caps CO2 emissions from electric generators

• 10 Northeastern states voluntarily established a CO2 cap and trade program starting in 2009 for electric generators

• RGGI Region CO2 Cap – 188 million tons

• Allowances are allocated among 10 states

• New York, Maryland and Massachusetts to receive about 68% of Cap allowances

• First 3-year compliance period ends 12/31/11

• Compliance means: a generator must hold sufficient allowances plus offsets to cover its CO2 emissions for each compliance period

• Cap is reduced 10% from 2015 to 2018: 169 million tons



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RGGI (Continued)

• States are setting up regulations or passing legislation to implement RGGI guided by a Model Rule

• CO2 Allowances– Minimum auction amount is 25% of states allocation. Remaining

amount would be allocated free to generators within a state– Most states are planning to auction 100% of state’s allocation

• Offsets can be used for of compliance needs• Use of offsets tied to higher CO2 allowance prices

– If less than $7/ton, maximum use is 3% of compliance needs– If between $7 and $10/ton, maximum use is 5%– If over $10/ton, maximum use is 10%



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RGGI (Continued)

• Offset projects can be created as follows– Reduce methane from landfill gas

– Reduce SF6 leaks on T&D systems

– Reduce CO2 from improved gas and propane end use efficiency

– Take up CO2 through afforestation

– Reduce methane from agricultural wastes

• RGGI can add to these types of offset options



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Fossil Generator Emission Cost Adders with RGGI: SO2, NOX and CO2

Typical PlantFuel Cost

$/MBtu

Fuel $/MWh

SO2

$/MWh

NOX

$/MWh

CO2 $/MWh

Total $/MWh

Coal base load steam plant 2.25 20 4.7 4.4 4.4 34

Gas combined cycle 7 49 0 0.1 2.1 51

Oil peaking steam plant 7 73.5 11.5 4.4 5.4 95

CO2 allowance cost does not appear to change relative dispatch order of fossil plants

For illustrative purposes only

Allowance Prices ($/ton): SO2 – 1,085; NOX – 2,800; CO2 – 5



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RGGI Implications for Generatorsand Market

• RGGI plants will have an additional dispatch cost adder starting in 2009

• Coal and oil plants will have higher CO2 adders than gas plants due to their higher CO2 emission rates (lbs/MWh)

• Higher emission costs will tend to increase operation of non or low CO2 emitting plants, e.g. hydro, nuclear, wind, gas fired combined-cycle

• May increase imports from non-RGGI regions (leakage)

• Costs of CO2 allowances will have to be recovered in the wholesale power markets similar to SO2 and NOX allowances today



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A long range view of New England’s possible generation system’s CO2 emissions

• ISO New England conducted a Scenario Analysis (SA) of 7 different resource expansions to meet a 35,000 MW load (ISO’s 2006 peak was 27,130 MW)

• Performed a one-year system simulation for 35,000 MW of each scenario and for many sensitivity cases

• All information and results at http://www.iso-ne.com/committees/comm_wkgrps/othr/sas/index.html

• SA was an open stakeholder process to provide region’s policy makers with impacts of alternatives ways to meet region’s projected needs, not suggest any one path

• Final report due around August 1

http://www.iso-ne.com/committees/comm_wkgrps/othr/sas/index.html

http://www.iso-ne.com/committees/comm_wkgrps/othr/sas/index.html



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New England Scenario Analysis

• Seven future resource scenarios

• Each models 8,000-MW system expansion based on:

– A representative mix of the resources currently being proposed, plus

– A large concentration of a certain technology / resource option

• Measure and compare reliability, economic, and environmental performance of each scenario

• Results can be used to begin discussions of policy choices and implications

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Existing Supply 9/06 Queue Mix Each Scenario

8,000

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Many Routes to Meet Future Electricity Needs Region most likely to choose a combination of these options

EXIT 1QUEUE MIX

EXIT 3NUCLEAREXIT 2

DEMAND RESOURCES

EXIT 5NATURAL GAS

EXIT 4COAL

EXIT 6RENEWABLES

EXIT 7IMPORTS

Seven Scenarios Identified

DPW



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New England’s Simulated Generation System’sCO2 emissions for Scenario Analysis:35,000 MW load

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CO2 Emissions from Non-RGGI Units New England Allocation of 2018 RGGI Cap Allowances (50.2 million tons)



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Water Regulations

• Clean Water Act Section 316b– Requires EPA to insure Best Available Control

Technology (BACT) for cooling intake structures– 3 Phase implementation

• Phase I applies to new facilities

• Phase II applies to large existing plants > 50 Million gallons per day (MGD) (equivalent to about 60 MW)

• Phase III applies power plants < 50 MGD and other facilities

– Site by site determination of Phases I and II– Implication is cooling towers may need to be

installed on existing plants

• In New York some merchant plants have dry cooling



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Environmental Issues: What do they mean for System Planning?



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Impacts of environmental regulations on power plants

• Will increase the costs of fossil power plants• Fossil generating plants will have increased emission

constraints from new air regulations. This translates to:– More complex plant operation

• Can affect startup/shutdown

• Compliance strategy could limit energy from plants

• Economic bidding must recognize costs of new emission allowances

– Higher costs for emissions compliance

• Regulations will have little or no impact on costsof non- and low-emitting power plantse.g. nuclear, hydro, wind and fuel cells



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Impacts of environmental regulations on power plants (continued)

• Coal plants are more vulnerable than gas/oil-fired units:– Higher CO2 emissions rate

– Mercury emissions– Gas/oil price differential with coal may still give coal an economic

advantage even with added CO2 costs

– Potential for added costs for cooling towers

• May cause earlier plant retirements due to changing economics or inability to comply– ISO’s concern for generating unit attrition when outlook shows

need for more capacity with the 5-10 year planning horizon

• Overlapping maintenance or refurbishing scheduling for compliance



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Impacts on System Planning

• Meeting resource adequacy requirements may encourage shift to low or non-CO2 emitting generating and demand side resources– An example is Ontario’s plan for replacement of it coal-fired units– RGGI’s regional economic expansion modeling yielded

• Mostly wind and new combined cycle additions with low natural gas prices

• Mostly clean coal, more wind and some combined cycle with high natural gas prices

– Potentially can change transmission flow patterns and this may require additional system improvements

– ISO’s modeling of CO2 emissions shows need for new zero or low emitting resources to meet RGGI CO2 cap



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Impacts on System Planning (continued

• Requirements and incentives for clean resources can continue shift to natural gas plants and increase fuel diversity and price issues

• Gas combined cycle plants are– Easy to site– Have low capital cost– Produce lowest fossil plant emissions– Increase regional dependence on natural gas supply

i.e. LNG facilities, a possible reliability issue in the winter– Create more demand can increase price volatility



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Summary

• Key environmental issues are ozone attainment, global warming, mercury reductions and water discharges

• Addressing these issues can lead to complex policy and planning evaluations and decisions

• In response to these regulations, generation costs for generators will likely increase and therefore energy costs will likely increase

• A region’s response to these issues needs to be flexible to not impair electric system reliability and meet increased environmental constraints

• Zero or low emitting resources are most likely needed for meeting environmental constraints in the future

Documents

Environmental Issues in System Planning Jim Platts – ISO New England NARUC Summer Meeting – New York City July 15, 2007