© 2016 Electric Power Research Institute, Inc. All rights reserved.
Victor NiemeyerSenior Technical Executive
Resources for the Future Forum on Comments on the EPA’s CPP Federal Plan
and Trading Rules
January 27, 2016
EPRI’s Comments on the Federal Plan
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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
EPRI Comment Topics
3© 2016 Electric Power Research Institute, Inc. All rights reserved.
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
4© 2016 Electric Power Research Institute, Inc. All rights reserved.
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-CO2 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
5© 2016 Electric Power Research Institute, Inc. All rights reserved.
Evolution of U.S. Nuclear Fleet:Extending 75% of Units to 80 Years Maintains 80GW through 2050
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120
2015 2020 2025 2030 2035 2040 2045 2050 2055 2060 2065 2070 2075
Gene
ratio
n Ca
paci
ty (G
W)
Remaining Nuclear Generation Capacity by License Limit
80-year 60-year
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Energy & Environmental Analysis REGEN Reference Scenario Assumes 80-year Nuclear License Limit
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2015 2018 2021 2024 2027 2030 2033 2036 2039 2042 2045 2048
TWh
Reference Scenario GenerationEE + Price Response
Solar
Wind
Hydro
NGCS
New Gas
Existing Gas
Coal CCS
New Coal
Existing Coal
Other
Geothermal
New Nuclear
Existing Nuclear
Scenario LoadExisting Nuclear
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With 60-year Nuclear License Limit New Natural Gas Generation Makes up Over 80% of Loss (+ wind/solar)
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2015 2018 2021 2024 2027 2030 2033 2036 2039 2042 2045 2048
TWh
Nuc 60 Scenario GenerationEE + Price Response
Solar
Wind
Hydro
NGCS
New Gas
Existing Gas
Coal CCS
New Coal
Existing Coal
Other
Geothermal
New Nuclear
Existing Nuclear
Scenario Load
New Gas
Existing Nuclear
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REGEN Simulation of Additional Emissions Under 60-year License
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2015 2020 2025 2030 2035 2040 2045 2050
CO2
(mill
ions
of t
ons)
Incremental CO2 Emissions with 60-year License Limit
Cumulative electric sector CO2 emissions 2.3 billion tons higher by 2050
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8. Output-based Set-asides for NGCCs in the Mass Model RuleEPA 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 CO2emissions
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
10© 2016 Electric Power Research Institute, Inc. All rights reserved.
1,007 993 984 1,001
1,170 1,199 1,218 1,184
617 600 589 609
0
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1,000
1,500
2,000
2,500
3,000
3,500
ExMass-NoOBS FedPlanOBS 2X OBS OBS no 50%CF
TWh
Fossil Generation 2030 (US48)
The Effect of Output-based Set-asides for NGCCs (~zero)
Coal
Gas CTs
New NGCC
Exst. NGCC
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1,011 996 987 1,004
528 542 552 535
233 227 222 230
0
400
800
1,200
1,600
2,000
ExMass-NoOBS FedPlanOBS 2X OBS OBS no 50%CF
2030 CO2 Emissions (million short tons)
The Effect of Output-based Set-asides for NGCCs (~zero)
Coal
Gas CTs
New NGCC
Ex NGCC
1,801 1,7911,795 1,798
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Together…Shaping the Future of Electricity
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OBS for NGCCs
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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 generationExisting NGCCs sell allowances at the market price to obtain
their subsidy
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How would a “smart” owner of an existing NGCC think about the OBS incentives
Lots of uncertainty, but maybe some of moneyThinking 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 operateNormally only operate when power price > dispatch priceBut 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 priceNeeds to think about these decisions on a compliance period
basis, not just yearly
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Price Duration Curve Provides a Framework for Understanding Dispatch Decision
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$/M
Wh
Hours per Year
2024 Alabama Price Durataion Curve
PDC
Price duration curve shows distribution of prices over time period
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Sample Dispatch Strategy for NGCC Named x3
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0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000
$/M
Wh
Hours per Year
2024 Alabama Price Durataion Curve
PDC ngcc-x3 50% CF ngcc-x3 hrs
Dispatch price of NGCC x3
X3 dispatches50% capacity factor
Margin
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Sample Dispatch Strategy for NGCC Named x3
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0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000
$/M
Wh
Hours per Year
2024 Alabama Price Durataion Curve
PDC ngcc-x3 50% CF ngcc-x3 hrs
Dispatch price of NGCC x3
X3 dispatches50% capacity factor
Cumulative operating margin
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Sample Dispatch Strategy for NGCC Named x3
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0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000
$/M
Wh
Hours per Year
2024 Alabama Price Durataion Curve
PDC ngcc-x3 50% CF ngcc-x3 hrs
Dispatch price of NGCC x3
X3 dispatches50% capacity factor
Cumulative operating margin
Loss getting to 50% CF
Subsidy pmts once above 50% CF
20© 2016 Electric Power Research Institute, Inc. All rights reserved.
Sample Dispatch Strategy for NGCC Named x3
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0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000
$/M
Wh
Hours per Year
2024 Alabama Price Durataion Curve
PDC ngcc-x3 50% CF ngcc-x3 hrs
Dispatch price of NGCC x3
X3 dispatches50% capacity factor
Cumulative operating margin
Loss getting to 50% CF
Subsidy pmts once above 50% CF
Net payoff once output > 50% CF
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1,025 1,096
1,318 1,177
444 528
804 804
273 273139 139224 22352 51177 177
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OBS NoOBS
TWh
Generation 2030 (US48) EEOtherNew SolarEx. SolarNew WindEx. WindHydro / GeoNuclearGas TurbineNew NGCCEx. NGCCCCS GasCCS Coal
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23© 2016 Electric Power Research Institute, Inc. All rights reserved.
24© 2016 Electric Power Research Institute, Inc. All rights reserved.
Observations on OBS for NGCC
Wow, this is a tough businessBut incentives are clearAlso, 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