ERCOT recently released the results of an analysis it performed on the impact of the Clean Power Plan (CPP) to its asset generation mix in the region. The study results indicate the plan could cause at least 4,000 megawatts (MW) of coal-fired generation capacity in the ERCOT region to be retired, possibly beginning as soon as 2022. Additionally, energy prices are projected to increase at least 16% by 2030.

Key Details

ERCOT used four scenarios to estimate the impact of the CPP:

1. Baseline: Current trends in the ERCOT region including announced retirements and current regulatory requirements
2. CO₂ Limit: System limit on emissions, the model selects the lowest-cost resource option without regard to market design or other considerations associated with implementation
3. CO₂ Price: Price for CO₂ emissions that would cause the ERCOT region to achieve compliance targets
4. CO₂ Price and Regional Haze: Price for CO₂ emissions combined with the proposed Regional Haze Federal Implementation Plan within the ERCOT region

                         Expected Retirements by Capacity and Fuel Type

ERCOT’s analysis included the CO₂ Price & Regional Haze scenario in the analysis to assess the combined impacts of the CPP, the Cross-State Air Pollution Rule (CSAPR), and the currently proposed Regional Haze Federal Implementation Plan for Texas. The CSAPR seeks to address the annual emissions limits through a cap and trade arrangement, while the Regional Haze would levy a price on the amount of CO₂ levels emitted. The findings include:

• Anticipated coal generation retirements would come from the CPP, CSAPR and Regional Haze; however, CSAPR and Regional Haze would account for a majority of the closings
• Combined effects of the three rulings could cause ERCOT to see multiple unit retirements within a short timeframe
• Expected retirements create additional generation capacity needs to be built to meet demand. Solar and wind generation are expected to capture much of the lost capacity
• Required environmental regulations could cause coal generation resource owners to take actions to comply with these changes between now through 2022.  Many may decide to retire units rather than make the necessary technological investments, increasing the expected retirement numbers
• Unaccounted for in the scenarios is the fact that several units could operate at a low capacity during off-peak months and could be candidates for suspended operations

Implications

Without adequate notification of potential retirements, ERCOT could face several implications, including: localized reliability issues, increased energy costs for customers, and the investment cost required to build the infrastructure for solar and wind generation sources.

ERCOT’s modeling shows that energy costs may rise 16% by 2030 from CPP alone, and this does not include the cost associated with transmission upgrades from the retirement of the existing assets. Integrating the additional solar and wind generation assets into the grid will require additional investment in transmission lines and a substantial acquisition of new transmission line rights-of-way. At the same time, ERCOT will face pressure from the increased demand for natural gas, again driving costs higher.

The results from the CPP rulings will require resource owners to make tough decisions in the coming years about their generation units, creating uncertainty in ERCOT on how to manage the changing resource mix. But one thing is for certain, how ERCOT manages this transformation in the short term will have major impact on the asset generation mix over the next 15 years.

More information

ERCOT: ERCOT Analysis of the Impacts of the Clean Power Plan

SNL: ERCOT: Clean Power Plan Could Trigger 4000 MW in Plant Closures

This report is part of ScottMadden’s Fossil Minute series. To view all featured Fossil Minutes, please click here.