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CLEAN TECH AND ENVIRONMENT THE CLEAN POWER PLAN: EPA RELEASES ITS FINAL RULE On August 3, EPA released its 1,500-page final rule governing performance standards for greenhouse gas emissions for existing and new power generation sources, termed the Clean Power Plan (CPP). The energy industry continues to try to untangle the rule and its implications. EPA Emissions Rate Targets Vary by Technology and State

• Final individual state goals lie between these fossil steam and combustion turbine (CT) technology targets shown at right, depending upon the amount of a state’s existing and anticipated generation mix
• Existing technology (supercritical and natural gas CT) emissions well exceed targeted levels, so states will likely have to employ other measures (renewables, early action, trading) to comply
• Effectively requiring “outside the fence” will lead to legal challenges to the rule

EPA modified the Clean Power Plan from its original proposal to allow flexible compliance strategies and to remove a perceived “cliff” in emission limits for compliance. Target Setting

• State-by-state targets
• Interconnection dependent – assumed different heat rate improvements
• Best system of emissions reduction: improved coal plant efficiency, increased coal-to-gas switching, more renewables
• “Outside-the-fence” efficiency potential was not used in target setting, but increased renewable potential was used
• Existing nuclear or renewables were not used in setting targets

Goals

• Mass-based or rate-based goals permitted (mass-based favored by EPA)
• EPA-specified rate-based and mass-based goals by state
• Mass-based goals adjustable to account for new (post-2012) generation to meet load growth
• No cliff: “glide paths” of two-year step-down periods to achieve final compliance

State Implementation Plans

• Two types: “emission standards” and “state measures”
• Single or multistate plans
• Emissions standards: source-specific emissions limits
• State measures: portfolio approach that may mix generator emissions limits with other measures (i.e., renewables and efficiency) with federally enforceable backstop of source-specific standards
• Default to federal implementation plan if state plan deemed unsatisfactory

Technology Considerations

• Technology-specific fossil emissions performance rates
• Uprates and “under construction” nuclear eligible for compliance
• Clean Energy Incentive Program: matching credits/allowances for low-income efficiency or renewables in place by 2020-21
• Existing nukes or renewables not eligible for compliance

Trading

• Both emissions rate credits (ERCs) (lbs./MWh) and allowances (tons) envisioned
• Tight emissions rates for existing sources (> new or reconstructed sources) promotes trading
• States using existing platforms (e.g., Regional Greenhouse Gas Initiative) must meet mass-based targets
• Potential to stack credits (e.g., ERCs and renewable energy credits) left open

The final rule differs from the 2014 proposed rule in some meaningful ways.

Area	Proposed Rule	Final Rule
Compliance Time Frame	Begins 2020	Begins 2022 (with credit for early action)
Building Blocks to Set Targets	Four building blocks, including “outside-the-fence” demand-side efficiency and renewables	Three building blocks, but still includes "outside-the-fence" renewables
Portfolio and Emissions Assumptions for Targets	State “estimates” for emissions with one size fits all (e.g., nuclear generation endowment) Assumed 6% improvement in fossil steam heat rates Energy efficiency potential part of portfolio Nuclear generation used in goal setting Natural gas combined cycle assumed to operate at 70% of nameplate capacity Renewables targeted at 22% of MWh generation Projected 30% cut in CO2 from 2005 levels	Interconnection-level estimates, apportioned to states Interconnection-dependent improvement in fossil steam heat rates of 2.1% to 4.3% Energy efficiency not used in goal setting; potential part of state plans Nuclear generation not used in goal setting; new build and uprates may be in state plans Natural gas combined cycle assumed to operate at 75% of net summer capacity Renewables targeted at 28% of MWh generation due to lower installed costs Projected 32% cut in CO2 from 2005 levels
Timing of Reductions	S-curve creates "cliff"	Step-down glide path in three two-year periods prior to final compliance
State Plan Options	Direct emissions limits and "portfolio" approach	Similar to proposed rule: “emissions standards” and “state measures”
Interstate Trading Mechanisms	Up-front agreements required	No up-front interstate agreements needed Trading-ready option proposed
Reliability Impacts	Not addressed	Requirement for states to address reliability issues in plans Mechanism for states to seek plan revision if unanticipated reliability issues arise Reliability safety valve to address “unanticipated” circumstances requiring affected power plant to generate despite CO2 emissions constraints

EPA Says That under the Clean Power Plan:

• Mass-based approaches are less expensive, on a national basis, than rate-based approaches, according to EPA’s “illustrative analysis”
• States have “unlimited flexibility” to leverage efficiency investments under mass-based plans
• States currently implementing mass-based trading programs (e.g., Regional Greenhouse Gas Initiative) have a “ready path forward” under a mass-based “state measures” compliance approach

Things to Think About Inevitable litigation The CPP will likely be challenged in using the Clean Air Act §111(d), which was intended to establish performance standards under a “best system of emissions reduction” as improperly extending the term “system” beyond a specific resource Rate-based vs. massbased goals   States will be examining their resource endowments, load growth trajectories, and energy efficiency potential, among other factors, to determine whether to choose rate- or mass-based goals and will have to balance interests of different stakeholder constituencies in doing so Individual or multistate approach States will also need to consider the challenges and opportunities associated with different approaches; states with steep compliance goals, or those already engaged in regional trading schemes, are likely to pursue multistate approaches to capture cost efficiencies Possible nuclear benefit New nuclear, including uprates, will benefit as compliance vehicles, and while existing nuclear plants are not counted toward compliance, their dispatchability and low carbon footprint may encourage ongoing operation relicensing (especially if the replacement alternative is non-renewable) under a mass-based plan Federal implementation plan States failing to file a plan, or filing one that EPA deems inadequate, will default to a federal implementation plan (to be finalized in summer 2016) that effectively mandates cap-and-trade; this likely provides some incentive (or coercion) for states to adopt a similar approach Complex interactions with other environmental regulations The recent remand of the Cross-State Air Pollution Rule (CSAPR) for reconsideration of cost effectiveness and emissions budgets at a minimum creates some uncertainty and complexity in how states and generators manage CSAPR and CPP together Reliability implications While EPA has added some flexibility and planning requirements to account for potential reliability issues, NERC’s assessment of reliability implications is expected in 2Q 2016, and time will tell whether EPA and the courts will, in fact, allow exemptions for reliability-critical generators New source rules, too Sometimes overlooked are the new source performance standards also issued in tandem with the CPP. In fact, emissions rates standards for existing sources—both fossil steam and natural gas combined cycle—are more stringent than for new and reconstructed sources

• Less carbon removal required: EPA eased its proposed 1,100 lbs. CO2/MWh emissions rate for fossil steam plants (based on 40% CO2 removal) to 1,400 lbs. CO2/MWh, equivalent to supercritical coal with partial CCS removing 16% to 23% CO2 or alternative compliance by co-firing 40% natural gas
• CT emissions rate linked to CCS: Gas combustion turbines have a uniform 1,000 lbs. CO2/MWh based on “efficient” combinedcycle units

EPA’S COAL COMBUSTION RESIDUALS RULE: UTILITIES MUST DEVELOP A COMPLIANCE APPROACH EPA publishes its long-awaited final Coal Combustion Residuals (CCR) Rule, but spares CCRs “hazardous” treatment.

• Originally proposed in July 2010 and previewed in December 2014, EPA formally published its final CCR rule in April 2015
• The rule regulates the disposal of CCRs from active electric generating units as nonhazardous waste under Subtitle D of the Resource Conservation and Recovery Act. The rule becomes effective October 14, 2015
  • Hazardous waste classification would have increased costs by an estimated $10B to $15B per year
• The final rule establishes minimal national criteria for CCR landfills and CCR surface impoundments. Specific criteria include:
• Location restrictions
  • Structural integrity requirements
  • Liner design criteria
  • Groundwater monitoring and corrective action requirements
  • Operating criteria (e.g., fugitive dust)
  • Closure and post-closure care requirements
  • Recording, notification, and internet posting requirements
• Sites must retrofit or close if they fail to meet the criteria established by the new rule
• Owners and operators have historically lacked rigorous management of CCR sites. This rule will require owners and operators to follow a programmatic approach to build an effective compliance strategy and organizational capabilities

Developing an Effective CCR Compliance Strategy

• A CCR compliance strategy should be developed using the process shown at right (see Figure 1)
• The compliance strategy should result in a master strategy for each site that:
  • Identifies all planned activities to address long-term ash handling and storage requirements
  • Identifies key coal combustion product activities and associated timing, anticipated ash production levels based on the generation plan, facility capacity limits, and amounts planned for marketing
  • Provides an effective communication tool for plant-level strategy at a glance and a mechanism for issue and/or gap identification in planned project dates

In addition to a compliance strategy, organizational capabilities must be developed to ensure effective management by using the following steps:

• Build
  • Develop mission, vision, and values
  • Develop organizational model that identifies staff functions, governance, and support functions
  • Develop standards, processes, and procedures
• Transition
  • Develop communication strategy and training process
  • Transfer operational control with clear, documented accountabilities and responsibilities for coal ash activities across organizational boundaries
• Operate or Close
  • Address deficiencies found during assessment stage of CCR compliance
  • Execute steady-state operations for CCR units remaining open

EVERYTHING UNDER THE SUN: COMMUNITY SOLAR IS ABOUT TO SHINE Community solar programs are beginning to take off nationwide, but are especially promising in California, Colorado, Massachusetts, and Minnesota. Community Solar Defined

• Multiple end users purchase a portion of the capacity or output produced from a solar photovoltaic (PV) facility and get a benefit on their electric bill
• The project is often, but not always, located near the end customer or within the utility’s jurisdiction
• Community solar increases customer choice and engagement and leverages some of the economic and operational advantages of utility-scale solar. Community solar is cheaper than rooftop, but usually not as cheap as utility scale
• Regulatory and business model considerations are important (e.g., who owns the asset, what is the rate treatment, what are the rules around customer aggregation, what constitutes a utility, etc.)

While policy and utility objectives drive key community solar program design elements, two models are emerging.

Design Elements	Model #1: Up Front Payment	Model #2: Ongoing Payment
Program Administrator	Utility or third party
Customer Class	Programs can be designed for specific customers or open to all
Restrictions	Programs often allow customers to offset 50% to 150% of average annual consumption
REC Ownership	RECs may be retired for RPS compliance, transferred to customer, or sold in open market
Program Duration	Community solar programs can range from five years (e.g., pilot) to the lifetime of the PV system (e.g., 20+ years)
Payment Structure	Customer receives kWh bill credit from utility based on actual system output and proportional ownership share Bill credit is at retail rate or partial retail ratetd	Customer subscribes to capacity or output blocks Capacity blocks (kW) = variable output each month at fixed price per kWh or fixed payment per block Output blocks (kWh) = guaranteed output each month at fixed payment per block Customer pays community solar program administrator for output and receives bill credit from utility at retail rate or partial retail rate Customers often pay a premium for solar output but receive hedge against future rate increases as costs are often locked for the duration of term
Additional Considerations	Up-front payments mimic the initial capital cost of installing and owning a rooftop solar system Large up-front payment can look less attractive to customers compared to ongoing payments	Ongoing payments mimic the regular payments and credits of a rooftop lease model (e.g., SolarCity) Programs administered by utility can list monthly payments and credits as separate line items on a single bill

ENERGY STORAGE: WHEN WILL REALITY CATCH UP TO THE HYPE? Media fanfare around Tesla’s Powerwall has reignited discussion of the technical feasibility, cost, and role of energy storage in the United States. Tesla Grabs Headlines

• In late April, Tesla announced its Powerwall home battery, with significant media discussion of its price and its ability to link with distributed solar as a power input to the battery
• While Tesla’s pricing of its units may be aggressive, with all-in costs (installation, inverter, etc.), the economics of these units may not yet be compelling—at least as a grid power alternative for individual residences
• Less discussed is Tesla’s Powerblock utility-scale, 100-kWh battery, which can be grouped to scale from 500 kWh to 10 MWh

Utility-Scale Installations Are the Ones to Watch

• 2014 was a banner year for energy storage installations, with nearly 62 MWs deployed
• A large number—more than 55 MWs—were utility-scale or “front of the meter” installations. Interest in these installations is increasing for frequency regulation, balancing, and other grid support services
• Development continues in large, organized markets, e.g.:
  • AES plans to develop 20 MWs of storage in MISO, the first utility-scale storage in that RTO
  • Duke Energy is installing 2 MWs of battery storage at a retired coal plant in Ohio to provide frequency regulation services in the PJM market
• Through Q1 2015, nearly 6 MWs of energy storage systems were installed, outpacing Q1 2014, and Greentech Media forecasts 220 MWs in deployments in 2015

Looking for Ways to Play

• Business models continue to evolve, as companies like EnerNOC and SolarCity see battery storage as demand response and as a complement to its solar installations, respectively. For aggregators like EnerNOC, demand response compensation could be critical to its economic attractiveness
• Utilities are also testing the waters, preparing for a day when installed battery costs are significantly lower
  • Oncor and Southern Company are partnering with Tesla on demonstration projects
  • Green Mountain Power is also working with Tesla as a sales channel for its Powerwall product
• Australia may be a test bed for residential solar/ battery applications even as its economics are a “push” in the United States. Morgan Stanley recently surveyed Australian households and found half would adopt solar PV with battery storage at a A$10,000 price point and 10-year payback period