MTEP15 Chapter 7.4: EPA Regulations – Clean Power Plan Draft Rule Study

MTEP15 Chapter 7.4: EPA Regulations – Clean Power Plan Draft Rule Study

On June 2, 2014, the U.S. Environmental Protection Agency (EPA) proposed a rule to reduce carbon dioxide (CO2) emissions from existing fossil-fired generation units. The draft rule, also known as the Clean Power Plan (CPP), included state-by-state, CO2 emissions targets based upon a set of “building blocks”.

MISO’s analysis of the draft CPP encompassed three phases, each designed to provide specific insights into the potential impacts of the rule. The two overarching goals of these analyses were:

  • To inform stakeholders as they evaluate compliance options
  • To establish a framework for analysis of the final rule

The first two phases of MISO’s study focused on the potential costs of generation capital investment and energy production based on application of the proposed rule. Numerous CO2 reduction strategies were evaluated including implementation of the EPA’s building blocks on a regional (MISO-wide) basis, as well as the application of alternative compliance strategies at the regional (MISO footprint) and sub-regional (MISO Local Resource Zone) levels. High-level takeaways from these efforts include the following:

  • Application of the EPA’s building blocks on a region-wide (MISO-wide) basis resulted in compliance costs of approximately $90 billion in net present value (NPV) over the 20-year study period, which equates to $60/ton of CO2 emissions avoided from existing fossil-fired units.
  • Application of alternative compliance strategies (for example, retiring and replacing coal units with combined-cycle gas capacity) for the MISO region as a whole, resulted in compliance costs of approximately $55 billion (20-year NPV) which translates to $38/ton of CO2 emissions avoided.
  • A similar outside-the-blocks alternative compliance strategy applied at a sub-regional level (using the MISO Local Resource Zones) resulted in compliance costs of approximately $83 billion in net present value, or $57/ton of CO2 emissions avoided. A regional compliance approach therefore results in an annual cost avoidance of approximately $3 billion compared to the sub-regional approach.
  • MISO also found that the EPA’s draft proposal could put up to 14 GW of additional coal capacity at risk of retirement in order to achieve CO2 reductions at lower compliance costs.

Study design for Phase III was informed by the results of these initial analyses, as well as stakeholder requests for state-level modeling, inclusion of electric transmission and consideration of gas infrastructure. Phase III quantified potential power system ramifications of the CPP, such as increased cost for energy production, and impacts to generation dispatch and transmission system utilization. Potential reliability impacts were identified, along with transmission congestion trends. The study also served as a first step in developing transmission solutions to facilitate reliable and cost-effective implementation of the changes required for compliance with the CPP.

The analysis tested five compliance scenarios and a reference scenario (Figure 7.5-1) to understand the impacts of how the MISO region may comply with the emissions limitations.

Figure 7.5-1 Phase III Scenarios

Figure 7.5-1 Phase III Scenarios

The five compliance scenarios were modeled for three years (2020, 2025 and 2030) and three types of compliance (state-by-state, sub-regional and regional). Both economic and reliability analysis were performed, using PLEXOS and PSS/E models, respectively. Additionally, preliminary evaluation of rate versus mass emissions constraints was performed to understand these different options for compliance.

High-level takeaways based on study results include:

  • State by state compliance is shown to be about $4 to $1 billion (in 20-year NPV) more expensive compared to regional (MISO-wide) compliance approach. Similarly the state approach would be about $2.5 to $11.5 billion (in 20-year NPV) more expensive than the sub-regional compliance approach.
  • Electric and gas infrastructure costs for interconnection of new or converted gas units are comparable regardless of where they are sited (closer to existing gas infrastructure versus the existing electric transmission).
  • CPP constraints significantly increase congestion regardless of compliance approach, and transmission congestion is higher under a state approach than a regional approach.
  • Multi-billion dollar transmission build-out would be necessary for reliable and cost-effective compliance in the scenarios studied, driven by the level of generation retirements and the location and type of replacement capacity.
  • Generation dispatch would change dramatically from current practices, requiring additional study to fully understand the ramifications.

The results offer valuable insights into how the energy landscape may change as a result of carbon restrictions on the electric generation. The process of draft rule analysis also yielded valuable lessons that will shape MISO’s study of the final rule. In particular, it highlighted the value of a phased approach to analysis, which produced useful information prior to completion of the entire study. Additional lessons learned on study process and design include:

  • Stakeholder feedback throughout was essential to producing relevant outputs
  • The PLEXOS model is a good fit for analysis of the CPP, allowing for explicit modeling of constraints on CO2 emissions, as well as state-by-state compliance
  • Studying one or two compliance actions (e.g. coal retirements, renewables build-out, re-dispatch) at a time allowed for developing a better understanding of the impacts of pulling these individual compliance levers

The draft rule analysis was a significant undertaking, based on a complex and sometimes ambiguous regulation. Though the study of the final rule will necessitate similar efforts of rule interpretation and technical analysis, MISO is well-positioned to address these challenges. Over the course of the next year, MISO will continue to work closely with stakeholders, state regulators and neighboring ISOs to understand how this regulation will change the energy landscape and to plan for its implementation.