Navigant Research Blog

Compliance Strategies for Satisfying Clean Power Plan Requirements

— July 23, 2015

Next month, the U.S. Environmental Protection Agency (EPA) is expected to release the final Clean Power Plan (CPP) rule, which regulates carbon dioxide emissions from existing power plants. While states may comply independently or work together to achieve CPP goals, Navigant Consulting has found that states can substantially reduce compliance costs by banding into trading blocs, and we have focused on regional trading in our modeling. The proposed rule is modeled in Navigant Consulting’s recent white paper,  Anticipating Compliance: Strategies and Forecasts for Satisfying Clean Power Plan Requirements, and highlights our finding that focusing on energy efficiency (EE), coal retirements, and targeted renewable expansion represents the least-cost compliance option.

Energy Efficiency

EE represents the lowest-cost compliance option in almost all areas, but it cannot single-handedly achieve compliance.  Expanding EE programs also helps ease interim compliance targets because EE can be rolled out more rapidly than new generators, reducing the near-term need to build large amounts of new low-carbon capacity. Navigant Consulting found that the expansion of EE programs in response to the CPP can save nearly $250 billion above business-as-usual EE through 2030.

Coal Retirements

The Northeastern, Southeastern, and Midwestern United States are expected to rely heavily on coal retirements for compliance. Since EE and renewables are less carbon-intensive than gas generation, higher penetration of these technologies helps keep more coal generators online.

Regional Least-Cost Compliance Options

(Source: Navigant Consulting)

Natural Gas

New gas generation plays an important role in compliance, and it is necessary to help maintain capacity and energy resource adequacy after coal retirements.  The Northeast and Southeast, in particular, will likely rely heavily on new natural gas combined-cycle plants to supplement EE in replacing retiring coal plants, and building these plants will be a large portion of their compliance costs.  The central and western United States will also rely heavily on gas to maintain capacity margins, but will likely see more simple-cycle peaking gas plants than the Northeast and Southeast due to a high rate of renewable expansion as well as EE growth.

Renewables

Adding renewables is a cost-effective compliance option where renewable potential is high, especially in the central and western United States.  Navigant found wind expansion to be economic throughout the western and central United States, and it plays a particularly important role in compliance in Texas, the Southwest Power Pool (SPP), and Midcontinent Independent System Operator (MISO).  California, which has little coal left to retire, has to rely on EE and renewable resources almost exclusively for compliance. Solar and wind both play critical roles in ensuring low-emission generation in California.  Navigant Consulting found that areas that rely more heavily on renewables tend to need to spend less on replacing capacity than other areas, but also tend to see higher carbon allowance prices (which help make large-scale renewable buildout economic).

Glide Path

Many commenters to the EPA focused on the difficulty of meeting near-term interim targets.  Navigant Consulting’s analysis has shown that the implementation of a glide path with less stringent initial targets results in savings of over $200 billion when compared to a non-glide path scenario.

 

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