Navigant Research Blog

Impacts of the Clean Power Plan, Revisited

— September 22, 2016

AnalyticsOral arguments in the litigation of the US Environmental Protection Agency’s (EPA’s) Clean Power Plan (CPP) are upon us. Let’s revisit what the CPP could mean for power generation in the United States.

Navigant’s Energy Market Outlook (NEMO) includes a regional CPP policy with the mass targets and compliance deadlines laid out by the EPA in the final rule. NEMO shows that impacts of the CPP are regional in nature, and in many regions are not as drastic in the early years of compliance as one might expect. In fact, most states do not see additional costs driven by the policy in the first few years of implementation. This is partly due to the fact that the EPA’s final rule includes a glidepath where targets are not as steep in the early years, partly due to expected changes that lower CO2 emissions before CPP compliance begins.

Coal Retirements

Navigant continues to forecast the retirement of significant coal capacity over the next few decades. Our current modeling shows approximately 73 MW going offline between 2017 and 2035. About 40% of these retirements have already been announced, and just over 20% are forecast based on plant age. These two categories can be ruled out as being “driven” by the CPP. The remaining 40% is shown to be uneconomic and is therefore shown to retire in our modeling.

Retiring Coal Capacity by Region, United States: 2017-2035

CPP Retirements

(Source: Navigant)

A decision to retire a plant before the end of its useful life is very complicated, and it is very rare that a single driver can be identified as causing such a decision. The more influential factors we have seen include competition with cheap natural gas and increases in costs caused by environmental regulations (including the CPP). NEMO shows that the largest shares of announced coal retirements are located in MISO and WECC, while the largest share of modeled coal retirements are located in SERC territory.

Renewable Growth

On the other side of the equation, NEMO also includes continued low natural gas prices due to shale abundance, as well as continued growth in large-scale renewables, distributed energy resources, and energy efficiency. Large-scale solar capacity additions continue to grow due to falling costs, with additions on par with wind in some regions. Early in the forecast, solar becomes the renewable of choice in California, driven by the state’s aggressive renewable and carbon goals, which go above what the CPP requires. Wind continues to be installed in areas with high potential, helping states like Texas meet their CPP targets.

Low-Cost Compliance in Early Years

NEMO includes over 29 GW of coal coming offline in the Eastern Interconnection before the CPP targets begin, making compliance in the first interim compliance period (2022-2024) relatively painless. Our modeling of the CPP uses a cap-and-trade mechanism to approximate a compliance framework. Across most of the country, carbon allowance prices are forecast to be zero for the first 2 years of compliance, meaning no additional costs are needed to meet the targets. As others have found, compliance costs are lower when regional trading is allowed. Our modeling confirms that states that go it alone tend to have higher compliance costs overall.


May Comes in Like a Lion for Demand-Side Management

— May 11, 2016

multimeterLast week was a busy one in the demand-side management (DSM) industry, with M&A activity and regulatory news both making headlines. It started first thing on the morning of May 2 with the announcement that Opower was being bought by Oracle for over $500 million. This move shouldn’t be so surprising since it was just over a year ago that the two companies announced a partnership to enable utilities to integrate Opower’s tools into Oracle’s systems and vice versa.

EnerNOC is now the only publicly traded pure-play DSM provider left standing. Could it be that dealing with the regulatory risk and long timeframes for deal making in the utility industry is a mismatch with Wall Street’s pressure for quarterly earnings? Opower appeared to have a good pipeline of projects, but the market did not seem to value it enough to provide attractive returns for investors. Furthermore, the energy software business requires extensive R&D spending, so the prospects for an annual profit were too long for the NASDAQ set. As part of a larger organization, the long project runways could be blended in with other quicker turnaround products, and R&D expenditures could be swallowed among the much larger expenses at Oracle. The only question is how committed Oracle is to Opower’s legacy DSM products versus focusing on solutions more directly in line with its business.

CPower on the Move

Later that same day, word spread that CPower acquired rival Johnson Control’s Integrated Demand Resources business. This move thins the already-small commercial and industrial demand response (DR) aggregation sector. It also continues the trend of larger organizations getting out of the DR business, which started when Constellation sold off CPower in 2014. For CPower, the acquisition is the latest move to expand following the purchase of Demand Response Partners in 2015. CPower and Johnson Controls still intend to retain a commercial relationship that would allow CPower to offer DR services to Johnson’s customers, and CPower customers could gain access to Johnson’s building management technologies for their facilities.

These cases appear to show some contradictory trends between acquisitions and divestitures of DSM businesses by larger entities. However, they both seem to agree on the point that DSM may survive either as part of a bigger firm or as an independent private company, but as a standalone public entity, the road ahead is hard. Look at Comverge, which went public in 2007 but went back private a few years later and has seemed to steadily grow under the radar since then, or Nest, which is able to keep its finances out of public view as part of the Google empire.

Emergency Generators

The final piece of noteworthy news relates to the U.S. Environmental Protection Agency’s (EPA’s) rules for emergency generators (EGs) for DR purposes. Last year, the U.S. Court of Appeals overturned an EPA rule that allowed 100 hours of EG use for emergency DR programs. It granted the EPA a 1-year stay, which expired on May 1, 2016. The EPA has no plans to make changes to the rule, meaning that the court’s ruling will remain intact, affecting upward of 20% of DR resources in some markets.  However, there is still some ambiguity in the remaining EPA rule language, so the fight will continue to allow EGs to participate to some extent.

If the first week of May was any indication, it could be an interesting summer for DSM, but these recent developments may have been just some early fireworks before a regular course of business settles in.


Nuclear Power Tiptoes Back into the Conversation

— October 28, 2015

This may be an uncomfortable notion for cleantech purists, but nuclear power has tiptoed back into the conversation about what sources will supply energy into the future. Recent developments indicate the move toward nuclear power may be closer than many people think. Consider these recent happenings:

  • U.S. nuclear regulators are close to approving the first nuclear power license in 20 years. The Tennessee Valley Authority’s 1,150 MW Watts Bar 2 unit could get the necessary go-ahead in the coming days, and if that happens, the plant could start commercial operations in 2016.
  • The Obama Administration’s Clean Power Plan could give the nuclear industry a shot in the arm; current U.S. Environmental Protection Agency (EPA) administrator Gina McCarthy has said that nuclear plants would be credited under the plan as zero-carbon generation as part of a compliance strategy.
  • Two Massachusetts Institute of Technology-trained scientists are pushing a safer type of nuclear power generation that is designed to eat its own waste. Nuclear physicists Leslie Dewan and Jacob Dewitt have founded separate but comparable startup companies that focus on nuclear generators capable of operating on their own radiated waste, which removes the need for trucking and storing spent radioactive material.
  • China and Bill Gates are said to be making progress in the pursuit of nuclear power. Gates’ nuclear power company, TerraPower, has signed an agreement with the China National Nuclear Corporation (CNNC) that permits the two companies to work together on advanced nuclear technologies that tackle some of nuclear power’s toughest issues: environmental, safety, and cost. China also plans to build 400 new nuclear reactors by about 2050.

Closer to my world, I recently met an attorney who has a background in nuclear power but is no friend of fossil fuels. Attorney Priya Sinha Cloutier has clients that include biofuels companies and various other nuclear power industry players. Her take is that nuclear power needs to be part of the future of energy generation. She is a fan of solar and wind, but those technologies alone are not the only solutions in her mind. It was an interesting conversation, and helped me connect the dots.

Seems pretty clear that a new era is evolving in which nuclear power can be a part of the generation mix, though with better safeguards. Nuclear won’t be the one absolute answer, but could become a very important piece in the future of energy. Thus the nuclear option could take on a new meaning for the rest of the 21st century.


Electric Vehicles and the Clean Power Plan

— August 24, 2015

Plug-in electric vehicles (PEVs) bridge the gap between transportation and electric power—two sectors that until 5 years ago were effectively disparate. Overall, the potential future synergies between the two sectors seem promising. However, because these sectors are somewhat foreign to each other, some uncertainties are likely early on. One area of uncertainty is with regard to the U.S. Environmental Protection Agency’s (EPA’s) Clean Power Plan (CPP), released August 3, 2015.

The CPP is not designed to explicitly affect PEVs; rather, it is designed to decrease electric power sector CO2 emissions from existing fossil-fuel power plants. However, depending on the method by which each state implements the policy, PEVs may present a detrimental or beneficial component to state compliance strategies.

Because each state has a different electric power generation mix, each state will have individual goals and pursue varying strategies in order to comply with the CPP. The CPP CO2 reduction goals have been developed by the EPA using a rate-based approach, which places CO2 per megawatt-hour limits on power plants, but states may also use a mass-based approach (i.e., total metric tons of CO2 from the electric power sector).

PEVs Increase Demand

The mass-based approach will likely create complications for states with fast growing PEV markets. The complication arises on behalf of the fact that PEVs increase electricity demand, which increases the total emissions from power plants, while the overall CO2 reductions achieved on behalf of the PEV are not integrated in CPP calculations. This means that while a PEV would likely reduce net CO2 emissions, PEVs could make state compliance efforts for the CPP more difficult.

The rate-based approach may produce similar complications; however, this is entirely dependent on what grid resources are used to fuel PEVs. For instance, utilities may design incentives to coordinate PEV charging with peak solar or wind generation times, which would in effect increase utilization of renewable generation assets, decreasing the average rate of CO2 emitted per megawatt-hour produced in a state.

Vehicle Grid Integration

Programs and technologies to shift PEV charging to off-peak hours and integrate PEV charging into advanced grid services are being developed in large PEV markets. BMW’s iChargeForward program, which aggregates 100 BMW i3s in the San Francisco Bay Area for grid services, launched in July. Recently, charging station manufacturer eMotorWerks and non-profit software developer WattTime debuted a charging station that can automatically schedule PEV charging when the carbon emissions from the grid are lowest.

While the load represented by PEVs is still marginal compared to overall electric power sector demand, PEVs will become an ever increasing concern. Navigant Research estimates that the average PEV can increase the average U.S. household annual energy consumption by around a third and estimates that the median state PEV market share of 0.5% in 2014 will grow to over 2.5% by 2024. By the time the CPP takes effect in 2022, this equates to 4.4 million light duty PEVs in use, each consuming around 3,000–4,000 kWh annually.

PEV Market Share (% of New vehicle sales) by State, United States: 2014, 2024


(Source: Navigant Research)

As PEV adoption reduces overall emissions in most states and cases, state PEV adoption incentives should not run contrary to state CPP compliance efforts. Rather, states should encourage efforts to utilize PEVs as potential distributed generation/energy storage resources useful for CPP compliance.


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