PJM analysis of EPA Clean Power Plan puts price on carbon

By Rod Kuckro | 03/05/2015 08:24 AM EST

A new analysis of the economic impacts of U.S. EPA’s Clean Power Plan by the nation’s largest grid operator places a price on carbon dioxide emissions and concludes that under nearly 40 compliance scenarios, a regional solution is less costly than a state-by-state approach.

The model employed by the PJM Interconnection in its analysis also concludes that the retirement of fossil-fueled power plants "will occur gradually" through the 2030 deadline for compliance with the EPA plan.

Running the scenarios through the complex model took more than two months of computational clock time, PJM said.


The analysis was requested by the Organization of PJM States Inc., a group made up of the regulators from the 14 jurisdictions served wholly or in part by PJM — Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia and the District of Columbia. It was accompanied by an analysis that offers state-level details.

"State-by-state compliance options — compared to regional compliance options — likely would result in higher compliance costs for most PJM states because there are fewer low-cost options available within state boundaries than across the entire region," the analysis said. Also, states acting individually "would increase the amount of capacity at risk for retirement because some states would likely face higher CO2 prices" in an individual approach, PJM said.

"Our states have recognized the value of being part of the larger regional [electric power] dispatch, and they’re interested in understanding what the implications would be of going on your own versus participating in the region," Michael Kormos, PJM’s executive vice president for operations, said in an interview.

The model PJM used to look at both regional and state-by-state compliance "is a representation of how the market is currently dispatched," with least-cost resources being called on for power to meet the electricity needs of the more than 61 million people in PJM’s footprint, Kormos said.

For assessing the costs of regional versus state-by-state compliance, the model results in a single price expressed in dollars per ton of CO2 emissions that applies across the entire PJM footprint.

The carbon price "is akin to an emissions tax that is adjusted iteratively to ensure that the region served by PJM achieves" its target, the analysis said. The price easily allows emissions or emission reductions to be exchanged between affected generating units and across states, and the cost of CO2 emissions is treated as an input cost to electricity production, similar to other variable costs such as fuel or operations and maintenance expenses.

A somewhat counterintuitive finding by PJM was that "adding more energy efficiency and renewable energy and retaining more nuclear generation likely would lead to lower CO2 prices and could result in fewer megawatts" of fossil-fueled units at risk of retirement.

"With the renewables and nuclear coming in as basically carbon free, we’re actually able to run those coal resources more," Kormos explained, because they are "getting credit from the renewables and the nuclear as zero carbon."

The analysis found that roughly 6,000 megawatts of mostly coal-fired power plants "at some point along the way" to the CPP deadline of 2030 "will most likely retire no matter what," Kormos said.

Roughly 16,000 MW of units make up a middle scenario of plants that are likely to retire, and, under the worst-case scenario, unit retirements are projected to be as high as 31,000 MW, he said. As of December, PJM had a total of 183,604 MW of generation, of which 67,749 MW are coal-fired units.

The economic analysis is feeding into a "well underway" analysis of the reliability implications of compliance with the EPA plan, Kormos said.

"Right now, we’re running those retirements through our normal transmission analysis to look at ultimately what would be the upgrades we would need to be put in place to handle those units retiring and the timing of those upgrades. We’ll also start to look overall at the ability to replace that capacity, what the timeline of that would look like," Kormos said.