Dirty diesel generators test EPA, demand-response industry

Demand-response companies have gained a green reputation as they've grown into a major player on the electricity market, but critics warned U.S. EPA today there's a dirty secret in how they're relieving the strained power grid on the hottest summer days.

On competitive energy markets, these firms often get paid to provide "negawatts," or negative megawatts, by inking contracts with customers who agree to avoid using electricity when needed. But these companies also do brisk business generating megawatts to offset demand, and many of those megawatts come from emergency diesel generators that can release more air pollution than even the highest-emitting power plants.

The shift went largely unnoticed until recently. But with EPA considering giving these diesel generators an exemption from new air pollution rules, the agency is hearing noisy complaints from power plant owners that stand to lose market share and from state regulators who say it could set back long-standing efforts to clean up smog during the summertime.

Houston-based Calpine Corp., which owns more natural-gas-fired generation than any other U.S. power company, says the shift has created a cheap and dirty alternative to its power plants, which run when electricity is in short supply.

"The sad irony is that we're replacing retiring coal-fired capacity with diesels instead of cleaner generation," said John Flumerfelt, Calpine's director of government and regulatory affairs, during a meeting today at EPA headquarters.


No one seems to know how many of these generators are under contract, and how many of them are running rather than simply being made available in the case of an emergency. But if small diesel generators are replacing other sources of electricity at times of peak demand, it could present a conundrum to EPA, which has spent decades working to clean up these engines but also wants to encourage the fast-growing demand-response market.

Diesel generators, which are meant for emergencies, pose a potent health risk. Diesel exhaust contains a mix of toxic chemicals, and last month, the World Health Organization concluded that it causes cancer in humans.

New diesel generators are equipped with air filters and catalysts to clean up their emissions, but the older models can release 200 to 400 times as much smog-forming nitrogen oxides per megawatt as a new natural gas plant, and 10 times as much as a coal plant, said William O'Sullivan, the air quality director at the New Jersey Department of Environmental Protection, during an interview yesterday.

If thousands of diesel engines run in the summertime, displacing coal and natural gas plants as the power source of last resort, it could also cause a spike in smog-forming emissions and "negate all the work we've done on air quality," O'Sullivan said.

Ali Mirzakhalili, Delaware's air quality director, said during today's meeting that the state supports demand response for its potential to curb energy use and pollution but that EPA should have studied the extent of diesel generator use before giving demand-response companies an exemption.

"The long-term impact is that this rule allows increased amounts of diesel generation and discourages construction of cleaner fossil and renewable resources," he said.

'A simple and lucrative opportunity'

Backup generators now provide an estimated 10 to 20 percent of the roughly 10,000 MW of demand response that is in service on the PJM Interconnection, a section of the U.S. power grid spanning 13 states from Illinois to the Atlantic Ocean.

Already the largest consumer of demand-response services nationwide, PJM has lined up about 5,000 more megawatts for the summer of 2015. But it does not know exactly how much of that would come from diesel generators, said Paul Sotkiewicz, chief economist at the grid authority.

This means that on sweltering summer days, when people rush for the comfort of air conditioning to avoid heat and smog, enough electricity to power millions of homes could end up coming from diesel generators that are not subject to federal air pollution standards.

Back in 2010, it seemed that diesel generators would soon face tougher rules. EPA had come out with strict new limits on toxic air emissions from reciprocating internal combustion engines, the kind that are usually used in backup generators.

But this year, faced with a lawsuit from Boston-based EnerNOC, the market-leading demand-response provider, the agency proposed a change to the rules that would spare engines used for demand response for 150 hours per year, dropping to 100 hours per year in 2017. To run a generator for more hours than that, the owner would need to add pollution controls.

Around the country, inking contracts with these generators has quickly become a big business. EnerNOC refers to its operation as "the world's largest virtual power plant."

"If your business has a generator set," says a brochure given out by the company, "you may qualify for a simple and lucrative opportunity to be paid to run your generator."

The company says critics' complaints are exaggerated, because the generators rarely run and are dispatched only when regulators decide the grid is in dire need.

"The knee-jerk reaction is, 'This is bad and this is diesel,' but the EPA, through a lot of education and attention they've given the matter, shows they recognize this is a valuable resource to prevent wide-scale blackouts," said David Brewster, the company's president. "[Critics] would have you believe we're going to start running these generators willy-nilly in the markets, but the fact is, these emergency backup diesel generators are only run at the discretion of the grid operators when the grid is vulnerable" (Greenwire, May 29).

The change by EPA has also won praise from some city governments and small public utilities, which use diesel generators to back up their power delivery systems.

During a recent heat wave, people in northern Missouri managed to avoid power outages because a municipal utility turned on 12 backup generators, said Floyd Gilzow, chief operating officer of the Missouri Joint Municipal Electric Utility Commission, during today's hearing. He urged EPA to soften the new rules, saying the area would suffer.

Lack of data

PJM hasn't been able to respond with hard data when asked about diesel generators, so it is trying to gauge the extent of their use by asking demand-response firms to submit data on their sources of megawatts, Sotkiewicz said at an event in Washington, D.C., held jointly by the national coalitions of state energy offices, state utility regulators and state air quality officials.

He said the grid authority will also get a better grasp on diesel generator use by changing its outdated registration form, "so that we don't have this huge category called 'other,' which could encompass a whole bunch of stuff that we're really just not sure about."

Environmental and public health groups have occasionally supported the use of newer diesel generators to meet peak demand, saying the alternative -- a large new power plant burning coal or natural gas -- would be worse.

Three years ago, for example, the Sierra Club backed a plan by San Diego Gas & Electric Co. to buy 25 MW of power from diesel generators managed by a subsidiary of EnerNOC. It cleared the California Public Utility Commission on a split 3-2 vote with conditions that SDG&E outfit the generators with air pollution controls and limit their hours of use.

"If an environmentally focused group like Sierra Club can look past the word 'diesel' ... I hope my fellow commissioners can do the same," Commissioner John Bohn (R) said at the time (ClimateWire, Oct. 16, 2009).

Yet these groups have criticized EPA for offering an exemption to older engines. It will give them an incentive to keep running without modern pollution filters and present a greater risk to public health than conventional sources of electricity, the Pennsylvania-based environmental group PennFuture told officials during today's public meeting.

New Jersey has already banned generators without air pollution filters from sending power onto the grid, but many states have not. That is a problem, O'Sullivan said, because wind currents will carry the emissions from their generators into the Garden State.

He said that demand-response companies, sometimes called aggregators for the way they gather a far-flung network of energy sources, have come to state officials multiple times and asked for the rules on diesel generators to be loosened.

"We think we've covered the bases and that it's not happening in Jersey," O'Sullivan said. "That's why we get the full-court press from aggregators. They want the market."

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