In April, the Environmental Protection Agency (EPA) finalized four significant regulations aimed at coal and natural gas-fired power plants (Power Plant Rules). The rules address air emissions, including greenhouse gasses (GHGs) and air toxics, wastewater discharge and ash disposal from coal-fired power plants. Rules specifically targeting power generation affect the generation mix.
Stakeholders need to understand how new rulemaking will impact sector costs, potentially resulting in supply and demand changes.
A clear goal of these rules is to accelerate coal plant retirements by increasing compliance costs. While existing natural gas plants are not affected, the rules do regulate new natural gas plants and modifications, raising compliance costs for these facilities as well.
Understanding the repercussions
The EPA’s new regulations for power plants have significant implications for both coal and natural gas-fired plants.
While the rules impose stringent standards on coal plants, they also set new benchmarks for new natural gas plants and future modifications to existing natural gas plants, particularly in regard to GHG emissions. The added compliance costs will make it challenging for the natural gas industry to respond to increasing power demand and replace demand created by coal-powered plant retirements—more of which are likely because of the rules.
The GHG power plant rule: three categories & carbon capture for new baseload
Generation
Of the four power plant rules, the one that most impacts natural gas plants establishes new source performance standards and GHG emission guidelines from new, modified and reconstructed fossil fuel-fired power plants, including natural gas-fired combustion turbines.
To understand how the rule applies to natural gas plants, it is important to understand the key technology types for natural gas generation as well as some industry-specific terminology.
The four technology types employed for natural gas generation include:
- Combined-cycle gas turbines (CCGT);
- Simple-cycle gas turbines (SCGT);
- Steam turbines (ST); and
- Internal combustion engines (ICE).
Generally, CCGT plants are highly efficient, allowing them to generate low-cost power over extended periods, which makes them ideal for serving base and intermediate loads. In contrast, SCGT, ST and ICE plants are used primarily to meet peak demand on the electric grid and therefore run less frequently. These three types can start and ramp up to full power quickly, which is critical in markets with an increasing concentration of intermittent renewable generation.
A power plant’s “capacity factor” indicates its operational intensity, expressed as a percentage of the power it generates relative to its maximum “nameplate” capacity. A plant with a capacity factor of 100%, for example, would be operating continuously. But power plants have capacity factors lower than their nameplate capacities because they shut down occasionally for reasons like maintenance, when the energy source used is intermittently available (as in wind and solar) or because the plants only run during times of peak demand.
The rule separates potential new or reconstructed combustion turbines (regardless of fuel type) into three subcategories based on annual capacity factor, focusing on the amount of potential electric output sold—low, intermediate and base load. The rule also assigns CO2 emissions standards by applying the “best system of emission reduction” (BSER) within these subcategories to determine how much reduction is possible. The BSER is an EPA standard identifying the most effective and feasible means of reducing emissions based on factors like technological feasibility, cost, environmental impact and energy requirements. It is important to note that sources subject to a BSER can meet a reduction limit without using the specific technologies identified in the standard by employing alternative methods that achieve the same or greater level of emissions reduction.
The rule has three categories of generators, each with its own BSER and CO2 emission standards.
Category 1: Low-load peaking generation: less than 20% capacity factor
The low-load subcategory is made up primarily of peaking generators, which have a low capacity factor (selling less than 20% of their potential electric output) because they generally only turn on in times of peak demand. The BSER for low-load generators is simply the use of lower-emitting fuels like natural gas. The CO2 emissions standard is between 120 to 160 lb CO2 per MMBtu, depending on the fuel source.
Category 2: Intermediate Load: Between 20% and 40% capacity factor
For intermediate-load generators that sell between 20% and 40% of their potential electric output, the BSER uses highly efficient simple cycle technology in combination with the best operating and maintenance practices. The CO2 emissions standard is different from the low-load subcategory in that it is based on megawatt hours (MWh) instead of MMBtu—1,170 lb CO2 per MWh. This makes sense because the BSER is focused on technology as opposed to fuel.
Category 3: Baseload: More than 40% capacity factor
For new or modified baseload generators selling more than 40% of their potential electric output, the BSER has two phases. The first is similar to the intermediate load category but focuses on highly efficient combined-cycle technology (as opposed to simple-cycle) and best operating and maintenance practices. The second and most controversial phase requires 90% carbon capture and storage (CCS) by 2032.
Practical implications for natural gas facilities
Notably, the final rule does not directly address existing natural gas combustion turbines.
Instead, the EPA has initiated a separate rulemaking process to regulate CO2 emissions from existing natural gas electrical generating units (EGUs). This forward-looking approach is significant for two reasons. First, roughly 42% of power generation currently provided by natural gas facilities will not be affected by this rule. Second, litigation could change everything, and litigation is likely.
In West Virginia v. EPA, decided in 2022, the Supreme Court ruled 6-3 that the EPA lacked the statutory authority to implement the 2015 Clean Power Plan (CPP), which identified the BSER for power plants as “generation-shifting” electricity production from coal to natural gas and renewables. Under the CPP, operators could comply by reducing coal-fired production, investing in renewable energy or buying emission credits in a cap-and-trade system. The court applied the “major questions doctrine” and held that Congress did not provide “clear congressional authorization” for the EPA to use generation-shifting as the BSER.
The baseload BSER CCS requirement in the new rules is similar to the rejected generation-shifting plan in that both require significant economic investment to comply and are politically sensitive, two factors the court cited under its application of the major questions doctrine. Litigation is likely to challenge this on similar grounds.
The scope of impact
Just how many future power plants could be impacted by this rule?
The rule applies to projects that begin construction or reconstruction after May 23, 2023. To understand the implications, planned and retrospective capacity data from the Energy Information Administration (EIA) was analyzed for additional context. EIA data for planned natural gas power generation data includes only nameplate capacity. Capacity factor data is retrospective. Although it is impossible to predict the exact capacity factor for planned generation, looking back at historic capacity factors by technology type provides useful insights.
The first step was to examine the EIA’s most recent year of finalized generation data from 2022 and note the weighted average capacity factor of each natural gas generation technology. Next, the cumulative nameplate capacity of currently planned generation was obtained from the most recent EIA-860M filing. By comparing the two and assuming that generators of a given technology will be used as it has been in recent years, it was possible to make useful inferences. For example, the average capacity factor of combined cycle generators has been around 56%.
It is worth noting that capacity factors have gotten more efficient over time. The newest CCGT plants (2014-2023) had the highest average capacity factor in 2022 at 66%. Plants from 1999-2013 averaged 57%, while those from the 1980s to 1998 had the lowest at 36%. To be conservative, the total average capacity factor of 56% was applied to current planned capacity.
Of the 160 generators currently planned, 36 are CCGT, with a combined nameplate capacity of 11,092 MW. If these average at least a 56% capacity factor, many would be regulated under the baseload category (at least 40% capacity factor), subject to the 90% CCS requirement by 2032.
Three coal rules and what comes next
The remaining three power plant rules focus on coal-fired power plants:
- Updating the Mercury and Air Toxics Standards to tighten emissions limits for toxic metal;
- Reducing pollutants discharged through wastewater; and
- Taking actions to protect communities from coal ash contamination.
If the rule withstands litigation, these requirements collectively are likely to force the closure of more coal plants because of the increasing cost of compliance.
More coal retirements translates to more opportunities for other sources to replace baseload generation, but if the new natural gas rules withstand litigation, compliance costs may result in new natural gas generation being priced out, unless significant advances are made in CCS by 2032 that make it competitive.
As with any new rulemaking, the consequences are uncertain. The presidential election could impact the changes, as could the results of litigation. The extent of real-world impacts will only be known once the dust settles.
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