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EPA Carbon Standard Compliance Strategies, Part 2: Industrial Proven Technology Solutions and Estimated Costs

EPA Regs and Ways States Can Comply

The developing new EPA carbon standard should reduce U.S. Power Sector 2005 emissions by 30% or 730 million metric tons per year (MMT/yr.) in 2030.  A Part 1 TEC Post covered the technologies utilized to effectively reduce Power Sector carbon emissions by half the total mandated 730 MMT/yr. reduction during 2005-2013.  This Part 2 TEC Post will evaluate Industrial proven technology solutions or strategies needed to achieve full compliance with the new EPA carbon standard by 2030.

The EPA advocates that reducing Power Sector carbon emissions by 30% “will maintain an affordable, reliable (power) energy system”.  In addition to potential health and environmental benefits, the EPA estimates future Consumer power bills (costs) could “shrink by roughly 8%”, (which implies a similar level of reduced consumption) and the total compliance costs should only be ”$7.3-$8.8 Billion per year”.  These estimated new EPA carbon standard costs are being strongly debated by many organizations including the U.S. Chamber of Commerce and the National Resources Defense Council.  This (independent) Part 2 TEC Post will cover some of the more feasible technologies and strategies for achieving new EPA carbon standard compliance, and the associated ‘levelized costs’ of each compliance strategy.

Compliance Strategies Development – Potential reduced Power Sector carbon emission strategies include increased fuels or energy switching from Coal-to-  Natural Gas, Renewables or Nuclear power generation, increased power generation & consumption efficiencies, expanded ‘demand response’, and possibly implementing ‘carbon capture and sequestration’ (CCS) technologies.  Besides achieving the EPA carbon standard, the final approved strategies or compliance plans must ensure continuous Power Grids’ reliabilities and should ideally minimize the added costs for all Consumers.  The number of potential strategies to achieving EPA carbon standard compliance is enormous, particularly when seriously considering the many developing-potentially promising new technologies.  However, by focusing primarily on Industrial proven technologies, cost effective and lower risk options for ensuring Power Grids’ reliabilities, the number of feasible compliance variables becomes much more manageable to evaluate and optimize.

One of the most important variables in developing a successful new EPA carbon standard compliance strategy is first determining the level of future total power consumption.  The EPA apparently estimates future power consumption will possibly decline up to 8% by 2030.  While making substantial improvements in production & consumption efficiencies and possibly expanding ‘demand response’ can definitely help reduce the rate of future power consumption growth, the ability of all Consumers to reduce their total power purchases by 8% over the next 16 years is questionable.  One of the more credible sources for future U.S. power consumption projections is the DOE/EIA.  For example, refer to the following AEO2014 data projections for 2030; Table 1a.

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Data Source – EIA MER data for 2013, AEO2014, and Table 1 AER2005 data from the Part 1 TEC PostNote: EPA (carbon) Std. for 2030 reduces 2005 carbon emissions by 30% (2,417 MMT/yr. x 0.7=1,692 MMT/yr. maximum). 

Based on current and future approved Government regulations and (reference case’) projections for U.S. population and economy growth, the EIA projects total Power Sector net power generation could increase (16%) up to 4,526 TWh 2013-2030.  The AEO2014 also projects a small increase of Natural Gas and Renewables, and a slight decline in Nuclear Power.  The net result of this AEO2014 2030 projection is an increase in total Power Sector carbon emissions of (2,227–1,692=) 535 MMT/yr. above the new EPA carbon standard.

The AEO2014 projection (published May 2014) obviously became obsolete following the new EPA carbon standard development initiated June 2014.  The EIA’s next updated ‘AEO2015’ (May 2015) should reasonably cover the full impacts of the final-approved new EPA carbon standard.  However, unless some huge innovative breakthroughs occur in power generation/consumption efficiency technologies in the near future or the U.S. economy were to show signs of falling into another economic recession, the AEO2015 projected 2030 total net power consumption should not be expected to decline significantly.

Most Promising Technology Options to Reducing Future Power Sector Carbon Emissions – Historically the most effective technologies utilized for reducing power generation carbon emissions have been fuels switching from coal-to-natural gas (Re. the 2nd table of the Part 1 TEC Post), increased generation efficiency (Re. the 3rd graph of another past TEC Post), energy switching from natural gas-to-wind power, energy switching from baseload coal-to-nuclear, and reduced or relatively constant power consumption (the most recent example is following the 2007-09 economic recession).  Since reducing Coal Power net generation is the most effective strategy to reducing Power Sector carbon emissions, similar cost effective actions should be expected in the future.

Replacing ‘baseload’ Coal Power requires building and operating other proven baseload technologies such as fuels switching to natural gas and energy switching to nuclear, hydropower/storage or other fully dispatchable renewables; geothermal, biomass/gas and solar thermal/storage.  The most successful baseload technologies have been Nuclear and Natural Gas Power.  Based on aggressively displacing Coal with Nuclear or Natural Gas baseload Power (2015-2030), detailed Power Sector net generation/mix balances were developed; refer to Table 2a.

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Data Source – EIA data from Table 1a.  Note: the only change made to the original AEO2014 2030 projection data was replacing Coal with Nuclear or Natural Gas as needed to reduce Power Sector total carbon emissions to 1,692 MMT/yr.  All other power generation based on original AEO2014 data. 

Table 2a shows that replacing 542 TWh/yr. of Coal with Nuclear net power generation (AEO2014 2030 data – Option 1) is needed to meet the EPA carbon standard.  Expanding Nuclear Power net generation by 542 TWh/yr. represents a 69% expansion in 2013 net generation capacity.  This level of Nuclear Power generation expansion is equivalent to this technologies’ original growth during the 25 years following the early 1980’s.  One major advantage of displacing Coal with Nuclear Power is that costs can be minimized by locating the new Nuclear Plants adjacent or near to-be shutdown Coal Power Plants.  This would enable utilizing existing operation infrastructures including connections into existing power transmission systems, cooling systems, maintenance facilities, etc.  However, due to the historic high costs, possibly strong Public opposition to most Nuclear energy development and relatively limited Government support for Advanced Nuclear Power in recent years, this 69% expansion over the next 16 years will be very challenging.

Table 2a shows that by replacing 898 TWh/yr. of Coal with Natural Gas net power generation (AEO2014 2030 data – Option 2) would also meet the EPA 2030 carbon standard.  Expanding Natural Gas net generation by 898 TWh/yr. represents an 88% expansion in 2013 generation capacity.  This level of power generation expansion is equivalent to the growth that occurred over the past 25 years.  While most the increase in Natural Gas Power generation occurred over the past 10 years, the primary drivers have been increasingly strict environmental regulations (recent MATS example), the recent growth in domestic gas production from ‘hydraulic fracturing’ technology development, and lower gas market prices.

Expanding Natural Gas Power net generation by 88% over the next 16 years will also be very challenging.  Similar to new Nuclear Plants, new Natural Gas Power Plants could be built near to-be shutdown Coal Power Plants to take advantage of existing power facilities’ infrastructures.  Unlike Nuclear, new Natural Gas Power Plants will require new fuel pipeline systems, which will have significant costs depending on the location of existing natural gas pipeline infrastructures to the new power plants.  Another factor that could become a major barrier to expanding new Natural Gas Power net generation by 88% is the total consumption level of natural gas fuel.  Natural gas production has increased by 35% since 2005 and is projected to increase another 40% 2014-2030.  Domestic production is projected to exceed total consumption by 2018 and exports are projected to increase up to 5 trillion cubic feet per year (TCF/yr.) by 2030.  However, expanding 2030 Natural Gas Power generation by 898 TWh/yr. will unfortunately increase domestic natural gas consumption by about 6.5 TCF/yr.  This means that the U.S. would once again need to import up to 1.5 TCF/yr. natural gas by 2030.  This will lead to increased gas market prices and could make most current or planned LNG Export terminal projects uneconomic during the 2020’s.

The Nuclear and Natural Gas ‘Only’ (expansion) Options both have their pros & cons, and neither option includes very significant growth in Renewable Power net generation.  An optimal solution to future EPA carbon standard compliance could possibly be a more ‘balanced’ approach such as much greater expansion of Renewable Wind & Solar Power.  Feasible balanced/increased Renewable Wind & Solar Power options were developed to meet the EPA 2030 carbon standard and reasonably maintain overall Power Grid reliabilities; refer to Table 3a.

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Data Source – EIA data from Table 1a.  Note: Petroleum, Hydropower and Other Renewable Power unchanged from AEO2014 data.

Balanced Options 3 & 4 shown in Table 3a will increase Wind and Solar Power net generation by about 2.5- and 5.0-times (respectively) compared to the projected expansions in the AEO2014 for 2030.  This increased rate of expanding new Wind/Solar Power net generation capacities is more consistent with the actual recent years’ annual expansion rates.  In Options 3 & 4, the level of existing ‘intermediate/peaking’ or ‘reserve power’ appears to be reasonably adequate to maintain and ensure future Power Grids’ reliabilities.  Analysis of Option 5, a substantially greater expanded Wind + Solar (20%) strategy without added Nuclear, indicates a significant shortage of ‘reserve power’ would be created.  To correct this Option 5 performance deficiency will require installing about an additional 225 TWh of Natural Gas ‘reserve’ net generation capacity; not shown in Table 3a.

Overall Balanced Options 3 & 4 appears to eliminate the major potential problems with Options 2 & 1.  In the case of Option 3, the level of increased Nuclear Power is reduced to a more reasonable 20% level over 16 years.  In Option 4, increased natural gas consumption is only 1.6 TCF/yr, which still enables 3.4 TCF/yr. of U.S. LNG exports in 2030.

Comparison of the Different EPA Carbon Standard Compliance Strategies’ Costs – Besides achieving the 2030 EPA carbon standard and reasonably maintaining Power Grids’ reliabilities, minimizing the costs of the different ‘Compliance Strategies’ is another important development priority.  Based on the data developed above, the total ‘Levelized Costs’ of the added power generation capacity for each Option was developed; refer to Table 4a.

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Data Source – EIA and Tables 1a-3a.  The ‘Levelized Costs’ are based on EIA AEO2014 data and the change in 2013-2030 net generation data for each Option.  Note: Average “LCOE” Table 1 cost data ‘without subsidies’ are used.  And, Option 5 Natural Gas $26 Billion ‘levelized cost’ represents 409 TWh total new power, which includes an additional 225 TWh of reserve power net generation capacity required for ensuring Power Grids’ reliabilities.

Table 4a data shows that the (baseline) AEO2014 2030 projected added ‘levelized cost’ 2013-2030 would be about $38 Billion per year ($B/yr.).  This means the incremental costs for Options 1-5 (and ultimately paid by Consumers) will be on the order of an additional $51B-$59B/yr. by 2030; well above the EPA’s $7B-$9B/yr. cost estimate.  The Natural Gas ‘Only’ Option 2 appears to be the least favorable strategy due to a combination of excessive natural gas consumption and high costs compared to other Options.  And, the Wind+Solar 20% Option 5 costs are significantly higher than all other compliance options.  Overall, based on the combination of lowest incremental costs, maximum balanced approach and a safe level of ‘reserve power’ (i.e. directionally more reliable), Option 4 (with added Nuclear) or possibly Option 3 (without added Nuclear) appear to be the most optimal strategies towards complying with the new EPA carbon standard.

Other Feasible Options to New EPA Carbon Standard Compliance Strategies – The above compliance analysis does not include other clean power technologies such as expanded Solar Thermal or Coal/Gas CCS due to the substantially higher costs of these technologies compared to Options 1-5.  Advocates for Renewable Wind & Solar Power may take exception to some of the above analysis.  After all, the capital costs for Wind & Solar primary generation equipment have been declining very significantly in recent years.  And, if the actual levelized costs continue to drop in the future the attractiveness of the Wind & Solar Power (20%) Option 5 could become more competitive with Options 3 & 4.  However, there is another major cost component to variable Wind/Solar Power (in addition to minimum required reserve power) that could directionally offset future generation equipment cost reductions: the added power systems connection costs or increased costs required to maximize variable power ‘capacity factors’.  Maximizing capacity factors and minimizing needed (nameplate) generation capacities of new Wind/Solar generation equipment will require increased investments/costs of ‘power transmission’ systems and optimal connections into existing Power Grids.  This is particularly true for developing and higher cost ‘Off-shore’ Wind Power, which could become a growing percentage of increased net generation capacities for compliance strategies Options 3-5.

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