Enhancing Coal Fleet Efficiency: Why New Source Review Matters
Editor’s note: This article was originally published to the ACC’s online magazine website (www.acclive.com) in November, 2014. It has been moved to the Coalblog as part of our redesign of our online publications.
Current rules could result in higher national emissions, continued degradation of production for existing plants
By: Janet Gellici, National Coal Council
The value of the existing coal fleet in the U.S. is not an abstract concept. During the extreme cold weather events of January and February 2014, power demand soared and the increased demand was met largely by coal. In fact, coal produced 92 percent of the increase in U.S. electricity generation during the first two months of 2014, relative to January/February 2013.
In the words of the New York Times, during the Polar Vortex “coal [came] to the rescue”1, while alternative fuels floundered. Wind produced only 4.7 percent of the nation’s power while solar produced less than 0.2 percent. Nuclear provided just five percent of the incremental year-over-year generation and hydroelectric output declined 13 percent. As natural gas supplies faltered and prices spiked – in some instances to over three times that of coal – gas was diverted from power generation to fuel residential heating needs and some utilities resorted to burning jet fuel or $400-per-barrel oil.
It was during the months of the 2014 Polar Vortex that the National Coal Council (NCC)i conducted a study for U.S. Secretary of Energy, Ernest Moniz, assessing the value of the existing fleet. In its studyii, NCC was asked by the secretary to detail what industry and the U.S. Department of Energy (DOE) could do to enhance the capacity, efficiency and emissions profile of the current coal generation fleet in the U.S. using new and advanced technologies.
The secretary’s study request proved timely. A significant portion of the electricity required to make up for the limitations of gas and other fuels during the Polar Vortex was provided by coal plants – notably coal plants slated for closure due to market conditions and increasingly stringent regulatory policies. American Electric Power (AEP) reported that nearly 90 percent of the coal capacity the company has scheduled for retirement in mid-2015 was running during the 2014 winter. For Southern Company, 75 percent of the coal power plants it plans to close in the near future were needed to meet customer demand for electricity. In commenting on the 2014 Polar Vortex, Duke Energy’s CEO, Lynn Good, noted that “We really counted on [a] combination of coal and gas and nuclear and pump storage and hydro, we needed every bit of it.” Without the coal plants slated to go offline, many regions in the U.S. would not have met the demand for power this past winter.
The value of enhancing efficiency at existing coal plants
The U.S. benefits from having a diverse portfolio of electric power sources. The U.S. Energy Information Agency (EIA) projects, however, that at least 54 GW of coal generation will be forced to close by 2016, more than one-sixth of the entire fleet in just two years.2 Units that were retired in 2010-12 were relatively small, with an average size of 97 MW and heat rate of 10,695 Btu/kWh. In contrast, units currently scheduled for retirement are larger and more efficient. At 145 MW, the average size is 50 percent larger than earlier retirements with an average heat rate of 10,398 Btu/kWh.
At the same time that plans are underway to retire some of our nation’s most efficient coal power plants, we are also falling short of replacing our diverse power sources with new coal capacity. The EIA projects very few new coal plants will be built in the U.S. through 2040.3 The dearth of new coal plant builds has efficiency repercussions. In 2012, the average coal power plant efficiency in the U.S. was 33 percent; state-of-the-art plants being built around the world today can exceed efficiencies of 45 percent.
Maintaining coal’s role in an energy-efficient, diversified electric power portfolio, therefore, will likely depend on industry’s ability to continue the safe and economical operation of the existing fleet while making the changes necessary to ensure compliance with new and pending environmental regulations. That will require committing resources to energy efficiency measures.
Improving thermal efficiency provides two important benefits: the reduction of fuel consumption, which lowers operating costs, and the reduction of emissions, including CO2 emissions.iii While these benefits provide incentives for utilities to enhance coal plant efficiency, there are practical limits to what’s feasible economically, technologically and expediently.
While there is no fixed endpoint for the useful life of a coal power plant, as a unit ages, large capital investments tend to become less attractive due to the unit’s remaining life. For investments with relatively rapid payback, which is typical of many efficiency improvements, age is not a major issue. In fact, a number of technologies and measures are commercially available today that are capable of achieving modest efficiency gains.
The economic feasibility of enhancing coal fleet performance includes capital costs of retrofitting efficiency technologies and/or investments in operation and maintenance (O&M). It also includes the potential costs associated with running afoul of regulations – notably New Source Review (NSR). In evaluating whether to undertake efficiency projects, utilities must take into consideration the potential costs associated with triggering NSR. In a June 2014 presentation to the Coal Utilization Research Council (CURC), Senator Heidi Heitkamp (D-ND) commented that it would be a “fiduciary transgression” for utilities to consider power plant improvements without anticipating NSR repercussions.
Under the EPA’s NSR program, major new sources and modifications of existing sources must obtain preconstruction permits that require the application of state-of-the-art pollution control technology, among other requirements. In a report prepared for the EPA, the National Research Council noted, “NSR’s treatment of modifications has been particularly controversial.”4 A physical change at an existing plant that is not considered “routine maintenance, repair or replacement” under the agency’s rules or a change in method of operation that causes a significant net increase in emissions will trigger NSR.
In describing the “perverse EPA interpretation of new source review,” Castle Light Energy Corporation5 explains NSR by comparing an old coal power plant to granddad’s 1960 Buick, which is in good condition and has been well maintained. One day, you notice a small leak in the Buick’s radiator and learn from your mechanic that the radiator needs to be replaced.
Under EPA rules, the radiator replacement would require you to obtain a permit and, since the replacement would extend the life of the vehicle and you’d likely drive it more often, your repair would result in more (new) emissions and trigger an NSR claim. To meet those NSR requirements, in addition to replacing the radiator you would need to update the Buick to meet all of the emissions regulations required of a brand new car. Obviously, the cost to do so would probably exceed the car’s value, so you’d likely not proceed with the radiator replacement and send the Buick to the scrap yard.
The NSR permitting program unintentionally limits investments in efficiency in numerous ways. The EPA’s interpretation of NSR rules has been controversial since the late 1990s. The uncertainty created by the controversial interpretation has worked as a powerful disincentive for utilities to undertake projects that might trigger NSR or to conduct research necessary to develop additional efficiency innovations. Additionally, the requirement for a modified facility to obtain a permit before starting any construction activity and to apply the best available control technology (BACT), among other requirements, serve as a strong economic disincentive to making such changes at existing power plants. The very substantial, even prohibitive cost of NSR creates strong disincentives to the widespread deployment of technologies and measures to improve power plant efficiency.
Intuitively, one might think that projects that improve efficiency – such as those cited in the NCC report – would not trigger NSR even if they are considered “physical changes” because they decrease emissions per unit of power produced. Unfortunately, that’s not necessarily the case under NSR because of the way NSR rules define “emissions increase.” Under NSR rules, as they’re currently being enforced by the EPA, projects would trigger NSR if they result in an increase in emissions of sulfur dioxide (SO2), nitrogen oxide (NOx), particulate matter (PM) or greenhouse gas (GHG). If the unit were used more after the improvement project than before as a result of the project, it would likely be considered to result in an NSR emissions increase.
The irony here is that assuming the overall electricity demand is unchanged, increased use of an efficient unit would likely lead to a decrease in the use of another less efficient unit. The displaced generation from a less efficient unit could contribute to a decline in regional emissions. As presently interpreted, however, NSR rules could result in higher national emissions and continued degradation of efficiency within the existing fleet.
In its May 2014 report to Secretary Moniz, NCC recommended DOE work with the EPA to eliminate NSR-related barriers that disincentivize generators to pursue efficiency improvements, which would otherwise reduce emissions, increase capacity and enhance plant operations.
Coal has been the dominant source of power generation in the U.S. since Thomas Edison opened the Pearl Street Station in Manhattan in 1882. This dominance is a result of coal’s domestic abundance, accessibility, reliability and low cost compared with other generation alternatives. With some efficiency and capacity enhancements, our existing coal assets can serve us well for many years to come.
i The National Coal Council (NCC) is a federally chartered advisory group to the U.S. Secretary of Energy, providing advice and recommendations to the Secretary on general policy matters relating to coal and the coal industry.
ii The EIA Annual Energy Outlook – 2014 projects that, based on current regulations, coal’s contributions to total generation will average 37% for the period 2014-2040.
iii For a given unit and fuel, CO2 emissions are directly proportional to heat rate, with a small adjustment for CO2 release from systems using limestone FGD.
Janet Gellici is the executive vice president & chief operating officer of the National Coal Council (www.nationalcoalcouncil.org).
1 Coal to the Rescue, but Maybe Not Next Winter, M. Wald, New York Times, March 10, 2014.
2 Reliable & Resilient: The Value of Our Existing Coal Fleet, National Coal Council, May 2014, http://www.nationalcoalcouncil.org/NEWS/NCCValueExistingCoalFleet.pdf
3 Annual Energy Outlook – 2014er, USDOE/EIA, December 16, 2013.
4 New Source Review for Stationary Sources of Air Pollution, National Research Council, 2006.