The Clean Power Plan (CPP) is not just another air regulation - it has the potential to rearrange the U.S. power map. How will EPA’s CPP impact your state? This infographic breaks down the different factors that impact key decisions. View the web-version: https://www.icfi.com/markets/energy/campaigns/epas-clean-power-plan

1. Background and Timeline
Assessing the Foundations of a State Plan:
A Stakeholder Perspective
Industry Challenges: Implementation
Understanding the Building Blocks to BSER
Industry Challenges: Broad Implications
EPA’s proposed Clean Power Plan would regulate
carbon dioxide (CO2
) emissions of existing
generating units through state-level CO2
emission
rate standards. EPA estimates that the rule will
reduce total U.S. power sector emissions by 30%
from 2005 levels by 2030.
FLEXIBILITY IN TECHNOLOGY
Affected sources have the opportunity to advise the
states on the potential resources and related costs
for reducing emission rates, and how they may
impact competitive position and power markets.
FLEXIBILITY IN GEOGRAPHIC SCOPE
Assessing the relative costs of compliance in
potential partner states will help affected sources
determine whether they will be buyers or sellers
in a multi-state program, and how allowance
trading or multi-state averaging will impact
compliance costs and electricity prices.
Each state is allowed to determine its own optimal
plan design and components. With this flexibility,
state regulators will need input from generation
owners, system operators, energy regulators, and
other stakeholders to design plans that achieve
compliance while taking advantage of opportunities
to minimize compliance costs and improve
competitive advantage.
The Clean Air Act requires that EPA identify the “best system of emission reduction” (BSER), taking into
account the costs and benefits associated with potential reduction opportunities in CO2
emission rates.
The Clean Power Plan’s four “building blocks” of BSER include:
Heat rate improvement to
reduce emission rates of
coal generating facilities
Fuel switching, or system
redispatch from coal to
natural gas
Increasing generation from
renewables and preserving
generation from nuclear units
Growth in end-use energy
efficiency (EE) to displace
emitting generation
States have the option of choosing multiple pathways to reduce emissions to meet their target standards. These
pathways include “inside the fence” measures at specific facilities, such as heat rate improvements, and “beyond the
fence” measures, such as developing incremental renewable generation and energy efficiency.
Utilities and other entities across the energy sector will feel
the impacts of particular design choices in state plans for
years to come. Electric generating units (EGUs) will likely
face a potentially wide range of directly enforceable
requirements and revenue impacts as part of those plans.
Natural gas suppliers, coal suppliers, pipeline owners, and
others will be affected through impacts on fuel use and
electricity prices.
POWER PRICES MOVE DEPENDING ON
THE APPROACH THAT STATES ADOPT
The form of regulation, particularly for those
programs creating a price on CO2
emissions, will
move electricity prices and, therefore, generator
revenues. A few potential scenarios include:
MULTI-STATE MANAGEMENT REQUIRES ATTENTION
Planning efforts will be particularly challenging for organizations
that own or manage generation sources in multiple states.
Companies could find themselves keeping up with a host of
idiosyncratic state policies across their fleet, especially if they
have a presence in states which fall into more than one RTO
footprint. The regulatory approaches in neighboring states could
also create inconsistent market signals at the borders, or along
the seams of state and regional programs, that are equally
important in driving market outcomes.
The achievement of the standard through a tradable emission rate limit could result in credits to generation sources
that emit below their state standard, potentially putting downward pressure on wholesale prices in some markets.
A portfolio approach that requires renewable generation through an RPS, energy efficiency through an efficiency
standard, and emission reductions at the generation source, could limit impacts on wholesale electricity prices and be
primarily felt through retail rates.
A plan with a mass-based cap with trading would add a positive dispatch cost to all emitting units, and, all else equal,
apply upward pressure to wholesale and retail power prices.
Generators in states that opt to join multi-state groups may benefit from lower cost compliance options in the partner
states, or from generating emission reduction credits for sale to partner states.
INFRASTRUCTURE NEEDS WILL SHIFT
The Clean Power Plan may shift demands and stresses on energy infrastructure. For instance:
EPA projected coal unit retirements
to double by 2030 relative to a
business-as-usual case, which
could impact system reliability and
capacity market dynamics.
Generators will also need to know
whether they have access to
adequate gas pipeline infrastructure,
and the delivered cost of the fuel,
should they need to rely on gas-fired
generation to a greater degree.
Similarly, companies seeking to deploy
more wind will need to examine
whether or not there is adequate
transmission capacity to support
development.
States seeking to deploy more
distributed generation (DG)—such as
solar PV, and CHP—will need to
understand the impacts of high DG
penetration on the distribution grid,
and how energy storage fits this plan.
Putting it all Together
About the Authors
Given the high near-term likelihood of a regulatory penalty for CO2
emissions,
utilities and generators would be prudent to account for a carbon price in their
strategy and planning, and to determine what form of enforcement and
regulation scheme would work best for them.
ICF provides the type of integrated analysis that utilities and other stakeholders
will require to address the multitude of compliance options and issues with
their states. We continue to analyze all facets of the proposed rule to
understand the relative contributions of the building block components to state compliance options, as well as
the impacts of the rule on individual generating assets and wholesale power markets.
The EPA’s proposed Clean Power Plan would regulate emissions of CO2
from existing
generation sources, forcing states and companies to make critical strategic choices in
the near future that will affect power prices, power system reliability, natural gas
markets, and the need for new infrastructure.
EPA’s proposal allows states to join into compliance groups. Collaborating with an existing program, such as the Regional
Greenhouse Gas Initiative (RGGI), may ease the rulemaking burden, although even RGGI may require some changes. The
formation of a new multi-state group might add administrative and regulatory complexity, but also may improve economic
efficiency by expanding the number of compliance options through trading within a cap-and-trade or credit program.
2015 Mid Summer
final rule from EPA
Initial state plans
are due to EPA for
review in 2016
Final plans due for
states acting alone
in 2017
For states in
multi-state compliance
groups, plans are due
in 2018
2015 2016 2017 2018
FLEXIBILITY IN POLICY MECHANISMS
States and affected entities may reduce compliance
costs by understanding the pros and cons of each type
of policy design and the point(s) of regulation with
respect to measuring and achieving compliance.
EPA specifies state targets in the form of emission rate standards (in lb/MWh) but allows states to translate those
standards to emissions mass caps. However, submitting a plan with a mass cap will require its own careful analysis, as
the projected cap will determine the eventual stringency and compliance costs for the state and may constrain
generation growth.
Utilities could be required to fill new roles as operators
of new or expanded programs. For instance, a state
plan could require its utilities to develop new end-use
efficiency and distributed generation incentive and
potentially deployment programs. In states with
expanded programs of this nature, utilities may have
higher implementation costs and face greater program
complexity. In states developing new programs,
utilities must determine approaches that impose the
least administrative burden. In both cases, developing
the optimal program design will require analysis of the potential compliance resources, locational impacts,
development of a plan to reach and encourage adoption, outreach to participants, measurement and
verification of uptake, and program administration.
STATE 1
STATE 2
STATE 3
state regional
More Information
Chris MacCracken
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Philip Mihlmester
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EPA’s Clean Power Plan:
Challenges Ahead for Sources and States