This is the third Insight in a series covering the U.S. EPA’s historic carbon emissions standards being proposed for the power sector.
The U.S. Environmental Protection Agency (EPA) proposed historic carbon standards on the power sector in May, which BTU Analytics has previously outlined. These standards, which have yet to be finalized, were originally thought to have a relatively modest impact on natural gas-fired generators. However, an updated analysis by BTU Analytics, using recently published regulatory guidance, shows that twice as much natural gas-fired capacity could be affected compared to EPA expectations released in their impact study.
Under the EPA’s draft rule, natural gas-fired combustion turbines, including those that are part of natural gas combined cycle (NGCC) units, with generating capacities above 300 MW and utilization rates exceeding 50% face strict emissions limits. Meeting those standards requires either installing carbon capture and sequestration (CCS) technology or units throttling down their utilization rate to 50% or lower to avoid the emissions standards altogether. Alternatively, NGCC units could co-fire with low-greenhouse gas hydrogen, but the EPA’s impact analysis issued in May didn’t include this pathway for existing NGCC units.
In the EPA’s impact analysis published in May, the agency quantified the number of facilities that would meet the 300-plus MW size threshold by averaging the generator capacity for each combined cycle unit, ultimately identifying 36.8 GW of capacity likely subject to the new regulation. An earlier analysis from BTU Analytics arrived at a comparable finding via a similar methodology. But in averaging generator capacity, the EPA strayed from its own regulatory guidance, subsequently published June 12, which specifies that turbine size is to be determined by adding the nameplate capacity of the combustion turbine and a prorated amount of any steam generating capacity connected to the combustion turbine.
Using this prorate methodology, a much greater number of NGCC units would surpass the 300-MW threshold, leading to substantially more capacity being subject to the tighter emission limits. To illustrate how disparate the outcomes of the different methodologies are, let’s look at the 1.1 GW Paradise Plant in Kentucky, a facility that has three 211-MW combustion turbines and one 467-MW steam turbine.
Applying the averaging methodology across the Paradise combined cycle plant yields an average turbine capacity below 300 MW, which would mean the entire 1.1-GW facility would be unaffected by the regulation. However, adding the nameplate capacity of each combustion turbine with a proportionate amount of capacity from the steam turbine results in each combustion turbine having a 367-MW effective capacity, meaning the units are subject to the compliance requirements.
BTU Analytics identified 44 NGCC units in the map below that, like the Paradise plant, were not captured in the agency’s impact analysis but would meet the criteria for the stricter emissions limits when capacity is calculated with the prorating method.
In the EPA’s impact analysis, only 36.8 GW, or 13.4% of the NGCC fleet capacity, would be forced to adjust behavior in 2035, with the EPA modeling most of those units opting to throttle down to a 50% utilization rate or lower. By contrast, when this analysis is rerun with prorated capacities, the capacity subject to the standards nearly doubles to 72.5 GW, or 26.5% of the NGCC fleet capacity.
Furthermore, the units subject to the regulation are among the most utilized facilities in the fleet and, accordingly, account for a disproportionately large amount of the generation. As shown below, using the prorated capacity limit in the impact analysis finds that as much as 44% of EPA projected NGCC generation in 2035 would be affected under the rule as written. Some of these units will install CCS to meet emissions standards, but for most of the units, this option will likely be uneconomic, as modeled by the EPA. This means these units will likely need to decrease generation to bring capacity factors below 50%. Some of these units will be unable to do this for grid reliability reasons, which will add to the uncertainty about how those units operate.
As seen above, the two methodologies proposed by the EPA affect vastly different amounts of capacity. It must also be noted that recently released documents state that the EPA is considering revising the 300-MW threshold. Therefore, the true amount of affected capacity remains to be seen.
Ultimately, when applying the EPA regulatory guidance provided in the draft rules, BTU Analytics finds that the nation’s gas-fired fleet could face a larger and farther-reaching compliance burden than official estimates have indicated. While the new standards are likely to face legal headwinds – previous proposals under the last two administrations were challenged in court – the draft rule as written today would require a significant portion of gas-fired capacity to adjust behavior. At least 79 units, representing 72.5 GW and 44% of modeled baseline NGCC generation in 2035, would meet enforcement criteria once a prorating methodology is applied in calculating turbine capacity.