The power generation landscape in the US is on the verge of fundamental change. The combination of new-found shale gas supplies with stringent new EPA power plant regulations combine to form a perfect storm threatening survival of many existing coal units, while creating a corresponding sharp increase in natural gas combined cycle capacity.
Among these new EPA rules is the Utility Mercury and Air Toxics Standards (MATS) Rule and is discussed as part of the article “A season for Change - coal fired generation prepares for the biggest makeover in US history” in Power Engineering Magazine.
Compliance with this rule will require substantial new capital investment in older, marginal coal units if they are to survive. Utilities across the US are already announcing shutdowns of such older units because they believe compliance with this and other new EPA rules would render them uneconomic to operate compared with the competition – new natural gas combined cycle generation capacity. This is the very discussion that is playing out in Board Rooms across the country.
Planning for the future becomes a conundrum because we cannot know the long-term price of natural gas or how, when or if it can be delivered to where the power is needed or at what cost. Gas transmission upgrades will certainly be needed to support the combined cycle frenzy. On the other hand, coal is tried and true and served the country well when the last gas bubble burst. A utility with marginal coal units must make difficult and irreversible decisions about the future of their generation fleet without having sufficient knowledge of the future to make those decisions. Further, wait and see is no longer an option, because the first MATS compliance dates are 3-4 years away, and the clock is ticking.
ERM consultants Bob Fraser and Pete Belmonte presented a hypothetical case study on this topic at PowerGen 2011 illustrating how difficult such decision making can be. For this example they created a hypothetical generating unit with the case study constructed to illustrate that for units like this there is no right or wrong answer. Either capital upgrades to the existing coal unit or replacement with natural gas combined cycle could be justified depending on the various assumptions applied.
In a bit of role playing, they asked the audience to put themselves in the position of the unit’s Board of Directors, and due to the urgency of MATS compliance required a final vote on whether to begin upgrading the unit or to start permitting a replacement natural gas combined cycle unit. Interestingly, the majority of people in that room voted to remain with coal.
Power Engineering Magazine reporter Lindsay Morris found the presentation and its reaction fascinating, and asked if she could interview Pete and Bob as part of an upcoming article she was working on. The article is entitled “A season for Change - coal fired generation prepares for the biggest makeover in US history”.
While ERM is helping our existing coal clients evaluate upgrades to some of their units, we are also helping them strategize and plan for the next wave of natural gas combined cycle capacity. The power generation landscape in the US is about to evolve before our eyes and ERM is playing a major role in the development and permitting for the next generation of US power generation.