# Analysis of EPA’s Proposal to Reduce CO 2 

# Emissions from Existing Units

November 12, 20142 

# The generation fleet in MISO is being affected by fuel prices, energy policies and multiple environmental regulations

???

• Increased costs

• Other potential impacts depend on regulations 

### MATS CSAPR

& CWIS

Regulation Mercury and Air

Toxics Standards Cross State Air Pollution Rule and Cooling Water Regulations (316(b)) New air quality standards/ Coal ash storage



### Compliance 

### Dates 2015 / 2016 As early as 2015

Impacts • Significant coal

retirements

• Outage coordination 

### challenges

• Shrinking reserve margins around MISO

• Growing dependence on natural gas 

### NAAQS & Coal Ash

CO 2 from existing and new power plants



### • New coal requires CCS; base load capacity options reduced

• Significant coal retirements

• Increased dependence on gas and CO 2 

### neutral



### resources 2015/16 (New) Beginning in 2020 (Existing)



### • NO x 

### requirements tightened

• Higher plant compliance costs influence retirement decisions Draft Clean Power 

### Plan 111 (b) & (d)

# MISO Mission

• Drive value creation through efficient reliability / market operations, planning and innovation.

• Ensure reliable, least

- cost delivered energy for all electricity

consumers

.

3 

# Disclaimer

• The studies referenced in this presentation show predictions of potential future costs. These costs are indicative based on the 

# assumptions used in the modeling. Capital, fixed operating and maintenance and production cost increases are only captured.

• These do not include additional costs related to:

– Electric transmission expansion

– Gas infrastructure expansion

– Stranded generation facilities

# The purpose of MISO’s analysis...

...is to inform stakeholders of potential impacts on the generation fleet and load resulting from the EPA’s proposal to reduce CO 2 

## emissions from existing electric generating units.

June 2014

Draft rule issued



### December

2014

Deadline for providing comments to EPA 

### June

2015

Rule finalized



### June 2016

State plans due 

### June

2017 State plans due (with one year extension)



### June

2018

Multi

- state plans due (with a 2

- year extension ) 

### January

2020

– 

### 2029

Interim goal in effect



### January

2030 onward
Proposed goal in effect

4

# Key Findings (All costs shown are indicative)



# • Compliance costs vary based on the reduction strategy.

– ~$90B net present value for EPA’s Four Building Blocks

– ~$55B net present value for regional optimization



# • Regional compliance is approximately 40% less expensive.

– $55B (regional ) vs $83B (sub

- regional ) CO 2 

# emissions reduction



# • Entities subject to the rule may need to take action by 2020, which may challenge their ability to 

# implement least

- cost compliance strategies.

56 

# EGEAS, a strategic assessment model was used to study 

# the impacts of the draft CO 2 

# emissions reduction rule

OPTIMIZATION CONSTRAINTS

 Planning Reserve Margin  CO 2 emission constraint (mass

- based)  Resource availability INPUT DATA ASSUMPTIONS

 Demand and energy forecast  Fuel forecasts  Retirements  CO 2 costs  RPS requirements

EXISTING RESOURCES DATA

 Unit capacity  Heat rate  Outage rate  Emissions rate  Fuel and O&M costs NEW RESOURCES DATA

 Capital cost  Construction cash flow  Fixed charge data  Years of availability



## OPTIMIZED RESOURCE PLAN

 20

- year resource expansion forecast  Amount, type and timing of new resources  Total system Net Present Value (NPV) of costs  Annual production costs for system  Annual fixed charges for new units  Annual tonnage for each emissions type  Annual energy generated by fuel type  Annual system capacity reserves and generation system reliability 

# EGEAS

EGEAS stands for Electric Generation Expansion Analysis Syste m Total System Costs = Sum of Production Cost + Fixed O&M Cost + Capital Carrying Costs.7 

# Each state has a proposed interim and final state

- wide 

# CO 2 

# emissions rate goal calculated as:

Statewide CO 2 

# emissions from covered fossil fuel



# fired power plants ( lbs ) State electricity generation from covered fossil plants + 

# renewable energy + nuclear ( a t

- risk portion and New) +
energy e fficiency (EE) (MWh) Rate ( lbs /MWh)



## • Numerator

– sum of CO 2 

## emissions from existing generating units

• Denominator

– electricity generation in the state excludes existing hydro and new thermal resources

• Every state is assigned a different proposed rate goal ( lbs /MWh) for the 

## interim (2020

- 2029) and the final (2030 onward) periods

• For modeling purposes, rate

- to

- MISO

- equivalent mass was calculated:

– Emissions in tons = (2012 generation from covered fossil plants + renewable and EE mandate

- driven energy forecast) * (proposed state CO 2 

### emission rate goal)



### – Only the MISO portion of the state was modeled

# An assessment of EPA’s proposed building blocks to calculate their costs and emissions reduction potential

8 Building Block 1

Building Block 4 Building Block 3 Building Block 2

All Building Blocks Regional (Footprint

- wide)

Sub

- Regional (Local Resource Zones) Cost of Compliance

Emissions Reduction Achieved

Cost of Compliance

Emissions Reduction Achieved

Cost of Compliance

Emissions Reduction Achieved

Cost of Compliance

Emissions Reduction Achieved

Cost of Compliance

Emissions Reduction Achieved

# EPA’s Technical Support Documents provided modeling 

# assumptions for the Four Building Blocks

9 

### Scenario Modeling Assumptions (per EPA’s Clean Power Plan) and Methodology

Reference Case MISO’s MTEP

- 15 Business As Usual future assumptions*

Building Block 1 In 2020, apply a 6% heat rate improvement to all the coal

- fired units at a capital cost of

$100/kW (amortized over 10 years).

Building Block 2 Calculate and enforce, starting in 2020, a minimum fuel burn for existing CC units to

yield an annual 70% capacity factor.



### Building Block 3 Calculate and add the equivalent amount of wind MWs to meet the incremental regional

non

- hydro renewable target.

Building Block 4 Calculate the amount of energy savings for the MISO footprint and incorporate it as a

20

- year EE program in the model.



### All Building Blocks 

### Application of all building blocks.

* Assumptions matrix is available at https://www.misoenergy.org/Events/Pages/PAC20140820.aspx

# Implementing the EPA’s building blocks changes the energy mix of the system, and...

BB1

BB3 BB2

BB4 Reference Case All Building Blocks

Energy production from new gas is less than 2.3% in all the scenarios. “Other” category includes energy from biomass, hydro, demand response, energy efficiency and solar.

10 All charts show MISO system 2030 energy production by fuel type.11 

# ...the application of all four building blocks achieves the 

# required CO 2 

# emissions reduction for the MISO footprint

# Alternative compliance options achieve the proposed level of CO 2 

# reduction at a lower cost than the EPA Building Blocks by 

# approximately $3.5B annually. 

# Thinking outside the blocks

In the reference scenario, energy production from new gas is less than 2.3%. “Other” category includes energy from biomass, h ydr o, demand response, energy efficiency and solar. The results shown for the CO 2 Constraint case are indicative. Further model optimization is required as shown in Phase 2 which indicates potential addition al value from increased energy efficiency and coal retirements.

The difference in the “Other” category is due to modeling assumptions: EPA assumes 1.5% annual growth in energy efficiency as a % of energy sales; MISO assumes continuation of existing energy efficiency programs.

12 2030 MISO Energy: CO 2 Constraint 

### $38/ton 2030 MISO Energy: All Building Blocks 

### $60/ton MODELING ASSUMPTIONS

Building Blocks

BB1 = Efficiency improvements for existing coal units

BB2 = Increased CC dispatch

BB3 = Expanded renewables and sustained energy production from nuclear units

BB4 = Expanded demand

- side energy efficiency CO 2 Constraint Case
System

- wide CO 2 constraint
New gas units more efficient than existing gas units (results in increased dispatch of new CCs/decreased dispatch of higher

- CO 2 - emitting units)

Current Renewable Portfolio Standards & state energy efficiency targets assumed

unchanged13 

# All combinations of the following policy and economic sensitivities were modeled

0.80%

3.44

Existing RPS Mandates

0

No additional

Base

No Nuclear Retirements

60

- year life Nuclear 50% of EPA’s

Building Block 4 EPA’s Building

Block 4 25% (13.9GW) 50%

(28.3GW) 10 25 50

15% Regional 20%

Regional 4.30 5.16

1.50%

Energy Efficiency as a % of sales Additional Coal

Retirements

Nuclear Retirements CO 2 Costs ($/ton) Renewable Portfolio Standards Natural

Gas Prices ($/MMBtu) Demand and

Energy Growth Rates

# Lower

- cost 111(d) compliance strategies retire up to an additional 14GW* of coal capacity

The cost of compliance for the MISO system ranges from $20

- $80B.

Each diamond represents one policy and economic sensitivity.

14 * In addition to the 12.6 GW of capacity already projected to retire.

# Regional compliance options avoid costs of approximately $3B annually compared to sub

regional compliance

15 $38/ton

55 83

$5B annual
costs $8B

annual
costs $57/ton

# Is there enough time to reliably implement lower

- cost compliance strategies?

16

# Additional Information

• EPA Regulations webpage

https ://www.misoenergy.org/WhatWeDo/EPARegulations/Pages/EPARegulations.aspx



# • Planning Advisory Committee: Study Results Presentation

https://www.misoenergy.org/Library/Repository/Meeting%20Material/Stakeholder/PAC/2014/20140917/20140917%20PAC% 20Item%2002%20GHG%20Regulation%20Impact%20Analysis%20

- % 20Study%20Results.pdf



# • MISO One

- Pager on Initial Study Results

https :// www.misoenergy.org/Library/Repository/Meeting%20Material/Stakeholder/PAC/2014/20140917/20140917%20PAC% 20Item%2002%20MISO%20CO2%20Analysis%20One%20Pager.pdf



# • Additional Information, please contact:

Aditya Jayam Prabhakar ajayamprabhakar@misoenergy.org

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