**Appendix E**  **: EPA’s evaluation of cost of Selective Catalytic Reduction (SCR)**  **controls**

**Nebraska Public Power District (NPPD) Gerald Gentlemen Station (GGS), Units 1 and 2** We received a number of comments stating that NPPD and the State failed to properl y cost the GGS SCR sy stem. The following is an analy sis of the cost effectiveness of the GGS BART analy sis for SCR that addresses the points made in those comments

. We adjust a number of cost items because NPPD’s usage of them does not comport with EPA’s Control Cost Manual. These include engineering, procurement, and construction; the capital recovery factor; contingency ; escalation; and allowance for funds used during construction. We note that as with our dry scrubber cost analy sis, there are some cost line items that we did not adjust that could have impacted the cost. These include a number of capital costs that were apparentl y not based on vendor quotes, or otherwise properly documented. Also, although we calculate the SCR costs using NPPD’s assumed NOx control level of 0.08 lbs/MMBtu, we further adjust the SCR cost estimate to account for a NOx c ontrol level of 0.05 lbs/MMBtu.
1

. Engineering Procurement and Construction
NPPD assumes an Engineering Procurement and Construction (EPC) fee of 20% of the total cost, but does not provide an y discussion or explanation for this cost

. In our proposal, we recalculated the EPC fee for dry scrubbers to be 6.5% of the cost items that are not supported b y vendor quotes. NPPD submitted a comment on this subject, which we address in our response to comments. As we noted, in our response to comments, we received no information from NPPD that caused us to conclude our methodology was incorre ct. Therefore, we have adopted the same methodology

here. In costing the SCR installations, NPPD notes that only the costs for the urea to ammonia sy stem and the booster fans are supported by vendor quotes. Thus, we have revised our EPC costs to be 6.5% of the capital costs, except for the urea to ammonia sy stem and the booster fans. This calculation appears in line 25 of Appendix D (SCR cost spreadsheet)

. 2 . Capital Recovery

Factor
NPPD does not include its calculation of a Capital Recovery Factor (CRF), which is necessary to calculate annualized (levelized) costs. However, unlike NPPD’s dry scrubber cost anal ys is , we cannot duplicate NPPD’s SCR annualized cost, even using the same real interest rate of 5.25% (which again we adopt, but on which we form no opinion here), and its amortization life of 20 y ears . As with its dry scrubber cost analy sis, the CRF should be approximately

0.08195. 1 We suspect NPPD has made an error in its SCR annualized cost calculations, since the spread in the annualized costs it calculates for the different booster fan scenarios is too great for the difference in capital costs. For instance, the capital costs are $483,411,000 and $478,151,000 for the booste r fan scenarios, yet the annualized costs are $42,305,000 and $38,755,000, respectivel y. We calculate that the se annualized costs should be $39,617,000 and $39,186,000, respectivel y. Similar to our dry

scrubber cost analy sis , we take issue with NPPD ’s as sumption of a 20 ye ar amortization life, which equates to an assumption that the SCR has an operational life of only 20 y ears. The same references we cited to the Control Cost Manual regarding control

1 CRF = (0.0525*(1.0525^20))/(1.0525^20

- 1) = 0.08195. Levelized Capital Cost = CRF*T otal Capital Cost.2

equipment life appl y here. We note that the Control C ost Manual does have a section that treats the SCR cost estimation , which assumes a 20 ye ar life

. 2 However, we are mindful of the requirement in the BART Guidelines to incorporate site specific information into the cost anal ys is:
In order to maintain and im prove consistency, cost estimates should be based on the OAQPS Control Cost Manual, where possible. 3 The Control Cost Manual addresses mo st control technologies in sufficient detail for a BART analysis. The cost analysis should also take into account any site

- specific design or other conditions identified above that affect the cost of a particular BART technology option. As directed b y the BART Guidelines, here we provide site

- specific information concerning the projected operational life of the SCR s ys tem. This information was discussed in our response to comment for our New Mexico FIP regarding the San Juan Generating Station: The lifetime of an SCR, which is a metal frame packed with catalyst modules, is equal to the lifetime of the boiler, w hich mi ght easily be over 60 years. The lifetime of a retrofit SCR is generally set equal to the remain ing useful life of the facility ... Further, as previously noted, there are many SCRs that were installed in Europe in the 1980s that are still in operation to day. Many utilities routinely specify 30+ year lifetimes in requests for proposal and to evaluate proposals. A study of the economic risks from SCR operation at the Detroit Edison Monroe power plant, for example, used 30 years as the anticipated lifetime 4 ... And finally, Sargent & Lundy assumed a design life of 30 years 5 for the nearby Navajo Generating Station which burns a similar coal. We conclude there is nothing in the record to support a 20 year lifetime for the SCR and believe a 30 year lifetime is justified. Similarly , a s with its dry

scrubber cost anal ys is, NPP D has not offered to execute an enforceable commitment to shut down after 20 ye ars. Thus, we adopt a SCR operational life here of 30 ye ars in our calculation of the CRF, which again equates to approximately 0.06691. 6 We use this CRF in our recalculation of NPPD ’s levelized costs. This calculation appears in line 3 9 of Appendix D.
3. Escalation
NPPD incorporates an escalation cost of $ 60,482 ,000, which it states on page 7 of the GGS revised BART analysis Appendix C , was estimated on the basis of 5.0% for Equipment, 7.0% for Material, 4.0% for Labor and 6.0% for Indirects. We have excluded this cost from our

2 Air Pollution Control Cost Manual, Sixth Editio n, EPA/452/B

- 02

- 001, January 2002 , Section 4.2, Chapter 2, Selective Catalytic Reduction, pdf 490.. 3 70 FR 39166 (BART Guidelines): You should include documentation for any additional information you used for the cost calculations, including any informa tion supplied by vendors that affects your assumptions regarding purchased equipment costs, equipment life, replacement of major components, and any other element of the calculation that differs from the Control Cost Manual. 4 S.D. Unwin and others, Selec tive Catalytic Reduction (SCR) System Design and Operations: Quantitative Risk Analysis of Options, Presented at CCPS 17th Annual International Conference: Risk, Reliability, and Security, p. 3. Available here: http://www.unwin

- co.com /files%5CSCR

- Risk

- Pape r,CCPS

- RRS2002.pdf. 5 8/17/10 Salt River Project Navajo Generating Station Units 1, 2, 3 SCR and Baghouse Capital Cost Estimate Report (S&L Navajo Cost Analysis), Appendix A, p. 6, Sec. 1.7. 6 CRF = (0.0525*(1.0525^ 3 0))/(1.0525^ 3 0

- 1) = 0.0 6691.3

SCR BART cost analy sis for the same reasons we discussed in our dry scrubber cost analy sis. This revision ap pears in line 3 0 of Appendix D. 4. Contingency
NPPD incorporates a contingency cost of $ 72,779 ,000, which it states on page 7 of Appendix C , was estimated at 20% of equipment, material, labor and indirect costs. No information was provided to justify the need for this calculation

. Unlike dry scrubbers, the Control Cost Manual does have a specific section that treats SCR cost estimation. The Control Cost Manual indicates that contingencies should be calculated as a process contingency , calculated as 5% of the total direct capital costs, and a project contingency , calculated as 15% of the sum of the total direct and indirect costs. 7 Because NPPD did not support this cost, we use the Control Cost Manual methodology

. This calculation appears in line 3 2 of Appendix D. 5. Allowance for Funds Used During Construction GGS incorporates an Allowance for Funds Used During Construction (AFUDC) cost of $ 41,150 ,000, in the “Other Cost” category , which it states on page 7 of Appendix C as being estimated to be 5% from 2009. We have excluded this cost from our SCR BART cost analy sis for the same reasons we discussed in our dry scrubber cost analy sis

. This revision appears in line 3 3 of Appendix D.
6. NOx L evel of Control NPPD assumes a NOx level of control of 0.08 lbs/MMBtu, based on a 30

- day rolling average. However, the BART Guidelines require that the most stringent level of control be evaluated: It is important, however, that in analyzing the technology you take into account the most stringent emission control level that the technology is capable of achieving. You should consider recent regulatory decisions and performance data (e.g., manufacturer’s data, engineering estimates and the expe rience of other sources) when identifying an emissions performance level or levels to evaluate. In assessing the capability of the control alternative, latitude exists to consider special circumstances pertinent to the specific source under review, or r egarding the prior application of the control alternative. However, you should explain the basis for choosing the alternate level (or range) of control in the BART anal ys is. Without a showing of differences between the source and other sources that have achieved more stringent emissions limits, you should conclude that the level being achieved b y those other sources is representative of the achievable level for the source being anal yz ed. 8

7 Control Cost Manual, pdf 486. 8 70 FR 39104, 39166

.4

In our New Mexico FIP, we found that an SCR level of control of 0. 05 lbs/MMBtu, based on a 30 boiler operating day average was appropriate for the San Juan Generating Station. 9 As we explain in our New Mexico FIP, the BART level of 0.05 lb/MMBtu was selected based on an examination of continuous emission monitoring sy st ems (CEMS) data for existing units operating with retrofit SCRs. Contrasting the two facilities, we see no reason that GGS Units 1 and 2 cannot achieve the same level of control. Assuming a NOx baseline of 0.23 lbs/MMBtu, a NOx emission limit of 0.05 lbs /MMBtu represents a level of control of approximately 78%. As other commenters discuss, this level of control is well within the range of control that is commonly

achievable for a modern SCR sy stem. Therefore, we consider this level of control in our NOx BART cost analysis. Various adjustments are made to the cost in response to this NOx control level.
7

. Effect of NOx Removal Efficiency Assumption on Cost GGS employ s a levelized fixed O&M cost of $ 1,466,000 and a levelized variable O&M co st of $ 13,049,000. Although GGS does not document the individual cost items contained in the fixed O&M cost, we can duplicate both the fixed and variable O&M cost s by using the information containe d in the financial model cases on pages 4 and 5 of the revised NP PD BART Analy sis

– Appendix C

. The variable O&M cost include charges for urea, catal ys t, water, an auxiliary power energy

charge, and an auxiliary

power capacit y charge. Of these charges, those for urea, water, and catal yst, will vary due to the assumed level of control. Certain other capital costs will also vary

. For instance, NPPD assumes a N Ox control level with the afore mentioned combustion controls and SCR to be 0.08 lbs/MMBtu based on a 30 day rolling average. However, achieving a NOx emission limit of 0.05 lbs/MMBtu wi ll require increases in the costs for urea, water, and catal ys t. Lacking the engineering calculations NPPD employ ed in order to calculate these items, we provide an EPA cost estimate of these increases. We perfor

m this estimation using an SCR cost model developed by Sargent & Lundy for the EPA IPM model. 10 This model’s algorithms were converted to a spreadsheet, which we present in Appendix D. Here we calculate the capital and O&M costs for two NOx control scenarios: NPPD’s NOx control of 0.08 lbs/MMBtu, and a lower NOx control of 0.05 lbs/MMBtu. Although this cost model does not follow the Control Cost Manual methodology in several areas, it is useful for our purposes of simply contrasting the difference in cos ts due to changing the level of NOx control. The following table contrasts those cost items that exhibited a change :
**Cost Category NOx Controlled**  **to 0.08 lbs/MMBtu**  **NOx Controlled**

**to 0.05 lbs/MMBtu**  **Percent**

**Increase**
SCR $58,104,000 $60,265,000 3.59 Reagent Preparation $2,178,000 $2,280,000 4.47 Engineering and construction management $6,569,000 $6,796,000 3.34

9 76 FR 52388. 10 IPM Model

– Revisions to Cost and Performance for APC Technologies, SCR Cost Development Methodology, Final, August 2010, Project 12301

- 007, Perrin Quarles Associates, Inc., Prepared by Sargent & Lundy.5

Labor adjustment for 6 X 10 shifts, per diem, etc. $6 , 569,000 $6,796,000 3.34 Contractor profit and fees $6 , 569,000 $6,796,000 3.34 Total c apital, engineering, and construction $85,400,000 $88,344,000 3.33 Total project $95,050,000 $98,327,000 3.33 Variable O&M urea ($/MWh) $0.318 $0.382 16.75 Variable O&M catal ys t ($/MWh) $0.239 $0.272 12.13 Total variable O&M ($/MWh) $0.794 $0.891 10.89 Thus, we see that modest increases to the capital costs , and moderate increases to the variable O&M costs are necessary to adjust the cost from a NOx control level of 0.08 lbs/MMBtu to a NOx control level of 0.05 lbs/MMBtu. In order to be conservative and for the ease of calculation, we simply increase the total capital cost by 4%, and the total variable O&M cost by 11% , in order to account for the increased NOx control level of 0.05 lbs/MMBtu

. 8 . SCR Cost Effectiveness
NPPD calculates the incremental cost effe ctiveness of installing SCR on Units 1 and 2 of the GGS to be $5,445/ton of NOx removed. This assumes a NOx control of 0.08 lbs/MMBtu based on a 30 day

calendar average. Having made the cost adjustments described above, w e find that the cost effectiveness of SCR for Units 1 and 2 of the GGS facility should range between $ 3 , 66 2/ton and $ 3,243 /ton , assuming NOx control levels of 0.08 lbs/MMBtu and 0.05 lbs/MMBtu, respectivel y.