C ONCORD

, MA

- M ANCHESTER

, NH

- W ASHINGTON

, DC

47 J UNCTION S QUARE D RIVE
C ONCORD

, MA 01742

978

- 369

- 5533 www.mjbradley.com

M.J. Bradley & Associates LLC | Strategic Environmental Consulting Page | 1 

### To: Environmental Defense Fund

From: MJB&A

Date: September 20, 2012

RE: RICE NES H A P Emission Controls Analysis

This memo details the economic analysis MJB&A conducted for EDF on the RICE NESHAP Proposed Rule. MJB&A first evaluated the capital costs of installing emission controls

- diesel oxidation catalyst (DOC) and open crankcase ven tilation ( OCV ) for a range of engine sizes (1 00

- 1,5 00 hp). Next, we evaluate d the dispatch costs for the engines including the diesel fuel costs, engine maintenance costs and emission control maintenance costs. We then evaluate d a reasonable range for the capacity revenues that could be earned by these engines based on market data. We based the analysis on two examples of capacity market prices in NYISO and PJM . Lastly

we estimate d the avoided energy costs and range of energy rev enues that could accrue to an engine when dispatched by a particular ISO for 15 and 100 hours per year.

Key Takeaways

• The capital cost for diesel oxidation catalyst (DOC) and ope n crankcase ventilation ( OCV ) for a 500 hp engine is approximately $14,000. This includes the costs of equipment and

installation.

• In the PJM RTO, annual capacity market revenue available for a 500 hp engine from 2013

-
2015 would likely total over $60,000 i n the PJM MAAC region and $30,000 in lower priced areas of the PJM RTO.

• In NYISO, the capacity revenue available for a 500 hp engine would be in the range of $20,000 per year in the New York City area.

• We estimate that the all

- in dispatch cost for a 500 hp engine is $0.2 8 /kWh ($2 8 0/MWh).

• In PJM, emergency energy prices paid to emergency DR resources have historically been in the $1,000/MWh range. Using this assumption, a 500 hp engine operating for 15 hours annually would earn approximately $3,600 in net en ergy revenue and an engine dispatched for the proposed 100 hour maximum would earn more than $24,000 in net

energy revenue.

• In NYISO, energy prices paid to emergency DR resources typically average $500/MWh. A 500 hp engine dispatched for 15 hours per ye ar would earn approximately $ 1,100 in net

energy revenue and an engine dispatched for the full 100 hours annually would earn more than $7,000 in net energy revenue

.

• In both ISOs, the capacity and energy revenues would pay for the costs of emission

contro ls in approximately one year , even if the engines were dispatched for only 15 hours

.

• However, t his analysis assumes that all of the capacity and energy revenue would accrue to the owner of the engine enrolled in the demand response program. This may not necessarily be the case as curtailment service providers that aggregate these engines mayStrategic Environmental Consulting Page | 2 

### receive a significant portion of these revenues which would prolong the return on

investment for the installation of emissions controls.

Emission Control Cost

The emission control costs for RICE engines include 1) the capital and installation costs of the emission controls, and 2) the annual maintenance costs of the emission controls. The capital costs

of the emission controls are a one

- time expense while the maint enance costs are a reoccurring

cost based on operating hours.

Capital and Annual Costs

To determine the capital costs of the emission controls, MJB&A utilized EPA’s capital cost

numbers outlined in the RIA , as depicted in T able 1 below

. 1 

### As noted in th e RIA, EPA developed linear regression equations for capital and annual costs using CARB capital cost data and engine size in hp. The formulas in the table reflect the regression results, with cost as a function of engine size (horsepower) and a constant t erm. MJB&A views EPA’s capital cost numbers as conservative. Based on MJB&A’s experience the cost of DOC+OCV could be as low as $15/hp.

Table	1: CI	RICE	Control	Technologies	and	Costs

Technology Capital	Cost
($2008) Annual	Cost
($2008)

Di esel	O xidation C atalyst	(DOC) $27.4	x	hp

- $939 $4.99	x	hp	+	$480

Open	Crankcase	Ventilation	(OCV) $0.26	x	hp	+997 $0.065	x	hp	+	$254



### Based on the EPA RIA control cost assumptions, MJB&A calculated the capital costs for DOC and

OCV on engine s ranging from 1 0 0 to 1,500 hp as summarized in Table 2 below. For a 500 hp engine we estimate that the capital costs of emission controls are approximately $14,000.

Table	2: Control	Technology Cost Estimates by	Engine	Size

Engine	Size

(hp) Capital	Cost	of	Emission	Controls ($/engine)

1 00 $2,824

200 $5,590

300 $8,356

400 $11,122

500 $13,888

1

, 000 $27,718

1,500 $41,548



### Emission Control Maintenance Costs

1 U.S. EPA, Regulatory Impact Analysis (RIA) for Proposed Reconsideration of Existing Stationary Compression Ignition
(CI) Engines NESHAP, Final Report , May 2012, Table 4

- 1 . Available at
http://www.epa.gov/ttnecas1/regdata /RIAs/RIC_Compression_Ignition_Engines_5

- 22

- 12.pdfStrategic Environmental Consulting Page | 3 

### MJB&A developed emission control maintenance cost assumptions based on MJB& A market experience. We estimate that periodic cleaning of the DOC substrate costs $3/hp and is performed every 500 hours of operation . Further, we estimate that the replacement of the oil filter in the OCV costs $100 and is change d every 250 hours of operation.

Dispatch Costs

T he emission control maintenance costs are included in the engine dispatch cost estimates along with diesel fuel costs and engine maintenance costs. We use a fuel cost of $3.234 per gallon of

diesel fuel. 2 

### Engine maintenance costs include scheduled maintenance and periodic overhaul costs. Based on these assumptions, the dispatch costs for a range of engine size s are provided

below. The fuel cost is the domina n t cost that drives the dispatch price for diesel engines. The engine dispatch cost for a 500 hp engine is approximately $0. 2 8 /kWh ($ 2 8 0/MWh). Table 3 provides the dispatch costs for the range of engine sizes.

Table	3: Dispatch	Costs by	Engine	Size

Engine

Size

(hp) Fuel Cost ($/hr) Engine

Maintenance ($/hr) Controls

Maintenance ($/hr) Total	Dispatch Cost

[$/hr] [$/kWh]

100 $26.20 $0.67 $1.00 $19.14 $0.285

200 $34.94 $1.33 $1.59 $37.86 $0.282

300 $52.41 $2.00 $2.18 $56.58 $0.281

400 $69.87 $2.67 $2.76 $75.30 $0.281

500 $87.34 $3.33 $3.35 $94.03 $0.280

1,000 $174.68 $6.67 $6.29 $187.64 $0.280

1,500 $262.03 $10.00 $9.23 $281.25 $0.279



### Capacity and Energy Revenue Analysis

In this section we provide an analysis of the estimated annual capacity revenues and energy

revenues for events and tests that an engine could earn in PJM and NYISO.

Capacity revenue comes in the form of a fixed payment for each unit of capacity on a monthly

basis

. Capacity revenues are paid to committed resources whether or not en ergy is produced by

that resource. The capacity prices are also location specific and program specific. Energy revenues are paid to resources during emergency events and testing.

PJM Capacity Revenue

In PJM, capacity prices are set by auction for a period three years in to the future. Therefore, engine owners know the capacity prices through mid

- 201 6

. C apacity prices in PJM differ depending upon the location of the unit and demand response product type, with capacity prices

in th e conges ted Mid

- Atlantic region (MAAC) often much higher than less congested areas of

western PJM or the RTO clearing price on a whole as illustrated in Table 4

.

Table	4: PJM	Capacity	Prices	for	the	Whole	RTO	and	MAAC	Area	($/MW

- day)

2 Energy Information Administration, Weekly Retail Gasoline and Diesel Prices, U.S. Average, Onroad Ultra

Low Sulfur Diesel, 7/23/12 less $0.546 per gallon, average federal and state road taxes.Strategic Environmental Consulting Page | 4 PJM Area 2011/2012 2012/2013 2013/2014 2014/2015 2015/2016

RTO $110.00 $16.46 $27.73 $125.99 $136.00

MAAC $ 110 .00 $ 133.37 $ 226.15 $ 136.5 0 $ 167.46



### For this analysis, we assume that the engines participate in the full emergency option, and are therefore eligible to receive capacity and emergency energy payments when dispatch ed by the ISO

.

Using the MAAC capacity prices, we est imate that a 500 hp engine enrolled in DR programs would earn over $60,000 from 2013

- 2015. Table 5 provides the estimate d capacity revenue for a range of engine sizes.

Table	5: Estimated	Capacity	Revenue	for	a	Range	of	Engine	Sizes ( PJM

- MAAC)

Engine	Size
(hp) 2013

Revenue 2014

Revenue 2015

Revenue

1 00 $ 4,592 $ 4,245 $ 3,782

200 $9,199 $8,505 $7,577

300 $13,799 $12,757 $11,365

400 $18,398 $17,009 $15,154

500 $22,998 $21,261 $18,942

1,000 $45,996 $42,523 $37,884

1,500 $68,994 $63,784 $56,826



### Using the RTO capacity prices, we estimate that a 500 hp engine enrolled in DR programs would

earn approximately $30,000 from 2013

- 2015. Table 6 provides the estimated capacity revenue for a range of engine sizes.

Table	6: Estimated	Capacity	Revenue	for	a	Range	of	Engine	Sizes	( PJM

- RTO)

Engine	Size

(hp) 2013

Revenue 2014

Revenue 2015

Revenue

100 $564 $2,087 $3,22 5

200 $1,130 $4,181 $6,460

300 $1,695 $6,271 $9,690

400 $2,260 $8,362 $12,920

500 $2,825 $10,452 $16,150

1,000 $5,65 1 $20,905 $32,300

1,500 $8,476 $31,35 8 $48,450



### PJM Energy Revenue During an emergency event, participants registered in PJM’s Full Emergency option are paid the higher of the submitted minimum strike price or the zonal real

- time locational marginal price (LMP) for emergency reductions. G iven the current program rules, market participants have an incentive to submit a minimum dispatch price at the maximum threshold for energy bids of $1,000/ MWh. For the 2011/2012 delivery year, approximately 73 percent of registered sitesStrategic Environmental Consulting Page | 5 

### representing 64 percent of registered MW in the Emergency Full Capacity opti on submitted a minimum dispatch price of either $999 or $1,000 per MWh. 3



### Using $1,000/MWh ($1.00/kWh), we estimate that a 500 hp engine dispatched by PJM for 15 hours annually would earn over $3,600 in net energy revenues and an engine dispatched for 100 hours would earn over $24,000. Table 7 provides the estimated net energy revenues for a 500 hp engine

.

Table	7:	Estimated	Net	Energy	Revenue	for a	500	hp	Engine (PJM)

Annual

Operation

(hours) Generation

(kWh) Engine

Dispatch
Cost	($) PJM	Energy

Cost Net	Energy Revenue	($)

15 5,033 $1,410 $5,033 $3,623

100 33,557 $9,40 3 $33,557 $24,154



### NYISO Capacity Revenue
In NYISO, S pecial C ase R esources (SCR) receive capacity payments, typically on a monthly basis, to ensure availability to curtail power usage upon request by NYISO. In addition, SCR resources receive energy payments when called for events and tests. 4



### The NYISO capacity auctions determine clearing p rices for three distinct locations: New York City, Long Island, and New York Control Area (NYCA). In New York City, the spot price averaged $8.36/kW

- month in the summer 2011. In NYCA, the spot price averaged $0.29/kW

- month in the same time period. 5 

### The Lo ng Island price was set by the NYCA price for all months except for September. 6

, 7 

### MJB&A used 2011 historic capacity prices as follows: $8.36/kW

- month (January

April), $4.50/kW

- month (May

- October), and $2.50/kW

- month (November

- December).

We estimate that a 500 hp engine enrolled in DR programs would earn approxi mately $22,000 annually. Table 8 provides the estimated capacity revenues for a range of engine sizes.

3 Monitor ing Analytics, LLC, 2011 State of the Market Report for PJM , 2012.

4 NYISO, Annual Report to the Federal Energy Regulatory Commission on the NYISO’s Demand Side Management
Programs, January 17, 2012.

5 Potomac Economics

. 2011 State of the Market Report for the New York ISO Markets

. April 2012.

6 NYISO

. Annual Report to the Federal Energy Regulatory Commission on the NYISO’s Installed Capacity (“ICAP”)
Demand Curves and New Generation Projects in the New York Control Area , December 20, 2 011.

7 ICAP prices for Summer 2012 are based on a new demand curve. Data for 2012 will be avai lable on the

NYISO website at http://www.nyiso.com/public/markets_operations/market_data/icap/index.jsp

.Strategic Environmental Consulting Page | 6 Table	8 :	Estimated Capacity Revenue	for	a	Range	of	Engine	Sizes	( NYISO )

Engine	Size

(hp) January

- April May

- October November

December Total

100 $	2,240 $1,809 $335 $4,384

200 $4,489 $3,624 $671 $8,784

300 $6,733 $5,436 $1,007 $13,176

400 $8,977 $7,248 $1,342 $17,567

500 $11,221 $9,060 $1,678 $21,959

1,000 $22,443 $18,121 $3,356 $43,919

1,500 $33,664 $27,181 $5,033 $65,878



### NYISO Energy Revenue According to NYISO, the average energy payment during DR events in 2011 was $500/MWh ($0.50/kWh )

. Using this price level, we estimate that a 500 hp engine dispatched by NYISO for 15 hours annually would earn over $ 1,100 in net energy revenues and an engine dispatched for

100 hours would earn over $7,000 . Table 9 provides the estimated net energy revenues for a 500 hp engine

.

Table	9 :	Estimated	Net	Energy	Revenue	for	a 500	hp	Engine (NYISO)

Annual

Operation

(hours) Generation

(kWh) Engine

Dispatch
Cost	($) NYISO

Energy	Cost Net	Energy Revenue	($)

15 5,033 $1,410 $2,517 $1,106

100 33,557 $9,403 $16,778 $7,376



### Conclusion

In both PJM and NYISO, the capacity and energy revenues would pay for the costs of emission controls in approximately one year for an engine dispatched for only 15 hours

. Table 10

summarizes the annual capacity revenue, energy revenue and payback period for a range of engine

sizes. However, t his analysis assumes that all of the capacity and energy revenue would accrue to the owner of the engine enrolled in the demand response program. This may not nece ssarily be the case as curtailment service providers that aggregate these engines may receive a significant portion of these revenues which would prolong the return on investment for the installation of

emissions controls.Strategic Environmental Consulting Page | 7 Table	10 : Summary	of	Emission	Control	Costs	and	Annual	Engine	Revenues

Engine

Size

(hp) Emission

Controls

Capital

Cost Annual	Capacity

Revenue Annual	Energy

Revenue
(15	hours) Annual	Revenue Payback	Period

(years)

NYISO PJM 1 NYISO 2 PJM 3 NYISO PJM NYISO PJM

100 $2,824 $4,384 $2,087 $216 $718 $ 4,600 $2,805 0.61 1.01

200 $5,590 $8,784 $4,181 $439 $1,446 $9,223 $5,627 0.61 0.99

300 $8,356 $13,176 $6,272 $661 $2,171 $13,837 $8,443 0.60 0.99

400 $11,122 $17,567 $8,362 $884 $2,897 $18,451 $11,259 0.60 0.99

500 $13,888 $21,959 $10,453 $ 1,106 $3,623 $23,066 $14,076 0.60 0.99

1,000 $27,718 $43,919 $20,905 $ 2,219 $7,252 $46,138 $28,157 0.60 0.98

1,500 $41,548 $65,878 $31,358 $ 3,331 $10,882 $69,210 $42,239 0.60 0.98

1. PJM

- RTO capacity values used to estimate 2014 capacity revenue.

2. $500/MWh and 15 hours of operation annually.

3. $1,000/MWh and 15 hours of operation annually.