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

To: Environmental Defense Fund

From: MJB&A

Date: September 20, 2012

RE: RICE NESHAP 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 ventilation (OCV) for a range of engine sizes (100-

1,500 hp). Next, we evaluated the dispatch costs for the engines including the diesel fuel costs, 

engine maintenance costs and emission control maintenance costs. We then evaluated 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 estimated the avoided energy costs and range of energy revenues 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 open 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 in 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 $0.28/kWh ($280/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 energy 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 year 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 

controls in approximately one year, even if the engines were dispatched for only 15 hours.

• However, this 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 may 
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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 maintenance 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 Table 1 below.

1

 As noted in the 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 term. 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)

Diesel	Oxidation	Catalyst	(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 engines ranging from 100 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)

100 $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.pdf
Strategic 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 changed every 250 hours of operation. 

Dispatch Costs 

The 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 sizes are provided 

below. The fuel cost is the dominant cost that drives the dispatch price for diesel engines. The 

engine dispatch cost for a 500 hp engine is approximately $0.28/kWh ($280/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 energy 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 into the future. Therefore, 

engine owners know the capacity prices through mid-2016. Capacity prices in PJM differ 

depending upon the location of the unit and demand response product type, with capacity prices 

in the congested 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 UltraLow 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 $136.50 						$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 dispatched by the ISO.

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

would earn over $60,000 from 2013-2015. Table 5 provides the estimated 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

100 $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	 $3,225

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 $5,651 $20,905	 $32,300	

1,500 $8,476 $31,358 $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. Given 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 sites 
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representing 64 percent of registered MW in the Emergency Full Capacity option 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	 $9,403 $33,557	 $24,154	

NYISO Capacity Revenue 

In NYISO, Special Case Resources (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 prices 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 Long 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 (JanuaryApril), $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 approximately $22,000 

annually. Table 8 provides the estimated capacity revenues for a range of engine sizes. 

 3 Monitoring 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, 2011. 7 ICAP prices for Summer 2012 are based on a new demand curve. Data for 2012 will be available on the 

NYISO website at http://www.nyiso.com/public/markets_operations/market_data/icap/index.jsp.
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Table	8:	Estimated	Capacity Revenue	for	a	Range	of	Engine	Sizes	(NYISO)

Engine	Size

(hp)

January-April May-October NovemberDecemberTotal

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, this 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 may receive a significant 

portion of these revenues which would prolong the return on investment for the installation of 

emissions controls.
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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 PJM1 NYISO2 PJM3 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.