This blog was written by John D. Wilson, former Deputy Director for Regulatory Policy at the Southern Alliance for Clean Energy.

Guest Blog | May 7, 2015 | Climate Change, Energy Policy

National experts and Southeastern utilities agree that it is practical to reduce carbon pollution from power plants, while maintaining reliability of the electric grid. In an April 2015 report by three national experts on electric reliability, the authors found that while there will be “significant changes to the overall mix of resources under the [EPA’s Clean Power Plan], we believe resource planners and markets will have sufficient time and resources to respond to a realistic projection of system redispatch and facility retirements.”

Our review of Southeastern utility resource plans indicates this is correct for our region: Utility customers in the Southeast can be assured that their utilities and regulators have every opportunity to continue to ensure reliable electric service. Dominated by the Tennessee Valley Authority (TVA), Duke and Southern Company, the Southeast is a region of vertically-integrated, multi-state, utilities.  Yet the expansive capabilities of these large utilities positions them well for compliance with the Clean Power Plan – as demonstrated in their long-range resource plans, these utilities require relatively modest additional steps to comply with EPA’s initial target proposals.

In March, I had the opportunity to share this perspective as an invited panelist to the Federal Energy Regulatory Commission. In my comments to the FERC Eastern Region Technical Conference on EPA’s Clean Power Plan Proposed Rule (pictured right), I explained that to ensure reliable electric service, utilities and their regulators need to improve, and effectively apply, already-existing planning and operational tools.

Put in plain English, utilities and their regulators know what to do. They just have to do it.

Tierney, Svenson and Parsons identified three factors for the concerns that EPA’s Clean Power Plan rule might cause electric utilities to fail to perform reliably.

• Coal-fired power plants might be forced to retire. As the report explains, the Clean Power Plan does not actually require any plants to retire at any specific date. The final rule will require the overall amount of operation of coal-fired power plants to be reduced, but if those plants are needed for reliability, they can be operated until more cost-effective choices are made.
• Natural gas supplies and infrastructure might not be adequate for compliance. The report also discusses how initial compliance needs for natural gas can be met with infrastructure that is in place, or planned for operation by the initial compliance date.
• Higher levels of renewables and demand-side resources might be a problem. The report summarizes evidence from regions with high renewable energy adoption rates that show how electric reliability can actually be enhanced by renewables.

The national perspective is summarized very well by John Moore of NRDC. In the Southeast, interests opposed to renewable energy have long tried to create the false impression that renewables threaten reliability …

Hints of a Low-Cost Compliance Plan: The Tennessee Valley Authority Draft 2015 IRP

One striking piece of evidence showing how large Southeastern utilities will be able to comply with the Environmental Protection Agency’s (EPA) Clean Power Plan with little to no cost to customers is TVA’s draft 2015 Integrated Resource Plan (IRP). Results from TVA’s 2015 Draft IRP demonstrate that a CO2 emissions reduction strategy is the least-cost plan, won’t drive up rates, and will actually increase system flexibility.

TVA’s Strategy B, “Meet an Emission Target,” was designed to require the utility’s plan to achieve an emission target beginning at 17% below 2005 emissions in 2020, reaching 80% reductions in 2050. The strategic carbon emissions target ratio of 557 lbs/MWh in 2033 reflects a 50% reduction in system-wide emissions from the 2005 baseline. As the figure from the Draft 2015 IRP at right illustrates, there is little difference between Strategy B and the “Reference Plan.” The Reference Plan has no constraints other than least-cost optimization. In other words, the emissions target plan is the least-cost plan.

This doesn’t mean that compliance with EPA’s final rule will be cost-free. It depends on what that final rule requires. If TVA is able to utilize interstate averaging or crediting to demonstrate system-wide compliance, then it is very likely that TVA will be able to comply with the Clean Power Plan at little or no marginal cost.

However, if TVA is required to meet state-specific targets in each state with coal-fired power plants with in-state emission rate reductions, then compliance could become more costly. Regional flexibility is of critical importance to ensuring that TVA can comply with the Clean Power Plan in a cost-effective manner.

While EPA did provide an extensive explanation of how regional flexibility could facilitate achieving its goals, it did not specifically address the unique interconnected nature character of the Southeast utility sector. EPA did discuss the value of state policy strategies (e.g., California and Colorado) and market region strategies (e.g., RGGI, RTOs and ISOs) in achieving both compliance and maintaining reliability. But what is not clearly laid out is how regional flexibility can be achieved under the utility governance structure that exists today in the Southeast.

Renewable Energy Development is Consistent with Expansive Renewable Energy Investments

While it is unclear how EPA’s final rule will provide for compliance flexibility, it is clear that renewable energy resources – wind and solar – are compatible with utility operational flexibility.

TVA’s Strategy E, “Maximize Renewables,” provides the best utility measurement of this measure. (Quibble: Strategy E isn’t aptly named as it doesn’t really “maximize” as much as expand renewables.) Currently, TVA’s system regulating capability is roughly 16%. Yet even with the growth of TVA’s nuclear fleet (which provides little SRC benefit) and the potential addition of several gigawatts of renewable energy in Strategy E, the SRC score for TVA is forecast to increase.

Does this prove that renewables are “reliable”? No, but it is one key measure that renewables are not causing to get worse. And that changes the question. Now we know to ask, “What is needed for TVA’s future generation mix to remain reliability?” And that’s a question that TVA has a long track record of answering effectively.

Planning Effectively for a Carbon-Constrained Future

TVA’s plan is not unique. Virtually every major Southeastern utility currently assumes that carbon emissions will be constrained or priced in some way, beginning in roughly five years. In each and every study, we see the same result: There are strategies that pose low or no marginal costs to comply with requirements EPA has proposed.

SACE is not alone in voicing confidence that there are practical, cost-effective paths to compliance with EPA’s proposal, even a strengthened EPA proposal due in final draft this summer. We think there are four key actions that Southeastern utilities need to take to comply with the Clean Power Plan rule while achieving reliability goals.

• Regional flexibility: When EPA provides clarity on interstate cooperation and the details involved in choices about whether to comply with a rate (lbs/MWh) or a total mass limit (tons/year), it will be practical to improve or create regional practices to ensure reliability and address other impacts.
• Assess renewables properly: One key policy is assigning a fair and prudent capacity value to renewable energy resources. Underrating solar or wind capacity will result in excess reserves, driving up customer costs and potentially undercutting emissions savings.
• Quantify energy efficiency: As the least-cost resource, energy efficiency needs to be valued properly. Southeastern utilities need to improve their planning practices for energy efficiency programs.
• Infrastructure planning: Southeastern utilities should expand and expedite consideration of renewable energy development projects in regional transmission planning and gas-electric coordination studies.

In general, each of these four actions involve improving and effectively applying planning and operational tools the utilities already demonstrate to some degree. That’s why, in human terms, the challenge of Clean Power Plan compliance in the Southeast will not fundamentally change the jobs of the engineers who build wind or solar projects, upgrade transmission lines, or dispatch natural gas power plants. In fact, large Southeastern utilities, like TVA, are already moving towards a more flexible generation portfolio. EPA’s proposed Clean Power Plan will be flexible and, frankly, not challenging enough to merit alarm.