EIA: Clean Power Plan Will Wallop Coal Power Generation

Even if the final Clean Power Plan is not implemented, U.S. electricity-related carbon dioxide (CO2) emissions will remain well below 2005 levels, the Energy Information Administration (EIA) said in a comparison of two cases looking forward through 2040.

The cases are part of the agency’s May 17–released Annual Energy Outlook 2016 Early Release (AEO2016 Early Release). The EIA’s reference case assumes that states will mostly choose to comply with the Environmental Protection Agency’s final rule through mass-based standards. Those standards essentially cap CO2 emissions from existing and new fossil-fired generators covered under the October 2015–promulgated rule in accordance with state budgets. They are modeled using allowances with cooperation across states at the regional level, with all allowance revenues rebated to ratepayers.

The EIA contrasts that case with a separate one that assumes the Clean Power Plan, which has been stayed by the Supreme Court until the D.C. Circuit can rule on its merits, will not be implemented.

It finds that implementation of the final rule using a mass-based approach could reduce annual electricity-related CO2 emissions to between 1,550 and 1,560 million metric tons (MMT) in the 2030–2040 period. That is substantially below their 2005 and 2015 levels of 2,416 MMT and 1,891 MMT, respectively, the agency noted. But even without the Clean Power Plan, electricity-related CO2 emissions will remain well below their 2005 level at 1,942 MMT in 2030 and 1,959 MMT in 2040. “[T]his outcome reflects both low load growth and generation mix changes driven by the extension of key renewable tax credits, reduced solar photovoltaic (PV) capital costs, and low natural gas prices,” the EIA said.

The Rule Is Not Good News for Coal or Nuclear

Significantly, if the Clean Power Plan is implemented, coal’s share of total electricity generation—which was 50% in 2005 and 33% in 2015—could fall to 21% in 2030 and to 18% in 2040, the reference case suggests. But if the Clean Power Plan is not implemented, coal generation levels will remain flat, indicating that fewer units will be retired, and remaining units are assumed to operate at higher levels (particularly as natural gas prices rise). “However,” the EIA emphasized, “the coal share of total generation still declines, and virtually no new capacity is added” without the rule.

Looking at it another way, implementation of the Clean Power Plan would raise the average capacity utilization for coal-fired plants from 55% in 2015 to about 60% by 2040, but that is still much lower than the average utilization rate of 75% projected for coal plants without the rule. The EIA projected that without the rule, the rate would remain constant after 2020 ”as existing coal plants remain cost-competitive with natural gas–fired combined cycle plants given the relative fuel prices.”

Meanwhile, the EIA suggested that coal plant retirements—projected to reach 40 to 45 GW in 2016 alone, owing primarily to the Mercury and Air Toxics Standards and low natural gas prices—could surge as a result of the Clean Power Plan. An additional 55 GW of coal-fired capacity will be retired after 2016 if the rule is implemented, compared with 21 GW if it is not. Total coal, natural gas, and oil plant retirements between 2016 and 2040 are 184 GW with the rule, and just 126 GW without the rule.

Perhaps as noteworthy is that whether or not the Clean Power Plan is implemented, nuclear generation will remain flat through 2040 (Figure 1). “High construction costs result in a projection that no new, unplanned, nuclear plants will be constructed even with the [Clean Power Plan] in place, and the nuclear share of total generation declines from the 2015 level in both cases,” the EIA said.

1.How the U.S. power generation fuel mix could change if the Clean Power Plan is implemented, according to the Energy Information Administration's Annual Energy Outlook 2016 Early Release. Source: POWER/Sonal Patel

1. How the U.S. power generation fuel mix could change if the Clean Power Plan is implemented, according to the Energy Information Administration’s Annual Energy Outlook 2016 Early Release. Source: POWER/Sonal Patel

The mass-based approach could also foster such strong growth in wind and solar generation (spurred by tax credits) that it would lead to a short-term decline in natural gas–fired generation between 2015 and 2021. After that, however, natural gas generation will surge, increasing by more than 67% from 2021 through 2040, becoming the largest generation source “by far.”

The EIA noted that Clean Power Plan compliance would require the largest shifts in generation mix in the Southwest/Rockies, the Midwest/Mid-Atlantic, and the Northern Plains regions. Under the reference case, the Midwest/Mid-Atlantic region will increasingly turn to natural gas, whereas the others will look to renewables.

The Linkage Between Economic Growth and Electricity Demand

In its May 11–released International Energy Outlook 2016, the EIA noted that the world’s economic growth through 2040 won’t be matched by electricity demand, owing to measures by many countries to improve efficiency.

But in its AEO2016 Early Release, the agency says that economic growth and electricity demand will remain linked, though demand growth will be much slower relative to economic growth. During the period between 2000 and 2015, for example, electricity use grew by an average 0.5% compared to average growth of gross domestic product (GDP) of 1.8%. From 2015 to 2040, electricity use growth will average just 0.9%, compared to a GDP average growth of 2.2%.

The EIA mostly pegs that discrepancy on “slowing population growth, near market saturation of key electricity using appliances, improving efficiency of nearly all equipment and appliances in response to standards and technological change, and a shift in the economy toward less energy-intensive industries.”

If the Clean Power Plan is implemented, electric demand will be lower in 2030 by 2% compared to the case where the rule is not implemented, the EIA said.

Sonal Patel, associate editor (@POWERmagazine, @sonalcpatel)