Federal Environmental Regulations Could Force Nearly 14,000 MW of Retirements in ERCOT

Various proposed regulations by the U.S. Environmental Protection Agency could lead to the retirement of 8,100 MW of gas-fired generation, and, in a worst case scenario, 5,600 MW of coal-fired generation.

If all of such capacity were retired, the ERCOT reserve margin would be negative 6.2% by 2015. Additionally, much of the projected gas-fired retirements would be in the constrained Dallas and Houston areas.

ERCOT's report (available here), conducted at the direction of the PUCT, examined results under four potential federal environmental regulation changes:

- Clean Water Act - Section 316(b), regarding new requirements for cooling-water intake structures,

- Clean Air Act - new emission limits for Hazardous Air Pollutants (HAP),

- Clean Air Transport Rule (CATR), and,

- Coal Combustion Residuals (CCR) Disposal regulations.

The greatest amount of retirements came under scenarios under which the EPA would require closed-loop cooling towers in place of once-through cooling. While ERCOT modeled scenarios under which existing assets would be required to implement closed-loop cooling, ERCOT noted that it is not clear, based on current EPA proposals, what impact the proposed cooling water regulations will have on existing resources. "There is sufficient discussion in the regulations about site-specific solutions to indicate that power plants that are operated infrequently to maintain system reliability under peak load conditions may not be required to install expensive closed-loop cooling equipment," ERCOT said.

Nevertheless, should the closed-loop cooling requirement be placed on existing plants, ERCOT forecast 8,100 MW of gas-fired retirements, mostly form older gas steam units, regardless of gas prices or whether a carbon fee is imposed.

ERCOT's study also found that coal generation maintains sufficient market value to justify investment in additional environmental control technologies, and that it is unlikely that a significant amount of coal-fired generation will be retired under most scenarios. Coal retirements are most likely under either a closed-loop cooling requirement and/or a carbon fee requirement. Depending on which requirements are imposed, as well as gas prices, ERCOT forecast 1,200 MW to 5,600 MW of coal retirements.

ERCOT further said that, "[i]n the scenarios resulting in significant retirements of existing generation, it is expected that much of the retired generation would be replaced with new generation capacity." Analysis of potential generation expansion was not included in the scope of the report.

ERCOT noted that, for new generation development to occur, "wholesale prices in the region would need to increase to a high enough level to provide adequate incentive."

"In other words, scarcity pricing would need to be experienced for a sufficient number of hours," ERCOT said.