Tuesday, March 27, 2012

Coal Power Plants: New Air Regulations And Compliance Options

Burning River Pale Ale, a beer, immortalizes June 22, 1969, when Cleveland’s polluted and lifeless Cuyahoga river spontaneously burst into flames. The incident galvanized national political support for several environmental initiatives including amendments to the Clean Air Act (CAA) and the creation of the Environmental Protection Agency (EPA) in 1971. As part of CAA requirements, EPA recently proposed several rules that will affect power plants directly. The electric industry is concerned that power plants, unable to comply with the rules, will have to shut down. Old, inefficient, and marginal contributors to the grid most likely will. For the rest, economically sound options exist to comply in a timely manner and continue generating electricity. Compliance related economic activity could also play a macroeconomic role boosting demand and raising employment.

On July 6, 2011, EPA finalized the Cross-State Air Pollution Rule (CSAPR) that would, by addressing downwind transport of sulfur-dioxide (SO2) and nitrogen oxides (NOx), significantly reduce emissions that contribute to fine particle and ozone pollution in the eastern U.S. Previously, on March 16, 2011, the agency proposed the Mercury and Air Toxics Standards (MATS) to limit mercury, acid gases, and other toxic pollution from power plants throughout the U.S.

Together, CSAPR and MATS will regulate the emissions of five air pollutants – SO2, NOx, particulate matter (PM), mercury, and hydrochloric acid (HCl). Coal-fired power plants, being the largest source of emissions, will account for a majority of the reductions. Their compliance options include beefing up existing controls and, if necessary, installing one or more new controls. These include scrubbers and dry sorbent injection (DSI) systems for SO2 and acid gases, activated carbon injection (ACI) systems for mercury, advanced NOx controls, and fabric filters or baghouses for particulate matter (PM).

Scrubbers are both the costliest and most widely used pollution control technology at coal power plants. Nearly two-thirds of the existing U.S. coal fleet (almost 200 GW) already have scrubbers installed or are in the process of installing one. They have high fixed and low variable costs making them suitable for relatively large plants with high utilization rates. Smaller and less utilized plants tend to prefer DSI systems, which are more expensive to operate but are about 10 times cheaper to install.

Fabric filters, also known as baghouses, are the main PM control technology available to coal plants for MATS compliance. Electrostatic precipitators (ESP), an older more widely deployed technology for PM control, are not as effective as baghouses in capturing finer particles known as PM2.5. Coal plants with ESPs, therefore, must upgrade or replace them with baghouses. Baghouses are also needed for the efficient functioning of sorbent and injection based control systems such as DSI and ACI.

ACI systems help coal plants reduce mercury emissions. Plants with scrubbers and baghouses, which have cobenefits for mercury removal, often can meet mercury standards without any further controls. Controlled plants needing additional mercury removal as well as uncontrolled plants seeking a cost-effective mercury removal option will find ACI systems attractive.

Coal plants will also require some form of advanced NOx control to comply with CSAPR. They have two types to choose from – Selective Catalytic Reduction (SCR) and Selective Non-Catalytic Reduction (SNCR). SNCRs are the cheaper option, costing a fraction of SCRs (less than 10 percent), but they are only about a third as efficient as SCRs in removing NOx. These characteristics make SNCRs potentially useful under a cap-and-trade system, like CSAPR, or under regulations that allow averaging across units or locations.
Before investing in any of the control technologies outlined above, plant owners can minimize capital outlay by switching to low sulfur coals, installing combustion controls, or adding chemical additives to existing controls. Low sulfur coals, such as sub-bituminous coal from Montana and Wyoming are relatively low in nitrogen and chlorine, resulting in low NOx and HCl emissions. Combustion controls minimize formation of NOx and reduce operating costs of post-combustion controls like SCRs. Addition of halogens increases capture efficiency of ACI systems.

Complying with CSAPR and MATS will require significant planning, effort, and investments by the electric sector. However, given that the electric industry has taken preparatory steps in anticipation of the rules for over a decade, even companies with large coal fleets will be able to comply with the proposed rules in a timely and cost-effective manner. Comments to the investor community by some of the largest U.S. coal-fleet owners confirm that they are well along in their strategies to comply with the two rules. Electricity markets have also provided hints that they are well-positioned to accommodate the proposed rules without any major market disruption. PJM’s most recent capacity auction indicated that the largest integrated power market in the country will have adequate capacity available after the two proposed rules take effect in 2015.

Rules such as CSAPR and MATS may also make particular sense under the current economic circumstances. They nudge companies enjoying record profits and sitting on piles of cash without spending, an entirely rational behavior in the face of anemic growth prospects, to start investing. According to this theory, not only are these investments worth making to prevent thousands of pollution-related premature deaths, as EPA’s impact study shows the rules would, but they also spur spending when conventional monetary policy, with interest rates near zero, is unable to do so.

No comments:

Post a Comment