Simple-Cycle Combustion Turbines in the CPP

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The Environmental Protection Agency’s (EPA) Clean Power Plan (CPP) is full of interesting caveats and exceptions on many issues. One notable quirk is the exclusion of simple-cycle combustion turbines (SCCT) from the list of affected electricity generating units. States must detail how they intend to limit carbon emissions from combined-cycle combustion turbines (CCCT) and coal-powered steam generators, but carbon from SCCTs is not regulated under the CPP.

The EPA’s rationale is that SCCTs cannot meaningfully contribute to emission reductions because they run so rarely. In the full report, the EPA states that it does not expect this to change:

“In addition, while approximately one-fifth of overall fossil fuel-fired capacity (GW) consists of simple cycle turbines, these units historically have operated at capacity factors of less than 5 percent and only provide about 1 percent of the fossil fuel-fired generation (GWh)…the EPA expects existing simple cycle turbines to continue to operate as they historically have operated, as peaking units.”

Is this a realistic assumption? Simple-cycle units currently have low capacity factors, but that is mostly because they are relatively expensive to operate. Natural gas has historically been more expensive than coal. Among units burning natural gas, combined-cycle units are more efficient than simple-cycle units. As such, simple-cycle units are generally kept offline due to their higher operating costs. However, this is not a rule, it is a relationship. If you add costs to one set of generators and not another, the relationship may change.

To illustrate this point, let’s consider a few hypothetical units, operating in 2025, and see how they may respond to carbon pricing. One is a relatively modern and efficient simple-cycle gas plant, another is a typical combined-cycle gas plant, and the last is an older coal plant. Unit characteristics vary significantly within each of these technologies, but we will take a highly competitive simple-cycle and compare it to some of the least competitive coal generation to see where simple-cycle units may start to become cheaper than coal.

Operating characteristics for hypothetical units (2025)

Technology Heat Rate
(Btu/kWh)
CO2 Emission Rate
(lbs/mmbtu)
Fuel Cost
($mmbtu)
VOM
($/MWh)
Zero-Carbon
Operating Cost
($/MWh)
Efficient SCCT 10,000 8.00 18.50 80.00
Typical CCCT 7,500 118 7.00 6.50 52.50
Older Coal ST 12,000 210 3.50 8.50 42.00

We exclude an emission rate for our simple-cycle unit, because they are not regulated under the CPP and will not experience an increase in operating costs due to carbon restrictions or pricing. If we add a carbon price ($/ton) to each of these units, their operating costs will shift accordingly.

Hypothetical Operating Costs by Source and Carbon Price

As the price of carbon reaches $10/ton, the coal unit starts to become more expensive to operate (per MWh of generation) than the combined-cycle unit (Point A). This is expected and intended by the CPP. One of the fundamental building blocks of emission reductions is a shift of generation from coal to combined-cycle units. However, by the time we reach a carbon price of around $30/ton, coal units also become more expensive to operate than simple-cycle generators! Because the SCCT unit is not subject to carbon regulations under the CPP, its costs remain constant, while the operating cost of the coal plant rise quickly as carbon pricing increases.

A carbon price of $30/ton would be unprecedented in the U.S., but not inconceivable. Depending on which discount rate you prefer, the official social cost of carbon can exceed $30/ton. At EPIS, our modeling of mass-based compliance approaches to the CPP have shown that allowance prices greater than $30/ton may be needed for some states to meet their emission goals through a carbon market.

Of course, unit operation cannot be summed up by a single operating cost. Many factors can influence a generator’s decision to run, such as start costs, other environmental regulations, and participation in reserve or ancillary service markets. There may be reasons beyond per-MWh costs why an SCCT unit would continue to provide only peaking services in a high carbon price environment. However, some power providers may find that the strict emission limits placed on coal and combined-cycle plants opens up a unique opportunity for the relatively unregulated SCCT units. Anyone concerned with modeling the CPP would do well to carefully consider the potentially changing role of SCCTs in an uneven regulatory environment, which gives them a free pass while hindering coal and combined-cycle plants.

Will simple-cycle units increase their utilization if the CPP is implemented, becoming more than just peak power providers? Only time will tell. Let us know what you think in the comments.

Filed under: Clean Power Plan, Power Market InsightsTagged with: , , , , , , , ,

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