Simple-Cycle Combustion Turbines in the CPP

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.

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The New Electric Market in Mexico

The Role of Zonal Resource Planning Analyses

On January 26, 2016 a once-in-a-lifetime event occurred that may have been overlooked by the casual observer: Mexico launched the first phase of its reformed, now competitive, electric market. The day-ahead market began for the Baja Mexico interconnection and is the first component of a comprehensive change to the nation’s electric system.

Over the last few years, sweeping market reforms and designs were drafted, approved by the government, and are now beginning to be implemented in a fundamental shift for electricity in Mexico. The expectation is that incorporating a market structure will modernize a constrained and aging system, improve reliability, increase development of renewable generation and drive new investment.

A market shift like this underscores the critical need to produce meaningful and accurate analyses for long-term resource planning, in addition to participating in the day-ahead nodal market.

The importance of data availability to market participants cannot be overstated. As a result of the market reforms in Mexico, the sole utility, Comisión Federal de Electricidad (CFE), is being split into multiple entities and government organizations are being restructured to address the change from a state-run system to a competitive marketplace. Yet, the detailed data required for trading activities, such as those begun in January, and to support the proposed nodal market is difficult to obtain. Sources for much of this data are still being determined and still not available in some cases.

However, for typical generator development and economics, investment, and lifecycle forecasting – studies that require 30-40 year planning horizons – data is available. Resource planning analytics have become imperative to the development of new generation and transmission, informing investment in the energy sector, producing integrated resource plans for utilities, as well as numerous different studies for other stakeholders. Planning tools like AURORAxmp play a key role in these analyses, but so does the need for accurate market data.

Dispatch simulation models used for these studies typically define market topographies at the zonal (or control area) level. Mexico is currently divided into nine of these zones, or, “control regions”.

New Electric Market Control Regions in Mexico

Each of these zones contains generator information, load/demand information, and aggregated transmission capacities to/from adjoining zones. This data can be used by the dispatch simulation to forecast prices, value, risk, etc. for the study period. In the case of resource planning, it can produce detailed capacity expansion analyses to understand:
-Understand the value and operation of existing units.
-Determine whether to retire uneconomic or obsolete generators.
-Consider the value and performance of new generation that may have been added by the simulation.

Analysts can specify additional information such as new generation technologies (e.g. renewable generator options), capital costs, return components and other financial information to produce results that will inform build/buy decisions.

AURORAxmp has been used in a variety of studies in Mexico since 2002. Consultants and IPPs have utilized the software to produce meaningful results used in long-term resource planning decisions, and the zonal topography has provided the advantage of demonstrating value in the current market.

Developing a solid fundamental outlook that allows the assessment of potential long-term risks and opportunities is imperative for decision making and sound financial planning whether you are assessing the development a new power plant or acquiring an existing asset in Mexico. The wholesale power market in Mexico is expected to from a day-ahead and real-time nodal market to include traded pricing hubs with a futures market. A zonal model using AURORAxmp can provide an invaluable tool for long-term price forecasting, scenario analysis and asset valuation for the new Mexican reality.
– Marcelo Saenz, Pace Global, A Siemens Business

Although the proposed market will eventually operate at the nodal level, long-term studies at the zonal level remove the effects of temporary events at the nodal level, thus providing a more stable result for financial decisions.

AURORAxmp has the robust abilities to simulate both zonal and nodal markets. However, its leading capabilities in performing long-term resource planning analysis will continue to be especially important for markets, like Mexico, that will go through enormous changes and growth over the next few years.

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US Supreme Court Issues Stay on CPP

On Tuesday, the U.S. Supreme Court issued a stay on the Environmental Protection Agency’s (EPA) Carbon Pollution Emission Guidelines for Existing Stationary Sources, more commonly known as the Clean Power Plan (CPP). This means that states will not be obligated to comply with any part of the CPP until a decision is reached on Chamber of Commerce, et al. v. EPA

The D.C. Circuit Court will begin hearing oral arguments on the merits of the CPP on June 2 of this year. The lower court’s ruling is expected to be appealed to the U.S. Supreme Court, regardless of the outcome. If past regulations of a similar scale are any indication, the U.S. Supreme Court will hear the case.

The final impact of this stay will depend largely on the outcome of Chamber of Commerce, et al. v. EPA. Even if the courts uphold the CPP, it is likely that the initial state submittal deadline of September 6, 2016 will be affected. However, if the case is concluded swiftly in favor of the EPA, they may be able to hold onto their final submittal deadline in 2018, despite the stay.

If the courts rule against the EPA, the CPP may be revised, or it may need to be scrapped all together. However, unless the court ruling overturns Massachusetts v. EPA (2007), the EPA will still be obligated to eventually regulate carbon as a hazardous air pollutant.

In December of 2011, the D.C. Circuit Court issued a similar stay on the Cross-State Air Pollution Rule (CSAPR). That rule went through a series of revisions and court battles, but the stay was eventually lifted in October of 2014.

The future of the CPP remains uncertain, but most industry experts would agree that participants still need to prepare and plan for the eventual impact of some kind of federal limit on carbon emissions.

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Year of the Comeback

2016 California Market Hydropower Comeback

With Super Bowl 50 right around the corner, we remember one of the most thrilling comeback’s in NFL history: “The Catch” by 49er’s Dwight Clark, from Joe Montana, in the back of the end zone with less than a minute on the clock and down by 6 points. That play secured the 1982 NFC title for the 49ers. How about the emotional return by tennis great Monica Seles to win a title in 1995 after having been stabbed? Or, recall the awe-inspiring Michael Phelps comeback victory in the Beijing 2008 Olympics’ 100 meter butterfly by 0.01 seconds, after Phelps had been 7th coming off the wall at the 50 meter mark?

Most of us love comebacks. They inspire us, give us a boost in daily life, and we see that adversity can be overcome. A good comeback victory offers hope, despite the difficulties that were passed through to achieve it.

There are many different types of comebacks. There are those in sports, as mentioned above, and there are others from personal or professional aspects of life. They can even occur in nature and different business sectors or markets.

Hydropower in California is one such comeback that is developing. After four long-drought-stricken years, and a corresponding drop in hydro generation, change is in the air…literally. El Niño is contributing to a good year for California’s hydro which will affect the entire state, but particularly CAISO. Adding to the enthusiasm, El Niño is predicted to continue to impact temperature and precipitation patterns through late spring to early summer, according to experts at the National Oceanic and Atmospheric Administration (NOAA) and National Weather Service. The effects of the recent precipitation patterns have lifted the statewide average of water content in snow to 113% of normal, with the northern Sierra Nevada at 124% of average for this time of year. Optimism is building, but more rain and snow are needed to end the drought – which could take more time than just one good year of precipitation.

For California’s power market, hydropower is an important source which can significantly influence power price. However, the power produced from hydro facilities fluctuates depending on the annual precipitation patterns, mountain snow pack, and temperatures just to name a few. The Northwest Power and Conservation Council mentions, in the Sixth Power Plan, how forecasts are affected by the pattern of spring rains and the associated run off. In 2011, before the drought, hydropower contributed 21.32% of California’s total system power – nearly 42,715 gigawatt-hours (GWh). This is more than 8.3% of California’s total system power (16,470 GWh) in 2014. If El Niño continues to positively impact the rain and snowfall in California, we should “… look out for some unusual energy flows,” according to Wood Mackenzie’s Jamie Brick.

As a comeback is in the works for California’s hydropower, analysis and modeling of the market must continue. AURORAxmp facilitates excellent scenario analysis and quickly models the impacts of water as adjustments are made to assumptions. For more information on modeling impacts of hydro or other projects, please contact us .

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Uncertainty for ERCOT Markets

AURORAxmp data is ready to take on the unpredictable nature of ERCOT’s markets.

The ERCOT reserve margin is by no means certain in 2016. According to the latest NERC 2015 Long-Term Reliability Assessment, ERCOT is showing a healthy reserve in the summer of 2016. However, NERC and others have had a tendency to miss the target in regards to reserve margin in this region. Reviewing projections for the 2015 summer period, the NERC Summer Reliability Assessment showed anticipated reserves in ERCOT of 16.24%, and the final Seasonal Assessment of Resource Adequacy (SARA) from ERCOT agreed that the region was expected to have sufficient capacity to meet peak demands with a 14.26% margin. Interestingly, the final forecast was an abrupt change from the preliminary forecast issued only 2 months prior which anticipated an 11.45% margin, or a 2% shortfall of the NERC reference margin of 13.75%. According to the final report:

The ERCOT Region is expected to have sufficient installed generating capacity to serve forecasted peak demands in the upcoming summer season (June – September 2015)… The primary reason for this change is the summer weather forecast, which generally indicates milder conditions than the 12-year normal forecast used in the Preliminary Summer SARA. As a result, the demand forecast for summer has decreased…

However, a few months later, ERCOT announced in a press release that it experienced its highest peak demand on record, “For the first time in this grid operator’s history, hourly demand within the Electric Reliability Council of Texas (ERCOT) system today broke the 69,000 MW threshold…”. Days later, in another press release, ERCOT reported the record peak was broken again by over 800 MW. Ultimately ERCOT missed the mark in its final, more optimistic report, and this shows how volatile projections can be. Not to say that NERC, FERC, ISO or RTO assessments aren’t excellent tools for understanding some of the fundamentals of a market, it’s just important to remember how significantly reality can differ from constantly changing expectations and how important it is to do analysis around the key fundamental drivers.

Once again, ERCOT has released its latest demand forecast. Has it overstated its margin once again? That question is enough to make one pause. Compliance extensions filed in 2015 for over 5 GW of Mercury and Air Toxic Standards (MATS) forced retirements, expire in 2016. Will they all be compliant and stick around or were they just hoping to operate one more year before finally deciding to retire? A lot of unknowns, but certainly the situation in ERCOT could be much tighter than some of these assessments suggest. With so much going on in 2016 for ERCOT, this year could be a pretty wild ride.

We are in the midst of a large ERCOT update of resources and demand that will be coupled with the latest ERCOT nodal case. Our data is net up in supply, but this is accompanied by an increase in the demand forecast. We have also added demand response units to capture their paramount importance to proper modeling of the system.  This database release is due out in Q1 2016 and is ripe for 2016 summer analysis.  Couple this with AURORAxmp’s risk analysis and you’ll be prepared for the market’s uncertainties.

For additional information, please contact us

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Navigating Clean Power Plan Building Blocks

The EPA’s recently published Clean Power Plan (CPP) has left many companies wondering how to correctly and thoroughly assess the impact of these rules on the market, as well as their future planning.  Energy market participants of all types are struggling to determine what analyses can best evaluate all the available options.  Will they need to comply with a rate-based or mass-based approach?  How will they implement all the pieces of the new legislation?  How will the market be impacted?

In addition to flexible modeling of both mass-based and rate-based constraints, AURORAxmp has all the tools required to model each of the CPP’s building blocks individually or in combination.

 

Navigating the Clean Power Plan with AURORAxmp

(percentages can be found on page 3 of document for CPP Final Rule)

Regardless of your position or what type of market participant you are, AURORAxmp can provide powerful flexibility that will allow you to generate plant-by-plant or fleet results at the state or regional level. AURORAxmp delivers unparalleled scenario management, exceptionally fast runtimes, collaborative project management, as well as automation in a single multi-functional platform.  Experts across North America have already been using AURORAxmp in CPP studies.

“EVA’s Power Market Advisory team has been using AURORAxmp to analyze multiple flavors of the Clean Power Plan for 18 months now and have had great success. The accuracy and flexibility of the built-in emission constraint logic combined with AURORAxmp’s speed and granularity help provide robust and comprehensive results that meet and exceed our clients’ expectations. Whether we’re assessing a state-level rate-based compliance strategy or a mass-based approach with interstate trading, AURORAxmp’s user interface allows us to perform a wide range of analyses with ease. Further, EPIS’s top-notch customer support team is always available to help us solve issues and discuss modeling techniques. They take our feedback seriously and work consistently to make model updates that help us better simulate the power sector.” – Rob Jennings, Analyst, Energy Ventures Analysis

For additional information, please contact us

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Power Market Insights

Welcome to EPIS Power Market Insights

This blog is designed to provide a convenient medium and central location to publish and share time-sensitive content for those interested in the future of the power industry and items relevant to the modeling, forecasting, and analysis of it.

It will include news, commentary and citations of relevant studies, information on recent or upcoming events, and model and market insights. It is expected to include original content authored by EPIS as well as citations of and links to works published by others.

We welcome your comments and suggestions anytime.

We still plan to continuously update our AURORAxmp Help system as well as our website collection of tools, examples, and other knowledge base content for more detailed and specific information regarding the AURORAxmp application. To see if you qualify to obtain login credentials to access this content, please contact us.

 

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