Wednesday, June 04, 2014

Finding Nuclear Energy in EPA's New Carbon Regs

By now, most of our readers have seen the coverage coming out of Monday's announcement of the U.S. Environmental Protection Agency's new carbon emission regulations.

According to the Washington Post, the new rules will require states to cut carbon emissions from the electric sector by as much as 30% by 2030 - something that will be impossible to achieve without preserving and perhaps expanding the nation's fleet of nuclear power plants.

So where can you find the nuclear references in the new rules, known better as 40 CFR Part 62? NEI's own Scott Mantsch went to the trouble earlier this week of doing the hard work for us. Please note that we've added paragraph breaks to aid with readability in this format.

Page 39:

States may also identify technologies or strategies that are not explicitly mentioned in any of the four building blocks and may use those technologies or strategies as part of their overall plans (e.g., market-based trading programs or construction of new natural combined cycle units or nuclear plants). Further, the EPA’s approach allows multi-state compliance strategies.

Page 114:

Based on our analysis of that information, the proposed state goals reflect the following stringency of application of the measures in each of the building blocks: […] block 3, including the projected amounts of generation achievable by completing all nuclear units currently under construction, avoiding retirement of about six percent of existing nuclear capacity

Page 151:

More than half the states already have established some form of state-level renewable energy requirements, with targets calling on average for almost 20 percent of 2020 generation to be supplied from renewable sources. The EPA is unaware of analogous state policies to support development of new nuclear units, but 30 states already have nuclear EGUs (with five units under construction) and the generation from these units is currently helping to avoid CO2 emissions from fossil fuel-fired EGUs. Policies that encourage development of renewable energy capacity and discourage premature retirement of nuclear capacity could be useful elements of CO2 reduction strategies and are consistent with current industry behavior. Costs of CO2 reductions achievable through these policies have been estimated in a range from $10 to $40 per metric ton.

Pages 214-219:

Nuclear generating capacity facilitates CO2 emission reductions at fossil fuel-fired EGUs by providing carbon-free generation that can replace generation at those EGUs. Because of their relatively low variable operating costs, nuclear EGUs that are available to operate typically are dispatched before fossil fuel-fired EGUs. Increasing the amount of nuclear capacity relative to the amount that would otherwise be available to operate is therefore a technically viable approach to support reducing CO2 emissions from affected fossil fuel-fired EGUs.

1. Proposed quantification of nuclear generation
One way to increase the amount of available nuclear capacity is to build new nuclear EGUs. However, in addition to having low variable operating costs, nuclear generating capacity is also relatively expensive to build compared to other types of generating capacity, and little new nuclear capacity has been constructed in the U.S. in recent years; instead, most recent generating capacity additions have consisted of NGCC or renewable capacity. Nevertheless, five nuclear EGUs at three plants are currently under construction: Watts Bar 2 in Tennessee, Vogtle 3-4 in Georgia, and Summer 2-3 in South Carolina.

The EPA believes that since the decisions to construct these units were made prior to this proposal, it is reasonable to view the incremental cost associated with the CO2 emission reductions available from completion of these units as zero for purposes of setting states’ CO2 reduction goals (although EPA acknowledges that the planning for those units likely included consideration of the possibility of future regulation of CO2 emissions from EGUs). Completion of these units therefore represents an opportunity to reduce CO2 emissions from affected fossil fuel-fired EGUs at a very reasonable cost. For this reason, we are proposing that the emission reductions achievable at affected sources based on the generation provided at the identified nuclear units currently under construction should be factored into the state goals for the respective states where these new units are located.

However, the EPA also realizes that reflecting completion of these units in the goals has a significant impact on the calculated goals for the states in which these units are located. If one or more of the units were not completed as projected, that could have a significant impact on the state’s ability to meet the goal. We therefore take comment on whether it is appropriate to reflect completion of these units in the state goals and on alternative ways of considering these units when setting state goals. Another way to increase the amount of available nuclear capacity is to preserve existing nuclear EGUs that might otherwise be retired.

The EPA is aware of six nuclear EGUs at five plants that have retired or whose retirements have been announced since 2012: San Onofre Units 2-3 in California, Crystal River 3 in Florida, Kewaunee in Wisconsin, Vermont Yankee in Vermont, and Oyster Creek in New Jersey. While each retirement decision is based on the unique circumstances of that individual unit, the EPA recognizes that a host of factors – increasing fixed operation and maintenance costs, relatively low wholesale electricity prices, and additional capital investment associated with ensuring plant security and emergency preparedness – have altered the outlook for the U.S. nuclear fleet in recent years. Reflecting similar concern for these challenges, EIA in its most recent Annual Energy Outlook has projected an additional 5.7 GW of capacity reductions to the nuclear fleet. EIA describes the projected capacity reductions – which are not tied to the projected retirement of any specific unit – as necessary to recognize the “continued economic challenges” faced by the higher-cost nuclear units. Likewise, without making any judgment about the likelihood that any individual EGU will retire, we view this 5.7 GW, which comprises an approximately six percent share of nuclear capacity, as a reasonable proxy for the amount of nuclear capacity at risk of retirement.

2. Cost of CO2 emission reductions from nuclear generation
We have determined that, based on available information regarding the cost and performance of the nuclear fleet, preserving the operation of at-risk nuclear capacity would likely be capable of achieving CO2 reductions from affected EGUs at a reasonable cost. For example, retaining the estimated six percent of nuclear capacity that is at risk for retirement could support avoiding 200 to 300 million metric tons of CO2 over an initial compliance phase-in period of ten years. According to a recent report, nuclear units may be experiencing up to a $6/MWh shortfall in covering their operating costs with electricity sales. Assuming that such a revenue shortfall is representative of the incentive to retire at-risk nuclear capacity, one can estimate the value of offsetting the revenue loss at these at-risk nuclear units to be approximately $12 to $17 per metric ton of CO2. EPA views this cost as reasonable. We therefore propose that the emission reductions supported by retaining in operation six percent of each state’s historical nuclear capacity should be factored into the state goals for the respective states.

For purposes of goal computation, generation from under-construction and preserved nuclear capacity is based on an estimated 90 percent average utilization rate for U.S. nuclear units, consistent with long-term average annual utilization rates observed across the nuclear fleet. The methodology for taking this generation into account for purposes of setting state emission rate goals is described below in Section VII on state goals and in the Goal Computation TSD.

We invite comment on all aspects of the approach discussed above. In addition, we specifically request comment on whether we should include in the state goals an estimated amount of additional nuclear capacity whose construction is sufficiently likely to merit evaluation for potential inclusion in the goal- setting computation. If so, how should we do so – for example, according to EGU owners’ announcements, the issuance of permits, projections of new construction by EPA or another government agency, or commercial projections? What specific data sources should we consider for those permits or projections?

Page 282:

In addition, owners of existing nuclear units and nuclear units currently under construction can take action to complete or preserve that capacity, the generation from which likewise can be dispatched in a coordinated manner to substitute for fossil fuel-fired generation. As discussed above, coordination of these decisions in the integrated electricity system can occur through a variety of mechanisms, some centralized and some not.

Page 283:

The EPA believes that the performance of the nuclear measures in building block 3 against the other BSER measures is also positive on balance. With respect to encouragement of technological innovation, incentives for completion of nuclear capacity currently under construction encourage deployment of nuclear unit designs that reflect advances over earlier designs. The nation’s nuclear fleet today routinely operates at high average utilization rates, suggesting no reason to expect adverse reliability consequences from completion or preservation of additional nuclear capacity. The five nuclear units currently under construction are all designed to use closed-cycle cooling systems with lower cooling water usage than some existing fossil fuel-fired EGUs; existing nuclear units may use amounts of cooling water comparable to the amounts used by those fossil fuel-fired steam EGUs. The EPA recognizes that nuclear generation poses unique waste disposal issues (although it avoids the solid waste issues specific to coal-fired generation). However, we do not consider that potential disadvantage of nuclear generation relative to fossil fuel-fired generation as outweighing nuclear generation’s other advantages as an element of building block 3. For all these reasons, we consider building block 3 to be a component of the “best system of emission reduction ... adequately demonstrated.”

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