By Ghasideh Pourhashem
The new EPA proposal for the reduction of CO2emissions from the electricity generation sector (the so-called Clean Power Plan) requires state-specific reduction in power plant emissions that could achieve up to 30% in national-level CO2 emission, annually. The EPA has suggested four building blocks through which states can achieve the required reductions: generation efficiency improvement, generation from less-carbon intensive units, greater deployment of low or zero carbon fuels, and increasing demand-side energy efficiency. There is no one-size-fits-all solution to each state’s problem. To find the best approach to comply with the EPA’s proposed reduction requirements, states must have multiple, innovative options in their compliance plans.
The electricity sector accounts for more than 90% of all coal consumption in the U.S. And coal, the cheapest fossil fuel, made up 39% of U.S. electricity generation (2013). By 2025, average age of coal-fired fleet is projected to be 49 years old and as a result of the Clean Power Plan, plans are being devised for accelerated retirements of older coal power plants. In addition, any new coal power plant must incorporate technology to facilitate carbon capture and sequestration (CCS). Not surprisingly, there is concern over whether the retirement of coal power plants will lead to shortages in the power generation sector. On the one hand, modifying existing coal power plants requires a large capital investment. For example, implementing CCS can increase the levelized cost of electricity (LCOE) by more than 60%. On the other hand, retirement of existing facilities can result in stranded costs and forces firms to prematurely absorb cost of decommissioning of the power plant and remediation of the site.