Final Thoughts

At last, we come to the end of an era. We thank you for following us.

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The Environmental Protection Agency’s Clean Power Plan was first introduced in June 2014. Our findings indicate that the impacts for coal and natural gas are important especially for Arizona, as the Clean Power Plan would require the state to reduce their carbon emissions (as of 2012 levels) by 52% by 2030 using four ‘building blocks.’ This is one of the most ambitious goals in the nation and can lead to the state suing EPA over perceived unfairness. This blog summarizes the challenges for Arizona to meet EPA’s goal, with a particular focus on potential impacts on the coal and natural gas industry.

There are great implications for the natural gas industry as the building block that offers the largest reduction of carbon emissions in Arizona is shifting generation from coal to natural gas. This option creates a burden on the natural gas industry because at existing locations of coal-fired power plants there is a lack of pipelines for transmission. Additionally, Arizona does not have a storage facility in the state for natural gas. This lack of infrastructure presents a challenge as it may cause reliability issues for consumers.

In addition to the lack of infrastructure, compliance costs are of particular importance due to aging infrastructure. A majority (63%) of coal-fired power plants in the U.S. are over 40 years old, and the average age is 42 years, with many over half a century old. As such, it is safe to assume that there is room for efficiency improvements, among other things.

Of course, lowering carbon emissions is not a recent thing, as “progress” has been in motion for the past few years. Since October 2012, at least five of Arizona’s eight coal-fired power plants have either shut down a unit (or two!) or entirely. These plants are: Abitibi Snowflake Power Plant, Apache Generating Station, Cholla Power Plant, Four Corners Generating Station, and Navajo Generating Station. In the face of changing EPA regulations, it is certain these trends will continue into the future.

On the whole, the EPA’s new regulation projections of economic impacts differ depending on the source. According to the Chamber of Commerce, these regulations could cost businesses around $28 billion per year in compliance costs through 2030, as well as around 450,000 jobs by 2020. Compare this to the EPA’s estimates of annual business costs of $7.3 to $8.8 billion per year in compliance costs through 2030, as well as a loss of up to 78,000 jobs through 2025. The loss, however, is estimated to amount to around $65 per household per year, with the addition of up to 112,000 jobs.

There is also an expected impact on electricity costs. For Arizona (specifically the American Southwest), it is suggested that prices may rise up by 6.5% of current costs. Yet, these estimates should not be used as the end. A study found evidence that the actual costs of all environmental regulations from the 1970s through the early 1990s were below even the low-end estimates. Of course, this is not the only issue, particularly shifting generation from coal to natural gas is a challenge in itself.

Shifting from coal to natural gas is a challenge because of the way Arizona currently uses natural gas. Natural gas is used more in the summer for peak demand for cooling needs, and used less in the winter months. This is cause for concern for the reliability of natural gas-fired power plants to provide continuous power all year long since coal currently provides the base load. Furthermore, alternative, reliable energy sources will be needed to meet the peak demand during the summer if natural gas is used for the base load.

Other challenges are consumption and the existing practice of natural gas-fired plants in Arizona. Natural gas is consumed more than it is produced in Arizona so the state imports a majority of its natural gas. There are two major pipelines that supply natural gas for not only Arizona but California and Nevada as well, whom use natural gas as their primary energy source. If there is a national approach to states using more natural gas, there may be a supply issue in the Southwest. Furthermore, half of all Arizona natural gas generators are not operated to meet load demands. They serve as merchant suppliers selling natural gas to the energy market, and they often have long-term contracts with out-of-state markets.

With these challenges Arizona will face a difficult time shifting from coal to natural gas, yet the greatest hardship is time. EPA expects states to have a state implementation plan by June, 2016. By 2020, Arizona has to meet 77% of the 2030 goal of 702 CO₂ emissions. In the span of six years, Arizona is expected to reduce its emissions drastically with little time to spare.

These challenges are great for the state of Arizona in its compliance with EPA’s Clean Power Plan, and it will be interesting to see the finalized state implementation plan in June 2016.

Closer Look at AZ's NG Potential

According to ADEQ's presentation entitled, State of Arizona's Energy System, natural gas in Arizona experiences peak demands during the summer months while the rest of the year natural gas is used much less. If there is a switch to natural gas, Arizona would have a problem finding another energy source to provide the peak load in the summer months, which greatly increases due to cooling needs from hotter temperatures.

A look at NGCC utilization in the Southwest with AZ represented by the yellow line.

The other problem with fuel switching is increased demand of natural gas. As stated in an earlier post, natural gas is currently imported into Arizona from other states. California and Nevada also import natural gas, and both states use natural gas as their primary energy source. The greater demand of natural gas in the Southwest would create a burden on the natural gas supply as well as on natural gas prices. Additionally, Arizona has no natural gas storage systems and will need to build storage systems to create greater resiliency in the electric system for natural gas use in Arizona.

Additional infrastructure that is needed are transmission lines. At existing coal-fired power plants there are very few natural gas-fired power plants. The needed infrastructure takes time to be built and with a very small timeframe the EPA is offering, construction needs to begin soon.

AZ's three major natural gas pipelines.

Lastly, half of all Arizona natural gas generators are not operated to meet load demands for Arizona. They serve as merchant sellers supplying natural gas to the region's energy market. The long-term contracts these suppliers have with out-of-state consumer markets also pose a problem.

Six merchant natural gas suppliers in AZ.

With these problems Arizona will face a difficult time switching to natural gas, but the greatest challenge is time. The EPA expects states to have a state implementation plan by June, 2016. By 2020, Arizona is expected to meet 77% of the 2030 goal of 702 CO₂ emissions. In the span of six years, Arizona is required to reduce its emissions drastically with little time to spare.

Impacts to APS

The Arizona Public Service released its 2014 Integrated Resource Plan. The APS plan does not take into account the recent EPA Clean Power Plan, so it will be interesting to see how APS' plan may change after compliance.

APS projects the generation mix to change to using more natural gas, renewable energy, and energy efficiency. Coal increases slightly but not significantly.

Source: APS 2014 Integrated Resource Plan

It seems that APS is also going to invest in more transmission and the electricity gird with investments near $500 million for both. Energy investments are nearly $14 billion for the Selected Portfolio.

Source: APS 2014 Integrated Resource Plan

After reviewing the 'Selected Portfolio', APS projects to use the same amount of coal, while modernizing the Ocotillo Power Plant in Temple, AZ. APS will also use more renewable energy with the Selected Portfolio as shown below.

Source: APS 2014 Integrated Resource Plan

Blog Summary

The Environmental Protection Agency’s Clean Power Plan was first introduced in June 2014. Our findings indicate that the impacts for coal and natural gas are important especially for the state of Arizona. For natural gas the impacts will be on infrastructure, transmission and reliability. There are great implications for the natural gas industry, as the option that offers the most reductions of GHG emissions in Arizona is switching from coal to natural gas. This option creates a heavy burden on the natural gas industry because natural gas-fired plants are not located in convenient areas for dispatch while there is also a lack of pipelines for distribution. This lack of infrastructure presents a challenge as it may cause reliability issues for consumers.

In addition to the lack of infrastructure, these compliance costs are of particular importance due to the aging infrastructure. A majority (63%) of coal-fired power plants in the U.S. are over 40 years old, and the average age is 42 years, with many over half a century old. As such, it is safe to assume that there is room for efficiency improvements, among other things.

Of course, this is not a recent thing, as “progress” has been in motion for the past few years. Since October 2012, at least five of Arizona’s eight coal-fired power plants have either shut down a unit (or two!) or entirely. These plants are: Abitibi Snowflake Power Plant, Apache Generating Station, Cholla Power Plant, Four Corners Generating Station, and Navajo Generating Station. In the face of changing EPA regulations, it is certain that these trends will continue into the future.

On the whole, the EPA’s new regulations projections of economic impacts differ depending on the source. According to the Chamber of Commerce, these regulations could cost businesses around $28 billion per year in compliance costs through 2030, as well as around 450,000 jobs by 2020. Compare this to the EPA’s estimates of annual business costs of $7.3 to $8.8 billion per year in compliance costs through 2030, as well as a loss of up to 78,000 jobs through 2025. The loss, however, is estimated to amount to around $65 per household per year, with the addition of up to 112,000 jobs.

There is also an expected impact on electricity costs. For Arizona (specifically the American Southwest), it is suggested that prices may rise up by 6.5% of current costs. Yet, these estimates should not be used as the end. A study has found evidence that the actual costs of all environmental regulations from the 1970s through the early 1990s were below even the low-end estimates. Of course, this is not the only issue, particularly with the switching from coal to natural gas.

A major issue with switching from coal to natural gas is the way Arizona currently uses natural gas. Natural gas is used more in the summer to make up for peak demand for cooling needs, and used less in the winter months causing natural gas-fired plants to become idle. These shifts in demand are cause for concern for the reliability of natural gas-fired plants to provide continuous demand all year long since coal provides the base load. Lastly, natural gas is consumed more than it is produced in Arizona causing Arizona to import most of its natural gas. There are two major pipelines that supply natural gas for not only Arizona but California as well. If there is a national approach to states using more natural gas, then there may be a supply issue. Additionally, Arizona does not have a storage facility in the state for natural gas.

These challenges are great for the state of Arizona in its compliance with EPA’s Clean Power Plan, and it will be interesting to see what the state implementation plan will be in June 2016.

Taking a Walk in History - Historical costs of environmental regulations

Real quick post: Previous posts on costs rely heavily on projections into the future, but how reliable are they?

Back in 1997, there was a study completed on the environmental regulations implemented in the '70s through the early '90s and the economic costs. In particular, they compared the cost projections to the actual costs.

The findings? In every single case, the actual costs were below even the low-end projections.

Why, you might ask hypothetically? Let me answer that with a copy-paste a response from Dean Baker, D.C. economist:

“The reason for that is we have an innovative economy. That’s the reason many of us like a market economy,” he continued. “And [EPA is] making their estimates based on what do we know today, what are the current technologies? But when you create a big incentive to innovate — as you do with these regulations — then you develop new technologies, you push the curve, and you end up with lower costs.”

Leave it to the markets, young grasshopper. Leave it to the markets.

Targeting Coal - Caught in the Costly Crosshairs

I suppose a base question to ask would be "Why does the EPA hate coal?"

According to the EPA, existing power plants account for 38% of existing CO2 emissions. Of these, a majority of the emissions come from coal-fired power plants, specifically AGING coal-fired power plants, at about 30% of existing CO2 emissions.

Furthermore, according to the EPA, the U.S. coal-fired fleet is nearly half a century old, with an average age of 42 years old. According to the Sierra Club, of the 593 coal-fired power plants, 63% are over 40 years old! Based on the idea of increased efficiency over time, this means a majority of coal-based plants are incredibly inefficient.

Yet, is that enough?

According to the US Chamber of Commerce, these regulations could cost businesses $28 billion a year in compliance costs through 2030, and could also cost 450,000 jobs by 2020. Of course, this also was completed under the strictest plan the EPA proposed, not the one currently going into effect. As such, actual numbers are likely lower.

Indeed, the EPA states that costs will be far lower, with businesses paying only $7.3 to 8.8 billion a year in compliance costs through 2030. This goes to $65 per household (per year in costs through 2030). As for jobs, they estimate 72,000 to 78,000 jobs lost through 2025. (Related, they also say that the regulations will provide 76,000 to 112,000 jobs in more environmentally-friendly positions. Even better, research has suggested that "green jobs" are more accessible to those without training or college degrees!)

So that's why coal is being targeted so harshly. It's just a matter of deciding if it's worth it.

Effects on Coal - A Rise in Prices?!

It's a fact that regulations impact prices, for better or worse. So it's only natural that the EPA's new standards will affect coal prices (and therefore electricity prices).

Like Cthulhu, you need to just accept this fact.

After all, the regulations, according to the EPA, are expected to force about 19% of the current coal-fired power plant force to shut down and decrease coal consumption by around 28%. In turn, it's expected that this will rise electricity prices by around 6.5% by 2020.

"Under the provisions of this rule, EPA projects that approximately 46 to 49 GW of additional coal-fired generation (19% of the current capacity, 4.6% of generation capacity in 2020) may be removed from operation by 2020."

Some fear this may lead to a price hike of up to 150% for natural gas.

According to the Department of Energy, there is a distinct possibility that electricity prices could rise by 80%, at least at first. “The precise number will vary, but for first generation we project $70 to $90 per ton [on the wholesale price of electricity],” Julio Friedmann, of the Department of Energy, said. “For second generation, it will be more like a $40 to $50 per ton price. Second generation of demonstrations will begin in a few years, but won’t be until middle of the next decade that we will have lessons learned and cost savings.”

So will these new regulations put electricity in a sleeper hold and force you to dole out more dough for the basics? Well... like all things, it depends. For some regions, there little use of coal, so the effects will be far less. It also depends greatly on the economy's whims, such as with other energy sources, such as natural gas. That said, the EPA has stated that the worst hit area will likely be the Midwest.

But what about Arizona prices? Well, depending on the source, it could be as much as a price raise of up to 31%. Is that true? Honestly, it's hard to be positive until we actually take action. But hey, it's not like the reason why coal's price is so low because of government subsidies. But that's enough for one post. We'll go deeper into jobs and subsidies later!

What the CPP means for AZ

Now that we have a basis for natural gas, next comes the big question of what the impact of the EPA’s Clean Power Plan (CPP) will have on the natural gas industry in Arizona. The CPP seeks to reduce nationwide carbon dioxide (CO2) emissions by 30% by 2030 and has state-specific reduction targets for carbon dioxide reductions. For Arizona, the reduction target is 52% by 2030, which is the second highest target in the nation. 

For more information on the Clean Power Plan, visit here. 

To achieve this reduction, EPA offers states four building blocks to choose from. These building blocks are meant to offer flexibility. The four building blocks are: (1) improve the efficiency of fossil-fueled power plants; (2) use of lower-emitting generation sources such as natural gas, or fuel-switching to natural gas, and use of nuclear power; (3) demand-side efficiency; and (4) renewable electric generation.

For Arizona, the building block that offers the greatest reduction of CO2 is from building block 2, switching from coal-fired power plants to natural gas-fired power plants, as stated from Henry Darwin, director of the Arizona Department of Environmental Quality. 

What does that mean for the state of Arizona? Well, the trend of natural gas without the proposed CPP was already projected in increase nationwide. The CPP acts as another driver to increase the demand for natural gas. The increase in demand will eventually lead to higher natural gas prices for consumers. Since there will be a decrease in demand for coal, production in coal will lower resulting in a loss of jobs in the coal industry. While it looks like natural gas producers will be in a winning situation with the Clean Power Plan, the environmental impacts associated with hydraulic fracking should be assessed. 

If Arizona implements building block 2, is the shift from coal to natural gas feasible? For Arizona, this is a complex question. Increasing demand for natural gas production will create many issues which will impact:

• natural gas infrastructure
• transmission
• electric reliability

Generation from both AZ's coal and natural gas plants is not interchangeable given the distance between existing plants resulting in transmission and reliability concerns.

Additionally, there are issues for the state of Arizona and its role as an electricity supplier. According to the EIA, Arizona generates more electricity than it consumes. It is an exporter of electricity supplying electricity for El Paso, Texas and Los Angeles, California. If Arizona switches to using more natural gas, Arizona may no longer be an exporter of electricity as Arizona gets about ⅖ of its electricity from coal.

Most of the electricity that AZ generates is from coal-fired power plants.

My next blog posts will go into depth on the issues raised from the implementation of EPA's CPP for Arizona including concerns on natural gas infrastructure, transmission, and reliability.

What's Trending? Natural Gas!

As we explore the use of natural gas, it’s important to look at the trend and projections of natural gas and the energy market. According to the Energy Information Administration’s (EIA) Annual Energy Outlook 2014 report, natural gas grows by an average rate of 1.6% per year from 2012 to 2040.

 Additionally, because of the increase in natural gas production the U.S. switches from being an importer of natural gas to an exporter of natural gas before 2020.

Consumption of natural gas grows in the industrial sector by about 2 Tcf and electric power sector by about 2.5 Tcf. These increases in consumption are based on low natural gas prices and the ability of natural gas to replace retired coal-fired power plants.

Across the board, natural gas is projected to increase for end-users except in the residential consumption sector. This slow gradual decrease is expected with improvements in appliance efficiency and as populations shift towards warmer regions.

The top four electric associations to increase in consumption in the electric power sector are SERC Reliability Corporation (SERC), Reliability First Corportation (RFC), Western Electricity Coordinating Council (WECC), and Texas Reliability Entity (TRE). SERC and RFC's projected consumption in natural gas increases due to the retirement of coal-fired power plants. WECC and TRE's projected natural gas consumption increases due to projected growth in electricity demand.

Where will the natural gas come from, you might ask? Well, the EIA projects that natural gas will come primarily from Shale Gas with a 56% increase from 2012-2040.

EIA's overall projections for natural gas look good. Looking at the projections, can you see natural gas a a viable fuel for the future? What other factors may influence these trends?

My next blog post will cover the proposed EPA’s Clean Power Plan, and how that may affect natural gas production and consumption.

Power Plants from Space

Another quick post.

It's often said that the Great Wall of China can be seen from space. While this might not be true, it is a fact that we can see other man-made products. Did you know that you can see coal-fired power plants from space? It's true! Below is a still image with a red lined plume from one of the three visible plants.

Infrared Imagery from GOES13 Satellite

Though since that's a bit hard to make out, here's the full-size gif.

Natural Gas 101

So how do we get natural gas from the ground? There are two processes I will discuss, hydraulic fracturing and horizontal drilling. These processes are used simultaneously. Hydraulic fracturing, aka fracking, is a method that stimulates the flow of natural gas in ground rock formations.Typically, a well is drilled vertically several thousands of feet underground to the designated rock formation (usually shale), and laid horizontally, which is horizontal drilling. Then fluid, which consists of water, sand, and certain additives, is pumped through the well at high pressure to open up rock fractures in the designated rock formation. The internal pressure causes fluid to be sent to the surface. Presto! We have natural gas. 

Source: Our Environment

Horizontal drilling allows for a multitude of vertical wells to be drilled from a single well pad. These wells fan out upon reaching the specified layer of rock formation allowing for an increase of natural gas production from a single well pad.

Here is a picture from the Energy Information Administration on natural gas power plants, depicted by the blue flame, and interstate pipelines in Arizona.

Source: Energy Information Administration

According to the U.S. Energy Information Administration, in 2012 Arizona produced 117 million cu ft. of natural gas. More than two-thirds of natural gas is used in the power sector in Arizona, while the other third is used in the residential sector. In 2012, Arizona consumed 339.1 trillion btu of natural gas. Arizona does not have an underground natural gas storage facility so most of the natural gas that is used in Arizona is imported. The two primary rock formations that supply natural gas for Arizona are the San Juan Basin in New Mexico and the Permian Basin in Texas. The natural gas is imported through interstate natural gas pipelines.

This picture depicts the United States' natural gas pipelines in 2007 and the states that are dependent on interstate natural gas pipelines as their primary supply of natural gas. The grey states represent dependent states.

Source: Energy Information Administration

Upcoming blog: Trends of natural gas, and the potential impact of the EPA's proposed Clean Power Plan ruling on natural gas.

Shut-Down of Arizona's Generators

I wanted to do a quick post, as I've received an influx of articles on the shutting down of generators in several of Arizona's coal-fired power plants.

Before 2012, there were 8 such power plants: Abitibi Snowflake Power Plant, Apache Generating Station, Cholla Power Plant, Coronado Generating Station, Four Corners Generating Station, H. Wilson Sundt Generating Station, Navajo Generating Station, and Springerville Generating Station.

In October of 2012, Abitibi Snowflake Power Plant was closed. In September of 2013, Navajo Generating Station began consideration of shutting down one of its three units. In December of the same year, Four Corners shut down three of its five units. This past September, Cholla plans to close one of its four units and Apache has just had it's plan to convert one unit to natural gas approved by the EPA, and even more changes are exceedingly likely (or have just been accidentally skipped over! Oops!).

Of these examples, all but Abitibi Snowflake is related to changing regulations under the EPA, under the goal of reducing carbon dioxide emissions from existing power plants by 30% (of 2005 levels) by 2030. Related, I feel the need to point the word "existing" in that sentence.

Needless to say, it is obvious that the face of coal is changing, for better or worse. I hope to take a more in-depth look at this in the near-future.