A Reasonable Path Forward for the Power Industry

by Block Andrews on March 30, 2017

A Reasonable Path Forward for the Power IndustryThese are challenging times for the power industry. Environmental rules and regulations that may or may not be changing are only part of the list of forces electric utilities and other power providers must deal with.

As I have said in previous forums, the Trump administration is certainly going to take a hard look at the Clean Power Plan (CPP) with an eye toward repealing as much of it as possible. However, many utilities are already moving forward with plans for changes in generating mix that will both reduce carbon emissions and cost. Wind, solar and gas are the resources most power providers are embracing, both in response to market forces and potential environmental requirements.

While it is certain that the EPA under Scott Pruitt will seek to roll back most or all of the CPP, it is equally certain that environmental groups and maybe even some states will go to the court system to stall or block these efforts. The same is likely to be true with regulations addressing coal combustion residuals (CCR), wastewater effluent and a host of other environmental rules affecting the power industry. Market forces are a significant driver of many changes affecting the power industry — and these cannot be easily altered.

The original EPA mandate for power generators to show substantial progress in reducing carbon emissions by 2022 caused great alarm in the industry. We have always believed that the political and market realities would provide some flexibility for utilities seeking a reasonable path forward, and this is even more likely to be true now. If the CPP survives in any form, the implementation dates are likely to be moved further away on the calendar, and the means and methods of reaching goals, if any, are likely to be significantly relaxed.

While it is more difficult to predict what will happen with CCR and the effluent limitations guidelines (ELG) rules, some measures are likely to be required. Effluent limits and groundwater criteria could be relaxed, but I would not consider that the base case for planning purposes.

Of course, environmental strategies cannot ignore the accelerating pace of technology integration and competitive forces. Wind and solar costs have dropped significantly. Solar has declined from around $3.90 per KWh in 2009 to around $1.25 per KWh today and is becoming a significant percentage of the generation portfolio in many regions. The story is similar for wind.

Reliability concerns for both wind and solar are receding as battery storage technologies are developed and many more fast-start, high-efficiency gas-fired generating engines are installed at strategic locations around the power grid. These developments have led some businesses to set a goal of going 100 percent renewable for their energy supply within just a few years, and these goals could be achievable.

All these changes are a reality for the power industry. They are creating incentives to adopt strategies that meet environmental concerns while reducing costs for customers. Utilities should not adopt strategies that bank on the EPA simply going away. A prudent solution is for the industry to do its part to negotiate better solutions with state environmental agencies who may be in line to shoulder a larger burden of oversight on environmental rule compliance as the EPA reorganizes its current structure. In our view, the power industry will not be let off the hook and must continue to plan strategies that achieve cleaner air, cleaner water and help reduce carbon emissions.

As always, we welcome your thoughts.

Block Andrews is an environmental engineer at Burns & McDonnell. He helps clients make strategic decisions on complex environmental issues, including adding compliance options to existing coal units and retiring or replacing generation.

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