Flawed Assumptions Distort Modeling of Impact, Raising Unfounded Reliability Concerns

[Washington, D.C. — May 7, 2015]:  The latest assessment of EPA’s draft Clean Power Plan by the North American Electric Reliability Corp. (NERC) suffers from faulty assumptions that lead to unfounded concerns about reliability, according to a critique published today by the Advanced Energy Economy Institute.

“NERC shoulders a daunting responsibility for safeguarding the reliability of the electric power systemwe count on for comfort, convenience, and commerce,” said Malcolm Woolf, Senior Vice President for Policy and Government Affairs for AEE. “We hope our critique of this preliminary analysis of the draftClean Power Plan helps NERC better capture the realities of our changing electricity system when it analyzes the final rule after it is released this summer.”

The modeling exercise conducted for NERC in its “Phase I” assessment of the draft EPA rule does notreflect the current conditions of an electric power system that is already moving in the direction of theClean Power Plan, according to the Institute, a nonprofit educational and charitable organization affiliated with Advanced Energy Economy, a national business association. The analysis ignores many of the measures – including energy efficiency and demand response, renewable energy generation, and a host of grid management tools – that are available today to help states meet their electric powerneeds as they reduce emissions, and artificially constrains what states have the freedom to do under the draft rule. As a result, the Phase I analysis projects an implausible picture of the electric powersector under the Clean Power Plan and identifies reliability concerns that arise only because of these unlikely results.

“The Phase I modeling of the Clean Power Plan projects an electric power system of the future that is inconsistent with the technology and market trends of today, let alone tomorrow,” said Matt Stanberry, Vice President for Market Development and head of the analytics team for AEE and the AEE Institute. “Taking into account the more likely result of ongoing developments in the electric power sector, especially those that will be accelerated by the CPP, the reliability concerns raised in the Phase Ireport largely disappear.”

The full critique of the Phase I assessment is available for download here.

Specifically, five assumptions incorporated into the NERC Phase I modeling produce unlikely results and identify unfounded reliability concerns:

• Assumption 1: Existing Bulk Generation Will Be Replaced by New Bulk Generation. By discounting any potential for future demand to be reduced by energy efficiency, managed by demand response and grid operational changes, or met by distributed generation, the Phase I modeling projects vast expansion of natural gas generating facilities as necessary to replace retired coal-fired capacity.
• Assumption 2: States Have to Meet Annual Emission Caps. By assuming that states have to meet annual mass-based emission caps, with 80% of the emission reductions coming by the first year of the compliance period, rather than phasing in emission reductions over 10 years as the CPP allows, the Phase I analysis manufactures a 2020 “cliff.” The result is that coal retirements are projected to happen all at once, raising reliability concerns stemming from a large near-term transition that is likely unnecessary.
• Assumption 3: Credit Trading Must Follow Power Flow. By asserting, in contrast to other national CPP modeling efforts and analyses, that credits for emission reduction must be “bundled” with power flows, the models artificially restrict compliance actions, leading to an expectation that states would have to build more bulk power plants than necessary. This assumption flies in the face of reality, as other Clean Air Act rules allow trading of unbundled emission credits and robust markets now exist in unbundled renewable energy credits (RECs) from states with renewable portfolio standards (RPS).
• Assumption 4: States Will Have Few Tools for Compliance. The Phase I models assume low levels of energy efficiency potential and fail to incorporate any new efficiency that might be expected under the CPP. They also project very little renewable energy expansion despite the increasing cost competitiveness of these resources and the added value they would have under the CPP. The models also ignore a variety of other measures that EPA has allowed as available compliance tools. By dismissing any significant impact from all these potential compliance measures, the Phase I models are left with a heavy-build agenda of new natural gas plants as the only possible compliance path for states – which leavesNERC no choice but to declare that the CPP’s targets would be too much, too soon.
• Assumption 5: Few Compliance Scenarios Are Worth Studying. For its modeling exercise, the Phase I study selects for analysis a much smaller set of scenarios than otherassessments of the CPP, the only variables being low gas prices (not high or volatile, as might be suggested by past experience) and state  versus regional compliance. As a result, the modeling lets all other assumptions in the models, such as fixed 1% annual demand growth, minimal renewable energy expansion, and little use of energy efficiency, stand as fact, unchecked and untested. As a result, the Phase I study fails to capture the range of responses, and outcomes, that could result from the CPP. By contrast, modeling performed by the PJM Interconnection grid operator used 17 scenarios while the Mid-continent Independent System Operator (MISO) considered up to 1,296 scenarios

In November 2014, NERC issued an Initial Reliability Review in which it identified elements of theClean Power Plan that could lead to reliability concerns. Echoed by some grid operators and cited in comments to EPA submitted by states, utilities, and industry groups, the initial NERC study made reliability a critical issue in finalizing, and then implementing, the Clean Power Plan.

In February, the AEE Institute published a review of NERC’s Initial Reliability Review prepared by The Brattle Group, a leading consulting firm to utilities and grid operators. The Brattle Group’s technical review found that reliability is unlikely to be materially affected by implementation of the Clean PowerPlan.

“Following a review of the reliability concerns raised and the options for mitigating them, we find that compliance with the CPP is unlikely to materially affect reliability,” stated the Brattle Group report. “The combination of the ongoing transformation of the power sector, the steps already taken by systemoperators, the large and expanding set of technological and operational tools available and the flexibility under the CPP are likely sufficient to ensure that compliance will not come at the cost of reliability.”

The new critique of the NERC Phase I assessment performed by the AEE Institute finds many of the same flaws, this time incorporated into the Phase I modeling of the Clean Power Plan potential impact on electric reliability.

About Advanced Energy Economy and the Advanced Energy Economy Institute

Advanced Energy Economy (AEE) is a national association of businesses that are making the energy we use secure, clean, and affordable. AEE’s mission is to transform public policy to enable the rapid growth of advanced energy companies. The Advanced Energy Economy Institute (AEEI) is a nonprofit educational and charitable organization whose mission is to raise awareness of the public benefits and opportunities of advanced energy. 

Media Contact

Monique Hanis, AEE, 202-236-8220, mhanis@aee.net

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