NERC’s Clean Power Plan ‘Phase I’ Report Misses Trends that Reduce Emissions, Maintain Reliability

On April 21, the North American Electric Reliability Corp. (NERC) released its “Phase I” assessment of the reliability impacts of EPA’s Clean Power Plan. The Phase I report is a follow-up to NERC’s Initial Reliability Review, and NERC indicates there will be more to come. This is in keeping with NERC’s vital role in informing policymakers and grid operators about issues in maintaining reliable electric service across the country. Precisely because of NERC’s role as guardian of electric reliability, it’s important to point out where analyses commissioned by NERC fall short. 

The Phase I modeling of the Clean Power Plan (CPP) as proposed – which is now under revision at EPA, in preparation for the final rule due this summer – projects an electric power system of the future that is inconsistent with the technology and market trends of today, let alone tomorrow. 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 I report largely disappear.

The shortcomings of the Phase I report are a function, in part, of the constraints inherent in the modeling exercise. First, the models used only consider the Bulk Power System, while many important shifts are unfolding on the distribution system, in distributed generation, in demand management, and the operation of the entire electric system. Second, these models have a hard time capturing dynamic changes as they are happening at a time of rapid innovation, which is the case in today’s electric power system. Given NERC’s indispensable role in maintaining reliability, it is essential that future assessments of the CPP – on the rule as finalized, and on state compliance plans that follow – utilize models that better reflect all the moving parts of our evolving electricity system.

But for now, let us consider the Phase I analysis as presented. Without access to the full set of assumptions, inputs, and detailed results that drove the findings, it is impossible to know precisely where and how the models might be improved. Still, it is clear that the Phase I modeling not only belies electric system trends already established, but also predicts an unlikely response to the CPP, such that it projects:

• Almost all fossil-fuel capacity retirements will be replaced one-for-one with new fossil-fuel bulk generation capacity;
• The vast majority of emission reductions will come from increased natural gas generation displacing coal generation;
• Growth of renewable energy capacity will slow down, when it might be expected to speed up under the CPP; and
• Little additional energy efficiency savings will occur beyond the status quo, even though energy efficiency would reduce both emissions and the need for capacity replacement.

What we see in the electric power system even today is very different: Renewables are booming, efficiency is being deployed in both utility programs and private markets as a low cost resource more than ever, and utilities and grid operators have developed and are continuing to develop mechanisms for meeting capacity needs without new large-scale generating units. The disjunction between the trends of today and the projections for 2020 to 2030 raises questions about the models, the assumptions, and finally the conclusions of the Phase I assessment.

Without access to the underlying data and detailed results, we have had to deduce many of the model inputs by analyzing the results, considering the limited assumptions described in the report, and reading between the lines. Nevertheless, it appears that the model assumptions do not reflect the trends shaping our electricity system today and the ways in which the CPP will likely impact that system between now and 2030. In particular, there are five areas where the assumptions incorporated into the Phase I modeling are driving results that are implausible.

In particular, there are five assumptions incorporated into the Phase I modeling that should be rethought for future assessments:

• 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 leaves NERC 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 other assessments 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.

NERC has stated that the CPP will accelerate changes already occurring in the electric power system, and we agree. These changes – replacing aging infrastructure and modernizing an outdated system with new technologies and new consumer options – are needed, and we believe the industry is more than up to the task. However, the future is going to be much more dynamic and the resources more diversified – and readily deployed – than the Phase I analysis suggests. 

We recognize that NERC shoulders a daunting responsibility for safeguarding the reliability of the electric power system we count on for comfort, convenience, and commerce. In assessing the EPA Clean Power Plan, NERC also faces a daunting challenge: predicting the future of an electric power sector that is rapidly changing. But in the Phase I analysis, NERC has been led to the conclusion that the CPP requires too much change too fast, on the basis of faulty assumptions and implausible modeling results. As the final rule approaches, to be followed by development of state compliance plans, NERC needs a more dynamic and forward-looking method for assessing impacts than is evident in the Phase I report. We hope this critique, offered in a spirit of collaboration, helps NERC toward that goal.

For a full critique of NERC’s Phase I reliability assessment of the Clean Power Plan, download our white paper.