In With ACE, Out With the Clean Power Plan: Will New Trump Rule Save Coal?
On June 19, 2019, the U.S. Environmental Protection Agency (EPA) issued the final “Affordable Clean Energy” (“ACE”) rule to replace the Obama-era Clean Power Plan (“CPP”), which was suspended by the U.S. Supreme Court after being challenged by 28 Republican-led states. The new ACE rule is the result of a review of the CPP, which was done in response to an Executive Order by President Donald J. Trump to “promote energy independence and economic growth”. The ACE rule is seen as a “win” for struggling coal-fired generating companies who are facing stiff competition from natural gas and renewables, such as wind and solar providers.
While the new ACE rule is discussed in terms of potential implications for coal, the fundamental design of the legislation puts more control back in the states’ control and focuses on emission reductions, which is more in line with the original intent of the Clean Air Act (CAA). The CPP seemed more oriented toward dictating energy policy from a federal mandates point-of-view rather than allowing the market to identify the most effective solutions. In fact, the U.S. Supreme Court had granted a stay in 2016, halting the implementation of the CPP.
The ACE allows states three years to come up with their own plans to reduce carbon dioxide (CO2) emissions at coal-fired power plants within their own borders by encouraging them to improve their efficiency, according to the EPA. Additionally, the ACE sets guidelines for states to develop performance standards for power plants to boost the amount of power produced relative to the amount of coal burned. “For example,” according to the EPA, “states can take a particular source’s remaining useful life and other factors into account when establishing a standard of performance for that source.”
"WHILE IT SEEMS CLEAR THAT THE CURRENT ADMINISTRATION HAS DEVELOPED THIS APPROACH TO HELP SUPPORT COAL-BASED POWER PRODUCTION, IT SEEMS UNLIKELY THAT IT WILL SAVE MANY COAL PLANTS FROM ULTIMATELY SHUTTING DOWN."
Interestingly, the ACE rule omitted an update to the New Source Review (“NSR”), a program that requires new plants or major upgrades to power plants to obtain environmental permits.
While the new rule instructs states to reduce emissions, it does not set any targets. The new rule is expected to take effect in 30 days from their issuance and will most certainly face court challenges from environmental groups that oppose the rule.
When ACE is fully implemented, the EPA said it expects to see U.S. power sector CO2 emissions fall by as much as 35% below 2005 levels. By contract, the CPP had aimed to slash power plant carbon emissions by 32% by 2030, relative to 2005 levels, with a focus on reducing emissions from coal-fired power plants, as well as increasing the use of renewable energy and energy conservation.
The Edison Electric Institute (EEI), which represents all U.S. investor-owned electric companies, said that its member companies are collectively already on a path to cut CO2 omissions 50% by 2030 from 2005 levels.
Is ACE Coal’s Savior?
While it seems clear that the current administration has developed this approach to help support coal-based power production, it seems unlikely that it will save many coal plants from ultimately shutting down. As the costs for renewable energy sources (primarily wind and solar) and storage continue to fall, the economics of older, less efficient coal plants will likely doom them to be permanently shut down eventually. However, the legislation does allow the market to work – so if new technologies can cost-effectively improve coal plant efficiencies and reduce emissions, they can continue to run.
Source: U.S. Energy Information Administration
While the legislation has received much attention and fanfare in the press, the reality is that the actual impact for most companies is likely minimal. The legislation does provide firmer legal footing aligned with the CAA’s original intent and allows market-based solutions to work; however, this does not look like the purported savior for the coal industry.
Clean Power More Than Just Coal
The larger implication of the changing economics of renewable energy sources, storage and distributed energy resources (DER) is that our energy mix is fundamentally changing. The issues of maintaining grid stability in this changing environment, developing market rules for these new resources, particularly batteries, may be required, and identifying how to meet changing customers’ demands for renewable energy and self-managed DER are going to become even more critical issues in the long-term; not how to keep high-cost coal plants operating.
About the Author:
Charlie Palmer is a Managing Director in Opportune LLP’s Process & Technology practice. Charlie is a senior energy executive with over 30 years of consulting and corporate experience. His areas of expertise include retail energy, power, refining, chemical and management consulting with specialized expertise in energy supply – management systems and organization, business unit integration, and technology implementation. Prior to joining Opportune, Charlie was SVP Supply & Structuring for Spark Energy’s retail power and gas operations in 44 utilities. At Reliant Energy, he was VP Retail Energy Supply responsible for load forecasting, pricing, gross margin forecasting and major systems implementations to support deregulation.