Feasibility of Natural Gas Combined Cycle Utilization Targets: Evidence from Environmental Policy and Prices Kelly A. Stevens PhD Candidate in Public Administration and International Affairs Syracuse University: Maxwell School Visiting Student: Carnegie Mellon Engineering & Public Policy Program USAEE Conference: Tulsa October 24, 2016 -Talk is on the feasibility of natural gas-fired combined cycle utilization targets, a mechanism in the US Clean Power Plan to reduce carbon emissions from the electricity sector. In this paper, I present evidence on the effectiveness of environmental air pollution policies and decreases in natural gas prices on increased use of these types of generators.

US EPA’s Clean Power Plan Emissions Reductions (%) to Meet CPP Target KEEP THIS BRIEF -Map are CO2 emissions reductions required by each state to meet their Co2 targets in CPP -Outline is how close these states will get to their target with plans already in place -This study is on 2nd mechanism – ability of states to increase generation from NGCC State CO2 Emissions Reductions from CPP 1.) Improve existing coal power plants 2.) Increase utilization of NGCC to offset coal 3.) Increased renewable capacity

Utilization Across Groups Nuclear Coal NGCC Renewables Gas Turbines EPA Clean Power Plan target -Look at utilization of CC since 2003 see steady increase in utilization, while coal has been decreasing -meanwhile, nuclear, renewables, single cycle GT hold steady -while there are a lot of factors involved in how much to power plant, largely falls on marginal cost of generation and dispatchability -coal steam, and CC both flexible in terms of how much they run -and their marginal cost depends a lot on fuel costs. As NG prices started decreasing, start seeing CC generators dispatched ahead of coal, and therefore running more -cost of environmental compliance can also impact marginal cost of generation -EPA target would like to see them run even more -I want to look at what has influenced this uptick in CC utilization? -Look at average annual utilization across these groups from 2003-2014 -nuclear, renewables, peakers remain steady while coal NGCC switching -This is because the marginal costs of generation for fossil fuels typically depends on the cost of the fuels, so coal and NG substitutes -Also depend on cost of compliance for running these generators -When natural gas cheap, or if coal compliance costs higher, NGCC dispatched before coal and utilized more -Note uptick 2011-2012 -EPA target increase to 70% net nameplate -Research question: what has impacted increased utilization of NGCC thus far?? 𝐶𝐹 𝑦𝑒𝑎𝑟 = 𝐴𝑐𝑡𝑢𝑎𝑙 𝐸𝑙𝑒𝑐𝑡𝑟𝑖𝑐𝑖𝑡𝑦 𝑂𝑢𝑡𝑝𝑢𝑡 𝑃𝑜𝑡𝑒𝑛𝑡𝑖𝑎𝑙 𝑂𝑢𝑡𝑝𝑢𝑡

Variation in NGCC Utilization Capacity Capacity Factors -There is also some variation in the increases in utilization along with new capacity being installed: -PA steady increase; delayed increase AL, FL; erratic changes CA, WA; increases followed by decreases NY, CO -Suggests more than just NG prices, which have been relatively low across the US

Previous Literature Dependent variables: natural gas generation (Linn et al., 2014), coal generation (Fell & Kaffine, 2014; Linn et al., 2014), fuel switching (Knittel et al., 2015; Soloway, 2013), emissions reductions (Cullen & Mansur, 2013; Mansur, 2014; Murray & Maniloff, 2015) Explanatory variables: natural gas prices (all of the above), greenhouse gas policies (Murray & Maniloff, 2015), intermittent renewable generation (Fell & Kaffine, 2014; Novan, 2013; Kaffine et al., 2013) -Previous literature really focuses on relationship between NG prices and NG generation as a whole -see that NG price decrease in 2009 onward -one study looks at policy, other considers role of renewables Natural Gas Coal

Research Question and Contribution How did environmental policies and natural gas prices affect NGCC utilization? NGCC capacity factors All NGCC plants Air pollution policies Counterfactual analysis -This study takes a different approach by looking at NGCC capacity factors, for all NGCC plants -NGCC capacity factors dependent variable -Consider multiple air pollution policies in addition to NG prices -Use the estimates from my model to conduct a counterfactual analysis to determine the relative contribution of policies vs ng prices

Generator Characteristics Model NGCC Capacity Factors Natural Gas Prices Policies Generator Characteristics Weather Load Characteristics -To answer why there is this variation, look at more than NG prices in my model -In addition to the NG prices and policies, also consider the impact of generator char, weather, load char of the area the plant is in -Use this model to measure changes in NGCC utilization due to these pieces -Not measuring how the policies impact changes in capacity (and work of Jeff Peters…); now looking at the factors that influence how much we run them, which together contributes to changes in NGCC generation and therefore CO2 emissions by displacing coal NGCC Capacity NGCC Generation CO2 emissions

EIA and EPA’s eGRID data on US power plants 2003-2014 NGCC -Using EIA and eGRID data on US power plants from 2003-2014. -Every power plant existing in that time period on the map above, with the NGCC plants in blue -Extract generation and capacity information to calculate the monthly capacity factor for dependent variable -Unit of analysis is plant-fuel-technology groups, since that is how generation data is reported. So if a power plant has 4 NGCC generators, they are all lumped together as one observation. -368 NGCC EIA and EPA’s eGRID data on US power plants 2003-2014 Plant-fuel-technology groups

Policies: 1. Ozone NAA 2. Cross-State Air Pollution Transport 3. Regional GHG Programs Policies that I’m looking at impact to different degrees the cost of compliance for coal and NGCC NAA: idea is as areas go into NAA, start running cleaner sources of generation which could benefit NGCC 2. Cross-state: Designed to address upwind emissions of pollutants contributing to NAA issues, states outlined in blue had a lower cap on SO2 and Nox emissions beginning around 2009 when court determined to leave CAIR in place until EPA could design a replacement rule, 2008 beginning of higher SO2 prices {technically CAIR announced 2005, vacated 2008 but remained in place and began in2009; 2011 CSAPR delay start 2015, CAIR still in effect} 3. Regional GHG programs: RGGI in NE begin around 2009, CA AB32 begin 2013, cap-and-trade for CO2 in electricity sector Details: NAA: -EPA sets air quality standards for conventional pollutants: ozone most widespread AQ issue -areas not meeting the standards designated as nonattainment, occasionally review and tighten -Under nonattainment, state and local regulators are responsible for finding ways to bring the area back into attainment, which may lead to restrictions or penalties for running dirty sources of emissions, such as coal Cross-state: -Second is a set of cross-state air pollution policies meant to address upwind emissions of air pollutants contributing to nonattainment problems in US -Because of wind patterns, winds from central and midwest carry pollutants to mid-west and NE -States outlined in blue had a lower cap on SO2 and Nox emissions beginning around 2008 RP: -While CPP first set of national GHG rules, regional or state rules that include cap and trade on CO2 emissions -RGGI 2009; California (AB 32 2013)

Estimating Equation Coal/NG Ratio Policies 𝑐𝑓 𝑖𝑡 = 𝛽 0 + 𝜏 1 𝑝𝑟𝑖𝑐𝑒 𝑠𝑡 + 𝛿 1 𝑜𝑧𝑜𝑛𝑒 𝑖𝑡 +𝛿 𝑝 (𝑡𝑟𝑒𝑎𝑡∙𝑝𝑜𝑠𝑡) 𝑠𝑡 + 𝛿 𝑝 𝑡𝑟𝑒𝑎𝑡 𝑠 + 𝛿 2 𝑝𝑜𝑠𝑡 𝑡 + 𝛿 𝑘 (𝑎𝑔𝑒∙𝑝𝑜𝑙𝑖𝑐𝑦) 𝑖𝑡 + 𝜑 1 𝑥 𝑖 + 𝛾 1 𝑤 𝑠𝑡 + 𝜀 1 𝑔 𝑔𝑡 + 𝜃 1 𝑚𝑜𝑛𝑡ℎ 𝑚 + 𝜃 2 𝑟𝑒𝑔𝑖𝑜𝑛 𝑟 + (𝑐 𝑖 +𝜖) Fixed effects Age and policies Weather: HDD, CDD Random effect composite error term -policies difference-in-difference: Interaction variable of interest, but control for characteristics particular to just those states, or during that time, separately -control for seasonality or region, SE clustered at grid level -Month and region FE for seasonality or regional variations -Choose to use a RE to account for any additional unobservables so I can include the fixed characteristics of the plant that would otherwise fall out in FE. This model is well controlled, feel confident the unobservables are not correlated with the explanatory variables. Passes a Hausman test finding no systematic difference between the RE and FE coefficients. -Standard errors are clustered at the grid level Grid load: Area CF, coal capacity %, nuclear capacity %, renewable generation % Unit characteristics: size, size2, age, regulated, ISO/RTO

Generator Characteristics RESULTS: Prices and Policies NGCC Capacity Factors Natural Gas Prices Policies Generator Characteristics Weather Load Characteristics 1. Model results, 2.) Counterfactual using those model results to determine impact on NGCC generation and CO2 emissions NGCC Capacity NGCC Generation CO2 emissions

Prices and Policy Results -NG price coefficient around what I would expect based on previous literature – strongly significant. {1 unit increase lead to 0.12 CF increase: Avg pratio 0.29, increase to 1.29 would require a 77% reduction in NG prices} -Ozone NGCC capacity factors increase by 0.05 while the county is designated nonattainment for ozone (94% significance). With an average capacity factor of 0.33, this leads to a 15% capacity factor increase due to ozone nonattainment. This shows the cost of environmental compliance added by nonattainment boosts NGCC utilization, likely as a replacement for coal generation -The coefficient on Cross-state is strongly significant and three times the size of the ozone NAA coefficient. This indicates NGCC plants on average doubled under cross-state air pollution rules. Since coal has much higher SO2 and NOx emissions, NGCC utilization increased to make up for some of the decreases in coal generation encouraged by these interstate air pollution transport policies. -NGCC plants that are in a regional and state greenhouse gas program also experience a similarly sized increase in capacity factors of 0.06

Counterfactual Analysis Model estimates under different scenarios Compare to original model Determine how much NGCC generation due to components Calculate CO2 averted Scenario Description Function/Equation 1. Actual Actual NGCC generation Actual-Baseline 2. Baseline Model predicted values 𝑓(prices, policies, other) 3. Without policies Model with policies off 𝑓(prices, other) 4. Historical NG prices Model with 2007 NG prices 𝑓(prices at 2007 fixed, policies, other) 5. Social cost of carbon tax Model with SCC tax 𝑓(prices, policies, other, fuel costs + SCC) 6. Policy equivalent tax Model with policy equivalent tax 𝑓(prices, policies, other, fuel costs + tax) 7. Without policies or NG prices Model with policies and historical prices 𝑓(prices at 2007 fixed, other) -Estimates from the RE model to run a counterfactual analysis to estimate the effect of the policies and natural gas prices. -Develop several scenario with the same set of plants and capacity as observed -Baseline in this case is the predicted values from the model, but compare to actual as well -Calculate the sum of the contributions to increased NGCC generation from JUST utilization alone -No policies, hold NG prices at 2007 levels before dip, add the social cost of carbon tax at $36/ton, tax of $55/ton -See policies three times the impact of low ng prices, of about same amount as $55 tax

Counterfactual Results $55/ton tax Policies NG $ + Policies SCC tax $36/ton NG $ Decrease Actual -Increase in CC generation due to the increased utilization driven by these different components, sum over 11 years in the time series as a percent of total CC generation -Summed up over 11 years in the time series -Carbon intensity values: coal 95 MMtCO2/quadBTU; ng 52 MMtonsCo2/quadBTU convert to tons CO2/MMBtu < 1% Sum over time series

CO2 Reductions by Component -Calculate the amount of CO2 emissions averted by policies versus ng price decrease using EIA values for carbon intensity about 3x more -Total ~5% of total CO2 emissions electricity sector; 1.5% NG prices, 3.5% Policies -Mansur 2014 estimates $60 carbon tax lead to 9% CO2 emissions decrease; this would suggest 5% from increased utilization, ~4% from increased NGCC capacity

Generator Characteristics RESULTS: Characteristics NGCC Capacity Factors Natural Gas Prices Policies Generator Characteristics Weather Load Characteristics NGCC Capacity NGCC Generation CO2 emissions

Characteristics Results -Just focus on two findings here -Age*policy significant for ozone and cross-state, older plants actually decrease utilization -Weather variables are significant – show how this matters in a moment -Mention load characteristics strongly significant, area CF is not 1, as demand increases NGCC utilization does not increase in a 1:1 relationship

Implications: Age • Policy Average Age of NGCC Plants CPP Emissions Reductions (%) -Map of average NGCC age in each state, right those CPP targets -Iowa, TX, FL, OK older and not on way to meet targets; not so difficult perhaps WY, SD, UT More costly for some states to comply

Discussion Difficulty could hinge on NG prices Co-benefit of air quality policies for NGCC utilization GHG programs effective Air quality externality possible from uniform targets

Thank You! Kelly A. Stevens Maxwell School at Syracuse University kastev01@syr.edu

EXTRA SLIDES

Implications: Weather -HDD positive: as HDD increase, utilization decreases – colder it gets, less NGCC gen -CDD positive: as CDD increase, utilization increases – hotter it gets, more NGCC gen -2012, year EPA set utilization targets was anonymously warm winter (reserve of gas) and hot summer (energy demand) 2012 baseline year for EPA’s targets

Environmental Policies 𝛿 1 𝑜𝑧𝑜𝑛𝑒 𝑖𝑡 +𝛿 𝑝 (𝑡𝑟𝑒𝑎𝑡∙𝑝𝑜𝑙𝑖𝑐𝑦) 𝑠𝑡 + 𝛿 2 𝑡𝑟𝑒𝑎𝑡 𝑠 + 𝛿 3 𝑝𝑜𝑠𝑡 𝑡 -Now for the policies, going to measure using state DND -Interaction variable of interest, but control for characteristics particular to just those states, or during that time, separately -Graph of how many NGCC plants are affected by these policies 𝛿 4 (𝑎𝑔𝑒∙𝑝𝑜𝑙𝑖𝑐𝑦) 𝑖𝑡

Combined Cycle Gas Turbine (CCGT) -Primary source of natural gas generation are combined cycle gas turbines, CCGT plants. CCGT plants include a gas and steam turbine that runs on the waste heat from the gas turbine. They are cleaner in terms of emissions because they run on natural gas, which naturally has lower carbon dioxide and criteria pollutant emissions, but also because of this combined cycle design are more efficient. CCGT plants have existed for the last 30 years or so but went through dramatic transformations and innovation in the 1990s. Following these innovations, and coupled with economic, and regulatory factors, natural gas capacity experienced a period of rapid installation called the natural gas capacity buildout from 2000-2003 in the US. However, much of this capacity was used for just peaking – or running when electricity demand was at its highest.

Difficulty Meeting Targets Age Size Coal % Nuclear % Renewable %

Grid Characteristics 𝑔 𝑔𝑡 ={𝑎𝑟𝑒𝑎 𝐶𝐹, 𝑐𝑜𝑎𝑙 𝑐𝑎𝑝𝑎𝑐𝑖𝑡𝑦, 𝑛𝑢𝑐𝑙𝑒𝑎𝑟 𝑐𝑎𝑝𝑎𝑐𝑖𝑡𝑦, 𝑟𝑒𝑛𝑒𝑤𝑎𝑏𝑙𝑒 𝑔𝑒𝑛𝑒𝑟𝑎𝑡𝑖𝑜𝑛} -Grid characteristics -Grid is all the power with the same transmission owner -PA example of about 6 grids, sometimes overlap, typically geographically based -For each grid, want to know how much all the generators are running – CF – to control for energy demand -Fuel mix in the region -Cluster at the grid level 864 Grids in US by transid ownership type; approximately 1.5 GW size

RE, FE, OLS Results

Descriptive Statistics CUT IT DOWN, KEEP JUST WHAT COVERED. REMOVE AGE*POLICY interactions

NGCC vs. Coal Natural Gas Combined Cycle (NGCC): 90% less sulfur dioxide 5x less nitrogen dioxide Negligible PM 50% less CO2 Coal NGCC GT Nuclear Renew Center for Climate and Energy Solutions -Why EPA encourage NGCC utilization? -Cleaner alternative to coal-fired power plants, in terms of GHG and conventional pollutants -SO2 and Nox contribute to air quality issues with ozone, particulate matter -Historically, coal responsible for most GHG emissions from electricity sector, NG a distant second -In part because NG cleaner, but also because less capacity -Graph shows capacity by generator type CCGT: Combined Cycle Gas Turbine

NGCC Utilization -Not all about how much capacity we have, rather how much we run these plants. -Average utilization over a year, also known as the capacity factor calculated by dividing actual output to potential output -NG strong summer peak when electrical demand for AC is highest, and a smaller winter peak because NG also used for residential heating -Look at annual average CF for NGCC, see slightly increasing -CPP would like to see increase utilization to 70% -Based on historical increases – primarily this large increase from 2011 to 2012

$ Natural Gas < $ Coal $ Coal < $ Natural Gas Low Medium High -A lot of factors determine how much to run a power plant: engineering, economics, reliability concerns -Marginal cost curve that determines the merit order system operators bring plants online -First renewable, nuclear, hydro power – low fuel costs -As energy demand increases, if cost of running coal less than NG, coal plants -Highest energy demand: peak, hottest days of summer, running really expensive plants such as oil -However, if ng cheaper than coal, see these two switch -Ways it becomes cheaper than coal: cost of the fuel, environmental compliance cost imposed by policies Renewables Nuclear Hydro Coal NGCC Gas Turbines Oil

Policies: 1. Ozone NAA -EPA sets air quality standards for conventional pollutants: ozone most widespread AQ issue -areas not meeting the standards designated as nonattainment, occasionally review and tighten -Under nonattainment, state and local regulators are responsible for finding ways to bring the area back into attainment, which may lead to restrictions or penalties for running dirty sources of emissions, such as coal -Curious to see how this impacts NGCC utilization in areas designated nonattainment: two new ozone standards set

Policies: 1. Ozone NAA 2. Cross-State Air Pollution Transport -Second is a set of cross-state air pollution policies meant to address upwind emissions of air pollutants contributing to nonattainment problems in US -Because of wind patterns, winds from central and midwest carry pollutants to mid-west and NE -States outlined in blue had a lower cap on SO2 and Nox emissions beginning around 2008 {technically CAIR announced 2005, vacated 2008 but remained in place and began in2009; 2011 CSAPR delay start 2015, CAIR still in effect}

Shifts in NGCC Capacity Factors 2003 2014 -Start by looking a little more at the shift in increased utilization -Kernal density plot of NGCC capacity factors 2003 vs. 2014 -More peakers (less than 20%) -More now at or above CPP target (red) -Kernal density plot, bandwith 0.06, probability density function, probability can be > 1 because continuous variable