1. -- Clean Energy Standard vs. Carbon Tax --
9/18/2018
The need to limit natural Gas combined cycle capacity under deep co2 reduction scenarios
-- Clean Energy Standard vs. Carbon Tax --
Donald Hanson, Argonne National Laboratory, and
Department of Economics, DePaul University, Chicago, IL
David Schmalzer, Fossil Energy Program Manager, Emeritus
Argonne National Laboratory
Christopher Nichols, National Energy Technology Laboratory
US Association for Energy Economics (USAEE) Conference
Tulsa, Oklahoma, October 23-26
Concurrent Session 3: Topics in Natural Gas
9/18/2018
Argonne National Laboratory

2. 9/18/2018
acknowledgements
Don Hanson and Dave Schmalzer want to thank the Department of Energy, Office of Fossil Energy (DOE/FE) and the National Energy Technology Laboratory (NETL) for support.
Argonne projects # and #
Disclaimer:
The work shown here does not necessarily reflect the views of ANL, the University of Chicago, NETL, or the U.S. Government.
9/18/2018
Argonne National Laboratory

3. --Results are Preliminary --
4/1/2015
This talk focuses on CO2 reductions in the Electric Power Sector, and the unique characteristics of electricity. First we show results for a Carbon Tax from the Electricity Supply and Investment Model (ESIM), assuming a CO2 price path as shown below:
We then compare a Carbon Tax with a Clean Energy Standard (CES) and examine implications such as electricity market design, gas demand, technology readiness, and system costs.
--Results are Preliminary --
5/16/2016
Argonne National Laboratory

4. How would a CES work to reduce CO2 emissions?
4/1/2015
A Clean Energy Standard has recently been adopted by the State of New York. Besides renewables, the NY CES includes nuclear in order to subsidize the continued operation of existing nuclear plants, which currently face tough electricity markets under low gas prices.
How would a CES work to reduce CO2 emissions?
A CES supports a market in tradable Clean Energy Credits.
Generation sources which are not included in the CES (i.e., gas and coal power plants without CCS) would have to purchase credits proportional to their generation.
Generation technologies included under the standard (renewables, nuclear, and in this case, fossil energy power plants with CCS) would be able to sell credits
The prospect of earning valuable credits incentivizes clean technology development, and once developed, incentivizes investors to build advanced technology facilities.
5/16/2016
Argonne National Laboratory

5. We find that the Clean Energy Standard is more effective, less disruptive, and cheaper than a Carbon Tax*
More effective in achieving both medium and long-term reduction targets
Reduces uncertainty for technology developers and investors by specifying a future standard, or market share, for eligible technologies, i.e., renewables, nuclear, and gas/coal with CCS.
Thereby accelerates low-carbon technology development and deployment.
Less disruptive to electric power system reliability
A Carbon Tax which favors the dispatch of gas combined-cycle over existing, often older, coal-fired power plants promotes faster coal retirements as utilizations fall.
Cheaper
Avoids over investment in NGCC capacity, which would make reaching a deep 2050 reduction target difficult.
Makes better use of existing assets by reducing the wear-and-tear on coal-fired and gas combined cycle power plants. Wear-and-tear is caused by lower utilization driven by taxing CO2 emissions.
*based on meeting the same cumulative CO2 reduction over the period
9/18/2018

6. Under the CO2 Tax Case, there is Large Growth in Gas Generation among US Regions
9/18/2018

7. 4/1/2015
Retiring coal units will likely put pressure on gas prices in the future.
At the Pittsburgh 2015 USAEE Conference Plenary Session on Natural Gas, Vello Kuuskraa, Advanced Resources Inc., suggested that in the long-run new shale gas extraction technology will need to be developed, implying some uncertainty in long-run gas prices.
5/16/2016
Argonne National Laboratory

8. 4/1/2015
Without exploring the full range of unknowns, we have done sensitivity runs with higher and lower shifts in gas supply function parameters*.
*Shown are linear approximations to multiple runs of our gas supply model under different gas price paths.
5/16/2016
Argonne National Laboratory

9. expanding intermittent renewables, initially cheap natural gas,
A combination of
expanding intermittent renewables,
initially cheap natural gas,
and a CO2 tax
result in a massive closure of existing coal-fired power plants replaced by new NGCC capacity additions
9/18/2018

10. 4/1/2015
Total variable costs of units dispatched and their resulting capacity factors
As shown in the figure, the increasing variable cost curve is flatter than the decreasing CF curve. The latter is constrained by the slope of the load curve.
Under a high carbon tax, the gas units have lower variable costs and are dispatched before the coal units with higher variable costs
5/16/2016
Argonne National Laboratory

11. 4/1/2015
A vicious circle
The effects of the lower capacity factors that are forced on existing coal plants are not immediate, but rather show up later as increased maintenance costs, higher forced outage rates, lower availability, and worsening efficiency.
These impacts serve to further reduce the dispatch of coal plants, which further deteriorates the units.
We see a process in which impacts on most existing coal plants don’t show up for some years, until their turn comes to be pushed into the very low capacity factor range, at which point their retirement happens soon thereafter (see examples on next slide.)
5/16/2016
Argonne National Laboratory

12. 4/1/2015
Cycling damages eventually results in endogenous unit retirements: A process
5/16/2016
Argonne National Laboratory

13. (see Appendix for more discussion)
Known Physical Processes that Increase Heat Rate and Cause Forced Outages
Wear of seals and turbine blades
Fouling and deposition on heat transfer surfaces and steam turbine blades
Aging of refractories and structural shells, particularly boilers
Component failure from corrosion, fatigue, and creep
Interaction of fatigue and creep under cycling
(see Appendix for more discussion)
9/18/2018

14. Boiler Material Failures
Waterwall web cracking
Boiler tube corrosion
Source: Lefton, Power Plant Asset Management
Superheater tube attachment fatigue cracking
9/18/2018

15. But even further technology deployment will be required.
4/1/2015
In this ESIM run, we are starting to approach an 80% CO2 emission reduction by 2050:
But even further technology deployment will be required.
5/16/2016
Argonne National Laboratory

16. Comparison: CO2 Tax vs Clean Energy std under same cumulative CO2 reduction
Clean Energy Standard Advantages:
Clear market size signal to stimulate RD&D and advanced technology investment
CES Credits would help to finance the needed technology
Existing coal power plants, not incurring a CO2 tax would operate at higher utilization in electricity markets and would retire later, thereby avoiding over-investment in NGCC
Better near-term power system reliability
Better technology development incentives allows deeper reductions post-2050
Lower cost due to better use of existing assets and lower gas prices
9/18/2018

17. 4/1/2015
We also believe that a CO2 tax would increase gas market price variability
Notice that the dispatch variable cost curve is relatively flat, implying that small changes in gas prices or CO2 prices would have large effects on shifting generation from CFPPs to NGCC units, with increased cycling of CFPPs
A market change in gas prices could have immediate effects on the merit order for dispatching units, causing potentially large swings in gas demand over short intervals of time, i.e., increased volatility
5/16/2016
Argonne National Laboratory

18. Summary of observations
4/1/2015
Summary of observations
Additions of Renewable Electricity and gas-fired generators are imposing cycling damages on existing coal-fired power plants
New NGCC units, replacing retired coal, are often run as baseload, dispatched before the coal plants and hence lowering their capacity factors, contributing to further coal retirements
The costs imposed on the coal plants are often not internalized by the owners of new renewable and gas capacity
Electricity market design may need to be revised
In the future electric power system, we should continue to have a diverse set of generating technologies that play complementary system roles
5/16/2016
Argonne National Laboratory

19. A long run Co2 reduction strategy focusing on reducing cumulative Emissions through 2050 AND Beyond – my opinion
Save the best existing CFPPs which are suitable for retrofit with CCS when available
Implement a CES or directly improve their dispatch merit order to reduce wear and tear
Accelerate development of low CO2 generating technologies with medium term promise allowing deep long-term reductions
An example: gas-fired oxy-combustion supercritical Brayton-Rankin cycle with CO2 working fluid and with CCS,
This technology could replace extensive NGCC capacity additions that would likely prevent achievement of year 2050 CO2 targets
Keep many of the existing CFPPs running while the technologies in step 2 are being demonstrated and commercialized
NETL is researching sensors, controls, and mitigation measures to maintain heat rates and prevent catastrophic failures.
Limit any CO2 tax and resulting cycling damage from low capacity factors
Perhaps allow efficiency improvements without triggering NSR
9/18/2018

20. See Weitzman, Review of Economic Studies, 1974
It might be noted that some of the arguments that we are making favoring a Clean Energy Standard over a Carbon Tax are similar to issues raised in the literature regarding whether it is best to regulate by setting prices or setting quantities (i.e., a Clean Energy Standard)
See Weitzman, Review of Economic Studies, 1974
9/18/2018

21. Expressions of concern that the electric power sector has unique problems (to be explored here) in facing even medium-level CO2 taxes
On April 8-9, 2013 the Federal Reserve Bank of Chicago hosted a two-day conference on economic impacts related to domestic energy production.
Pricing CO2 emissions, as would arise in a cap-and-trade market or through a tax, was one of the main topics.
The representative who attended from EIA pointed out the concern that what would be a modest price on CO2 for end-users (residential, commercial & transportation) would be disruptive to coal-fired electric power generation.
Gas units tend to be dispatched before coal units under a carbon tax, driving down capacity factors (i.e., utilization) of existing coal units
Hence, we recognized early that uniform CO2 pricing may not be advisable across all sectors.
9/18/2018

22. Appendix on Externalities
9/18/2018

23. Real world externalities, such as powerplant cycling damage, may not look just like text book examples:
“The externality is in some ways a straight forward concept: yet in others it is extraordinarily elusive. We know how to take it into account in our analysis, and we are aware of many it its implications, but despite a number of illuminating attempts to define the notion, one is left with the feeling that we still have not captured all of its ramifications.” W. J. Baumol and W. E. Oates, The Theory of Environmental Policy, 2nd ed. 1988, Cambridge University Press.
The message of this talk is that a CO2 emissions tax may negatively interact with other economic imperfections or real-world features that are not considered in the fundamental theorem of economic efficiency (i.e. policy formulation in a “second-best” world)
9/18/2018

24. Examples from the Economic Literature
The classic case presented in Environmental Economics courses regarding types of production processes that interact causing benefits or costs to be transferred across firms is that of bees from a honey production company pollinating near-by flower growers, with mutual benefits.
Regarding the Electric Power Sector, a developer examining the economics of a new NGCC generator or a wind farm will not take into account the external damages and shortened life span that their new facility would impose on existing coal power plants. A CO2 tax will encourage the gas and wind developers.
Since electricity production is not storable, when wind generation goes up, coal generation will likely go down (for a given electricity demand), thereby creating what we call a “stop, start, and cycling” external cost on fossil fuel generating units from accumulating cycling damage.
There are other examples of unexpected tax distortions such as Ian Parry’s work at Resources for the Future on the double dividend.
9/18/2018

25. Appendix on stop, start, and cycling damages to aging coal-fired power plants
9/18/2018

26. Review papers on power plant cycling damages
Donald Hanson, David Schmalzer, Christopher Nichols, Peter Balash, “The Impacts of Meeting a Tight CO2 Performance Standard on the Electric Power Sector,” Energy Economics, 2016; see on-line Appendix on cycling damage literature review at
EPRI, Damage to Power Plants due to Cycling, Report No
Kumar, N., P. Besuner, S. Lefton, D. Agan, and D. Hilleman, (2012), Power Plant Cycling Costs, Intertek AIM (formerly APTECH), Subcontract Report No. NREL/SR , NREL, Golden CO, July 2012.
9/18/2018

27. Background on Aging, cycling, and load following
Aging, cycling, and load following are not new
Extensive literature back at least into the 1990’s
Pervasiveness of cycling and load following has grown
Renewable energy mandates
Low natural gas prices
Growth of NGCC capacity
Multiple projections anticipate increasing non-dispatchable generation impacting operation of CFPP
EPRI, CAPUC, ERCOT, Argonne, others
ISO/RTO electricity market rules
Recent EPRI study examining ramp rates and operating modes to accommodate greater wind and solar generation capacity
9/18/2018

28. Terminology Btu/ kWh, operating, not test/design
Heat Rate
Btu/ kWh, operating, not test/design
Load following
Operating between design (100%) and ~30%* design
Cycling
Unit output to grid goes to zero
Creep (metallurgical)
Time dependent deformation below tensile yield
Fatigue (metallurgical)
Defect growth from cyclic changes in stress
* Flexibility objective, generally requires some physical modifications
9/18/2018

29. Operating issues, low load and cycling
9/18/2018
Operating issues, low load and cycling
Configuration of coal mills, combustion air, and burners
Balancing steam production, superheat, attemperation, reheat, boiler feedwater heating
Maintaining NOx conversion, controlling NH3 slip, avoiding ammonium bisulfate deposits
EPA reduction of startup, shutdown, malfunction waivers
EPA issued SIP revision call
Litigation briefs due Oct. 19, SIP revisions due Nov. 22
Jim Black NETL report 2012
Alstom Tech Ltd. U.S. Patent B2 9/22/15
DC Circuit Court, litigation to reverse EPA settlement with Sierra Club
9/18/2018
Argonne National Laboratory

30. Massive caustic attack
9/18/2018
Massive caustic attack
Caustic gouging. This cutaway view shows a tube that experienced caustic attack in a cyclone inlet roof tube. The plant commenced load cycling about one year prior to this failure. Courtesy: David N. French Metallurgists
Supercritical units have cyclones rather than steam drums
They can/do get two phase flow during transients
This is from a supercritical unit where cyclones are in the steam path rather than a steam drum
9/18/2018
Argonne National Laboratory

31. Steam Turbine Failures
Source: Lefton, S., Power Plant Asset Management, Intertek AIM
9/18/2018

32. 9/18/2018
Major equipment failures can make it uneconomic to extend the lifetime of energy facilities.
Steam methane reformer – creep/fatigue failure and catastrophic failure
RH picture really bad startup, elapsed time from feed in about 30 minutes
9/18/2018
Argonne National Laboratory

33. Appendix on ESIM Model
9/18/2018

34. Electricity Supply and investment model (ESIM)
The electric power sector component of the AMIGA Integrated Assessment Model
Comprised of seven U.S. regions as being used by the Stanford Energy Modeling forum (EMF-32) on CO2 taxes and regulatory approaches
Includes a unit inventory of power plants
Makes dispatch decisions for individual units based on a variable cost ranking (i.e., merit order) or some more desired criteria
Includes cycling damages which Dave Schmalzer reviews here
Compares scenario costs and investment requirements
Includes a dynamic gas supply scenario model originally calibrated to EIA NEMS runs.
Higher and lower gas supply scenario sensitivity runs
Object-oriented computer code
9/18/2018

35. 4/1/2015
5/16/2016
Argonne National Laboratory

36. Technology Categories: Some needed for deep CO2 reductions
4/1/2015
Technology Categories: Some needed for deep CO2 reductions
Existing PC Units
Biomass plus Coal
Mostly Gas
Renew w Storage
- Pre-retrofit
- EP Sect Biomass
- NGCC
- Hydro
- Middle existing
- Ind Biomass
- NGCC w CCS
- Geothermal
- near retirement
- CFB w CCS
- Peaking turbine
- Solar thermal
- CCS retro w EOR
- Ind cofire w CCS
- Steam Gas-Oil
- CCS retrofits rest
- Adv Bio-process
- EP sect CHP
- Industrial units
- Muni waste
- EP sec CHP CCS
-Industrial CHP
New Coal Units
Nuclear
- Distributed gen
Intermittent RE
- SOA cap ready
- existing
- Wind
- SOA PC w CCS
- new
- Concentrate Sol
- Adv IGCC w CCS
- PV Utility
- Co-Production
- Distributed PV
- Future Tech
NETL Review
5/16/2016
Argonne National Laboratory