New environmental requirements under the Clean Water Act (CWA) will add to the already complex burden of compliance for power plants. As the Environmental Protection Agency moves forward with...
Furthermore, proposed emission levels and different sub-categorization schemes may drastically alter the ability to comply with a MACT standard for different types of coal-fired and oil-fired plants. In addition, available cost projections are only rough estimates based on a number of studies. Given the variability in removal efficiencies of different technology options and the wide variance in removal difficulty associated with different coal types, the actual costs and benefits may vary considerably from current estimates for each utility.
All of these direct and indirect impacts (including how the standards will impact the performance and cash flows of specific units) need to be well understood to permit owners of coal-fired and oil-fired units to make informed decisions. For gas generation owners, the different regulations will affect their unit's performance and cash flows. Depending on the region and type of gas unit, the impact of different regulations could be positive or negative.
For units that have a low cost of abatement, acting now may be the best strategy. If mercury MACT is proposed and is upheld, then the units will meet regulations in time for the 2007 compliance deadline. If the EPA cap-and-trade mercury alternative is ordered or if Congress approves Clear Skies, these units likely would be able to benefit from their low cost of abatement position by selling surplus allowances in the mercury market that would develop.
For others that know they will retire rather than retrofit, playing the waiting game probably makes the most sense. If the mercury MACT standard takes effect in 2007, these units can retire then without having spent additional cash in the interim. If Clear Skies (or other cap-and-trade regulation) ultimately triumphs, these units would have the ability to purchase allowances from units with a lower cost of abatement to meet mercury standards.
For those in the middle, the best strategic direction is less clear. What is clear for all, however, is that a considered study of the various components and timing of the various alternatives is necessary to determine the best course of action. This study needs to consider all of the variables at play, including regulatory developments, compliance costs, time required for retrofitting, mercury content and removal efficiencies for different coal types, impact on market prices, and integration with other pollutant compliance strategies. Those that act now will be in a better position to manage risks and help shape the ongoing debate that continues to brew.
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