The ERCOT region remains a living example of how to make a successful transition to restructured wholesale and retail markets for electricity. At the same time, the market continues to witness...
The new Clean Air Interstate Rule is having an unexpected impact on power generation asset values.
emissions reductions from 2004 levels necessary to comply with the two phases (2009/10 and 2015) of CAIR. Twenty-six of the affected states were granted allowance budgets for annual SO 2 and NO x emissions. Two of the 28 (Arkansas and Massachusetts) are required to comply only with seasonal ozone-limiting regulations and are exempt from annual caps under CAIR. The final rules excluded Kansas, based on new analysis of its contribution to downwind particulate emissions.
When full compliance is reached in 2015, SO 2 emissions will have dropped by more than 83 percent and NO x by nearly 81 percent since 1990. Today, the 28 CAIR-regulated states account for more than 90 percent of the SO 2 and 77 percent of the NO x emissions from electric plants nationwide.
Figure 2 () summarizes the amount of reductions from 2004 levels necessary for electric generating units to comply with the CAIR rules.
The EPA regulations require the CAIR-affected states to develop a compliance strategy by September 2006. Utilities in the affected states will need to decide where to put their money. The consensus is that most will, and have already begun, to invest in emissions controls. However, given the backdrop of high natural gas prices and state renewable standards (19 states and counting), some will opt to increase their generation portfolios with renewable energy or invest in new clean-coal projects.
Which States Are Affected?
Five states currently account for 39.3 percent and 27.9 percent of the nation's SO 2 and NO x emissions, respectively. Generating companies in Ohio (10.7 percent), Pennsylvania (9.9 percent), Indiana (8.2 percent), Georgia (5.4 percent), and Texas (5.2 percent) are the most heavily affected by the EPA regulations. Of these five states, only Ohio (11.2 percent in 2003) and Texas (5.5 percent in 2003) reported a smaller share of SO 2 emissions last year.
To put the impact of CAIR into perspective, consider Ohio, the largest state emitter of electric-plant emissions. To comply with 2015 CAIR standards, 49 of Ohio's largest non-scrubbed units (16 GW) would need to be retrofitted with emissions controls, with costs ranging from $4 billion to $6 billion. Since 33 of these 49 generating units were built more than 35 years ago, decisions to retrofit will need to be weighed carefully against investment in new generation and other compliance strategies.
Which Companies Are Affected?
Consider the 25 largest electric generators in the United States (). The group as a whole accounted for 71 percent of all electric generating unit SO 2 emissions and 59 percent of all NO x emissions in 2004. The top three companies-American Electric Power Co., Southern Co., and the Tennessee Valley Authority-accounted for more than 23 percent of annual SO 2 emissions and 20 percent of the NO x emissions nationally. Cinergy and Progress Energy round out the top five in terms of emissions score (the combined SO 2 and NO x rankings).
At the other end of the spectrum is Calpine, with a predominately new gas-fueled fleet. Calpine ranked fifth in fossil generation in 2004, but 198th and 100th, respectively, in