Why the CPP’s Demise Doesn’t Mean a Wholesale
Return to Fossil Fuels
We Are Likely To See Much More of One Fossil Fuel
in Particular
by Gregory Remec, Fitch Ratings
The Environmental Protection Agency’s Clean Power Plan
remains in limbo as to its ultimate fate, though talk of its
demise has intensified of late with news that a multi-state
coalition has requested that President-Elect Donald Trump
not enforce the rule. If the CPP does indeed meet its end later
this year, this by no means signifies a wholesale return to
fossil fuels. However, we are likely to see much more of one
fossil fuel in particular.
More natural gas generation likely
There is an expectation that we will see substantial growth in
power generation from natural gas, which will continue to
displace much of what’s left of coal generation. But this
development has little to do with the CPP and more to do
with simple economics. The price of gas-fired generation has
become so much more competitive that older less efficient
coal plants either have already been retired or are heading
down that road.
The CPP’s overarching intent was to comply with the Clean
Air Act’s requirement of reducing harmful emissions like
carbon dioxide, with coal-fired generation emitting the most
carbon dioxide. But using solely less carbon-intensive
technologies like natural gas wouldn’t be enough under the
CPP, hence the onus on lower-emitting technologies such as
renewable energy. The common denominator here is less
carbon dioxide, and if it’s not the CPP, more than likely some
other plan will be put in place to see this initiative through.
Recently constructed coal-fired facilities can actually still be
competitive in today’s market. But if a tax were implemented
for carbon dioxide emissions, any kind of coal-fired
combustion technology would become much less competitive.
In the northeast U.S. we already have the Regional
Greenhouse Gas Initiative, a cooperative effort among
participating states to cap and reduce CO2 emissions from
the power sector by pricing and trading emissions
allowances. But whether it’s a cap-and-trade program or tax
or some other structure, we’re likely to see emissions pricing
of some kind. How severe the pricing is will go a long way in
determining whether coal facilities continue to be retired or if
they stay competitive.
Appetite for renewables still robust
Seemingly lost in this equation is what happens to renewable
energy generation if and when the CPP ceases to exist. The
short answer is renewables are not going anywhere, either.
There is still quite a robust market for renewables. States like
California have already implemented their own aggressive
renewable energy portfolio standards, though appetite for
renewables across the country varies considerably. California
is far and away the most receptive to renewables against a
more tempered response among much of the rest of the
country. Nonetheless, much of our society is still interested in
using renewable energy. So don’t expect households with
solar power panels to retire them anytime soon. Part of the
reason is that prices on solar power panels have dropped
precipitously and are much more affordable today.
One interesting development worth note revolves around
what’s known as a feed-in tariff, which is the price that
people with solar power panels are paid for any excess
generation that they do not use. The excess energy is then
fungible and goes back into the system for other households
to use. Efforts have been made to try and moderate the feedin tariff, though it has led to some adverse consequences.
Nevada is a notable example.
Nevada’s feed-in tariff was equal to the full retail price of
electricity. Eventually, the state’s Power Utility Commission
determined the feed-in tariff was an unjust reward for
families using solar power generation. But their attempt to
disincentivize users backfired, resulting in too low of a feedin tariff. Nevada’s PUC has since taken steps to amend their
stance, though many solar rooftop companies in Nevada have
already gone out of business as a result. This is also playing
out in Hawaii. The overarching theme here is that while the
overall economics of solar generation will change, the cost of
solar generation will continue to drop.
Conclusion
The likely demise of the CPP does not mean that we are
returning to the days when coal-fired generation was the
norm. The appetite for renewables is still very strong and
there remains a push toward cleaner generation overall even
with no statutory mandate.