PJM: Regional CPP compliance with carbon price cheaper than state action

Dive Brief:

Using a regional approach to comply with Clean Power Plan (CPP) emissions mandates will be cheaper than a state-by-state approach, according to the nation's largest grid operator.
Greenwire reports that PJM Interconnection released a new report outlining implementation costs of the Clean Power Plan, and the report contains something economists and environmentalists have long called for — a price on carbon emissions.
The report shows how costs could vary significantly by state, depending on targets and generation mixes. Natural gas would likely be a primary driver of the cost of reducing CO2 emissions if combined-cycle units become a significant source of replacement generation for coal.

Dive Insight:

PJM Interconnection analyzed dozens of scenarios and has issued a report examining the possible costs and impacts of complying with the EPA's coming emissions mandates. Ultimately, the grid operator concluded electricity production costs are likely to increase with compliance because larger amounts of higher-cost, cleaner generation will be used to meet emissions targets.

"State-by-state compliance options, compared to regional compliance options, likely would result in higher compliance costs for most PJM states," the operator said. That's because there are fewer low-cost options available within state boundaries than across the entire region. But that does depend on the state's targets and generation mix.

State-by-state compliance options would increase the amount of capacity at risk for retirement because some states likely would face higher CO2 prices in an individual compliance approach, PJM said. Adding more energy efficiency and renewable energy and retaining more nuclear generation would likely lead to lower CO2 prices and could result in fewer megawatts of fossil steam resources at risk of retirement because lower CO2 prices may reduce the financial stress on fossil steam resources under this scenario.

At a CO2 price of $20/ton, a coal unit’s running cost will increase by about $20/MWh. In contrast, a combined-cycle unit’s running costs will increase by only $7-$8/MWh, PJM found.