US Clean Power Plan to boost combined-cycle investment

Many US states will prioritize new combined-cycle power capacity as they plan how to achieve the goals set out by the Clean Power Plan, energy experts have told FC Gas Intelligence.

The Panda Sherman Power Project in Sherman, Texas, uses Siemens combined-cycle technology. (Image credit: Panda Power Funds)

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The final version of the CPP, drafted by the Environmental Protection Agency and unveiled by President Barack Obama in August 2015, outlined a target to reduce CO2 emissions from electrical power generation by 32% in 2030 compared to 2005 levels.

Increased generation from existing natural gas combined-cycle (NGCC) units was named as one of four “building blocks” toward emissions reduction. Although the CPP did not specifically mention it, experts believe construction of new NGCC plants will be the best way of supporting the plan’s stated aim of increasing the share of renewable sources in the electricity mix.

“With the decrease in coal usage and the limitations on building nuclear units, [use of] natural gas power plants will increase for backing up the renewables,” said Joe Nipper, Senior Vice President of Regulatory Affairs and Communications at the American Public Power Association (APPA), an entity representing 2,000 community-owned electric utilities serving about 14% of US electricity consumers.

NGCC plants should contribute 254 GW of new installed capacity between 2014 and 2038, increasing combined cycle’s share in electricity generation to 38.2% from 21.8%, according to energy-infrastructure specialist Black & Veatch.

“We see natural gas and renewables complementing each other in the foreseeable future,” said Alap Shah, Turbine Technologies Manager. “The relationship between renewable and natural gas is not considered opposite, and until the technology of energy storage is affordable, we will need natural gas-based power generation.”

NGCC expansion makes economic sense

Even before the CPP, lower costs for fuel and maintenance and a reputation for reliability helped propel the use of natural gas in US electricity generation.

Gas surpassed coal as the country’s leading source of electricity power for the first time in April 2015, and it repeated the feat each month from July through October, according to the Energy Information Administration (EIA). Spot prices at the benchmark Henry Hub in Louisiana averaged $2.61 per million British thermal units in 2015, the lowest mark in 16 years.

NGCC plants are forecast to become a clear number one for installed capacity in two decades (Source: Black & Veatch)

“In my view,” said Shah, “investment in natural gas power plants at this time is not completely related to emissions reductions, but more to the business side of power generation.”

The CPP's requirement for an increase in the capacity factor of existing NGCC plants to 75%, compared to the current 45% to 50% levels, is also expected to prompt investment to improve reliability and efficiency.

“This part of the plan may drive existing plant owners to upgrade their current gas-fired generation or even convert existing simple-cycle plants to combined cycle,” said Bonnie Marini, Director of Product Line Management at Siemens Energy.

Despite being less efficient in power generation, simple-cycle plants proved important in the past because of their ability to start up quickly to provide peak-load and standby service. But Marini explains that today, there are combined-cycle plants able to start and stop quickly, flexibly change load, and operate efficiently over a broad power range.

“Siemens has had fast-starting combined-cycles on the grid since 1999, and since then we have been continually enhancing our Flex-Plants with new capabilities to meet the fast-changing power market,” she said. The newest combined-cycle plants are even more efficient, she added, with some Siemens technologies reducing CO2 emissions by up to 150 lb/MWh.

Tight deadlines, no decisions in short term

It is unlikely that significant investments in new NGCC power capacity will be made as a direct result of the CPP before September 2018, the final deadline for states to submit their State Implementation Plans (SIPs) to the EPA. The initial deadline for submissions is September 2016, but states can request a two-year extension.

Shah reported clients telling him that they will use the extra time to assess the energy policy of the incoming administration in Washington. And Nipper said he doesn't expect states to have more specific details about their plans before the second half of this year.

The only state that has made a public commitment to submit its final SIP by September 2016 is Pennsylvania, according to the APPA. Pennsylvania’s Department of Environmental Protection is developing a draft plan based on public comments. It plans to conduct further public hearings in the June quarter with an eye to submitting the final draft by September.

Pennsylvania is the United States’ second-largest producer of natural gas, due to the position of the Marcellus Shale, the country's largest natural-gas field, which also extends under West Virginia, New York, Ohio and Maryland.

Shah believes most of the new combined-cycle plants will be built in the mid-Atlantic and northeastern states and Texas, due to proximity to shale gas sources. However, investment in new pipeline infrastructure to increase fuel distribution across the country and reduce capacity constraints will be needed to cope with planned expansion of NGCC power capacity, he said.

Time is also an issue, and states such as Florida, Wisconsin, Indiana, Missouri, South Carolina and Kentucky will have the most trouble complying with the CPP requirements by the 2022 deadline, according to Nipper.

“They are currently relying on coal-fired generation and a lot of the plants have been modified very recently to comply with other EPA regulations,” he said. “Those investments are now at risk, because under the new emissions requirement they might not be able to run economically, or will have to retire.”

By Anna Flávia Rochas