New Regulations Could Drastically Change Power Generation Mix

The U.S. Environmental Protection Agency (EPA), in April, finalized and announced a new rule modifying emissions standards for fossil-fueled electric generating units. Commonly referred to simply as the power plant rule, the regulation has been in the regulatory process for over a year.

With two comment periods in the summer and winter of 2023, some significant changes were made in the process. Most notably, existing gas-fired generation plants will not be subject to the rule; they were under the initial proposal. When announcing the removal of existing gas-fired plants from the rule, EPA signaled that it would move forward with a separate rule for those facilities in the future, though no timeline has been announced. 

NRECA CEO Jim Matheson made the following statement shortly after the EPA finalized the new power plant rule, “The path outlined by the EPA today is unlawful, unrealistic and unachievable. It undermines electric reliability and poses grave consequences for an already stressed electric grid. The American economy can’t succeed without reliable electricity. Smart energy policy recognizes that fundamental truth and works to help keep the lights on. This barrage of new EPA rules ignores our nation’s ongoing electric reliability challenges and is the wrong approach at a critical time for our nation’s energy future.”

Litigation by utilities and state attorneys general seeking to bar the implementation of the rule has already been initiated. A similar rule implemented in 2015 was stayed through litigation that ended in June of 2022 when the Supreme Court held that the resulting generation shifting needed to achieve the EPA’s rule exceeded the authority granted to the agency under the Clean Air Act. 

What Does the Rule Require?

The EPA’s power plant rule will significantly affect new and existing coal-fired plants as well as new gas-fired plants. The rule’s requirements for coal-fired plants are to be met by 2032, and even then, would not fully apply to plants scheduled for retirement before 2039. Coal-fired plants retiring between 2035 and 2039 would be required to reduce greenhouse gas (GHG) emissions by 16% by co-firing with natural gas, and starting in 2040, any remaining coal-fired plants will have to reduce GHG emissions by 90% using carbon capture and storage (CCS) technology. 

Newly constructed gas-fired plants would see different standards based on their load capacity. Peaker plants operating at 20% capacity or below would have no new regulations. Intermediate plants operating at up to 40% capacity must use highly efficient simple cycle technology upon startup. 

Baseload gas-fired plants will have a requirement for 90% CCS by 2035. The final rules lowered the threshold of baseload generation from 50% capacity down to 40% capacity. 

The final rule removed the option of using hydrogen co-firing as an alternate to CCS. 

What Will This Rule Mean for Cooperatives?

“This rule could cause a major shift in cooperatives’ generation mix and potentially increase members’ energy costs,” CFC Director of Federal Relations Stratton Edwards said. “The implementation of this rule is nearly a decade away, and litigation seeking to invalidate it is already starting, meaning actual changes are some time off.” 

Despite the expected delays, the rules will likely shift long-term planning, even if they never reach implementation. Edwards added, “Whether behavior changes on an organic timeline as technology evolves or on an accelerated timeline pressed by regulations will have an effect on the cost of energy that is ultimately paid for by cooperative members.” 

The EPA’s power plant rule relies on new and emerging technologies to meet emissions goals. 

“I have recently heard the term ‘energy expansion’ in place of energy transition,” Edwards said. “With demand for energy—particularly electricity—forecasted to rise, industry watchers, regulators and lawmakers are realizing that renewable generation and new technologies will be needed to meet forecasted demand—and it will be some time before they can truly replace existing coal-powered generation capacity.”