EPA’s change of course on the Clean Power Plan

March 2018 Edition: EPA’s change of course on the Clean Power Plan
What’s the state of play for the power markets given the EPA’s change of course on the Clean Power Plan? Our experts address high level points of CPP and sources offsetting the potential loss of supply due to the CPP’s effect on coal-fired generation.

The Clean Power Plan (CPP) has been under a stay from the U.S. Supreme Court since 2015. The Environmental Protection Agency (EPA) proposed a repeal of the CPP in late 2017. Any expectation for the loss of supply due to the CPP’s effect on coal-fired generation has been offset by low natural gas prices, continual cost curve decline in renewables, corporate appetite for renewables and consumer adoption of energy efficiency and demand response.

What is the Clean Power Plan (CPP)?

The Clean Power Plan was first proposed by the EPA in June 2014 to lower the carbon dioxide emitted by power generators. The final version of the plan was unveiled by President Barack Obama on August 3, 2015. The 460-page rule (RIN 2060–AR33) titled “Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units” was published in the Federal Register on October 23, 2015.
Though finalized in 2015, the CPP never went into effect due to a stay issued from the Supreme Court. The CPP was expected to have a significant impact on carbon dioxide emissions when compared to the baseline, however a lower than forecasted power demand, lower natural gas prices and a dramatic reduction in the renewable energy cost curve had an impact on carbon emissions even without implementation of the CPP.
In late 2017, the EPA began a process to repeal the CPP and asked for public comment on how the agency should potentially replace the rule. Due to regulatory requirements and likely legal challenges, the process to repeal or replace the plan may take years.

Who is the U.S. Environmental Protection Agency (EPA)?

The EPA is a federal government agency created in 1970 to help protect human health and the environment by writing and enforcing regulations based on laws passed by Congress. The agency is led by an Administrator appointed by the President and approved by Congress. The current Administrator is Scott Pruitt.

What path has the CPP taken over the last 12 months?

President Donald Trump’s administration has been working to reshape certain environmental policies and regulations, including the following actions:

•  On March 28, 2017, President Trump signed an executive order directing various federal agencies to begin reviewing environmental regulations. The executive order began the process of rescinding the EPA’s Clean Power Plan.
•  On June 1, 2017, President Trump said that he would pull the U.S.out of the Paris climate agreement. As part of the accord, the U.S. had agreed to cut its emissions between 26 and 28 percent below 2005 levels by 2025.
•  On October 10, 2017, U.S. Environmental Protection Agency Administrator Scott Pruitt signed a proposal to repeal the Clean Power Plan.

What effect has CPP had on the power markets?

There has either been no notable effect, or any effect has been counter-balanced by other factors.
The CPP, which has been under a stay from the U.S. Supreme Court since 2015, is not included in the U.S. Energy Information Administration’s (EIA) Annual Energy Outlook 2018 Reference case. EIA does continue to forecast that coal-fired electric generating capacity will decrease through 2030 without the CPP, though at a lesser rate of decline than if the CPP were put into effect.
Any expectation for the loss of supply due to the CPP’s effect on
coal-fired generation has been offset by the following:

• Low natural gas prices
•  Continual cost curve decline in renewables
• Continued support of the solar Investment Tax Credit and wind Production Tax Credit
• Corporate appetite for renewables
• Consumer adoption of energy efficiency and demand response

In addition, the prospect of a carbon tax is another potential market driver for increasing adoption of renewables and continued retirements of coal power plants.
In conclusion, the CPP was intended to reduce carbon dioxide emissions and increase adoption of lower carbon generating sources. The CPP is in the process of being repealed, but the anticipated effects of the plan were minimal due to the forces favoring non-coal generation mentioned above.

How can my company take advantage of low cost clean energy?

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Our existing customers have secured on-site energy solutions for a number of reasons, including:

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How do I learn more?

As your energy expert, AEP Energy’s goal is to keep you informed and educated in an ever-changing energy environment. To learn more about renewable services offered through AEP Energy, contact Dan Smies, Managing Director of Business Development & Strategy at dbsmies@aepes.com or 614-583-6837 or your trusted AEP Energy partner.

Market Overview – AEP Energy Trading

Natural Gas

• During the month of February, mild weather contributed to a sell off for natural gas across the board, while power saw declines primarily in the front of the curve.
•  Prompt month (March 2018) natural gas at Henry Hub gapped lower to settle at $2.667/MMBtu, down $0.328/MMBtu on the month.
• Balance of the year (April – December 2018) closed up $$2.781/MMBtu down $0.146/MMBtu.
• Further out the curve, the declines lessened with Calendar 2019 down $0.062/MMBtu to $2.770/MMBtu, and Calendar 2020 down $0.048/MMBtu to $2.752/MMBtu.

Power PJM – Ohio

• In power, the front of the curve saw declines with March 2018 AEP – Dayton Hub on peak down $2.50/MWh to $32.00/MWh.
• April 2018 AEP – Dayton Hub on peak was also down $0.70/MWh to $33.35/MWh.
• Beyond that, there were small increases with the balance of the year (April – December 2018) inching up $0.05/MWh to $34.57/MWh.
• Calendar 2019 was up $0.24/MWh to $34.00/MWh and Calendar 2020 was also up $0.07/MWh to $33.72/MWh.

Power Illinois

• PJM ComEd zone February 2018 day-ahead on-peak closed $26.75/MWh, decreased dramatically by $17.90/MWh from January’s close.
• MISO Illinois.Hub February 2018 day-ahead on-peak closed $26.48/MWh, down significantly higher by $14.16/MWh from January’s close.
• Weather conditions returned to normal temperatures leading to lower energy prices.

Any references made to prompt month natural gas will normally be associated with a range starting the first day of the month through the final settlement of the respective prompt month natural gas contract. Other references to forward natural gas prices and all power prices will be based on a range starting the first day of the month through the final day of the month.

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