October 2008 Electricity Reliability Impacts of a Mandatory Cooling Tower Rule for Existing Steam Generation Units U.S. Department of Energy Office of Electricity Delivery and Energy Reliability i ii TABLE OF CONTENTS EXECUTIVE SUMMARY........................................................................................................................... i SUMMARY................................................................................................................................................... ii INTRODUCTION: Request from Congress ............................................................................................. 1 CHAPTER 1: Background of Thermoelectric Power Plant Cooling Systems – Technical and Regulatory Issues.......................................................................................................................................... 3 CHAPTER 2: Maintaining Electricity Adequacy..................................................................................... 9 Existing Generation Fleet ......................................................................................................................... 10 Coal-Fired Generation .............................................................................................................................. 10 Nuclear Power .......................................................................................................................................... 11 Natural Gas-Fired Generation .................................................................................................................. 11 Renewable Generation.............................................................................................................................. 14 Electricity Generation Challenges ............................................................................................................ 15 CHAPTER 3: Analysis of Wide-Scale Retrofit of Cooling Systems at Existing Electric Generating Facilities .................................................................................................................................. 17 Identification of Affected Facilities.......................................................................................................... 17 Scenario Analysis – Retrofit and Retirement Assumptions...................................................................... 23 Economic Retirements......................................................................................................................... 23 Siting/Permitting Retirements.............................................................................................................. 24 Estimate of Generation Capacity Losses .................................................................................................. 26 CHAPTER 4: Electricity Reliability Scenario Analysis......................................................................... 31 NERC White Paper................................................................................................................................... 31 Discussion ................................................................................................................................................ 32 CHAPTER 5: Conclusion ......................................................................................................................... 37 APPENDIX: NERC White Paper iii i Executive Summary The U.S. Senate Committee on Appropriations, Subcommittee on Energy and Water Development, requested the Office of Electricity Delivery and Energy Reliability of the Department of Energy (DOE or Department) to examine the impacts on electricity reliability of requiring existing steam generators using once-through cooling systems to replace those systems with closed-cycle cooling towers to condense and to cool the steam after its use in the generation of electricity. DOE provided the North American Electric Reliability Corporation (NERC) with a list of steam generation units that would be required to retrofit to cooling towers. 1 DOE requested NERC to model the reliability impacts of the cooling tower mandate using certain assumptions ( see Chapter 3). NERC provided DOE with its results in a white paper entitled, “2008-2017 NERC Capacity Margins: Retrofit of Once-Through Cooling Systems at Existing Generating Facilities, (NERC White Paper), which is provided as an Appendix to this analysis. In its white paper, NERC concludes that once the deadline for the cooling tower retrofits has passed, the generation losses resulting from the requirement would exacerbate a potential decline in electric generation reserve margins that are needed to ensure reliable delivery of electricity. Generally, the goal for NERC regions is to have the equivalent of between 10.5 and 13 percent of their peak generation demand available to meet contingencies. Assuming only planned generation is built, NERC projects overall capacity reserve margins to fall to 14.7 percent by 2015. However, upon analyzing the impact of a cooling tower mandate, NERC projects that, “U.S. resource margins drop from 14.7 percent to 10.4 percent when both the retired units and auxiliary loads due to retrofitting were compared to the Reference Case .” (NERC White Paper, p. 4) Based on the best available data, the loss of generation capacity due to reduced operational efficiency in combination with the early retirement of facilities that either cannot or choose not to retrofit may jeopardize the ability of California, New York, and New England to meet peak demand for electricity. In addition, one could reasonably expect that the capacity margin reduction would further aggravate transmission congestion in the Mid-Atlantic Area National Interest Electric Transmission Corridor. 1 In preparation of this analysis, DOE’s Office of Electricity Delivery and Energy Reliability (OE) worked with staff in DOE’s Office of Fossil Energy in the Systems, Analysis, and Policy Group at the National Energy Technology Laboratory (NETL). i Summary The U.S. Senate Committee on Appropriations, Subcommittee on Energy and Water Development, requested the Office of Electricity Delivery and Energy Reliability of the Department of Energy (DOE or Department) to examine the impacts on electricity reliability of a potential rule under section 316(b) of the Federal Water Pollution Control Act (Clean Water Act) that would require existing steam generators using once-through- cooling systems to replace those systems with closed-cycle cooling towers to condense and to cool the steam after its use in the generation of electricity. Section 316(b) was enacted to provide for the regulation of thermal discharges to the Nation’s surface waters. On January 25, 2007, the U.S. Circuit Court of Appeals for the Second Circuit remanded several provisions of the Phase II Final Rule promulgated by the Environmental Protection Agency (EPA). The United States Supreme Court has agreed to hear the appeal of the circuit court’s ruling and oral argument is scheduled for later in this year. 2 One potential outcome could require all existing power plants withdrawing 50 million gallons of water or more per day and using at least 25 percent of the water withdrawn for cooling purposes to comply with new requirements to minimize impingement and entrainment of larval fish and other aquatic organisms. Among the alternatives advocated is the replacement of existing once-through-cooling systems with cooling towers. This paper evaluates the potential impact of such a requirement on electric reliability. DOE provided the North American Electric Reliability Corporation (NERC) with a list of steam generation units that would be required to retrofit to cooling towers. 3 DOE requested NERC to model the reliability impacts of the cooling tower mandate using certain assumptions ( see Chapter 3). NERC provided DOE with its results in a white paper entitled, “2008-2017 NERC Capacity Margins: Retrofit of Once-Through Cooling Systems at Existing Generating Facilities” (NERC White Paper), which is provided as an appendix to this analysis. The Nation’s electricity industry faces major challenges during the next 15 years to keep adequate reserve capacity margins of electricity generation available to meet peak demand growth, even if that peak demand growth is dampened by initiatives focused on demand-response, improved technology, and energy efficiency. Nevertheless, electricity operators must plan to provide adequate generation capacity during periods of peak electricity demand, with a margin of additional capacity ready for contingencies, such as an unexpected generation plant shutdown. These capacity requirements are expected to grow despite increasing participation of consumers and utilities in demand response 2 See Entergy Corporation v. Environmental Protection Agency, et al., No.07-588, April 14, 2008. 3 In preparation of this analysis, DOE’s Office of Electricity Delivery and Energy Reliability (OE) worked with staff in DOE’s Office of Fossil Energy in the Systems, Analysis, and Policy Group at the National Energy Technology Laboratory (NETL ). ii programs and investments in energy efficiency. According to data collected by the NERC, average peak demand during the summer is expected to increase by over 135,000 megawatts (MW) or 17.7 percent by 2017, while committed resources 4 are projected to grow by only 77,000 MW. 5 Over half of the existing fleet of thermoelectric power plants in the United States is