Nation’s biggest carbon emitter is well-positioned to weather EPA rule

Source: Edward Klump, E&E reporter • Posted: Thursday, June 5, 2014

HOUSTON — In Texas, elected leaders don’t flinch when a new directive heads their way from Washington.

Especially when it’s from U.S. EPA.So it came as no surprise Monday when two Republicans — Rick Perry, the current Texas governor, and Greg Abbott, the attorney general and gubernatorial nominee — blasted a proposed U.S. EPA rule on power plants that aims to cut carbon dioxide emissions 30 percent by 2030 compared with 2005 (EnergyWire, June 3).

Perry called it “the most direct assault yet” on energy providers, and Abbott issued a separate statement that referenced a “job-killing agenda” from President Obama. For Texas, the proposed emissions drop would amount to about 39 percent compared with 2012 in pounds per megawatt-hour.

Yet, Texas observers said, the state is well-positioned for changes to meet future reductions and actually may thrive as more use of power from wind, solar and natural gas could play right into the state’s wheelhouse.

“The politics and the energy economics will move in somewhat different directions,” said Cal Jillson, a professor of political science at Southern Methodist University. “And I think the smartest thing to do is to keep an eye on the energy economics rather than on the political histrionics.”

Texas is the nation’s largest carbon emitter from sources covered by the EPA proposal, according to federal data. But it’s also the nation’s top wind power producer, and solar power in the state is on an upswing. Last month, a report showed renewable energy production in Texas that is tracked through a credit program climbed about 12 percent in 2013 from a year earlier (EnergyWire, May 19).

Natural gas accounted for 40.5 percent of energy use last year in the region managed by the Electric Reliability Council of Texas, the state’s main grid operator. Coal was next at 37.2 percent, followed by nuclear at 11.6 percent and wind at 9.9 percent.

Michael Webber, deputy director of the Energy Institute at the University of Texas, Austin, said the EPA announcement is a big deal and one that will make an impact. At the same time, he said the move largely ratifies shifts that were happening already.

Texas may see some older, less efficient coal-fired plants retire earlier than previously planned, according to Webber, who also pointed to a bright future for Texas renewable energy and natural gas production.

“What’s the No. 1 way you can reduce emissions in the power sector? By switching from coal to gas,” he said. “And who sells the gas? We do. What’s the other way you do it? With wind and solar. Well, who’s got the wind and the sunshine? We do. Who’s got the cheap, flat land for building wind farms and solar farms? We do.

“We’ve got the resources that people want in the era where you care about carbon,” Webber said.

The state also has a history of wrangling with EPA, so Jillson said this week’s statements by state leaders weren’t surprising. The issue also hits during an election year for Texas governor, as Abbott is looking to succeed Perry, who isn’t seeking re-election.

“Their over-the-top response is an ideological response rather than a sort of clear-eyed policy analysis,” Jillson said.

Unlike with some previous EPA announcements, though, “the really frantic opposition” didn’t appear to have materialized, he said. Jillson said Texas might join possible lawsuits related to the proposed EPA rule but noted Texas’ progress on renewable energy. He said coal likely will remain a part of the energy portfolio in the state.

There needs to be enough flexibility to ensure reliability through any changes, said John Fainter, president of the Association of Electric Companies of Texas.

“The public and the political leadership and everybody else has a zero tolerance for an unreliable system,” Fainter said.

Company concerns

The response to the EPA plan from power companies was mixed, as some touted their carbon-cutting credentials while others were cautious.

Take NRG Energy Inc., which has gained attention for its push into solar installations amid talk of changes in how power is generated. In an emailed statement, the company called significant greenhouse gas emissions reductions essential for a sustainable economy.

NRG, which has operational headquarters in Houston and a generation presence in Texas, said policies with moderate reductions in the near term and more aggressive targets later would give the power sector time to deploy clean energy options.

With the proposed rule, the company has “concerns that EPA’s dramatically varying state emission targets may derail these objectives by adversely impacting electricity reliability and consumers in certain states and introducing excessive uncertainty and legal risk” on the topic, according to an emailed statement.

NRG said it looks forward to working with EPA and states on guidelines.

Luminant, the power generation unit of Dallas-based Energy Future Holdings Corp., said in a statement that it would discuss the best path forward with industry groups, while also offering comments to EPA and working “with the state to develop a workable compliance plan for Texas that doesn’t harm reliability or the economy.”

Energy Future, formerly TXU Corp., already is coping with changes in the energy business. It filed for Chapter 11 bankruptcy reorganization earlier this year following a record leveraged buyout in 2007 that left the company with billions of dollars of debt. The buyout soured as natural gas prices, which help set power prices in Texas, were lower than anticipated after the deal.

Luminant, whose Texas plants include those fueled by coal and nuclear energy, said the EPA rule must fit with the legal framework of the Clean Air Act, including having emission requirements that can be reached with real-world technology.

“The EPA must now give Texas broad flexibility and sufficient time to form an implementation plan tailored to its unique regional needs,” Luminant said. “As the state that consumes and generates more electricity than any other, Texas must have the flexibility necessary to keep pace with the growing demand for power to serve our ever-growing population and economy.”

CPS Energy, San Antonio’s municipal electric and natural gas utility, said in a posting online that it supports a reduction in greenhouse gas emissions. The utility said it “has been on an aggressive path to diversify and reduce the carbon intensity of its own generation fleet for several years now, through the increased use of natural gas, wind and solar energy.”

The utility also cited its investment in nuclear power that’s carbon-free as well as demand response and energy efficiency programs. It said it will study the new EPA proposal, adding that “it appears CPS Energy is on a path towards compliance.”

Calpine Corp., a Houston-based company that has natural-gas-fired plants and geothermal facilities, applauded the federal plan on greenhouse gas emissions.

“Calpine supports the EPA’s proposal because we believe it will ensure continued progress toward cleaner energy in a way that supports ongoing grid reliability while allowing market forces to work to deliver the lowest-cost solution for reducing GHG emissions,” Thad Hill, Calpine’s chief executive officer, said in a statement. “With our modern, flexible, efficient fleet, Calpine is ready to meet this challenge head on.”

‘Landmark’ initiative

Environmental groups in Texas wasted no time in celebrating the EPA rule this week, with several groups issuing a joint release Monday touting a “landmark climate change initiative.”

“There is no state that suffers more from climate disruption than Texas,” Tom “Smitty” Smith, director of the Texas office of Public Citizen, said in a statement. “We have extreme drought, wildfires, and serious water shortages. There’s also no state in a better position to cut carbon emissions.”

Smith cited Texas’ leading role in wind power, and he said the state needs to take advantage of solar power, energy efficiency and energy storage. He said addressing climate change will save money in the future.

“If our state leaders handle these new carbon standards correctly, they can be a springboard for Texas into a new energy future,” Smith said.

Karen Hadden, executive director of the Texas-based Sustainable Energy and Economic Development (SEED) Coalition, said electric cooperatives can benefit. She cited a possible option for offsets of carbon if a utility or cooperative invests in renewable energy or energy efficiency.

“Co-ops can create local jobs to harness renewable energy and benefit financially by selling excess electric power to the grid for use in urban areas,” Hadden said in a statement.

Just yesterday, the Texas Clean Energy Coalition released a study by the Brattle Group that said natural gas and renewable energy will remain key types of generation that will be added to the state’s electric supply over the next 20 years. The group also touted the role of demand response and energy efficiency in potentially lower projected peak demand growth.

Texas will be coping with the new emissions rule going forward just like other states, noted Ed Hirs, an energy economist with the University of Houston.

Hirs said a proposed cross-state air pollution rule may have a more immediate effect on the state’s power generation. It will be up to state leaders and regulators to decide how to proceed with the proposed EPA emissions rule, and 2030 is still off in the future.

“That’s potentially several governors from now and a couple of different turnovers in the Public Utility Commission and the Legislature,” Hirs said. “It’s going to be interesting to see how this develops.”

Some power plants in Texas may close eventually, while others may open in Mexico, depending on regulations in that country, he said. Hirs also raised questions about any possible cap-and-trade plan in terms of goals of reducing carbon and bringing economic good.

Even with the EPA proposal just being announced, Webber of the University of Texas said the case for the state’s advantages is clear, from potential business in energy services to work in natural gas and renewable energy.

“It should be good for jobs in Texas because it means more natural gas production, it means more wind and solar production in Texas,” Webber said.