Texas's Electrical Power Predicament-Part 3

Summary of Parts 1 and 2

Texas’s population, GDP and electricity use are all in long-term growth trends, but these are about to run head-long into several EPA rules that will cause a reduction in electricity production derived from coal-fired plants.

From the scenarios I ran, it seems likely that these rules will reduce electricity reserve margins to the point where rolling blackouts will become routine, starting in the summer of 2012, with about half of the days of August having contracted industry “brownouts,” the purchase of high-cost extra-grid emergency power and at least a few days with rolling blackouts in the late afternoons.  By 2015, if growth continues, and the expected coal-fired plant closings occur, the industrial brown-outs and rolling blackout could expand to several hours for most days in July and August, and some days in September. 

The EPA doesn’t believe, or admit, that there will be any power reliability problems created by implementing these rules.  This appears to be due to the EPA's assumption that the ERCOT-controlled region of Texas has much more electricity generating capacity, than ERCOT itself believes that they have.  It would seem that the EPA has counted plants that have been retired, and, overestimated the ability of wind to provide power-on-demand in the summer.

I think that this has some interesting implications for Texas, and in general, that I will spend the rest of this post exploring.

Inadequate reserve margin means increasing numbers of rolling blackouts

This chart from ERCOT’s CDR Report from December 2011 (see, Report on the Capacity, Demand, and Reserves in the ERCOT Region) nicely summarizes ERCOT’s estimated shortfall from their targeted summer reserve margin of 13.75% of total generating capacity.

The numbers in blue, that I added to the chart, are from a table in this same report, representing ERCOT’s own estimated reserve margin, based on installed capacity and planned units. Other projects undergoing “Full Interconnection Studies” are not counted by ERCOT in their reserve margin estimate, probably because these projects could be cancelled or delayed.   Also ERCOT’s reserve margin estimate is based on an assumed annual growth rate in summer demand that ranges from about 1.4 to 4.9 %/yr, by my reckoning.  

Having an adequate electricity generation reserve margin is vital to preventing rolling blackout.  However, by ERCOT’s own estimate, their reserve margin will be down to 3.6% of total generating capacity by 2015, 0% by 2020, and then go negative thereafter.  Even if all the projects presently undergoing study, including some unlikely new coal and nuclear power plants, are added, the reserve margin only stays above 10% until 2018, and then falls thereafter. 

As pointed out by Warren Lasher (item 28), in the spring and fall, scheduled periodic maintenance typically remove about 10,000 MW of generating capacity, but at any given time during the year unscheduled maintenance can take 4,000 MW of capacity.  Add to this the variably in demand due to unexpected hot or cold weather, and you have the recipe for rolling blackouts.

Peak Coal before Peak Oil?

On this blog, I spend a lot of time thinking and writing about peak oil and its implications to society.  I do this in part because I believe there to be good evidence to suggest that petroleum production has or will soon peak, and because petroleum is a vital liquid transport fuel that will be very hard, if not impossible, to replace to anywhere near the level that it is being used presently. 

However, another underlying assumption on my part is that petroleum production will peak and decline long before the other fossil fuels, natural gas and coal, will peak and decline.  This assumption is based on numerous analysis done by other that generally show the order of world-wide peak production rates as being oil, then gas, and then coal (see e.g., Laherrere’s Uncertainty of data and forecasts for fossil fuels;  Akelett’s Reserve Driven Forecasts for Oil, Gas & Coal)

However, after doing my investigations for this series, I am no longer so sure that peak oil will be the first peaking fossil fuel that will be of concern. 

Texas, more specifically the ERCOT region of Texas, is about to reach another kind of peak—a peak in the ability to dispatch electrical power-on-demand.

I want to make clear that this is not a peak that is caused by peak oil or that has anything to do with peak oil.  For at least the last 20 years, Texas (unlike some states, like Hawaii), has produced very little of its electricity, less than 1 %, by burning petroleum.   Rather, natural gas and coal, together, account for 83% of Texas’s electricity sources.  It is the present 36% contribution from coal that is likely to decline this year and in the coming years. 

Texas’s peaking electricity power predicament is not due to peak coal production, either.  This is not a resource depletion story.   Rather, this is a peak cost story, akin to what Jeff Rubin described as a “peak price our civilization can pay and still grow.”  In his talk, Rubin was thinking of, and talking about oil, but the concept pertains to any natural resource, including coal.  I think that it is likely that the newly implemented EPA rules, CSAPR and MATS, and more rules to come, will increase the cost of burning coal to produce electrical power to the point that the power providers will simply stop using coal because the cost is too high to pay. 

Cap and Trade

The EPA rules will force coal-fired plants to retool, or, to install other antipollution measures, or,  purchase pollution credits—a type of cap and trade for electricity providers. As explained by Andy Weissman, the EPA will issue yearly allowances, or permission slips, to the energy source provides, but not enough allowances to emit at present levels.  The idea is for the providers to make a market between themselves by buying and selling the permission slips, although trading between states is highly limited.  Every year a new lower number of allowances is issued to the providers.  

Some power providers may compensate for the increased cost of these measures by increasing the cost of power.  But some providers, it seems, will simply close down their older plants. 

The Fate of Coal Producers: Exports?

Maybe for a time some coal mining companies could reduce their profit margin and cut the price of coal so that it is still attractive to the power providers to use coal.  Or, maybe it will be more profitable for US coal producers, such as planned by producers in Wyoming, to directly ship the coal to China or India, similar to that already done in Australia, and many other countries, if they can overcome the legal challenges, to building an export port in Longview WA or other legal challenges in the USA, and elsewhere:

And the rush to feed this new Asian market has helped double the price of coal over the past five years, leading to a renaissance of mining and exploration in many parts of the world.

“This is a worst-case scenario,” said David Graham-Caso, spokesman for the Sierra Club, which estimates that its “Beyond Coal” campaign has helped to block 139 proposed coal plants in the United States over the last few years. “We don’t want this coal burned here, but we don’t want it burned at all. This is undermining everything we’ve accomplished.”

In Australia, environmental groups have repeatedly halted trainloads of coal headed to the export docks at Newcastle this fall, and flotillas of kayaking protesters have delayed cargo pickups by Asia-bound coal ships.

from Nations That Debate Coal Use Export It to Feed China’s Need

It will be interesting to see how the clash between the growing need for electricity and environmentalist’s desire to reduce world-wide GHG emissions will end.  Texas will be an early test of that clash when rolling blackouts become routine, I think.

At least the environment gets saved—right?

No one would dispute that breathing in SO₂, NO_X ozone mercury etc... is bad for one’s health and that the communities where the levels of these pollutants will go down should have health, and therefore economic, benefits.  However, I am pretty sure, because they don’t believe it will happen, that the EPA did not consider the negative health and economic consequences of industrial brownouts, higher electricity prices for consumers, or rolling black outs, on the ability of businesses and individuals to function productively under these conditions.  

Global Warming Benefits?

But what about GHG emission, in particular CO₂ emissions; what effects will the EPA’s rules have on reducing GHGs?

To address this let’s consider some statistics.  First, the total amount of coal that the USA produced was 985 million tonnes of coal in 2010 (from BP statistical Review 2011).  Second, the EIA’s annual energy review 2010 confirms that virtually all of this coal gets used domestically for electricity generation.  Third, according to the EIA’s Electric Power Annual 2010, Table 1.2 the USA’s nameplate generating capacity from about 1,400 coal-fired plants equaled 342,296 MW, and, in Table ES1, 1,046 million tonnes was consumed in generating electrical power.  So, at least the EIA’s reported consumption amount is ball-park the same as the BP Statistical Review’s reported production amount.  Fourth, and finally, from the full IER document discussed in Part 2 of this series, we know that the EIA estimates the CASPRA and MATS rules will cause the loss of 14.5 GW (14,500 MW) generating capacity.  But, maybe this could be up to 30 GW (30,000 MW), if one includes the power provider’s announced plans to close, according to the IER’s estimate.   

Therefore, based on the EPA’s and IER’s estimates, we should expect between about 4.2 (i.e., 100 * 14500 / 342296) and 8.8 (i.e., 100 * 30000 / 342296) percent of coal-derived electricity generating capacity to disappear by 2015-2016.  If these estimates are correct, then I would expect the USA’s coal consumption (essentially equal to production) to decline by this same percentage by 2015-16.  Using the EPA’s estimate, then coal production may decrease from 985 million tons in 2010 to 943 million tons in 2015.  Using the IER’s estimate coal production may decrease to 898 million tonnes in 2015.  The difference then is 42 to 87 million tonnes per year. 

How do these amounts compare to the production of coal in other countries, especially Asia?

Figure 16 summarizes the above calculations, and, compares the USA’s coal production to China’s (3240 million tonnes) and the remaining Asia-Pacific region (1443 million tonnes) for 2010 (data from BP statistical Review 2011).  About ninety percent of the remaining Asia-Pacific's coal production consists of three countries: India (570 million tones) Australia (424 million tonnes) and Indonesia (306 million tonnes).  Based on the BP Statistical Review 2010, it looks like the Asia-Pacific consumes about 95% of what it produces.

Based on these numbers, my estimated reduction in the USA’s coal production of 42 to 87 million tonnes per year by 2015 would correspond to only about 1 to 2 percent of the Asia-Pacific region’s  total coal production in 2010. 

If the Asia-Pacific region’s coal production and consumption just stayed at its same rate, its hard to see how the USA’s coal production/consumption reductions would have much effect on world-wide GHG emissions. 

But we should not expect the Asia-Pacific region’s coal production and consumption to remain constant—we should expect it to go up.

Figure 17 shows the recent trend (2001 to 2010) for coal production in the China and the remaining Asia Pacific region, and for the USA, as a year-by-year percentage change.

Table 1 presents the mean and standard deviation of these data:

Table 1: Recent trend in annual coal production growth
Country/Region	Mean ± SD (2001 to 2010)
China	9.0±4.7
Remaining AP region	6.0±1.2
USA	0.2±3.9

It is clear that coal production in China and the remaining Asia-Pacific region have been in a strong growth trend.  At 9 %/yr and 6%/y growth rates, China’s and the remaining AP’s coal production growth in 2011 would be 291 and 86 million tonnes per year, respectively.  The sum of these two amounts (377 million tonnes per year) by far eclipses the reduction in coal production that I estimated may occur in the USA (42 to 87 million tonnes per year) by 2015. 

On its face then, it is hard to see how the potential reductions in coal use in the USA due to the EPA rules will even compensate for the likely increases in coal use in Asia, and, therefore how GHG emissions could be expected go down due to these actions. 

Just to compensate for the projected annual increases of about 377 tonnes/yr in Asia for the next three years the USA would have to reduce its total consumption of around 1000 million tonnes by about 1/3 every year for the next three years—and then what?

Maybe my comparison is not fair, because China and India will burn their coal in plants that are far less polluting than the older plants that are most likely to close down in the USA. There are reports that the newer modern Chinese plants are less poluting, although not all of the plants being installed (only 60%) are modern plants (see e.g., China Far Outpaces the US in Building Cleaner Coal Fired Plants)

Also keep in mind that the removal of sulfur dioxides and nitrogen oxides from the air, as enforced by the EPA’s CSAPR and MATS rules could contribute to global warming by reversing the global dimming effect.

Further keep in mind that at least some of that reduction in coal-derived electricity production will not just vanish.  Rather, a good part of it will likely be made up with increases in readily “dispatchable” natural gas-derived electricity production, a fossil fuel whose lower GHG emissions, as compared to coal may have been overestimated (see e.g., Climate Benefits of Natural Gas May Be Overstated). 

Still further keep in mind that perhaps there will not be as much natural gas, in particular shale gas, available as some are thinking (see e.g., Foss’s Get Ready for the North American Gas Shock and Hughes’s Will Natural Gas Fuel America in the 21st Century?).  If the promise of natural gas falls short in a few years or so, then where that will leave the USA’s electricity generation capacity and reserve margins? 

In far worse off shape than today, I think.

Some Final Thoughts

A “grand” experiment is about to be conducted in Texas over the few next years.  Texas is about to experience peak electricity generating capacity, I think.  This is not a peak forced by resource depletion, but rather, by rule of law.  Nevertheless, this is still a real peak, and, the government’s and public’s reaction and ability to cope with the peak, will be of great interest to me. 

After the first episodes of repeating rolling blackouts, will the EPA’s rules get “postponed” or will they stay in force?  The answer question to that might depend on who wins the 2012 federal election.  Conversely, if there are extensive rolling blackouts in the summer of 2012, this might affect the outcome of the 2012 federal elections in the fall. 

Will businesses respond to industrial brownouts and rolling blackouts by closing and moving to another state, or, another country, with higher electricity reserve margins?

Will the public embrace conservation measures, or, be angry and “shocked” that, not only has the government not done anything to mitigate the actual rolling blackouts in February 2011 and near miss in August 2011, but the situation is even worse than it was a year ago? 

Hopefully, after reading this series, at least you will not be shocked when the blackouts begin.