INTRODUCTION

The current "Clear Skies" initiative as outlined on EPA's website calls for a first round of air emissions reductions in the 2008-2010 timeframe of approximately the following magnitude.

• SO₂ – 60%
• NO_x – 60%
• Mercury – 45%

Furthermore, the current proposal creates a cap and trade system for NO_x and mercury emissions that will operate in a similar manner to the current trading system for SO₂ allowances.

As a result of these proposed new regulations, generating companies will be faced with increases in the cost of electrical generation. It can be a challenging task to find a solution that minimizes total cost. This paper is an example a structured process for NO_x emissions that demonstrates how to evaluate and discover the appropriate balance between the installation of new pollution control equipment and the purchase/sale of emissions credits. The somewhat surprising result shows that a strategy of over compliance minimizes the cost of NO_x compliance.

The example provided is based upon minimizing NO_x emissions compliance costs at a hypothetical 50 MW pulverized coal unit burning bituminous coal and utilized to supply intermediate daily peaking loads. Under this operating scenario the plant would be fully loaded during the weekday, at minimum load at night, and possibly shut down on the weekend.

The small unit size is particularly chosen to show how a balance of capital improvements and purchase/sale of emissions credits minimizes compliance costs. Larger base loaded coal fired units because of their inherent economy of scale will have an easier time justifying the capital retrofits. It is the smaller, older, coal fired units that provide an opportunity to execute a strategy that uses emissions purchases to optimize costs. The writer spent considerable time in 2003 helping a small generating company develop this kind of strategy.

BASELINE ASSUMPTIONS

Purchase of SO₂ allowances has been a part of many companies operating strategy for several years. Currently, “Clear Skies” proposes a similar approach for NO_x emissions.

The following assumptions will be used to develop the example scenario. The figures used are based on technical work conducted by the writer but are meant to be more illustrative of the process rather than definitive in nature.

NO_X CONTROL OPTIONS

The following is a brief description of the technologies available for installation at the hypothetical power plant in question.

• Low NOx Burners(LNB) – modify the combustion characteristics of the burners resulting in lower flame temperatures and lower NOx emissions
• Over Fired Air(OFA) – introduce a portion of the combustion air above the burners resulting in a “staged combustion” which lowers flame temperatures and NOx emissions
• Selective Non-Catalytic Reduction(SNCR) – Injects either ammonia or urea into the boiler flue gas reducing NOx emissions
• Selective Catalytic Reduction(SCR) – Injects either ammonia or urea into the boiler flue gas ahead of a catalyst reducing NOx emissions

NO_X CONTROL OPTIONS – COST AND PERFORMANCE

The following table summarizes the cost and environmental performance of the various options. The figures were derived from technical information submitted by a number of environmental technology companies. They represent the consensus of the vendors for a typical power plant. In an individual application the actual cost could vary greatly from these figures due to site specific issues such as space, equipment arrangement, soil conditions, and interconnection/interface requirements.

The next step in the process is to convert these figures into yearly operating costs. This is accomplished by multiplying the capital cost by the fixed charge rate, the fixed O&M cost by the plant size, and the variable O&M cost by the yearly generation. A summary of the yearly costs is contained the following table:

OPTIMIZATION PROCESS

For the purposes of this exercise, it will be assumed that NO_x allowances will be purchased or sold at a price of $3500/ton. The following table summarizes the yearly cost of the technology option plus the cost of buying or selling allowances for each of the options. It will be assumed that the hypothetical plant will be able to comply with the 60% NO_x reduction by installing a LNB/OFA system. It is also assumed that the owner is assigned 420 tons/year of NO_x allowances.

The results of this analysis show that installing a combination of LNB/OFA/SNCR and selling 158 tons of NO_x allowances produces the lowest cost. The table also points out the complexity of selecting a course of action. The two lowest cost options are very close to each other in value. Given the uncertain value of NO_x allowances the owner may be unwilling to risk the additional capital investment for the SNCR system.

There are three factors that have the most influence on the analysis:

• The emission rate produced by each alternative is very critical. The emissions rate drives the yearly $ value of selling allowances
• The operating cost of the emission control equipment
• The $ value of the allowances

The risk associated with emission rate and operating cost can be addressed by a thorough engineering analysis for a specific power plant. This would involve using the services of an experienced engineering firm coupled with the expertise of environmental technology companies. An analysis of this type can lead to performance and cost guarantees which minimize the risk to the owner.

The value of allowances is somewhat harder to quantify. Forecasts and forecasting methods are helpful but not always accurate. The methodology described allows for the calculation of incremental costs per ton of removed NOx for each technology. The incremental cost per ton is summarized in the following table:

The table shows that the marginal cost of the LNB/OFA/SNCR alternative is slightly lower than the assumed allowance cost of $3500/ton. Allowance costs would have to exceed $14000 per ton before the LNB/OFA/SCR option becomes attractive.

CONCLUSION

The purpose of this article is to demonstrate how to evaluate and discover the appropriate balance between the installation of new pollution control equipment and the purchase of emissions credits. The analysis shows that a combination of new pollution control equipment, over compliance with emissions regulations, and selling allowances in the open market produces the minimum NO_x compliance cost. The analysis also allows the economic risk to be identified and quantified.

The process described can be used for any size of power plant. It can also be used to evaluate other types of emissions strategies related to different pollutants where and cap and trade market exists.

Copyright 2004 CyberTech, Inc.