EPA is pressured to revise interpretation of CAMR

EPA is pressured to revise interpretation of CAMR

Washington (Platts)--19Sep2006

With Clean Air Mercury Rule monitoring starting in 2009 and removal starting
in 2010, EPA's plan should create a "viable trading program to substantially
remove mercury," the head of the Environmental Protection Agency's Clean Air
Markets office said.

And next coming will be carbon dioxide emissions allowances, predicted Gary
Hart of Clear Air Markets, ICAP Energy consultant and a former Southern
Companies employee.

EPA's Sam Napolitano predicted that most scrubbers would be installed at
plants generating 500 MW, as the workhorses of the fleet. The picture looks
pretty good for installing scrubbers and meeting deadlines in the east, he
said, but there are some exceptions.

Napolitano predicted that 25 GW of scrubbed capacity would be installed by
2008. When making its calculations, EPA took a pretty conservative view, he
said. He believes industry can meet the deadline.

But not all think the regulations are adequate. Some 14 states have sued EPA
over aspects of CAMR and have asked for a reconsideration. EPA is now deciding
whether to review CAMR.

Napolitano said 49 states have coal-fired generation, and 32 of those states
will use trading allowances. Ten states have opted for command and control
programs and seven states have no clear direction. One state, the District of
Columbia and two tribes have no coal-fired generation, he said.

Disagreeing with the estimates of scrubbed capacity by 2008, Hart said he
believes 15 GW could be scrubbed by then, but not the 25 GW predicted by EPA.
It's just not physically possible, with shortages of labor and steel, he said.

But, he predicted that 45% of the current plants would remain uncontrolled in
2010. Companies will need to look at older plants to determine if they are
viable with the new regulations. They can compete if natural gas remains at or
near current levels and unless emissions allowances markets have "swing
wildly," Hart said.

Utilities will likely spend $6 billion for environmental controls to meet the
Clean Air Interstate Rule and CAMR regulations, while a cap and trade program
seems the best way to manage emissions while gradually reducing them, and to
avoid rate shock, emissions trading should be allowed for gradual
implementation of the new rules, Hart said.

Otherwise "you'll see a parade to the PUCs to recover capital expenditures."

In tests of the technologies at six different plants, one estimate put the
cost of mercury at $1 to $2/MWh, said John Blaney, senior vice president of
ICF Consulting, during Platts Coal Marketing Days September 15.

CO2 allowances, costs more uncertain

The mid-range of prices for CO2 allowances is where coal is at the greatest
risk, Hart said. At low CO2 allowance prices of $20/short ton, pulverized coal
is in the generation mix. But at $22 and up, coal has much smaller
penetration. If CO2 allowance prices are high, in the $25 to $30 range, IGCC
plants plus carbon sequestration is very attractive. Then the uncertainties of
selecting a brownfield project site and the effects of liquefied natural gas
factor into the costs.

From the practical view, NRG delayed installing scrubbers for a while by
converting to low-sulfur coal, said Judith Tanselle, director of coal and
emissions for NRG Energy.

The company is very active in hedging power and fuel to its baseload plants,
so swings in fuel prices don't affect NRG much.

While the company is repowering, it is redeveloping brownfields, she said. A
nuclear plant is going up in Texas right now, while in New England, the
company is focusing on IGCC plants, the only plants to get approved there.

With regulations to limit SO2, NOx, mercury and the clean air visibility
rules, CO2 regulations are on the horizons, said Hart.

Using calculations, Hart said that in an uncontrolled unit with a heat-rate of
9,500 Btu/lb, by adding controls and using eastern coal, the dispatch cost
would be $48.28/MWh in 2010. In those same conditions, using natural gas, he
said the dispatch cost would be $52.97/MWh in 2010.

A lot of the cost depends on the feedstock and emissions allowances costs, he
said. With the current environmental penalties, the coal unit would win and
dispatch first.

For more news, request a free trial to Platts Coal Trader at
http://coaltrader.platts.com

Please visit: www.platts.com

Their coverage of energy matters is extensive!!.