I try not to miss any opportunity to ask people in our market how they are being affected by CAIR. While most folks in the 27 states and the District of Columbia affected by CAIR are aware of the rule, there appears to be a frequent disconnect between how people in corporate and plant job roles view CAIR’s implications.
Often when I query people who work at power plants, they state that their plant is “all set” or “in compliance” or otherwise doesn’t need to explore further NOx reductions. I find this response mysterious, because CAIR is based on an allowance market in which all plants in all included states can participate. In other words, reducing NOx by one ton per year has the same value to every single plant in every single state covered by the CAIR.
The plant might be given a limit by the corporate people who formulated the fleet’s NOx strategy, but there is no legal or regulatory limit. And the shareholders or citizens that own the company get tremendous benefits from reducing NOx.
Financial incentives to push emissions even lower
Consider, for example, a 350 MW generating unit burning bituminous coal, without an SCR or other post-combustion NOx removal system and typical boiler NOx of 0.25 lb/mmBtu. With today’s CAIR annual allowance price of $2,100 combined with the current existing seasonal allowance price of $650 per ton, a 15 percent NOx reduction achieved through optimization results in more than $1.3 million per year in NOx allowance benefits. The fuel savings typically achieved through boiler optimization would add another $470k of annual benefits, for a payback of approximately three months.
And note that this analysis does not assign any value to the CO2 reductions associated with improved heat rate. Many generators are already operating in either the mandatory RGGI CO2 market or the voluntary but legally binding Chicago Climate Exchange. Most industry observers acknowledge that a mandatory cap and trade program is inevitable, and such a program is included in the current Obama Administration’s proposed Federal Budget.
A recent PJM forecast predicts CO2 prices under a federal program starting out at just under $10/ton and ramping up in subsequent years to levels above $20 per ton. This means that the value of heat rate improvements currently being achieved through boiler optimization will increase by 50-100 percent once a federal cap and trade program is implemented.
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