Will the New EPA Mandates Lead to Environmentally Harmful Power Generation?

May 16, 2011
Article first published as Will the New EPA Mandates Lead to Environmentally Harmful Power Generation? on Technorati.

According to ERCOT, the organization responsible for maintaining the Texas electric grid, new regulations proposed by the EPA will result in many of the state’s gas powered electric plants being shutdown. This is because the expensive retrofitting that the regulations would require would make the plants economically unviable. In the Texas deregulated electricity market, power producers are free to build new plants, but they are not mandated to do so.

Texans who have taken advantage of deregulation by switching to a competitive retail electric provider have enjoyed cheap electricity for the past couple of years. High school economics students learn that in a free market, prices are a function of supply and demand. The EPA regulations, according to ERCOT, will result in a reduction of supply as existing, operating plants are squeezed out of the grid. The natural pressure on prices will then be upward.

Electricity in Texas is produced in large part from natural gas burning power plants. Natural gas prices have fallen dramatically since 2008. That has been a major contributing factor in lower electricity prices. These lower prices, while certainly welcomed by consumers, makes building new power plants less profitable.

The loss of production from the closed plants will squeeze all of the emergency capacity out of the Texas grid and, according to ERCOT, potentially leave Texas with a shortage of electricity by as early as 2015.

Texans learned the hard way how emergency situations can put strain on the grid and cause electricity shortages. Last winter’s ice storms resulted in rolling blackouts throughout the state as the grid, hampered by weather-related losses of several power plants, labored to keep up with the surge in demand as Texans tried to stay warm.

By 2015, Texas could have a shortage of electricity for even non-emergency demand levels. New power plants will be needed, but the current level of rates will not support new development. So the choices are between higher electricity rates or electricity shortages.

ERCOT expects the impact to be mainly on natural gas plants, as they now expect Texas’ 31 coal burning plants to be largely unaffected by the regulations. This could result in an ironic outcome: more electricity being produced from older coal burning plants, instead of by cleaner natural gas burning plants.