President Barack Obama's announcement Monday that it will be up to states to decide how to enforce his vision for a low-carbon future portends a battle among Illinois' power giants, with Exelon in a great bargaining position.
"I expect a pretty big fight within all the competing interests," said Jane Montgomery, a specialist in environmental law at Schiff Hardin LLP in Chicago.
With a power mix that's split mostly between carbon-heavy coal-fired power plants and carbon-free nuclear power, Illinois is also home to the corporate headquarters of more than a dozen wind companies. Still, none is better positioned under the new rule than Chicago-based Exelon Corp., parent company of Commonwealth Edison. Exelon owns six nuclear plants in Illinois and has threatened to close plants if energy policies don't go its way.
The Environmental Protection Agency's aggressive goals of 30 percent greenhouse gas reductions from 2005 levels by 2030 give Exelon a strong hand if the company demands rules that reward its nuclear plants. Closing just one of those plants would set the state back in its goals because the formula that the EPA proposes to calculate state-by-state emissions rates gives the state credit for its nuclear plants.
On Thursday, Exelon Chief Executive Chris Crane said he was looking for a "clean energy standard that would compensate or have some clean energy credits for generation that is carbon free." He called the market-based system a "probable path in some of the states, including Illinois."
The company generates 175 million megawatt-hours nationally, on an annual basis, of carbon-free electricity, mostly from nuclear plants, Crane said. In Illinois, a $1-per-megawatt-hour price on carbon would add $100 million to the company's gross margins, he said.
As a result of competition from lower-priced forms of power, Exelon's earnings have suffered, and it has said at least three plants in the state could be forced to close.
According to the draft rule, the EPA believes that about 6 percent of nuclear generation in the United States is at risk for retirement absent the rule.
Robert McCullough, managing partner at McCullough Research in Portland, Ore., said a carbon rule won't solve all of Exelon's problems.
"The downward pressure on prices comes from inexpensive natural gas and zero marginal cost renewables," McCullough said.
In what the White House is calling a "flexible" approach, states can choose from a menu of measures to reach targets.
Rebecca Stanfield, deputy director for policy in the Midwest for the Natural Resources Defense Council, said Illinois already has energy-efficiency goals on the books, as well as goals for renewable energy that, if met, will get the state most of the way toward its targets.
"We know that Exelon would really like it if their nuclear fleet was part of the state standards as well; there's going to be competition for that space," she said. "We should compare the cost of keeping those plants open with the cost of replacing those plants with something that's cleaner and cheaper like renewables."
Exelon officials said they needed time to read the more than 600-page climate rule document.
Changes afoot for Illinois' coal plants could also help the state meet carbon targets.
Even before the carbon rule was announced, Houston-based Dynegy, owner of nine Illinois coal plants, signaled that it might shut some of them.
New Jersey-based NRG Energy Inc., which recently bought four Illinois coal plants, has talked about converting coal plants to natural gas, a fuel that emits half the carbon of coal.
"If you repower with gas, you're replacing half right there," said Howard Learner, executive director of the Chicago-based Environmental Law and Policy Center. He called the flexibility of the draft rules a "pragmatic attempt to get us on a path to significant carbon reductions by 2030."
NRG on Monday said it endorses a policy that gives it time to shift to a more clean, tech-focused business model. The company has been investing significantly in solar power but has said the market will continue to need coal plants in the near term.
Source: Top Stories - Google News - http://ift.tt/1kkCwC1
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