Is Cap and Trade Set to Power a Renewable Energy Future?

Will Cap and Trade legislation, often called ‘The Climate Bill’, effectively enable new renewable energy power plants like wind and solar?  Or, will a complex system of pollution permits and permit-trading actually favor upgrades to existing fossil fuel technologies?

Last Friday, GWF Energy LLC, an independent power producer, announced a ten-year power purchase agreement with Pacific Gas and Electric Company (PG&E) for about 300 megawatts generated with natural gas.  The project is under review with the California Public Utility Commission and is projected to begin generating power in 2012.

GWF will convert its Tracy, California facility into a ‘combined cycle’ power plant.  Combined cycle plants increase efficiency and reduce CO2 and other pollutants by using waste heat -  heat that would otherwise escape via the exhaust stack - to generate more power per cubic foot of natural gas.

PG&E’s commitment to solar energy is hard to challenge.  New solar power installations in PG&E’s service area represent a large percentage of US solar power generation.  PG&E also leads US utilities in signed power purchase agreements driving development of utility-scale solar power. 

However, combined cycle power plants may represent a threat to a renewable energy future if they can fall below the CO2 emission levels in the final draft of the Climate Bill.

The original Tracy plant was rated at 145 MW and consumed 29.5 acre feet of water per year.  Operating 24/7 the plants might have produced 1.2 million megawatt-hours of electricity.  It was used as a ‘peaker plant’, to meet peak demand loads from PG&E customers.  Natural gas provided a quick response to varying loads in California’s electric market.

The new plant is a significant improvement.  Reuters quotes Duane Nelsen, President and Chief Executive Officer of GWF Energy: “The TCCPP will also reduce greenhouse gas emission rates by 31%, reduce water use by over 95% through use of dry cooling technology, create more than 400 union jobs and contribute $3.5 million to the local economy during construction. When operational, the project will create about 20 full-time jobs and provide approximately $4 million in annual property tax revenue.”

According to the US Energy Information Administration, natural gas represents 22% of US energy consumption and 20% of US CO2 emissions.  Natural gas generates 16% of US electricity and 15% of US CO2 emissions derived from electric power plants.  If GWF’s predictions for its combined cycle plants are correct, a 31% reduction in CO2 from natural gas may be an attractive goal for US legislatures.

What might we expect from national policy if it favored CO2 reductions from existing natural gas power plants over new renewable power installations?

Let’s use the Tracy plant as an example.  A rough guesstimate of the CO2 output might be around ½ a metric ton per megawatt hour.  The existing single-cycle natural gas power plant may emit 540,000 metric tons of CO2 annually if it were in service 85% of the time.  The upgraded plant, with a capacity of 300 MW may emit 760,000 tons of CO2 under the same operating conditions.  A net increase of 220,000 tons of CO2.

Worse, depending on where the Climate Bill sets emissions levels, and how it grants carbon pollution credits, this plant may be able to sell pollution credits to a coal-fired power plant rather than pay a penalty for emitting hundreds of thousands of tons carbon each year.  Does that sound like a renewable future?

Setting aside other snares for the moment (in issues such as commodity trading, political trading, and the danger of a potential derivatives market,) an effective climate bill must be measured in terms of the number of megawatt hours of fossil fuel power that are converted or replaced by megawatt hours of renewable energy.