EPA’s Boiler MACT Is an Economic Growth Opportunity

The new EPA air toxics standards, or “Boiler MACT” will tighten the pollution allowances for industrial (e.g., non-utility) coal boilers, and are widely and consistently being criticized as a threat to a still-fragile economy.  This criticism is coming from the usual corners (Inhofe, US Chamber of Commerce, etc.).  Meanwhile big-name engineering firms are turning out studies for affected industrials that say some variant of “you can install back end pollution controls that will reduce your fuel efficiency, you can switch your boiler to run on higher cost, cleaner fuels or you can shut down your manufacturing plant.”

They’re all wrong.  MACT compliance is actually an opportunity for economic growth and energy cost reduction, as an excuse to convert huge swathes of the economy to combined heat & power (CHP).

I’m in the CHP industry, so you’d expect me to say that – but I only make money if I can save money for my customers, and there is a shocking disconnect between the opportunity that MACT presents to save money and the public narrative to the contrary.

Simple Math

Suppose that you are an industrial facility affected by the Boiler MACT rules and are unhappy with your options.  Several things are almost certainly true about you:

1. You have a coal boiler.
2. Your boiler is probably producing over 100,000 lbs/hr of steam.  (It’s rare for coal boilers to be much smaller than that.)
3. Your boiler probably operates on a fairly continuous basis. (Big coal boilers are unlikely to be found in applications with frequent on/off cycles.)
4. Your boiler is old and inefficient. (Newer boilers are less likely to be out of compliance.)
5. You are probably burning higher cost, low-sulfur ‘compliance’ coal. (Many old boilers have shifted to these coals as a lower cost way to comply with sulfur regulations than installing back-end controls with high-sulfur fuel.)

In other words, you have a large, round the clock steam flow and you make your steam in a pretty uneconomic fashion, using comparatively expensive fuel and a comparatively inefficient boiler.  Leaving environmental and political considerations aside, it’s reasonable to assume that your steam plant is not a source of great economic advantage, beyond the (non-trivial) presence of its air permit.

Compliance coals are currently running about $90/ton, or $3.60/MMBtu.  A typical affected boiler has an efficiency of around 75%, so that means that your cost of delivered steam is $3.60 / 75%, or $4.80/MMBtu.

There are additional costs of maintenance, fuel handling and ash disposal that will all drive the costs up farther, but for now, let’s ignore those and only look at fuel costs.

Now let’s look at a CHP approach.

For our simple math, let’s assume we replace the coal boiler with a standard, off the shelf gas turbine (essentially a jet engine on a skid).  For peak efficiency, pick a gas turbine sized to the thermal needs of the facility (e.g., choose one that generates an amount of exhaust heat equal to the industrial’s steam needs.)  Assume a typical gas turbine efficiency of 30% , and assume that of all the exhaust heat, only 75% is recoverable as steam.  Thus, for every 100 MMBtus of fuel burned, you produce:

• 100 x 30% = 30 MMBtus of electricity, and;
• 100 x (1 – 30%) x 75% = 53 MMBtus of steam

By sizing to recover all possible heat, the CHP plant achieves 83% overall efficiency, more than double the efficiency of the US power grid (just 33%).

To estimate economics, we have to make a few cost assumptions:

1. Natural gas costs have been under $4/MMBtu for a long time now, but we have to assume over the life of the CHP plant that they may run higher.  Let’s assume $6/MMBtu for this analysis.
2. The US average retail power price is about $100/MWh.  This plant is also creating a host of societal advantages by virtue of its high efficiency, low CO₂ emissions per MWh and locally-generated power that can avoid line losses and provide a host of grid benefits.  Let’s ignore all those and assume that you can only earn $50/MWh for the power you generate.

(Note: One may be able to do substantially better than both of these assumptions, but want to make the point that this makes sense even with pretty dire assumptions.)

Now let’s run the math:

Remember our old, supposedly cheap coal boiler generated steam at $4.80/MMBtu.  So in the name of pollution control, we’ve reduced our steam costs by 37%.  Note further that (unlike back-end pollution controls) this approach eliminates 100% of the sulfur, mercury and particulate emissions and reduces CO₂ emissions.  And this is before taking into account the reduction in operating costs (much lower for gas turbines than coal boilers), before taking any credit for the economic advantages that derive from cleaner air and local power generation, with pretty conservative assumptions on energy costs and efficiencies.

To be sure, this does not include the added capital recovery expense innate to any replacement of an old, amortized asset.  But since the net result of the investment is a reduction in energy costs, it is a net gain to the overall economy, exactly contrary to the conventional wisdom.  (It’s worth noting that EPA and DOE are working with trade associations and states to run a series of CHP-as-MACT-compliance workshops, but so far that hasn’t seemed to change the CW.)

Challenges

So what’s to stop this post (and the massive readership that will surely follow) from tipping the scales towards CHP?  Couple key things:

1. An industrial that is considering an upgrade/modification to their boiler that includes becoming a power generator is generally pretty far out of their comfort zone.  That almost certainly means that third party developers need to play a role – but in too many states, it remains illegal for anyone but the utility to sell retail electricity, even if behind the meter.  This erects a big barrier, blocking market access to those with the necessary mix of capital and technical expertise.
2. Many industrials will have to pay standby and/or exit fees to their utility if they self-generate.  These are designed to erode the actual savings from CHP to a point where the CHP plant doesn’t get built, and generally succeed in that goal.
3. The 2005 Energy Policy Act effectively removed the ability of regulated utilities to secure certain cost recovery for long-term power purchase agreements from CHP plants.  This makes it difficult to secure financeable long-term contracts for power that is sold ‘to the grid’ for these facilities.
4. An investment in economically-disadvantageous, CO₂-increasing, efficiency decreasing ‘tailpipe controls’ on an existing coal boiler is classified as a pollution control device that need not be permitted.  A new CHP plant will actually reduce more pollution, but is treated as a new combustion source that must first secure an air permit to operate, adding cost and complexity to what should be the environmentally-preferred path.

Each of the challenges above describes a truly job-killing regulation.  It would be nice to see the fire of those who claim to put the economy before the environment focus their political and rhetorical guns at the repeal of those rules instead of MACT.