Calpine expects CO2 rule to help gas fleet

OREANDA-NEWS. July 31, 2015. Calpine says the US Environmental Protection Agency's (EPA) forthcoming Clean Power Plan will provide a strategic advantage for its natural gas fleet given the likely retirement of baseload coal-fired capacity.

Calpine is bullish in its outlook for gas dispatch throughout its markets, especially if the EPA plan creates a carbon price for coal generators. The company operates a merchant fleet in California, Texas and the PJM Interconnection totaling 27,00MW,

"We are hopeful the [EPA] rule and the federal implementation plan will have the option of a market-based approach to CO2 reductions, which will effectively put a price on carbon in many of our markets," Calpine chief executive Thad Hill said today. "The shift away from baseload [coal] continues and we are on the right side of history."

The EPA will soon finalize its Clean Power Plan for reducing CO2 emissions from existing power plants. The agency says states will be able to use emissions trading and other measures to meet their CO2 rate targets under the regulations. EPA plans to also propose a federal plan to meet targets in states that do not submit their own plan to the agency as required.

Coal retirements in Texas and the east coast, combined with record low hydroelectric output and an increased reliance on renewables in California have lifted Calpine's combined geothermal and gas-fired generation to 28mn MWh, a second-quarter record high. The company says it filled in gaps left by less coal and volatile renewable output.

Calpine supplied nearly 7mn MWh of gas generation in its west coast region, up from 5.3mn MWh in the second quarter last year, largely because of lower hydro. The company said that on 8 June real-time rates spiked above \\$1,000/MWh, because of a shortage of renewable generation, leading it to think the California market is overly reliant on renewables during peak hours.

The company is mulling options to diversify its natural gas and geothermal portfolio with renewable assets, like wind or solar, to meet demand under the EPA carbon plan. But it says it would not need the support of federal tax credits to remain competitive with renewables.

"We have a very exciting and bullish outlook over the next three or four years for our existing mix," Hill said. "However, as production tax credits expire, and hopefully stay expired, and the Clean Power Plan is announced with a price on carbon eventually, we would like the [renewable] capability."