Jun 30 2022

NSW Clean Air Reforms: A delicate juggling act

Earlier this month, the NSW EPA concluded its public consultation on reforms to the NSW Protection of the Environment Operations (Clean Air) Regulation. These reforms are known as the Draft Clean Air Regulations. The Draft Clean Air Regulations propose new air emissions limits on industrial facilities, including electricity generation, stating that the health benefits will offset the ‘significant costs to industry’.

It can be uncomfortable to critique reforms that promise health benefits, but there are question marks over what the benefits are and whether the risks to electricity affordability and reliability have been fully captured.

Draft Clean Air Regulations: what is being proposed?

The principal legislation for environmental regulation in NSW is the Protection of the Environment Operations Act 1997 (‘POEO Act’). The POEO Act has subordinate regulation called the POEO Clean Air Regulation 2021 (the ‘Current Regulation’). The Draft Clean Air Regulations propose to replace the Current Regulation. These are extensive reforms, over 100 pages long.

Industries and businesses are already working with the regulator to update their systems and procedures to ensure compliance. However, some of these reforms are substantial and will require industries to undertake major technical and operational changes to reach compliance. One of these reforms is the proposal to tighten the NOx limits.

The Current Regulation requires electricity generators to comply with a maximum air emissions limit for NOx emissions of 2,500 mg/m3. This limit in isolation is high; however, the NSW EPA can, and does, impose tighter limits on electricity generators through their environment protection licences (‘EPL’). To give an example, the Vales Point Power Station EPL has a NOx emissions limit of 980mg/m3, substantially tighter than what is in the Current Regulations.  

The Draft Clean Air Regulations intend to tighten these limits further and require generators to comply with:

  • 800 mg/m3 by 1 July 2025; and
  • 500 mg/m3 by 1 July 2030.

Aren’t tighter limits a good thing?

NSW electricity generators have emissions abatement technology already installed to ensure their emissions are controlled and consistent with their licences. The licence limits are set by the state regulator, being the NSW EPA, and are guided by the National Environmental Protection Measures for Ambient Air Quality. For NOx emissions, there is a different mix of control systems in place across NSW electricity generators designed to drive abatement.  

To meet the limits proposed in the Draft Clean Air Regulations, it will require NSW electricity generators to install additional abatement technology known as selective catalytic or non-catalytic reduction (SCR/SNCR) technology. If it helps reduce emissions, it is reasonable to ask why generators should not be expected to install such technology.

SCR/SNCR technology is very expensive to install

Last year, the AEC commissioned an independent expert to prepare a report examining this very issue – the viability of retrofitting additional abatement technology. The report was titled Considerations for Retrofitting Emissions Control Systems in Australian Coal Power Plants and can be found online here.[1]

This report modelled various scenarios for installing additional abatement technology, including the installation of selective catalytic or non-catalytic reduction (SCR/SNCR) at black coal power stations (like in NSW). NSW coal power stations already have various control systems installed to help control and reduce their NOx emissions. The WSP report estimated the costs to install additional SCR abatement technology based on the plant capacity of a black coal power station with existing abatement technology.

Table 1: Estimated Costs of Installing SCR Abatement Technology (per generation unit)

Plant Capacity (Black Coal)

Incremental CAPEX

Incremental OPEX (annual)

350MW

$51.2 million

Reagent: $3.2 million

Catalyst: $372k - $867k

Maintenance: $768k

450MW

$58.6 million

Reagent: $2.6 million

Catalyst: $440k - $1 million

Maintenance: $878k

720MW

$88.8 million

Reagent: $5.2 million

Catalyst: $728k - $1.7 million

Maintenance: $1.3 million

Source: WSP Report, page 40.

This means that for a station like Eraring, which has four 720MW units, the costs would be multiplied by 4 (comfortably over $350 million). These costs are very high and overshadow the NSW EPA’s estimated total abatement costs of $63.7 million. There is no detail on the cost assumptions the NSW EPA has used to reach this figure so the AEC cannot comment on why there is such a large discrepancy in the two estimates.

Furthermore, WSP’s estimated costs only cover installation and operation; it does not include the losses power stations will incur from being offline while the technology is installed. This leads into the biggest dilemma with these reforms.

Reliability gap

Earlier this year, the Australian Energy Market Operator (AEMO) published a revised Electricity Statement of Opportunities to accommodate Origin Energy bringing forward the closure of Eraring Power Station to – at earliest – 2025. This accelerated closure resulted in AEMO forecasting a breach in the reliability standards from 2025 of almost 600MW in NSW.[2] This followed on from earlier AEMO modelling  – produced before Eraring brought forward its closure – which concluded that the unplanned early closure of Vales Point Power Station would ‘pose substantial risk to consumers as there would be little time for the market to respond’.[3]

There is a chance this policy could heighten these concerns of a reliability gap. This is because coal-fired power stations are already facing deteriorating economics and the time and cost required to meet the proposed NOx limit could influence their closure plans. Even one power station bringing forward their closure could have impacts, as seen by the example mentioned above.

Even if all stations committed to their scheduled closure dates, there is a logical dilemma. It is probable that all NSW coal power stations would require the additional NOx abatement technology to reliably meet the proposed limits. This will require maintenance outages, and likely extended outages at that because WSP noted in their report that NSW power stations are unlikely to have enough space in their existing design to retrofit a SCR catalyst section: ‘to retrofit a system into an existing plant, extensive ducting modifications may be required to accommodate the catalyst’.[4]

This would mean that, even in the most optimistic circumstance, most of NSW’s coal generation fleet could be offline for large periods over the next few years. Given the recent commentary over maintenance outages – and how the loss of generation capacity is impacting the wholesale price – future outages could be politicised if they place added pressure on the reliability and affordability of the electricity grid.

NOx emissions from electricity generation are already gradually declining

These reforms come at a time when all emissions from electricity generation, including NOx emissions, are already gradually declining.[5] These reductions will only accelerate over the next few years. The 2021 Emissions Projections forecasts how carbon emissions from the electricity sector will decline across each state over the next decade (see figure below).[6] NSW will see the largest decline and it can be reasonably inferred that other air emissions like NOx will follow a similar, albeit not linear, downward trajectory.  

Figure 1: Electricity Emissions (Mt CO2-e)

The NSW EPA has recognised this in other areas which has led to the recommendation to maintain the status quo. For example, the Regulatory Impact Statement has said that additional action on wood heaters is not necessary because ‘the substantial cumulative reductions that have already been achieved will be sustained and emissions will continue to fall as old heaters are replaced’. This explanation applies equally to coal-fired power stations so, from a health perspective, it is not easy to understand why two opposite approaches have been taken.

Conclusion

NSW coal-fired power stations had their EPLs renewed only recently. The decision to pursue further reforms to air emissions limits was therefore not expected. While generators will always take their best step forward to meet the proposed compliance obligations, some of these reforms require further consideration. The NSW EPA has done a good job in the past working with stakeholders and we hope this continues so these challenges can be worked through.  

 

 

[1] WSP, ‘Considerations for Retrofitting Emissions Control Systems in Australian Coal Power Plants’, September 2020, https://www.energycouncil.com.au/media/dtyjfcdh/addendum-and-report.pdf.

[2] Australian Energy Market Operator, ‘Update to 2021 Electricity Statement of Opportunities’, April 2022, p12.

[3] Australian Energy Market Operator, ‘2021 Electricity Statement of Opportunities’, August 2021, https://aemo.com.au/-/media/files/electricity/nem/planning_and_forecasting/nem_esoo/2021/2021-nem-esoo.pdf?la=en.

[4] WSP, ‘Considerations for Retrofitting Emissions Control Systems in Australian Coal Power Plants’, September 2020, https://www.energycouncil.com.au/media/dtyjfcdh/addendum-and-report.pdf, p43.

[5] Australian Energy Council, ‘Plant Emissions at Five-Year Low: NPI Data Shows’, April 2022, https://www.energycouncil.com.au/news/plant-emissions-at-five-year-low-npi-data-shows/.

[6] Department of Industry, Science, Energy, and Resources, ‘Australia’s Emissions Projections 2021’, October 2021, p18.

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