Facing the carbon footprint

With the increased attention on climate change, utility and merchant generators are faced with the prospect of reducing their carbon footprint. Power generation is one of the largest contributors to greenhouse gas (GHG) emissions, and utility customers care about climate change and their utility's role in GHG emissions. There is also likely to be increased regulation in this area in North America, either with a cap and trade or carbon tax.

There are many strategies that companies owning power generation facilities can pursue, including reducing the carbon output of self-owned generation, investing in carbon reductions in emerging economies through the United Nations Clean Development Mechanism (CDM), and pursuing financing for solutions through government subsidies, tax breaks and trading of carbon emissions credits.

Industry long ago learned that in order to improve to meet an objective, measurement is required. Information technology provides the capabilities to set a baseline, measure progress and indicate opportunities for adjusting approaches to accelerate reduction in carbon emissions. Energy Insights sees the landscape covering four basic functions: portfolio planning; monitoring, measurement and reporting; plant efficiency; and carbon trading.

Portfolio planning

Portfolio planning is the long-term planning process that generation owners use to make changes to the generation portfolio or fleet of generation assets. Most generation companies have developed methods for analyzing potential acquisitions, divestitures and development. The analysis focuses on the market for generation, cost of development/acquisition and forecasted fuel costs, among other factors. Also taken into account are non-physical assets such as purchase power agreements.

Most generation companies still use spreadsheet models as decision support for portfolio planning. There are some companies that use portfolio planning applications specifically designed for generation companies, not to be confused with project prioritization software. Existing methods and analytics will need to be enhanced to accommodate the impact of changes to the generation fleet from the perspective of emissions trading.

Monitoring, measurement and reporting

According to the US Environmental Protection Agency (EPA), “A continuous emission monitoring system (CEMS) is the total equipment necessary for the determination of a gas or particulate matter concentration or emission rate using pollutant analyzer measurements and a conversion equation, graph, or computer program to produce results in units of the applicable emission limitation or standard.”

CEMS are required under some of the EPA regulations for either continual compliance determinations or determination of exceedances of the standards. Continuous emissions monitoring covers approximately 2000 power plants in the United States, out of a total of approximately 4800 plants. For plants that do not have CEMS, estimation is allowed. The Department of Energy requirements under section 1605 b cover carbon emitters over 10,000 metric tons of carbon equivalent for carbon dioxide, methane, nitrous oxide, PFC, HFC and SF6.

The number of systems involved in emissions monitoring and reporting depends on whether the plant has continuous emissions monitoring. There are numerous suppliers of instrumentation, installation and calibration services for continuous emissions monitoring. For those generating plants that have CEMs, time series data from CEM instrumentation is delivered to a data repository, typically transported by use of a data historian, and then extracted for reporting purposes either to regulatory bodies, or in the case of voluntary climate change initiatives to one of a number of GHG registries.

For plants that must estimate emissions, a variety of factors come into play. Fuel source is a determining factor, in addition to run time. The applications that come into play here are fuels management and enterprise resource planning and environmental health and safety. Technologies include production metering, networks and data historians.

Plant efficiency

In the last three years, with high and volatile fuel costs, operators of generation began to focus on greater plant efficiency. The more efficient the production of electricity, the less fuel is required. In 2005, high gas prices had owners of gas-fired generation looking at ways to reduce their gas consumption.

Shortly after high gas prices, constrained rail capacity from areas such as Powder River Basin led some utilities to look at how to make their coal-fired plants run efficiently on coal of lower quality. With stepped up enforcement of state and federal regulations and potential cap and trade market, generators are starting to look at how plant efficiency can be managed in the context of emissions as well.

The systems involved in improving plant efficiency involve a combination of engineering and control systems and information technology. When the price of fuel rose significantly, many companies began to use information technology to help increase unit efficiency. With concern about emissions, optimization analytics have been extended to solving for desired level of emissions.

The applications available on the market utilize methods such as neural nets and mixed integer linear programming for optimization. In some instances, closed loop adjustments can be made. Performance engineers use the analytical tools and data from distributed controls systems (DCS), programmable logic controls (PLC), condition monitors and sensors.

Carbon trading

Like the trading of other energy commodities, carbon trading is done electronically. Carbon credits are traded as a product on carbon trading exchanges such as the EU ETS and the Chicago Climate Exchange (CCX). Carbon futures are traded on the CCX for North America, while carbon emissions reductions (CER) futures awarded as part of the Clean Development Mechanism (CDM) on the Intercontinental Exchange (ICE).

The deal-to-settlement process follows the same process as for other energy commodities – pre-deal, trade, execution, analysis and post-deal across the front, mid and back offices. One new element is verification. Companies that are trading in carbon emissions need to have a means to register emissions and a means for others to verify.

Carbon trading requires more complex trading systems than trading of renewable energy credits or tradable allowances for sulfur dioxide. Trading volumes are higher due to more sophisticated electronic exchanges. Generators already trading on commodity markets can use their existing ETRM systems to trade carbon futures. To trade on the carbon exchanges, generation companies will need to set up the necessary integration for bidding and confirmation.

Deal capture applications will need to be configured to accommodate carbon credits. Credit risk management applications will need to accommodate new counterparties. Risk management analytics will require modification to present carbon position and model emissions under different scenarios. Companies may be able to use services for carbon credit price forecasting or build their own forecasting models.

Small investment

Emissions trading is one of the actions that companies with generation will take to address their carbon footprint. Investment in information technology relative to other capital investments, such as new plants, energy technologies and/or pollution controls, will be of greater magnitude. Energy Insights believes that investment will occur first in systems for monitoring, measurement and reporting.

Energy companies will need to develop an emissions strategy for their generation portfolio. Energy Insights provides the following essential guidance:

• Consider investing in analytics to support plant efficiency. In some cases, emissions reductions can be achieved before investing in costly emissions controls. In addition, by running simulations of each unit within the current portfolio of generation, generation companies can prioritize the installation of emissions control equipment where it will have the greatest impact.

• Learn from the European experience. Participants in the EU ETS have gained valuable experience in carbon markets, especially in understanding the right level of investment required to ready systems for carbon trading.

• Consider outsourced services as an option to investing in new technology. In immature markets, such as carbon trading, or areas that lend easily to the service model, such as monitoring, measurement and report, outsourced services are a viable model.

BIO:

Jill Feblowitz is a nationally recognized thought leader in the application of information technology to the business problems of the energy industry. Her understanding of the needs of the industry is grounded in experience over the last 25 years working as a consultant and in the field. As Practice Director for Energy Insights, Feblowitz manages a group of analysts that provide research-based advisory and consulting services that will enable energy executives to maximize the business value of their technology investments.

BOX OUT:

Strategies for reducing the footprint of self-owned generation:

• Upgrading and/or expanding nuclear capacity.
• Increasing renewable generation.
• Avoiding generation with demand response.
• Introducing energy efficiency initiatives for consumers.
• Investing in integrated gasification combined cycle (IGCC) aka ‘clean coal’ technology.
• Installing emission monitoring and controls.
• Developing carbon sequestration technologies.
• Investing in afforestation.
• Improving energy efficiency of generation.

Table 1

Data sources, applications and IT technologies for functions related to emissions strategy

Function		Data sources	Applications	Relevant technologies
Portfolio planning		External market data	Portfolio planning, enterprise resource planning (ERP)	Data warehouse: extract transform, load (ETL); integration for external data feeds
Monitoring, measurement, and reporting		Emissions monitors including continuous emissions monitors (CEM), condition sensors, distributed control systems (DCS), production meters,	Environmental health and safety, ERP, fuels management	Data historians, data storage, presentation, networks
Plant efficiency		Emissions monitors, condition sensors, DCS, production meters	Enterprise asset management (EAM), performance analytics (type – simulation, optimization, method – neural net, mixed integer linear programming, heuristics), ERP	RFID, mobile devices, data historians, data storage, presentation, networks
Carbon trading		External market data, production meters, emissions monitors	Deal capture, risk management (carbon position, value at risk), credit risk management, other analytics (optimization for generation dispatch, carbon price forecasting), fuels management, settlement, ERP	Integration with markets for straight through processing, integration for external data feeds

Source: Energy Insights, 2007

Table 2

Investment timing and magnitude for carbon management

Function	Applications	Timing of investment	Magnitude of investment
Portfolio planning	Portfolio planning	More immediate impact for acquisition, divestiture, and power plant development	Moderate increase in investment, less than $1million for most applications
Monitoring, measurement, and reporting	Fuels management, environmental health and safety	Most immediate impact for compliance purposes	Most significant capital investment goes to monitoring equipment rather than IT, moderate increase in IT spending.
Plant efficiency	Enterprise Asset Management (EAM) performance analytics (type – simulation, optimization, method – neural net, mixed integer linear programming, heuristics)	On-going investment	Above average increase in IT spending on analytics; investment most sensitive to fuel prices. less than $1million for most applications
Carbon trading	Deal capture, risk management (carbon position, value at risk) credit risk management, other analytics (optimization for generation dispatch, carbon price forecasting), verification, confirmation, settlement	One year before carbon market opening	Initial above average increase in investment in generation portfolio planning analytics; moderate investment to enhance existing ETRM systems for carbon trading; above average increase in carbon price forecasting

Source: Energy Insights, 2007

Figure 1

Technology Stack - Emissions Strategy

Source: Energy Insights, 2007