On May 29, 2018, the Sierra Club and other environmental groups filed a petition for review with the U.S. Environmental Protection Agency (EPA) Environmental Appeals Board (EAB) to challenge the federal Clean Air Act (CAA) Prevention of Significant Deterioration (PSD) Permit issued by EPA Region 9 for the Palmdale Energy Project (PEP). While the nature of the project has evolved over time (PEP was originally supposed to be a hybrid natural gas plant and solar facility), the final PSD permit for the project approves the construction of a 645 megawatt (MW) combined cycle natural gas-fired power plant. PEP’s PSD permit also authorizes the facility to construct duct burners to produce additional electricity during peak demand periods. As originally proposed, the co-located solar facility would have fulfilled this role; however, the project developer changed designs based on the increased deployment of solar energy in California, reducing the need for daytime peak load assistance. With potential peak demand times projected to be more common in the evening, a co-located peaker solar facility was no longer thought to be the best option for the facility’s design.
Although the purpose of the duct burners is to assist with peak demand times, PEP is intended to be an intermediate/base load power generating plant, with the stated goal of being a “quick-start flexible capacity resource that will play a critical part in the integration of added renewable resources as part of California’s transition to a 50% renewable bases energy supply.” The nongovernmental organizations (NGOs) challenging the permit take issue with EPA Region 9’s dismissal of battery storage capacity as an alternative to the duct burners during the agency’s CAA Best Available Control Technology (BACT) review of the project.
This is not the first time that NGOs have pushed for stricter BACT reviews of projects with the goal of incorporating renewable energy, battery storage, or lower-emitting equipment into the proposed project. The EAB previously denied a challenge from the Sierra Club in 2016 that sought to overturn a PSD permit for additional turbines at a natural gas-fired peaker plant in Temple, Arizona on the basis that including battery storage in the BACT review would “redefine the source.” As previously discussed on this blog, EPA has rejected challenges to PSD permitting decisions that excluded the incorporation of renewable energy facilities to base load natural gas power plant facilities as BACT and has also rejected a PSD challenge to use lower-CO2 emitting designs on the basis that doing so would impermissibly redefine the source. However, the EAB has previously signaled that, if presented with the right case, it could find that battery storage is BACT, or at the very least would warrant further consideration in the BACT analysis.
BACT Review and Source Redefinition
While it is not a regulation and therefore not binding, EPA’s New Source Review Manual (NSR Manual) recommends that permitting authorities use EPA’s “top-down” BACT process for determining BACT. The EAB also considers the NSR Manual a source of authority for how permitting authorities should approach BACT decisions.
EPA’s top-down BACT process involves the following five steps:
- Step 1 – Identify all available control technologies.
- Step 2 – Eliminate technically infeasible options.
- Step 3 – Rank remaining control technologies.
- Step 4 – Evaluate most effective controls and document results.
- Step 5 – Select the BACT.
The top-ranked control technology gets selected as BACT unless it is dismissed under Step 2 as technically infeasible or under Step 4 because energy, environmental, or economic impacts justify a conclusion that the technology is not achievable.
Although the EPA must take a hard look at a permit applicant’s BACT analysis, both EAB decisions and case law have long held that the agency cannot use the analysis to mandate alternative control technologies that would fundamentally change the nature of the project. Put another way, BACT controls are not meant as a mechanism for redefining the proposed project. If a permitting authority decides that a proposed alternative would redefine the source, it will not list the alternative as a potential control option under Step 1 of its BACT analysis, and the option receives no further consideration. The issue of whether or not a technology redefines the source highlights the importance of defining a project’s purpose. The more carefully defined the purpose of a project, the more difficult it will be to justify the consideration of alternatives during the BACT review if those alternatives are not compatible with the project’s purpose.
The 2016 Ocotillo EAB Decision
As stated above, the EAB previously denied a challenge to a PSD permit’s BACT analysis on the basis that incorporating battery storage into a proposed peaker plant project in Temple, Arizona would redefine the source. See In re Arizona Public Service Company Ocotillo Power Plant (Ocotillo). The Ocotillo power plant received a PSD from the Maricopa County Air Quality Department (MCAQD) for a modernization project to replace two boilers at the facility with five natural gas-fired turbines. The project proposed to constantly operate the turbines at low loads and ramp them up as needed to meet increased demand. The stated purpose of the project was that of a “peaking power plant that can start and stop quickly several times a day to meet rapidly changing electric demand requirements, change load quickly, and idle at low load.” The project developer made explicit statements in the PSD permit application that, in order to support the ever-increasing number of intermittent renewable power sources in Arizona, such as solar, electricity from the facility must be “quickly and reliably dispatched” to ensure grid reliability when solar energy is unavailable.
Sierra Club took issue with the BACT analysis for greenhouse gas (GHG) emissions from the proposed project. Sierra Club contended that the BACT analysis was deficient because it rejected energy storage technology as a method for reducing GHG emissions at Step 1. The NGO proposed that the modernization project could either be replaced entirely with batteries or, alternatively, could be changed to pair the turbines with battery storage. The dispatch of power from energy storage to meet peak demand would remove the need to constantly operate the turbines at low loads, thereby reducing GHG emissions from the proposed facility. Ultimately, the MCAQD issued a revised permit with lower GHG limits for the combustion turbines but still rejected the use of energy storage as BACT. The Sierra Club then filed a petition to review with the EAB.
The EAB denied Sierra Club’s petition for review. The EAB rested its denial in part on the EAB’s La Paloma decision, which found that the partial switch or augmentation of an applicant’s power source or proposed fuel would generally be viewed as a redefinition of the source. La Paloma reinforces the rule that, in order to determine whether a control technology would fundamentally redefine the source, the permitting authority must examine the proposed facility’s “end, object, aim, or purpose,” also known as the “basic design,” and determine whether the proposed control conflicts with that design.
The EAB held that the alternatives proposed by Sierra Club would restrict the project’s ability to rapidly ramp up generation multiple times a day, and therefore frustrate the project’s purpose to provide “fast, flexible, and sustained capacity to meet fluctuating power demands and mitigate grid instability caused by the increasing integration of renewable energy into the electrical system served by the Ocotillo plant.” EAB agreed with the permittee and the MCAQD that maintaining the turbines in idle-mode was necessary to ensure that generating capacity could be quickly ramped up on demand, reaching maximum capacity in two minutes, despite the fact that doing so would result in increased GHG emissions.
EAB found that the ability to reach maximum capacity in such a short time frame was critical to the project’s fundamental purpose as a peaker plant, and Sierra Club had conceded that reducing the number of turbines and pairing the remaining with battery storage would not be able to achieve the desired capacity in the same timeframe. Even if all five proposed turbines were paired with energy storage equipment, the EAB was concerned that stored energy could run out before it could be recharged. Although the EAB denied Sierra Club’s petition in Ocotillo, the Board cautioned that the decision should not be read as foreclosing the use of energy storage as BACT and that advances in the technology could change future BACT analyses.
According to Sierra Club’s petition, PEP’s purpose is to “respond to changes in demand from the electric grid,” and that “the source’s ability to respond to ramping and peak load needs, as well as operating in different modes in response to market demand, is inherent to [PEP]’s basic business purpose and design.” The duct burners will be used to increase output from the heat recovery steam generators, which are normally just fed by two gas-fired turbines, to meet peak demand periods. The duct burners generate additional heat, enabling the heat recovery steam generators to produce more steam. Both the duct burners and the heat steam recovery generators run on natural gas. Pursuant to the final PEP PSD permit, the duct burners are not allowed to operate unless the turbines are also firing and have fuel limitations that effectively restrict the burners’ operation to no more than 1,500 hours per year.
The NGOs argue that Region 9 should have performed a separate BACT analysis for the duct burners instead of addressing them in the BACT analysis for the turbines, in part because operating the duct burners will increase plant emissions. However, a review of Region 9’s response to comments on the draft permit suggests the agency’s review was more nuanced than the petition implies and at least directly considered the replacement of the duct burners with battery storage technology. The petition asserts that energy storage as BACT does not redefine the source because the basic design of the facility would still be a natural gas-fired power plant since the duct burners act as a type of strap-on peaker plant to the natural gas-fired turbines, which are used to meet base load demands, and replacing the burners with battery storage would not change the fundamental nature of PEP.
EPA Region 9 did consider a hybrid configuration during its BACT review of PEP’s GHG emissions, whereby battery power would have kept the turbines in stand-by mode without the need for fuel. The response to comments states that EPA rejected this option as not technically feasible (BACT Step 2) because of concerns related to battery storage capacity. EPA also rejected the hybrid configuration because it found that there were not a sufficient number of utility-scale battery storage demonstration projects that could match the projected megawatt hours of the duct burners.
The main focus of the NGO’s attack in the petition is on the underlying assumptions EPA Region 9 made when it rejected battery storage as BACT. The petition attempts to turn EPA’s response on its head and attacks the use of the burners on the basis that the limitations contained in the PSD permit prevent PEP from fulfilling its fundamental purpose of responding to grid demand changes. The petition asserts that battery storage would have been the best control option because there would have been no need for operational limits similar to those imposed on the duct burners to reduce potential emissions. The NGOs argue that battery storage is more than sufficient to ensure grid reliability during peak demand times and that large battery storage projects in Los Angeles and China, amongst others, cited to by EPA in the record of decision for the PEP PSD permit sufficiently demonstrate the availability of utility-scale battery storage. The petition argues that these large MW battery storage projects rebut EPA’s conclusion that batteries would not have sufficient capacity to assist in meeting multiple peak demand periods within a short period of time.
EPA Region 9’s BACT analysis also rejected battery storage as BACT because of the potential costs that the facility would incur purchasing power to charge the batteries (BACT Step 4). The agency assumed that the facility would have to purchase electricity at retail, rather than wholesale, prices. The NGOs argue that this ignores Order No. 841 of the Federal Energy Regulatory Commission (FERC), which directed grid operators to develop rules for storage to participate in the wholesale energy, capacity and ancillary services markets. However, Regional Transmission Organizations and Independent System Operators are still working with FERC to implement the requirements of Order No. 841, and until rules are in place EAB may be unwilling to consider the potential impact of FERC’s order in the PEP challenge.
The Sierra Club and other NGOs also make a policy-based argument in their petition. They ask that EAB embrace a more flexible BACT analysis that goes beyond “end of pipe” controls and focuses on potential technologies with co-benefits, such as supporting the transition to a low-carbon economy and increasing grid resiliency, when selecting BACT. While encouraging the development of additional large scale battery storage projects to support intermittent generation sources and improving grid resiliency are valid policy goals, prior EAB decisions such as La Paloma and Ocotillo suggest that EAB will not second guess the permitting authority so long as the agency’s decision is supported by the record.
How Far Will the EAB Push BACT
EAB challenges face a high bar. Under the relevant federal regulations, the EAB will deny a petition for reconsideration unless the petitioner demonstrates: (1) that the permitting authority relied upon a clearly erroneous finding of fact or conclusion of law or (2) that the permit at issue involves a matter of policy or exercise of discretion by the permitting authority that warrants review. Although the NGO’s challenge tries to make the case under both the standards described above, PEP may not be the best vehicle for expanding BACT analyses to incorporate battery storage because, while the facility has been designed to be an intermediate/base load generating facility, PEP shares the same purpose as a peaker plant to respond quickly to multiple rapid changes in energy demand. The more PEP looks like Ocotillo, the harder it will likely be for the NGOs to achieve success.
However, while the EAB has previously disfavored selecting battery storage as BACT for peaker projects, those decisions do not preclude selecting battery storage as BACT in other contexts. For example, major modifications to true base load generating facilities may see increased pressure to consider battery storage in some manner, such as providing on-site power or an emergency reserve. Regardless of whether the NGOs challenge to PEP’s PSD permit is successful, the increased viability of utility-scale battery storage capacity could continue to impact future BACT analyses, especially if these cases represent a new wave of Sierra Club challenges to fossil fuel-fired electric generating facilities.
Notably, EPA Region 9 did not completely reject the incorporation of battery storage into PEP as redefining the source. There are an increasing number of utility-scale energy storage projects, and its growing use to support electric grid resiliency in the face of expanding renewable power generation may require fossil fuel generating facilities undergoing PSD review to strategically consider how to address battery storage in their BACT analyses. Existing facilities considering modifications to increase capacity to meet peak demand times or provide reserve capacity for emergency situations may face ever-increasing scrutiny if they do not consider battery storage in their BACT analysis. Battery storage as BACT is not a foregone conclusion, but, as the EAB stated in Ocotillo, prior decisions rejecting battery storage as BACT “should not be read as an automatic off-ramp for energy storage technology as a consideration in Step 1 of future BACT analyses.”