Determining the Least-Cost Investment for an Existing Coal Plant to Comply with EPA Regulations under Uncertainty

Low natural gas prices and forthcoming Environmental Protection Agency (EPA) regulations for coal plant emissions, coal wastes, and thermal-generation cooling systems are forcing utilities and utility regulators to decide whether to retrofit or to retire and replace existing coal plants. To help utility commissions and other interested parties make informed investment decisions and quantify cost risk for ratepayers, researchers at Duke University will make the Risk Based Decision Model available to the public. The model can be employed to estimate the impact of abrupt changes, or “shocks,” and the cost of making “bad” investments that are later abandoned. To demonstrate the model, this paper models the least-cost investment decision for Louisville Gas and Electric’s Mill Creek coal-fired power plant to meet the forthcoming EPA regulations under uncertainty using publicly available data.