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DAR-21: Economic and Technical Analysis for Variances Pursuant to Subdivision 222.5(a) of Part 222

Department ID: DAR-21
Title: Economic and Technical Analysis for Variances pursuant to Subdivision 222.5(a) of Part 222
Issuing Authority: Steven Flint, Director, Division of Air Resources
Originating Unit: Bureau of Air Quality Planning
Phone: (518) 402-8396

Printable version (PDF) (273 KB, 8 pgs)

I. Summary:

The New York State Department of Environmental Conservation (NYSDEC or Department) adopted 6 NYCRR Part 222, "Distributed Generation Sources" on November 1, 2016. Distributed generation (DG) sources are engines used by host sites to supply electricity outside that which is supplied by the electrical grid. This on-site generation of electricity by DG sources is used by a wide-range of commercial, medical, educational, and industrial facilities either in non-emergency situations that reduce demand on the electric grid and preserve the overall reliability of the grid, or in emergency situations when the usual supply of power from central station power plants becomes unavailable. The rule establishes emission standards, monitoring requirements, and record keeping requirements for certain DG sources that are not currently regulated under Subpart 227-2 or a federal New Source Performance Standard (NSPS), so long as the federal standards are less than or equal to the Part 222 emission limits.

Emission limits for oxides of nitrogen (NOx) are set forth in Section 222.4 of Part 222 and take effect on May 1, 2017. Five alternative compliance options are set forth in Section 222.5 of the rule. DAR-21 pertains to subdivision 222.5(a) which states: "(t)he owner or operator of an economic dispatch source that cannot meet the NOx emission limit set forth in Section 222.4 of this Part may submit a request to the Department for a higher source-specific emission limit. The owner or operator of the source must demonstrate to the satisfaction of the Department that it is economically or technically infeasible to meet the applicable emission limit."

The process for applying for a variance, including the technical documentation required for the NYSDEC to complete its review, is outlined in this document.

II. Policy:

The Division of Air Resources (DAR) issued DAR-20, which outlines the process for applying for a variance under Subpart 227-2 (NYSDEC's NOx RACT rule). Although the control measures set forth in Part 222 are not defined as Reasonably Available Control Technology (RACT), the emission limits set forth in Part 222 are identical to those set forth in Subpart 227-2. On pages 27-28 of the Revised Regulatory Impact Statement for Part 222, NYSDEC applied the same cost-effectiveness threshold of $5,000 per ton of NOx removed from the exhaust stream of a DG source that was used when calculating the cost-effectiveness threshold in Subpart 227-2.1 This cost-effectiveness threshold, however, does not consider that units subject to Part 222 may operate primarily when electricity demand and resulting ozone levels are elevated. Accordingly, a different approach is needed to evaluating variance requests than the approach provided in DAR-20. Sources receiving capacity payments as part of their compensation in demand response programs must meet the eligibility requirements discussed below.

On pages 38-39 of the Assessment of Public Comment2 for Part 222, the DEC presented estimates of the payback periods for installing selective catalytic reduction NOx controls on demand response engines. The estimated payback period was 1.6 years in New York City based upon the monthly capacity payments in 2015. Upstate, the estimated simple payback period was 7.3 years. Based on its understanding of corporate investment strategies, DEC believes that a payback period of 4 years or less is, under most circumstances, a viable investment. Accordingly, DEC is proposing to establish a 4.0-year (48-month) simple payback threshold for sources enrolled in demand response programs based upon the 2016 monthly capacity payments to demand response sources by program sponsors.

The capital cost methodology was discussed on pages 26-27 of the Revised Regulatory Impact Statement. The factors included in the capital cost estimates included:

  1. System capital cost;
  2. Installation;
  3. Taxes (8 percent); and
  4. Emissions Testing

Sources covered by Part 222 that do not participate in demand response programs or otherwise operate primarily at times of peak electricity demand (e.g. rock crushers) may, in the alternative, use the methodology set forth in DAR-20.

Facilities applying for a variance under Part 222 will be required to obtain an Air State facility permit with a term of 10 years.3 As is the case under DAR-20, variances granted via DAR-21 must be re-evaluated upon permit renewal. Source-specific variances will consist of 1) source-specific emission limits; and 2) limits on the number of hours the source may operate or quantity of fuel consumed based upon the economic analysis presented in the attached worksheet.

III. Purpose and Background:

Part 222 regulates the emissions from DG sources. Compliance can be achieved by meeting the emission limits set forth in Section 222.4 or demonstrating compliance with an applicable NSPS.4 However, there may be cases where the emissions standards in Part 222 may not be technically or economically feasible for some sources. In such cases, DG source owners may need to utilize the variance provision set forth in subdivision 222.5(a) of Part 222 in order to demonstrate compliance. As a result, the variance provision of Part 222 allows qualified sources to work with the Department in order to design permit controls that will allow these sources to achieve compliance with Part 222.

The purpose of this guidance document is to define which sources are eligible for a variance under subdivision 222.5(a) and outline the types of information that the Department will need in order to issue a variance to entities unable to comply with the emissions standards in the regulation.

IV. Responsibility:

DAR is responsible for maintaining and updating this policy.

DAR regional staff, in consultation with DAR Central Office staff, are responsible for reviewing variance applications and issuing source-specific emission limits and operational limitations as appropriate.

V. Procedure:

A request for a source-specific variance under subdivision 222.5(a) of Part 222 must be submitted to the NYSDEC as part of an application for a new or modified State facility permit. An approved source-specific variance will be in effect for the duration of the permit. The following information must be submitted as part of the application for each source-specific variance request:

  1. The proposed control technology or strategy, including the source-specific NOx emission limit that would apply (documentation, such as stack testing results or manufacturer guarantees, must be submitted to demonstrate the source can comply with the proposed emission limit);
  2. If control technology cannot be installed for a source, documentation from the manufacturer or vendor describing why the technology cannot be installed must be submitted as part of the permit application;
  3. Price quotes from manufacturers of control equipment that could be used to comply with the appropriate NOx emission standard for the source set forth in Section 222.4 of Part 222. If possible, a minimum of three estimates should be included in the application for each control strategy. The lowest quote (for each control strategy) must be used in the final source-specific variance demonstration;
  4. An economic analysis for each control strategy on the worksheet provided below (include all assumptions in the analysis including, but not limited to, the total hours of operation per year); and
  5. If the affected source will be operating during demand response events, the applicant must identify which demand response program(s) the source will be enrolled in (e.g., Special Case Resources program sponsored by the New York Independent System Operator). Monthly capacity payment data from by the demand response program sponsor(s) for the winter 2015-2016 and summer 2016 capability periods are to be used in the payback analysis (Section 2 of the worksheet).
  6. If the payback period calculated on line 2d of the attached worksheet is equal to or less than 4.0, then the affected source is not eligible for a variance under subdivision 222.5(a) of Part 222. If the payback period on line 2d is greater than 4.0, the affected source is eligible for a variance under subdivision 222.5(a).

VI. Related References:

  1. DAR-20
  2. 6 NYCRR 222.4
  3. 6 NYCRR 222.5(a)
  4. 6 NYCRR 227-2
  5. 6 NYCRR 222 Revised Regulatory Impact Statement
  6. 6 NYCRR 222 Assessment of Public Comment
  7. 40 CFR 60, Subpart IIII
  8. 40 CFR 60, Subpart JJJJ
  9. 40 CFR 60, Subpart KKKK

Economic Analysis - Part 222 Variance Application Subdivision 222.5(a) (PDF, 133 KB)

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1 A copy of the Part 222 Revised Regulatory Impact Statement is available from the Department upon request.
2 A copy of the Part 222 Assessment of Public Comment is available from the Department upon request.
3 There may be instances where affected facilities are required to obtain Title V Permits for reasons other than those pertaining to their potential emissions of oxides of nitrogen. In such cases, the permit term is five years. In addition, if a facility has an air state facility permit that does not yet have a permit term limit, as is now required under 6 NYCRR Part 201, an approved application for a variance will therefore necessitate the addition of a 10-year permit term limit to that facility's permit.
4 The NSPS rules are:

  1. 40 CFR 60, Subpart IIII, Standards of Performance for Stationary Compression Ignition Internal Combustion Engines, July 11, 2006;
  2. 40 CFR 60, Subpart JJJJ, Standards of Performance for Stationary Spark Ignition Internal Combustion Engines, January 18, 2008; and
  3. 40 CFR 60, Subpart KKKK, Standards of Performance for Stationary Combustion Turbines, July 6, 2006.

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