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A $506 million project to convert the coal-fired power plant in Dunkirk to less-expensive natural gas could reduce wholesale electricity prices in Western New York by as much as 5 percent while also reducing harmful greenhouse gas emissions, according to a report released Tuesday by the plant’s owner.

The report, from a Boston-based energy consultant and commissioned by NRG Energy, found that converting the Dunkirk plant to natural gas – as opposed to shutting it down – would reduce the need for electricity from other more costly, higher polluting power plants and eliminate the need to build long-distance transmission lines to import power into the state, such as proposed $2.2 billion project to bring electricity from Quebec to the New York City area.

“What it shows is that a repowered Dunkirk plant makes the most sense,” said Jon Baylor, NRG’s senior director of development. “The ratepayer impacts are huge. It returns the most value.”

But an environmental group raised questions about the project’s overall costs and said that a much smaller investment in energy efficiency initiatives and additional renewable energy projects, mainly wind and solar energy, could accomplish the same goal of maintaining the reliability of the state’s electric grid.

The report is the latest step in the evaluation of NRG’s proposal to convert the Dunkirk power plant, which is facing the threat of a shutdown as early as in mid-2015 because low prices for natural gas and an ample supply of power plants across New York have depressed electricity prices and led to steep losses at the facility.

NRG and National Grid signed an agreement earlier this month that will keep one 80-megawatt unit operating at the Dunkirk plant to maintain the reliability of the region’s electricity supply while more extensive studies are done to determine whether the power plant is needed in the long term. A second unit now operating will be shut down after the end of May, resulting in the loss of about 14 jobs at the plant, which employs 82 people.

The impact study found that converting the Dunkirk plant to natural gas “offers a number of tangible economic benefits,” including lower wholesale electricity prices that could save consumers across New York an estimated $142 million a year. The study estimated that wholesale power prices would drop by about 5 percent in Western New York and by an average of about 2 percent statewide. That projection was based partly on a U.S. Energy Department forecast that natural gas prices would rise from just under $4 per 1,000 cubic feet today to $4.87 by 2025.

But Lisa Dix, the senior New York campaign representative for the Sierra Club’s Beyond Coal Campaign, said converting the Dunkirk plant to natural gas would be a step in the wrong direction.

“Why are we building a 400-megawatt to 500-megawatt plant when you have a very small reliability need that can be met with renewable energy and improved efficiency?” Dix said. “It’s taking us backward in our goal of meeting our clean energy needs.”

The 440-megawatt natural gas plant would have the capacity to provide about 11 percent of the electricity that Western New York and the Rochester area are expected to need in 2018 – the year after the converted plant would be targeted to begin operation. Statewide, it would generate about 2 percent of the projected demand in 2018, the study said.

The report also said converting the Dunkirk plant to natural gas would lead to a significant reduction in greenhouse gas emissions statewide.

Sulfur dioxide emissions by the state’s power plants would drop by an average of 3.5 percent annually during the first 10 years of the plant’s operation, while nitrogen oxide emissions would fall by an average of 3.2 percent and carbon dioxide emissions by an average of 0.8 percent annually.

“It shows what a great investment it is,” said State Sen. Cathy Young, R-Olean.

“It’s the difference between dramatic decline and new hope and opportunity for Dunkirk,” she said. “It lowers costs for ratepayers, and we will be better able to compete.”

National Grid already has made some initial improvements to its electricity transmission and distribution network, which will allow the Dunkirk plant to drop to a single operating unit this spring without hurting the reliability of the power grid.

National Grid last month completed a review that determined it would need to make another $60 million to $70 million in improvements to its transmission lines and equipment to compensate for the loss of the Dunkirk plant, though National Grid warned that those estimates could end up being anywhere from 50 percent lower to three times higher.

National Grid now has 30 days to evaluate the differences between the option of mothballing the Dunkirk plant and upgrading the region’s power transmission system or repowering the Dunkirk plant with natural gas, said Stephen F. Brady, a National Grid spokesman.

The State Public Service Commission then will review the recommendations and make a decision on the Dunkirk plant’s fate.

Young said it makes little sense to mothball the Dunkirk power plant while spending billions to build new transmission lines to import electricity from elsewhere.

Relying on imported power could mean purchasing it from plants in Ohio or Pennsylvania, where a significant percentage of the electricity is generated at higher-polluting coal-fired plants.

“It doesn’t make sense to close our own power generators and then import power from out of state,” she said. “You lose the tax base. You lose the jobs, and you have the added problem of finding a new use for the closed plant.

“We have our own domestic power generators, and we should look to maximize them.”

The report said the lower power prices, coupled with the construction jobs created by the plant’s conversion, would provide a significant boost to the Dunkirk regional economy, creating the equivalent of about 1,200 jobs, either directly in the project or created by spin-off activity associated with it.

Young also said language in the state budget, expected to be approved later this week, gives a boost to the Dunkirk project by requiring the State Public Service Commission to consider the overall benefits – from economic and environmental considerations to the costs and consequences associated with a shutdown – of keeping power production in New York State.

“It guarantees that balanced consideration will be given during the PSC’s evaluation process of NRG’s proposed repowering,” Young said.