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3 DRAFT June 4, 2002 Background
Citation preview
Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations –
Preliminary Results
Prepared for:
WRAP, AP2 Forum Prepared by:
ICF Consulting; June 5, 2002
Juanita Haydel
Bishal ThapaStrategic Advantage. Compelling Results.
2 DRAFT June 4, 2002
Roadmap for presentation
Background
Business-As-Usual scenario
Implications of 10/20 goals and energy efficiency
Cost impacts of implementing the 10/20 goals and energy efficiency recommendations
Renewable energy and energy efficiency as integrated air and energy management strategy
Next steps
– Regional economic modeling
– Report outline
3 DRAFT June 4, 2002
Background
4 DRAFT June 4, 2002
Objective of Study
Understand role for renewable energy and energy efficiency in integrated air and energy management strategies
Analyze cost, emissions and regional economic impacts of meeting the 10/20 goals and implementing the energy efficiency recommendations
Report on results of IPM® and REMI® modeling will serve as technical supporting document for AP2 report to WRAP
5 DRAFT June 4, 2002
Integrated analytical framework
IntegratedApproach
Environmental Markets
Fuel Markets
Electric Markets
WRAP/MTF Economic-Analysis
Economic Impacts of Implementing a Regional SO2 Emissions Program in the
Grand Canyon Visibility Transport RegionVolume I
Prepared for:
Western Regional Air PartnershipMarket Trading Forum
Prepared by:
ICF Consulting
September 2000
• AP2 Forum reviewed assumptions developed by WRAP/MTF
• Forum developed BAU assumptions and modeling scenarios
• Forum developed assumptions for energy efficiency recommendations
IPM®
DemandEmployment Demand
by Industry, by Occupation
Market SharesLocal and export market shares
by Industry
OutputFinal Demand by Type
Output by Industry
Wage RateWage Rate, Prices and Profits
by Industry
SupplyPopulation by Age, Gender, Race
Labor Supply
REMI®State/Tribal regional economic impacts
Emission Impacts State/Tribal C
ost Impacts
Electric/steam impactsAnalysis started with
data, structure & assumptions developed by
WRAP/MTF in 2000
You Are Here
6 DRAFT June 4, 2002
Existing renewable energy capacity in US and GCVTC
GCVTC Region
1990 1998
US
10 GW
4 GW
15 GW
6 GW
0% 4%
21%
15%
49%
Source: 1990 - EIA Form 860 and EIA Form 867; 1998 - EIA Form 860A and EIA Form 860B
(Some capacity in 1990 not included, withheld to avoid disclosure of proprietary company data.)
7 DRAFT June 4, 2002
Business As Usual Scenario
8 DRAFT June 4, 2002
Business-As-Usual incorporates current and/or known information
Assumptions for BAU developed by AP2 Forum
Includes SO2 Annex milestones with all states and tribes participating in the regional trading program
No additional policy efforts to promote renewable energy or energy efficiency assumed under BAU
Technology cost for renewable energy unlikely to change significantly over time without additional efforts to promote renewable energy
– Other factor influencing new renewable energy capacity such as transmission access, reliability problems with intermittency and resource quality may continue to hinder growth in electricity generation from renewable energy
9 DRAFT June 4, 2002
Further penetration of renewable energy unlikely under BAU
Significant additional penetration of renewable energy capacity is unlikely without pro-active renewable energy policies
– BAU incorporates information about know future firm builds in the GCVTC region1
– About 700 MW of future firm wind capacity
• Though future firm builds may be dispersed over time, under BAU modeled as coming on line by 2005
1 Source: New builds in WSCC reported by California Energy Commission, 2001
10 DRAFT June 4, 2002
Emissions under BAU
-
200
400
600
800
2005 2007 2010 2015 2018
SO2 ('000 tons)
Because of the trading program, there will be no changes in SO2 emissions under the 10/20 goals or EE
Emissions limited through the regional SO2 trading program
11 DRAFT June 4, 2002
Emissions under BAU
-
200
400
600
800
2005 2007 2010 2015 2018
NOx ('000 tons)
Avg. rate for Coal: 4.3 lbs/MWh
Existing oil/gas capacity is either repowered or
retired
Avg. rate for oil/gas: 0.2 lbs/MWh
Avg. rate for oil/gas: 0.05 lbs/MWh
12 DRAFT June 4, 2002
Emissions under BAU
-
200
400
600
800
2005 2007 2010 2015 2018
CO2 (Million Metric Tonnes)
19% increase between 2005 – 2018 due to
increased fossil fuel use
13 DRAFT June 4, 2002
Most of the generation growth will come from gas
New Capacity Additions Under BAU
-
10,00020,000
30,000
40,000
2005 2007 2010 2015 2018
MW
Coal
O/G Steam &TurbinesCombinedCyclesRenewables(Excludes Hydro)Cogens
Hydro
43%
20%
3%
6%
9%
19%
2005 Generation Mix
Total: 484 billion kWh
2018 Generation Mix
Total: 638 billion kWh
33%
0%
39%
5%
8%
15%
14 DRAFT June 4, 2002
Significant new additions to RE capacity not expected under BAU
-
10,000
20,000
30,000
1998 2000 2015
GW
h
BAU includes assumption that without additional regulatory efforts unlikely to see future decline in cost of developing new wind
Projected under BAU scenario
Includes generation from
known future firm capacity
Historic: Based on EIA reported data
No penetration beyond future firm capacity projected if cost for new wind remains at current levels, as assumed under BAU
15 DRAFT June 4, 2002
Implications of 10/20 goals and energy efficiency recommendations
16 DRAFT June 4, 2002
10/20 goals will specify targets for generation from renewable energy
-
40,000
80,000
120,000
160,000
2005 2010 2015 2018
GW
h
10/20 Goals RE Under BAU
10 % of regional load
20 % of regional load
Additional generation from renewable energy required to meet 10/20 targets
17 DRAFT June 4, 2002
Targets may affect underlying cost factors important to promoting RE
10/20 targets
• May accelerate learning by doing
• May create stronger incentives to seek improvements in technology and performance
• May ease other regulatory or economic barriers to entry
Decline in cost reflects improvements in technology cost & performance
Production cost for Class 6 Wind
Source: AP2 Forum and Walter Short, NREL
0
10
20
30
40
2000 2005 2010 2015
$200
1/M
Wh
Held to current levels (BAU) Under 10/20 goals
18 DRAFT June 4, 2002
Certain cost types unique to RE will remain under 10/20 goals
0
10
20
30
40
50
2000 2005 2010 2015
2001
$/M
Wh
W/0 Transmission Adder w Transmission Adder
Transmission access
• Wind resources often located in remote areas with no easy transmission access
• Problems in transmission access acute in interior west
Production cost for class 6 wind
Source: AP2 Forum and Walter Short, NREL
0
10
20
30
40
50
2000 2005 2010 2015
2001
$/M
Wh
Class 6 Class 5 Class 4
Resource quality
• Production cost for wind will vary across areas with different wind speeds (i.e., wind class)
Production cost
19 DRAFT June 4, 2002
Certain cost types unique to RE will remain under 10/20 goals
Supply Curve for Wind in 2010 Intermittent generation
• Production cost assumed to increase as higher levels of intermittent generation (i.e., wind generation) are supplied
• Increasing production cost reflects backup cost
• Backup cost applies after generation from wind energy exceeds 10% of a region’s load or reaches 10% of resource potential
• Backup cost increases from 10% to 60% as higher levels of wind generation are supplied
0
10
20
30
40
50
60
700 1,500 6,000 7,000 8,000 11,000 13,000 15,000 30,000 40,000
MW
2001
$/M
Wh
CNV WSCP WSCR
Source: AP2 Forum and Walter Short, NREL
20 DRAFT June 4, 2002
Load reduction from EE assumed to increase to 8% by 2018
1%
99%
Energy Efficiency Net Energy Load
8%
92%
2005
2018
45 45 45 45
(1,500)
(1,000)
(500)
-
500
1,000
1,500
2,000
2005 2010 2015 20181997
Mill
ion
$
Energy Efficiency Implementation Cost Transmission & Distribution Avoided Costs
Net Annual Levelized Cost
Source: AP2 Forum
21 DRAFT June 4, 2002
Cost impacts of implementing the 10/20 goals and energy efficiency
recommendations
22 DRAFT June 4, 2002
10/20 goals likely to increase annual production cost by 2% - 5%
Leve
lized
Ann
ual P
rodu
cti o
n C
ost (
2005
–20
22)
$15,811
$-
$5,000
$10,000
$15,000
$20,000
BAU 10/20 Goals 10/20 Goals with no changein wind cost
Mill
ion
1997
$
$16,067
$-
$5,000
$10,000
$15,000
$20,000
BAU 10/20 Goals 10/20 Goals with no changein wind cost
Production cost would increase by $ 255 million annually
If cost for wind remains at current level (BAU)
$16,630
$-
$5,000
$10,000
$15,000
$20,000
BAU 10/20 Goals 10/20 Goals with no changein wind cost
Production cost would increase by $ 818 million annually
23 DRAFT June 4, 2002
Gas capacity is displaced under 10/20 goals
(10,000)
(8,000)
(6,000)
(4,000)
(2,000)
-
2,000
Coal Oil/GasTurbines
CombinedCycles
Cogens
MW
Changes in Fossil Fuel Capacity from BAU Under 10/20 by 2018
24 DRAFT June 4, 2002
Increase in RE generation mostly affects gas generation
33%
0%39%
5%
8%15%
31%
1%27%
19%
7%15%
BAU – Generation Mix in 2018 With 10/20 goals – Generation Mix in 2018
CoalO/G Steam & TurbinesCombined CyclesRenewables (Excludes Hydro)CogensHydro
With 10/20 goals – Renewable Generation Mix in 2018
22%
65%
13% 0%
Existing New WindNew Geothermal New Landfill Gas
25 DRAFT June 4, 2002
Wind accounts for most of the growth in RE generation
31%
1%27%
19%
7%15%
Generation Mix in 2018
CoalO/G Steam & TurbinesCombined CyclesRenewables (Excludes Hydro)CogensHydro
22%
65%
13% 0%
Existing New WindNew Geothermal New Landfill Gas
Renewable Energy Generation Mix in 2018
26 DRAFT June 4, 2002
0.890
5
10
15
20
25
30
35
BAU 10/20 Goals Renewable EnergyCredit
Levelized $6.5/MWh REC converted to energy price
Impact of 10/20 goals on wholesale energy prices
Wholesale energy prices under 10/20 goals29.33 28.53
0
5
10
15
20
25
30
35
BAU 10/20 Goals Renewable EnergyCredit
1997
$/M
Wh
0.890
5
10
15
20
25
30
35
BAU 10/20 Goals Renewable EnergyCredit
0.890
5
10
15
20
25
30
35
BAU 10/20 Goals Renewable EnergyCredit
0.890
5
10
15
20
25
30
35
BAU 10/20 Goals Renewable EnergyCredit
0.890
5
10
15
20
25
30
35
BAU 10/20 Goals Renewable EnergyCredit
0.890
5
10
15
20
25
30
35
BAU 10/20 Goals Renewable EnergyCredit
29.43
27 DRAFT June 4, 2002
Impact of 10/20 goals on wholesale electricity prices will be 1% - 2%
28.1028.8629.33 28.4328.6429.43
-5.00
10.0015.0020.0025.0030.0035.00
CNV WSCP WSCR
1997
$/M
Wh
BAU With 10/20 Goals
Levelized Wholesale Electricity Prices in the GCVTC Region
Prices under the 10/20 goals includes a levelized $6.37/MWh renewable energy credit price
28 DRAFT June 4, 2002
Annual savings with EE may range from $ 700 million - $ 1 billion
Leve
lized
Ann
ual P
rodu
cti o
n C
ost (
2005
–20
22)
Includes cost of implementing EE and avoided transmission distribution cost from EE use
$14,647$13,665 $13,966
$-
$5,000
$10,000
$15,000
$20,000
BAU With EE With EE and 10/20 Goals
Mill
ion
1997
$
29 DRAFT June 4, 2002
Renewable energy and energy efficiency as integrated air and energy management strategy
30 DRAFT June 4, 2002
10/20 goals and EE expected to save 1%-2% in NOx emissions
-
2
4
6
8
10
12
14
16
2005 2015 2018
Thou
sand
Ton
s of
NO
x Sa
ved
-
2
4
6
8
10
12
14
16
2005 2015 2018
Under 10/20 Goals With EE Under 10/20 Goals + With EE
31 DRAFT June 4, 2002
10/20 goals and EE expected to save 10% - 14% in CO2 emissions
-
2
4
6
8
10
12
14
16
2005 2015 2018
Under 10/20 Goals With EE Under 10/20 Goals + With EE
-
10
20
30
40
50
60
2005 2015 2018
Mill
ion
Met
ric T
onne
s of
CO
2 Sa
ved
32 DRAFT June 4, 2002
10/20 goals may lower compliance cost of meeting SO2 Annex milestones
Assumed SO2 Annex milestones employed through a backstop regional trading program with all states & tribes participating in the trading program
10/20 goals could lower compliance cost of meeting SO2 Annex milestones by approximately $ 10 million in 2018 (or 7% of the compliance cost of meeting the SO2 Annex milestones without 10/20 goals)1
1 Compliance cost of SO2 Annex milestones without 10/20 goals based reported cost in “Economic Impacts of Implementing a
Regional SO2 Trading Program in Grand Canyon Visibility Transport Region, Volume II” WRAP/MTF, 2000
33 DRAFT June 4, 2002
10/20 and EE may reduce the need for investments in SO2 controls
Much of the scrubber installed in response to the regional SO2 trading program
10/20 goals and EE will reduce the need for scrubber capacity by 1200 MW to 1700 MW by 2018
-
2,000
4,000
6,000
8,000
10,000
12,000
2015 2018
Scru
bber
Cap
acity
(MW
)
BAU With 10/20 Goals With 10/20 Goals + EE With EE
34 DRAFT June 4, 2002
Growth in RE may provide hedge against some supply risks
Leve
lized
Ann
ual P
rodu
cti o
n C
ost (
2005
–20
22)
$15,811
$-
$5,000
$10,000
$15,000
$20,000
$25,000
BAU Wind Cost at Current Levels(BAU)
With 10/20 Goals
Mill
ion
1997
$
If gas prices increase by 50% and wind cost remain at current level (BAU), production cost will increase by $ 3 billion annually
$19,175
$-
$5,000
$10,000
$15,000
$20,000
$25,000
BAU Wind Cost at Current Levels(BAU)
With 10/20 Goals
If wind cost decline over time promoted by 10/20 goals, the $3 billion annual impact of higher gas prices would be offset by $280 million annually
$18,895
$-
$5,000
$10,000
$15,000
$20,000
$25,000
BAU Wind Cost at Current Levels(BAU)
With 10/20 Goals
35 DRAFT June 4, 2002
Growth in RE may provide hedge against some supply risks
A 50% rise in gas prices would increase productions expenditures by 3 billion annually if cost of developing wind remains at current levels (as assumed under BAU)
With declining wind cost achieved through the 10/20 goals, the $ 3 billion impact of the 50% increase in gas prices could be offset by $ 277 million (or 9%) annually
36 DRAFT June 4, 2002
Next Steps
37 DRAFT June 4, 2002
Regional economic impact modeling using REMI®
State/Tribal sector specific cost impacts from IPM® modeling will serve as inputs to REMI– Current REMI model does not include Tribal areas as
separate model regions and will be modeled through the states in which they are located
In REMI, estimates of economic impacts derived through comparisons between a reference and policy scenario
BAU will serve as the reference scenario Policy scenarios for REMI modeling
– 10/20 Goals
– 10/20 Goals and Energy Efficiency
38 DRAFT June 4, 2002
Report Outline