Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations – Preliminary Results Prepared for : WRAP, AP2 Forum Prepared

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


Background


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


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


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.)


Business As Usual Scenario


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


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


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


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


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


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%


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


Implications of 10/20 goals and energy efficiency recommendations


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


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


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


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


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



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


Cost impacts of implementing the 10/20 goals and energy efficiency

recommendations


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


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


Production cost would increase by $ 818 million annually


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


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


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


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


1997

$/M

Wh

0.890

5

10

15

20

25

30

35


0.890

5

10

15

20

25

30

35


0.890

5

10

15

20

25

30

35


0.890

5

10

15

20

25

30

35


0.890

5

10

15

20

25

30

35


29.43


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


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

$


Renewable energy and energy efficiency as integrated air and energy management strategy


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


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


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


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


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


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


With 10/20 Goals


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


Next Steps


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


Report Outline

Documents

Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations – Preliminary Results Prepared for : WRAP, AP2 Forum Prepared