Modeling a Clean Energy Standard

Karen PalmerSenior FellowResources for the Futurepalmer@rff.org

USAEE/IAEE Annual ConferenceWashington, DCOctober 11, 2011

CES is a portfolio standard requiring a minimum percentage of electricity be generated by qualified sources.Design parameters: Qualified sources

Renewables Beyond renewables: nuclear, CCS, NGCC; partial credit Energy efficiency

Compliance entity Coverage

Exclude small utilities Exclude existing hydro and nuclear

Targets and timetables Flexibility

Credit trading, banking and borrowing Alternate Compliance Payment (ACP)

ACP revenue uses

What is a Clean Energy Standard (CES)?

What to expect from a CES

• Cleaner mix of generation technologies and fuels

• CO2 emissions reductions• Electricity price impacts with regional

variation

• Design parameters will affect outcomes.• Treatment of existing nuclear and hydro• Level of the Alternative Compliance Payment

(ACP)

Policies Evaluated

• Baseline• Core CES

– Goal of 80% Clean Energy by 2035– Clean energy credit (CEC) trading but no banking– All utilities must comply– No Alternate Compliance Payment (ACP) – Crediting scheme

• No credits for existing nuclear and hydro• No credits for energy efficiency• Full credit for renewables and incremental nuclear• Half credit for natural gas combined cycle• 90% credit for coal with CCS

• Credit Existing Nuclear and Hydro (CreditNH)• Core CES with varying ACP levels ($15 - $55 per CEC)

Generation Mix in 2035Bi

llion

kWH

2261

570

2042

471

4

256

4

230

985

1135

1401

1699

967

1111

881

920

257

255

255

254

246

997

217

866

90223

97171

8785

8181

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

BL Core BL+ChpNG Core+ChpNG

OtherBiomassWindHydroNuclearNat GasIGCC CoalSteam Coal

How much does a CES reduce CO2?

Billio

n To

ns

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2010 2015 2020 2025 2030 2035

BL Core CreditNH

CO2 Reductions vary with ACP levels

Billio

n To

ns

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2010 2015 2020 2025 2030 2035

BL ACP15 ACP30 ACP45 ACP55 NoACP

National Average Electricity Price

$ / M

Wh

0

20

40

60

80

100

120

2010 2015 2020 2025 2030 2035

BL Core CreditNH

ACP and Electricity Price$

/ MW

h

80

85

90

95

100

105

110

115

120

2010 2015 2020 2025 2030 2035

BL ACP15 ACP30 ACP45 ACP55 NoACP

Net Credit Revenue

Retail Electricity Prices & Δ from BL

Retail Electricity Prices & Δ from BL

Retail Electricity Prices & Δ from BL

• Cumulative CO2 emissions from the electricity sector would be reduced by 30% through 2035.

• A broad set of clean technologies and fuels would displace conventional coal generation.

• Average electricity prices would rise by 11%-15% in 2035 and mitigate regional price differences.

• Crediting existing nukes and hydro would barely affect emissions, but would lead to higher average electricity prices and exacerbate regional price differences.

• Imposing an ACP would lower costs to consumers, generate government revenue, and reduce environmental gains.

Conclusions

For more information see:

Clean Energy Standards for Electricity: Policy Design Implications for Emissions, Supply, Prices and Regionsby Anthony Paul, Karen Palmer and Matt Woerman

Available atwww.rff.org/centers/climate_and_electricity_policy/Pages/Renewable_and_Clean_Energy_Resource_Library.aspx

National Results

• Cumulative CO2 emissions from the electricity sector would be reduced by 30% through 2035; less with binding ACP.

• A broad set of clean technologies and fuels would displace conventional coal generation.

• Average electricity prices would rise by 11%-15% in 2035; less with binding ACP.

• Crediting existing nukes and hydro does not affect emissions, but raises average electricity prices.

• Imposing an ACP would lower costs to consumers, generate government revenue, and reduce environmental gains.

Net Credit Revenue & Δ from Core

Preview of results

• Cumulative CO2 emissions from the electricity sector would be reduced by 30% through 2035.

• A broad set of clean technologies and fuels would displace conventional coal generation.

• Average electricity prices would rise by 11%-15% in 2035, but with substantial regional variation.

• Crediting existing nukes and hydro would barely affect emissions, but would lead to higher average electricity prices and exacerbate regional price differences.

• Imposing an ACP would lower costs to consumers, generate government revenue, and reduce environmental gains.

Haiku Market Regions & Regulation

Clean Energy Credit Prices

01020304050607080

2010 2015 2020 2025 2030 2035

ACP15 ACP30 ACP45 ACP55 NoACP

Discounted Value of ACP Revenue

0

20

40

60

80

ACP15 ACP30 ACP45 ACP55

NPV Federal ACP Revenue (B$)

Billio

n $

Drivers of Regional Outcomes

• Existing generation fleet• Renewable resource endowment

• Electricity market regulatory structure• Competitive vs. Cost-of-Service

• Qualified generators under CES

Electricity Market Regulation

• Suppose closed markets that do not trade power or credits with other markets.– Cost-of-Service

• CES will yield higher production costs, so higher prices. Consumers bear the burden.

– Competitive• Price effects depend on marginal costs, which may

rise or fall under CES. Producers and consumers share the burden/benefit.

• U.S. markets are not closed. They trade power and would trade credits. So these rules apply not strictly.

• Credits flow east, $ flow west.• Pre-existing regional price differences would

be mitigated.– Largest price increases tend to occur in the

regions currently facing the lowest prices.– Smallest price increases, or even reductions,

tend to occur in the regions currently facing the highest prices.

• Qualifying existing nuclear and hydro benefits northwest and southeast, exacerbating pre-existing price differences.

Preview of Regional Results

Retail Electricity Prices & Δ from Core