Implications of Technology Availability and Cost on Clean Power Plan Compliance Costs. Scott Bloomberg Vice President

Transcription

1 Implications of Technology Availability and Cost on Clean Power Plan Compliance Costs Scott Bloomberg Vice President SBCA 2015 Conference, Washington, DC March 20, 2015

2 Abstract In this presentation, I will explore the electric sector compliance costs (and other relevant measures) associated with the EPA s proposed Clean Power Plan (CPP) based on different assumptions regarding the availability of selected technologies. In particular, I will explore the impacts associated with different levels and costs of energy efficiency. I will also evaluate the potential for new nuclear generation to assist in meeting state emission rate requirements. 1

3 The Proposed CPP Requires Reductions to States CO 2 Rates 2030 Goal Percentage Reduction Relative to 2012 CO 2 Rates Reductions would come from the following 4 building blocks: 1. Coal unit heat rate improvement; 2. Natural gas combined cycle unit re-dispatch; 3. Increases in clean energy; and 4. Increases in energy efficiency. 2

4 Public Comments on the Proposal Have Included Some Criticisms 1. EPA was too aggressive on the quantity of EE assumed (not feasible); 2. Even if it is feasible, it is certainly not at the costs EPA assumed; and 3. EPA s analysis ignored new nuclear as a compliance option. This presentation evaluates the sensitivity of CPP costs and electric sector outcomes to alternative assumptions on these 3 issues 3

5 Evaluation Approach NERA s N ew ERA Electricity Model Detailed model of the electricity and coal sectors Representation of more than 17,000 electricity generating units Helps answer key questions with respect to proposed policies: What investments to undertake (e.g., addition of retrofits, build new capacity, repower unit, add fuel switching capacity, or retire units); and How to operate each modeled unit (e.g., when and how much to operate units, which fuels to burn) and what is the optimal generation mix. For CPP, we model annual rate limits at the state level Cases evaluated: Base Case (No CPP) Policy Cases CPP (EPA Assumptions) Sensitivities Less Energy Efficiency (0.5% incremental growth rate) Higher EE Cost (increases 5%/yr after 2024) No New Nuclear Combination of 3 Sensitivities 4

6 Compliance Costs are Sensitive to all 3 Factors, But in Different Ways Electric Sector Compliance Costs Changes in Natural Gas Prices Present Value Costs ( ), Billions of 2014$ $250 $200 $150 $100 $50 $0 $76 Base Cost of CPP $32 Less EE $107 Higher EE Cost $23 No New Nuclear $125 All 3 Change in Henry Hub Price, Relative to Basic CPP Case (2014$/MMBtu) $1.0 $0.8 Less EE No New Nuclear Higher EE Cost All 3 $0.6 $0.4 $0.2 $ $0.2 Electric sector costs are most influenced by higher EE costs Natural gas prices, which have a large impact on economy-wide costs, are most sensitive to the quantity of EE, and in later years to the availability of new nuclear Total electric sector CO 2 (and other) emissions are nearly unchanged across the sensitivities 5

7 Generation Mix Changes will Vary by Region ERCOT 2029 TWh Generation Mix for ERCOT (Texas) EE Renew Nuclear Gas/Oil Coal Base Case CPP Less EE Higher Cost EE No New Nuclear All 3 In ERCOT, the CPP leads to a large switch from coal-fired generation to natural-gas fired generation New nuclear and increases in EE also help with CPP compliance If EE is less available, the ERCOT region adjusts by adding more new nuclear Higher cost EE has no change on the ERCOT generation mix Eliminating new nuclear as an option leads to increases in EE and natural gas-fired generation The combination of less EE, higher cost EE, and no new nuclear leads to a decrease in coal-fired generation, an increase in natural gas fired generation, and a small uptick in renewables 6

8 Conclusions Good policy analysis should identify assumptions that can have a large impact on policy costs (and benefits) to ensure a robust result For the proposed CPP, the cost and availability of energy efficiency is a key assumption that merits further review The availability of new nuclear generating capacity is also worth additional consideration These uncertainties should be evaluated at a sub-national level to reflect regional differences 7

9 Contact Us Scott Bloomberg Vice President NERA Washington, DC Copyright 2015 National Economic Research Associates, Inc. All rights reserved.