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
Strategic Advantage.
Compelling Results.
Bishal Thapa
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
2
DRAFT
June 4, 2002
Background
3
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
4
DRAFT
June 4, 2002
Integrated analytical framework
Prepared for:
Western Regional Air Partnership
Market Trading Forum
Prepared by:
ICF Consulting
September 2000
Analysis started with
data, structure &
assumptions
developed by
WRAP/MTF in 2000
Cost Impacts
Economic Impacts of Implementing a
Regional SO2 Emissions Program in the
Grand Canyon Visibility Transport Region
Volume I
 Electric/steam impacts
IPM®  Emission Impacts
 State/Tribal
WRAP/MTF
Economic-Analysis
You Are
Here
• AP2 Forum reviewed
assumptions developed by
WRAP/MTF
Output
Final Demand
by Type
Output
by Industry
Supply
Demand
Population
• Forum developed BAU
assumptions and modeling
scenarios
Employment
Demand
Labor Supply
by Industry,
by Occupation
Market Shares
Local and export
market shares
by Industry
Wage Rate
Wage Rate, Prices and Profits
by Industry
State/Tribal regional
economic impacts
• Forum developed
assumptions for energy
efficiency recommendations
5
by Age,
Gender, Race
DRAFT
REMI®
June 4, 2002
Existing renewable energy
capacity in US and GCVTC
15 GW
10 GW
19%
0% 4%
21%
2%
US
49%
11%
49%
19%
15%
2%
49%
Geothermal
19%
Solar/PV
1990
4 GW
14%
1998
6 GW
Wind
Landfill Gas
16%
1%
Geothermal
Biomass/Waste
20%
9%
36%
47%
GCVTC
Region
4%
48%
6%
24%
Source: 1990 - EIA Form 860 and EIA Form 867; 1998 - EIA Form 860A and EIA Form 860B
5%
(Some capacity in 1990 not included, withheld to avoid disclosure of proprietary company data.)
6
DRAFT
June 4, 2002
Business As Usual Scenario
7
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
8
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
9
Source: New builds in WSCC reported by California Energy Commission, 2001
DRAFT
June 4, 2002
Emissions under BAU
800
600
Because of the
trading program,
Emissions
there will limited
be no
through
changesthe
in regional
SO2
SO
program
2 tradingunder
emissions
the
10/20 goals or EE
400
200
-
2005
2007
2010
2015
2018
SO2 ('000 tons)
10
DRAFT
June 4, 2002
Emissions under BAU
800
Avg. rate for Coal:
4.3 lbs/MWh
600
400
Avg. rate for oil/gas:
0.05 lbs/MWh
Avg. rate for oil/gas:
0.2 lbs/MWh
200
Existing oil/gas capacity
is either repowered or
retired
-
2005
2007
2010
2015
2018
NOx ('000 tons)
11
DRAFT
June 4, 2002
Emissions under BAU
800
19% increase between
2005 – 2018 due to
increased fossil fuel use
600
400
200
-
2005
2007
2010
2015
2018
CO2 (Million Metric Tonnes)
12
DRAFT
June 4, 2002
Most of the generation growth will
come from gas
New Capacity Additions Under BAU
40,000
MW
30,000
20,000
10,000
2005
2007
2010
2015
15%
2018
19%
Coal
43%
9%
6%
3%
20%
2005 Generation Mix
O/G Steam &
Turbines
Combined
Cycles
Renewables
(Excludes Hydro)
Cogens
Hydro
Total: 484 billion kWh
13
33%
8%
19%
5%
43%
9%
0%
6%
3%
39%
2018 Generation Mix
20%
Total: 638 billion kWh
DRAFT
June 4, 2002
Significant new additions to RE
capacity not expected under BAU
30,000
BAU includes
assumption that
without additional
regulatory efforts
unlikely to see
future decline in
cost of developing
new wind
Historic: Based on
EIA reported data
20,000
GWh
Projected under
BAU scenario
10,000
Includes
generation from
known future
firm capacity
No penetration
beyond future firm
capacity projected if
cost for new wind
remains at current
levels, as assumed
under BAU
1998
14
2000
DRAFT
2015
June 4, 2002
Implications of 10/20 goals and
energy efficiency recommendations
15
DRAFT
June 4, 2002
10/20 goals will specify targets for
generation from renewable energy
160,000
10 % of
regional load
20 % of
regional load
Additional
generation
from
renewable
energy
required to
meet 10/20
targets
GWh
120,000
80,000
40,000
2005
2010
10/20 Goals
16
DRAFT
2015
2018
RE Under BAU
June 4, 2002
Targets may affect underlying cost
factors important to promoting RE
10/20 targets
Production cost for Class 6 Wind
• May accelerate
learning by doing
$2001/MWh
40
30
20
10
Decline in cost reflects
improvements in technology
cost & performance
0
2000
2005
Held to current levels (BAU)
2010
2015
Under 10/20 goals
• May create
stronger incentives
to seek
improvements in
technology and
performance
• May ease other
regulatory or
economic barriers
to entry
Source: AP2 Forum and Walter Short, NREL
17
DRAFT
June 4, 2002
Certain cost types unique to RE
will remain under 10/20 goals
Resource quality
Production cost
50
• Production cost for wind will
vary across areas with different
wind speeds (i.e., wind class)
2001 $/MWh
40
30
20
10
0
2000
2005
Class 6
50
2010
Class 5
2015
Class 4
Source: AP2 Forum and Walter Short, NREL
Transmission access
Production cost for class 6 wind
2001 $/MWh
40
• Wind resources often located in
remote areas with no easy
transmission access
30
20
• Problems in transmission access
acute in interior west
10
0
2000
2005
W/0 Transmission Adder
18
2010
2015
w Transmission Adder
DRAFT
June 4, 2002
Certain cost types unique to RE
will remain under 10/20 goals
Intermittent generation
Supply Curve for Wind in 2010
• Production cost assumed to increase
as higher levels of intermittent
generation (i.e., wind generation) are
supplied
60
2001 $/MWh
50
40
30
• Increasing production cost reflects
backup cost
20
10
0
700
1,500
6,000
7,000
8,000
11,000 13,000 15,000 30,000 40,000
MW
CNV
WSCP
WSCR
• 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
Source: AP2 Forum and Walter Short, NREL
19
DRAFT
June 4, 2002
Load reduction from EE assumed
to increase to 8% by 2018
2005
2005
1%
2,000
1,500
1997 Million $
1,000
99%
500
-
2005 Net Energy Load
Energy Efficiency
(500)
1%
2018
8%
45
45
45
45
2005
2010
2015
2018
(1,000)
(1,500)
Energy Efficiency Implementation Cost
Transmission & Distribution Avoided Costs
Net Annual Levelized Cost
99%
92%
Energy Efficiency
ergy Efficiency
20
Source: AP2 Forum
Net Energy Load
Net Energy Load
DRAFT
June 4, 2002
Cost impacts of implementing the
10/20 goals and energy efficiency
recommendations
21
DRAFT
June 4, 2002
10/20 goals likely to increase annual
production cost by 2% - 5%
$20,000
$16,067
$15,811
$15,811
Production cost would
increase by $ 818
255 million
annually $16,067
$16,630
Million 1997 $
$15,000
If cost for
wind remains
$16,630
at current level
(BAU)
$10,000
$5,000
$BAU
22
10/20
BAU
Goals
10/20 Goals
10/20with
Goals
no change
in wind cost
DRAFT
10/20 Goals with no change
in wind cost
June 4, 2002
Gas capacity is displaced under
10/20 goals
Changes in Fossil Fuel Capacity from BAU Under 10/20 by 2018
2,000
-
Coal
MW
(2,000)
Oil/Gas
Turbines
Combined
Cycles
Cogens
(4,000)
(6,000)
(8,000)
(10,000)
23
DRAFT
June 4, 2002
Increase in RE generation mostly
affects gas generation
BAU – Generation Mix in 2018
With 10/20 goals – Generation
Mix in 2018
15%
15%
33%
8%
31%
7%
0%
5%
1%
19%
0%
39%
Coal
Coal
O/G Steam & Turbines
Combined Cycles
Renewables (Excludes Hydro)
Cogens
Hydro
Renewables (Excludes Hydro)
24
27%
With 10/20 goals – Renewable
Generation Mix in 2018
O/G Steam & Turbines
Combined Cycles
Coal
Cogens
Hydro
Renewables (Excludes Hydro)
DRAFT
O/G Steam & Turbines
Combined Cycles
Cogens
Hydro
13% 0%
22%
65%
Existing
New Wind
New Geothermal
New Landfill Gas
June 4, 2002
Wind accounts for most of the
growth in RE generation
Generation Mix in 2018
15%
Renewable Energy Generation
Mix in 2018
13% 0%
31%
7%
22%
0%
1%
19%
65%
27%
Coal
O/G Steam & Turbines
Combined Cycles
Renewables (Excludes Hydro)
Cogens
Hydro
25
Coal
O/G Steam & Turbines
Combined Cycles
Renewables (Excludes Hydro)
Cogens
Hydro
DRAFT
Existing
New Wind
New Geothermal
New Landfill Gas
June 4, 2002
29.33
30
29.33
35
28.53
28.53
Impact of 10/20 goals on wholesale
energy prices
1997 $/MWh
1997 $/MWh
1997 $/MWh
1997 $/MWh
1997 $/MWh
29.33
28.53
30
35
20
25
29.33
28.53
30
15
20 35
Wholesale energy
25
10
29.33
28.53 prices under 10/20
15 30
35
35
20
goals
5
29.43
0.89
29.33
29.33
10 25
0.89
28.53
28.53
30
30
15
0
5 20
BAU 10
Energy
25
25
0.89
BAU10/20 Goals
10/20Renewable
Goals
Renewable Energy
Credit
0 15
Credit
20
20
510/20 GoalsBAU
BAU
Renewable
Energy
Credit Energy
10/20
Goals
Renewable
BAU
10/20 Goals
Renewable
Credit
0.89Energy
10
15
15
Credit
0
Levelized $6.5/MWh
BAU BAU
10/20 Goals10/20 GoalsRenewable
Energy
Credit
5
Renewable
Energy
REC
10
10
0.89converted to
Credit price
energy
0
55
BAU
10/20 Goals
Renewable Energy
Credit
0.89
0.89
BAU
10/20 Goals
Renewable
Energy
00
Credit
BAU
10/20 Goals
Goals Renewable
Renewable
Energy
10/20
Renewable
BAU BAU
10/20 Goals
Energy Energy
Credit
Credit
Credit
BAU
10/20 Goals
Goals
Renewable Energy
BAU
Energy Credit
10/20
Credit
Renewable
25
26
DRAFT
June 4, 2002
Impact of 10/20 goals on wholesale
electricity prices will be 1% - 2%
Levelized Wholesale Electricity Prices in the GCVTC Region
1997 $/MWh
35.00
30.00
25.00
29.33 29.43
28.10
28.64
28.86 28.43
20.00
15.00
10.00
5.00
CNV
WSCP
BAU
WSCR
With 10/20 Goals
Prices under the 10/20 goals includes a levelized
$6.37/MWh renewable energy credit price
27
DRAFT
June 4, 2002
Annual savings with EE may range
from $ 700 million - $ 1 billion
$20,000
Million 1997 $
$15,000
$14,647
$13,665
$13,966
With EE
With EE and 10/20 Goals
$10,000
$5,000
$BAU
Includes cost of implementing EE and avoided
transmission distribution cost from EE use
28
DRAFT
June 4, 2002
Renewable energy and energy
efficiency as integrated air and
energy management strategy
29
DRAFT
June 4, 2002
16
14
12
10
8
6
4
2
-
Thousand Tons of NOx Saved
Thousand Tons of NOx Saved
10/20 goals and EE expected to
save 1%-2% in NOx emissions
16
14
12
10
8
6
4
2
-
2005
2015
2005
2015
UnderUnder
10/2010/20
Goals
Goals With
WithEE
EE
30
DRAFT
2018
2018
Under
10/20
Goals
+ With
Under 10/20
Goals
+ With
EE EE
June 4, 2002
60
50
Thousand Tons of NOx Saved
Million Metric Tonnes of CO2
Saved
10/20 goals and EE expected to
save 10% - 14% in CO2 emissions
16
14
40
12
30
10
208
6
104
2
-
2005
2005
2015
2015
Under 10/20 Goals
31
With EE
DRAFT
2018
2018
Under 10/20 Goals + With EE
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
32
DRAFT
June 4, 2002
10/20 and EE may reduce the need
for investments in SO2 controls
 Much of the
12,000
scrubber installed
in response to the
regional SO2
trading program
Scrubber Capacity (MW)
10,000
8,000
6,000
 10/20 goals and
4,000
2,000
2015
BAU
33
With 10/20 Goals
2018
With 10/20 Goals + EE
DRAFT
With EE
EE will reduce
the need for
scrubber capacity
by 1200 MW to
1700 MW by
2018
June 4, 2002
Growth in RE may provide hedge
against some supply risks
$25,000
Million 1997 $
$20,000
$15,811
If gas prices increase by 50% and If
wind
cost
remain
at over time
wind
cost
decline
current level (BAU), production cost
will increase
by goals,
$ 3 the $3
promoted
by 10/20
billion annually
billion annual impact of higher
$19,175
$19,175
$18,895
$15,811
$18,895
gas prices would
be offset by
$280 million annually
$15,000
$10,000
$5,000
$BAU
34
Wind Cost at
BAU
Current Levels
(BAU)
Wind With
Cost 10/20
at Current
GoalsLevels
(BAU)
DRAFT
With 10/20 Goals
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
35
DRAFT
June 4, 2002
Next Steps
36
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
37
DRAFT
June 4, 2002
Report Outline
38
DRAFT
June 4, 2002