Thursday, August 19, 2010
The utility industry's top research group is making the case that regional solutions to the nation's climate policy challenges offer the best deal for consumers.
A new economic analysis being developed by the Electric Power Research Institute in Palo Alto, Calif., indicates that the ideal responses to future federal limits on carbon emissions -- from economic and technical standpoints -- would vary greatly across major regions of the country, as utilities replace conventional coal-fired power plants with different mixes of generation and efficiency programs.
"The one-size-fits-all response ... from a technical perspective, doesn't make a lot of sense," said Bryan Hannegan, EPRI vice president for environment and renewable energy. "We want to open a dialogue on how different regions can respond differently and yet produce the results that we need," he said.
According to initial returns from the EPRI analysis, wind power would dominate new generation in the Great Plains and Midwest. New nuclear power would grow fastest in the South, after 2020. The East and South would import large amounts of surplus wind power from the nation's central wind belt beginning about the same time. Geothermal energy would become an important new source in the West. And carbon capture and storage would emerge as a viable replacement for conventional coal and natural gas plants around 2030.
EPRI's new regional economic project was outlined to industry officials and regulators by institute President Steve Specker at EPRI's 2010 Summer Seminar in Chicago Aug. 3. A completed version of the analysis is expected to be finished by the end of the year, so that EPRI can run detailed regional scenarios in 2011.
The analysis is generated by EPRI's Prism computer model that calculates the economic effects of changing prices for different kinds of energy as demand increases over the next four decades.
Simulating response to an 'aggressive' federal carbon cap
It assumes congressional enactment of an "aggressive" federal greenhouse gas limitation equivalent to $30 per ton of carbon dioxide emissions, with the price rising by 5 percent per year through 2050. That scenario would achieve an 80 percent reduction in CO2 emissions from current levels, EPRI said.
Then EPRI's model calculates which choices of new generation, transmission and storage projects, and demand response programs would meet the carbon emission restrictions at the least cost to consumers in each of the regions. The model is based on EPRI's assumptions of the future costs of generation and efficiency options and its judgment on how fast new technologies such as power storage and new reactors can enter the market.
If they carry weight in the political debate in Congress, EPRI's findings could work against the case for a national renewable energy standard that would create the same mandates for the wind-rich Great Plains region and the Southeast and New England, where onshore wind resources are rated as poor. Supporters of a national renewable standard say there are 60 Senate votes for the approach. Senate Majority Leader Harry Reid (D-Nev.) disagrees and says he will not bring the renewable standard to the Senate floor this year.
Denise Bode, CEO of the American Wind Energy Association, warned recently that new installations of wind power turbines are plummeting in the United States, and that shelving proposals for a national standard is "beyond comprehension."
Under EPRI's analysis, the high price for carbon emissions creates price pressures that will drive new generation options and efficiency investments, rendering mandates like a national renewable standard unnecessary, Hannegan said. "If you trust the market, why do you need additional mandates on top of that?" he said. But given the implacable political and regional opposition to carbon taxes or pricing, EPRI's market case may look like a theoretical moon shot at present.
Modeling the market response, not mandates
But Hannegan says the shifts in energy development coming from the EPRI model coincide with what is happening around the country even without a carbon price. "Because renewable resources are regionally disparate and, because energy markets are different around the country, you start to see diverse responses" by region, Hannegan said. The model generates four very different regional pictures of future generation. "That's actually how the different regions of the country are responding now. You start to see in our model the behaviors that are out there in the real world."
The most far-reaching changes in generation resources occur after around 2025, according to the model. At that point, bringing on new nuclear power and carbon capture and storage becomes less expensive than relying solely on energy efficiency and wind power, Hannegan said. The cost of continuing a wind power buildout after around 2025 rises sharply because urban centers won't be able to continue tapping economical Great Plains wind resources without tens of thousands of miles of new high-voltage transmission lines, or major investments in offshore wind power, or in large-scale storage of power generation, EPRI says.
The model's assumptions are likely to spark debate on various sides of the energy and climate policy divides.
By projecting large imports of wind power into the East and South, the analysis also butts into the strong preferences among governors and utilities in those regions against the transfer of Great Plains wind to the East Coast.
EPRI projects that carbon capture and storage will become economically viable, and that advances in materials science will allow existing nuclear power plants to be retrofitted to last another 20 years, or 80 years in all. New nuclear reactors will double the current nuclear generating capacity in the South, and nearly equal current output in the East, according to the analysis.
Skeptics about the future of nuclear power will question EPRI's assumptions about the costs of bringing new reactors online. Advocates of demand response programs and distributed energy are likely to ask why those options don't play a bigger role in EPRI's analysis.
Hannegan said the model is "illustrative," not "predictive," indicating general directions and trends rather than precise outcomes.
The model projects a relatively slow growth in electricity demand overall, after allowing for demand response and energy efficiency programs. Demand for power grows fastest in the South, based on EPRI's conclusions about the pace of economic growth there.
State regulators like the results
Hannegan said EPRI's model also takes into account regional differences in energy markets that affect generation strategies and energy efficiency programs.
There are a number of states that have taken steps to promote energy efficiency through mandates or performance requirements. Some have decoupled electricity rates from power consumption. "These responses are uneven" from state to state, he said.
"The circumstances in each of the regions differ -- the industry mix, how much energy efficiency they've already engaged in, what are the technology opportunities, [and] how much energy efficiency is available to be harvested," he said.
For example, efficiency gains are likely to be much greater in the Sun Belt, where air conditioning loads are particularly high, versus the upper Midwest or New England, where summers are cooler. Plug-in hybrid vehicles are far more likely to be adopted early in densely populated urban areas than in the sparsely settled Western areas, he said.
Ron Binz, chairman of the Colorado Public Utilities Commission, heard Specker's presentation and liked it. Binz, who also chairs a climate policy task force for the National Association of Regulatory Utility Commissioners, said states need to be given flexibility in meeting national climate policy requirements and goals. "We know how to regulate. We know how to get compliance with regulations on a least-cost basis. We would universally advise Congress not to get into the details in what happens within the states," he said in an interview.
The collapse of comprehensive federal climate legislation in the Senate this summer tipped the policymaking balance toward the states and regions. The anticipated regulation by U.S. EPA of greenhouse gas emissions and traditional air pollutants from power plants could shift the initiative back to Washington, leaving EPRI's model with more work to do.