Wind Energy Policies and Economic Analysis Lizhi Wang Industrial and Manufacturing Systems Engineering WESEP REU @ Iowa State University June 16, 2011 Lizhi Wang (lzwang@iastate.edu) Wind Energy Policies & Economic Analysis June 16, 2011 1 / 20
Outline 1 What: Examples of Wind Energy Policies 2 Why: Importance of Wind Energy Policies 3 How: Interactions of Wind Energy Policies with Energy Systems 4 Example: Investment in Energy Systems Lizhi Wang (lzwang@iastate.edu) Wind Energy Policies & Economic Analysis June 16, 2011 2 / 20
Production Tax Credit (PTC) An inflation-adjusted per-kwh credit for the first 10 years of a renewable energy facility s operation. Created under the Energy Policy Act of 1992, it has been extended mostly on a yearly basis, and even allowed to expire on occasion. In 2009, President Obama extended the PTC for wind energy to the end of 2012, which provides a 2.1 cent/kwh credit. www.awea.org, www.ucsusa.org [www.worh.org] Lizhi Wang (lzwang@iastate.edu) Wind Energy Policies & Economic Analysis June 16, 2011 3 / 20
Renewable Portfolio Standard (RPS) Sets a hard target on the increased production of energy from renewable energy sources. [www.dsireusa.org] Lizhi Wang (lzwang@iastate.edu) Wind Energy Policies & Economic Analysis June 16, 2011 4 / 20
Cap-and-Trade (C&T) A central authority sets a cap on the amount of a pollutant that can be emitted. The cap is allocated to firms in the form of emissions permits, and firms can trade their permits with each other. www.pewclimate.org Lizhi Wang (lzwang@iastate.edu) Wind Energy Policies & Economic Analysis June 16, 2011 5 / 20
Green Power Programs Allow consumers to voluntarily pay a price premium to buy electricity supplied from renewable energy sources. Consumers can also voluntarily purchase and retire emissions allowances. In the U.S., roughly one-quarter of the utilities offer green power programs, reaching more than half of all electricity customers. In 2009, total retail sales of renewable energy in voluntary markets exceeded 30 million MWh. [apps3.eere.energy.gov/greenpower] Lizhi Wang (lzwang@iastate.edu) Wind Energy Policies & Economic Analysis June 16, 2011 6 / 20
Outline 1 What: Examples of Wind Energy Policies 2 Why: Importance of Wind Energy Policies 3 How: Interactions of Wind Energy Policies with Energy Systems 4 Example: Investment in Energy Systems Lizhi Wang (lzwang@iastate.edu) Wind Energy Policies & Economic Analysis June 16, 2011 7 / 20
Long-term Benefits Provides sustainable energy supply Reduces pollution Helps solve climate change problems Strengthens energy security [Perez et al., 2009] Lizhi Wang (lzwang@iastate.edu) Wind Energy Policies & Economic Analysis June 16, 2011 8 / 20
Short-term Challenges Capital cost [www.texasefficiency.com] Lizhi Wang (lzwang@iastate.edu) Wind Energy Policies & Economic Analysis June 16, 2011 9 / 20
Short-term Challenges Transmission [American Electric Power] Lizhi Wang (lzwang@iastate.edu) Wind Energy Policies & Economic Analysis June 16, 2011 10 / 20
Short-term Challenges Energy market [www.texasefficiency.com] Lizhi Wang (lzwang@iastate.edu) Wind Energy Policies & Economic Analysis June 16, 2011 11 / 20
Outline 1 What: Examples of Wind Energy Policies 2 Why: Importance of Wind Energy Policies 3 How: Interactions of Wind Energy Policies with Energy Systems 4 Example: Investment in Energy Systems Lizhi Wang (lzwang@iastate.edu) Wind Energy Policies & Economic Analysis June 16, 2011 12 / 20
Four Categories of Policies Mandatory: renewable portfolio standard Incentive: production tax credits, carbon tax Voluntary: green pricing, emissions allowance retirement Market: cap-and-trade, renewable energy certificate Lizhi Wang (lzwang@iastate.edu) Wind Energy Policies & Economic Analysis June 16, 2011 13 / 20
Interactions with Energy Systems Lizhi Wang (lzwang@iastate.edu) Wind Energy Policies & Economic Analysis June 16, 2011 14 / 20
Outline 1 What: Examples of Wind Energy Policies 2 Why: Importance of Wind Energy Policies 3 How: Interactions of Wind Energy Policies with Energy Systems 4 Example: Investment in Energy Systems Lizhi Wang (lzwang@iastate.edu) Wind Energy Policies & Economic Analysis June 16, 2011 15 / 20
Investment for the Next 10 Years Need 1, 000 MW for the next 10 years. Consider three options. generation capital operating maximum emission type cost cost capacity rate coal $3M/MW $4/MWh 800 MW 1.1 ton/mwh natural gas $1M/MW $15/MWh 600 MW 0.6 ton/mwh wind $5M/MW $0/MWh 500 MW 0 ton/mwh Cost Coal: $3 10 6 + $4 8, 760 10 = $3.35 10 6 /MW Gas: $1 10 6 + $15 8, 760 10 = $2.31 10 6 /MW Wind: $5 10 6 /MW Emissions Coal: 1.1 8, 760 10 = 9.64 10 4 ton/mw Gas: 0.6 8, 760 10 = 5.26 10 4 ton/mw Wind: 0 ton/mw Lizhi Wang (lzwang@iastate.edu) Wind Energy Policies & Economic Analysis June 16, 2011 16 / 20
Decision Space Lizhi Wang (lzwang@iastate.edu) Wind Energy Policies & Economic Analysis June 16, 2011 17 / 20
Under PTC and Green Pricing Lizhi Wang (lzwang@iastate.edu) Wind Energy Policies & Economic Analysis June 16, 2011 18 / 20
Adding C&T and RPS Policies Lizhi Wang (lzwang@iastate.edu) Wind Energy Policies & Economic Analysis June 16, 2011 19 / 20
Summary What are the four categories of wind energy policies? Mandatory: renewable portfolio standard Incentive: production tax credits Voluntary: green energy programs Market: cap-and-trade Why are wind energy policies important? Long-term benefits Short-term economic and technical challenges How do the wind energy policies interact with energy systems? Lizhi Wang (lzwang@iastate.edu) Wind Energy Policies & Economic Analysis June 16, 2011 20 / 20