Impacts of an 80% Clean Energy Standard on the Electricity Generation Sector: Technology and Policy Design Sensitivities

Impacts of an 80% Clean Energy Standard on the Electricity Generation Sector: Technology and Policy Design Sensitivities 27 July, 2011 Daniel C. Steinberg Andrew Martinez Matthew Mowers NREL is a national laboratory of the U.S. Department of Energy, Office of Energy Efficiency and Renewable Energy, operated by the Alliance for Sustainable Energy, LLC.

Key Take-Aways An 80% CES drives significant deployment of clean energy by 2035 and reduces GHG emissions Generation mix is highly sensitive to technology and fuel cost assumptions, but the addition cost of the CES (over BAU) is largely unaffected Partial crediting of existing nuclear and hydro capacity limits impacts on consumers in competitive regions

Key Drivers of CES Impacts Policy Design Elements Target levels Definition (techs included/excluded) Small Utility Exemptions Banking and Borrowing Alternative Compliance Payments Contribution from Energy Efficiency Technology and Fuel Costs Evolution of generation technology costs and performance Fuel costs, in particular natural gas

Key Drivers of CES Impacts Policy Design Elements Target levels Definition (techs included/excluded) Exemptions Banking and Borrowing Alternative Compliance Payments Contribution from energy efficiency Technology and Fuel Costs Evolution of generation technology costs and performance Fuel costs, in particular natural gas

CES Targets Year % Clean Energy 2015 45% 2020 50% 2025 60% 2030 70% 2035 80% 2040 85% 2045 90% 2050+ 95%

CES Definition % Clean Electricity = (Clean Generation) (Total Electricity Sales) Clean Generation = All generation from clean energy sources (renewables, nuclear, gas-cc, gas-ccs, & coal-ccs), decremented based on their crediting rate (see below table). CES Crediting for New Capacity Technology Crediting Renewables 100% Nuclear 100% Gas-CC 50% Gas-CCS 95% Coal-CCS 90%

CES Scenario Descriptions Scenario Description Credits Generated Obligation Tech Costs BAU AEO2011 - - AEO2011 BAU B&V - - B&V All Clean Included (Core-All) Partial Exclusion of Existing Nuclear and Hydro (Core-Px) Full Exclusion of Existing Nuclear and Hydro (Core-Fx) RE and Nuclear ----1.00 credits; Coal-CCS ------------0.90 credits; Gas-CCS -------------0.95 credits; NGCC ---------------- 0.50 credits Same as Core-All, except existing nuclear and hydro are given 0.1 credits Same as Core-All, except existing nuclear and hydro are given 0 credits Total Sales Total Sales Total Sales generation from existing nuclear and hydro AEO2011 AEO2011 AEO2011 Core-Px-BV Same as Core-Px Total Sales B&V

Generation Change from BAU (Reference) An 80% CES drives increased deployment of clean energy technologies Techs deployed are highly dependent on tech costs and performance

Annual Electric Sector CO2 Emissions Mtons CO2/year 3000 2500 2000 1500 1000 BAU - AEO2011 BAU - B&V Core-Px - AEO2011 Core-Px - B&V 17%/83% Goal 500 0 2010 2015 2020 2025 2030 2035 Emissions reductions are approximately on track to meet an 83% GHG reduction goal in the electric sector

Total System Costs Billion 2010$ 6000 Present Value of Total System Costs (2016-2036) 5000 4000 3000 2000 1000 Storage O&M Storage Capital Renewable O&M Renewable Capital Transmission O&M Transmission Investment Fuel Conventional O&M Conventional Capital 0 BAU-AEO BAU-B&V Core-AEO Core-B&V Additional cost of the CES is consistent across technology sensitivities ~ 8% increase in both cases

CES Credit Prices $/MWh 80 70 60 50 40 30 20 Core-Px - AEO2011 Core-Fx - AEO2011 Core-All - AEO2011 Core-Px - B&V 10 0 2010 2020 2030 2040 Credit prices are equal when tech assumptions are equivalent

CES Credit Requirements Nominal Targets 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2010 2015 2020 2025 2030 2035 Core - All Core - Px Core - Fx Targets in all cases achieve 80% clean energy by 2035

Cost-of-Service Electricity Prices (Retail) $/MWh 140 120 100 80 60 40 BAU-AEO2011 Core-All - AEO2011 Core-Px - AEO2011 Core-Fx - AEO2011 20 0 2010 2020 2030 National average cost-of-service electricity prices increase ~13% relative to the baseline, but are unaffected by CES definition

Competitive Electricity Prices (Retail) $/MWh 140 120 100 80 60 40 BAU-AEO2011 Core-All - AEO2011 Core-Px - AEO2011 Core-Fx - AEO2011 20 0 2010 2020 2030 Differences in competitive electricity prices across cases reflect the difference in producer surplus payments for existing generation

Summary An 80% CES can drive increased deployment of clean generation technologies, but technologies deployed are sensitive to future tech cost and performance, as well as the price of natural gas GHG emissions reductions as a result of the CES are on target to meet a GHG reduction goal of an 83% below 2005 levels by 2050 Partial crediting of existing clean generation can limit electricity price impacts on consumers

Appendix

About the ReEDS Model ReEDS is a spatially-explicit linear-programming model that optimizes the regional expansion of electricity generation and transmission capacity in the U.S. from 2006-2050. ReEDS minimizes the system-wide cost of meeting forecasted electric loads, reserve requirements, and emission constraints by building and operating new generators and transmission. ReEDS is unique among capacity expansion models for its highly discretized regional structure and stochastic treatment of the impact of variability of wind and solar resources on capacity planning and dispatch, as well as for its detailed treatment of access to and costs of transmission, and consideration of ancillary services and reserve requirements. More information on ReEDS is available at: http://www.nrel.gov/analysis/reeds/ 19

Capacity - BAU

Capacity - Core

Capacity Core - Diff from Ref

Generation - BAU

Generation - Core

Generation Difference from Ref

Generation Change from BAU (Reference) Increased NG costs decrease NG usage in early years and lead to greater deployment of wind, Coal-CCS, and Nuclear in later years