Executive Summary

This report responds to a request from Senator Norm Coleman that the Energy Information Administration (EIA) analyze a proposed clean energy resources policy.  The proposal, a copy of which is provided in Appendix B, requires retail electric suppliers to account for an increasing fraction of incremental sales growth with clean energy resources, including nonhydro renewable resources, new hydroelectric or nuclear resources, fuel cells, or an integrated gasification combined-cycle plant that sequesters its carbon emissions.  Electric suppliers may also comply by purchasing tradable clean energy generation credits from other generators or by purchasing credits from the Federal government at a clean energy credit price of 2 cents per kilowatthour.  Irrespective of the incremental target over the 3-year baseline sales period, suppliers are not required to hold credits in excess of 10 percent of their total prior-year sales in any year.  Electric suppliers with less than 500,000 megawatthours of sales are exempt from the requirements.  This analysis is based on the reference case from the Annual Energy Outlook 2006.

The key findings include:

• In aggregate, through 2019, the proposal does not induce any significant carbon-free generation above reference case levels because enough qualifying resources are built in the reference case to meet the Clean Energy Portfolio Standard (CEPS) targets.  Reference case growth in renewable and nuclear generation is large enough to comply with the targets in those years.  Sixty percent of the required clean energy generation in 2030 is achieved in the reference case.
• In the last 10 years of the projections, additional nuclear and renewable generation is stimulated, and the clean energy target levels are achieved without the purchase of government-issued clean energy credits. 
• In 2020 CEPS credits are projected to begin trading at just below 1 cent (2004 dollars) per kilowatthour.  Over the next few years, the credit price hovers just above 1 cent per kilowatthour before declining to between 0.3 and 0.5 cents per kilowatthour in the last 5 years of the projections as competing fossil fuel prices rise.
• Almost 43 percent of the qualifying generation in 2030 is from new nuclear facilities (210 billion kilowatthours out of a requirement of 489 billion kilowatthours).  Biomass (118 billion kilowatthours) and wind (90 billion kilowatthours) also provide substantial compliance generation.  Other compliance generation comes from geothermal (42 billion kilowatthours), landfill gas (33 billion kilowatthours), and solar (6 billion kilowatthours). 
• The increase in carbon-free generation leads to lower coal and natural gas generation.  By 2030, coal generation is reduced by over 5 percent, and natural gas generation is reduced by 2 percent from their respective reference case levels.
• By 2030, the CEPS induces an additional 20 gigawatts (GW) of nuclear capacity and 7 GW of wind, along with smaller increases in biomass co-firing and landfill gas over the 2030 reference case levels.  This additional capacity replaces 20 GW of coal capacity growth, as well as lesser amounts of natural gas and dedicated biomass capacity. 
• From 2006 to 2030, the CEPS has a cumulative total cost to the electric power sector of about $1.2 billion (all dollars are 2004 dollars and cumulative calculations are discounted at 7 percent to 2006).  This is less than 0.1 percent of cumulative industry costs in the reference case.  These costs include additional capital and fixed annual expenditures of almost $9 billion, which are nearly offset by $7.8 billion in lower fuel and variable costs.
• Compared with the reference case, cumulative residential expenditures on electricity from 2006 through 2030 are $480 million (0.03 percent) higher.
• Total electricity sector carbon dioxide emissions are reduced by 136 million metric tons (4.1 percent) relative to the reference case in 2030.

Table E-S1