U.S. ENERGY INFORMATION ADMINISTRATION
WASHINGTON DC 20585

FOR IMMEDIATE RELEASE
December 18, 1997

While increased competition in the electricity generation industry could lower the average price of electricity well into the next century, the Energy Information Administration said today that the amount of future reductions depends on the price of the marginal fuel for generation natural gas. Expanding on baseline projections released last month, EIA's full Annual Energy Outlook 1998 released today analyzes changes that result from varying economic and market conditions. EIA's latest projections also show that more rapid penetration of more efficient technologies in end-use markets than assumed in the reference case slows growth in energy demand and carbon emissions through 2020.

Increased Competition in Electricity Markets

EIA's latest analysis shows that competition in electricity markets will be a key factor in lowering electricity prices. In addition to improvements in operating efficiency, lower production costs, and retirement of high-cost plants throughout the United States attributable to ongoing restructuring of the electricity industry, competitive pricing practices based on marginal operating costs, including fuel costs, are being introduced in some areas.

EIA's reference case includes ongoing cost reductions attributable to restructuring as well as the transition to competitive pricing in California, New York, and New England where plans to implement restructuring are currently in place. Today's report shows that nationwide, over a 10-year phase-in period, competitive electricity prices would fall below the traditional, regulated average-cost prices through most of the projection period to 2020. Because electricity prices based on marginal costs are more sensitive to changes in the operating costs of the marginal generating units than average-cost electricity prices, how much lower competitive electricity prices would be largely depends on operating costs, including fuel costs.

Assuming slower improvement in natural gas discovery and production technologies than in the reference case, EIA projects natural gas wellhead prices 29 percent higher in 2020 than in the reference case. In contrast, faster improvement reduces gas prices 24 percent from the reference case. Higher natural gas prices are reflected in a competitive price of electricity 8 percent higher in 2020 than projected in the reference case; lower gas prices lead to a competitive electricity price 9 percent lower than the reference case price for a range of 1 cent per kilowatthour (Figure 1).

Renewable Portfolio Standards

A competitive electricity market may slow the penetration of generation technologies with high capital costs, including renewable technologies. Renewable portfolio standards mandating a percentage of electricity generation to come from qualifying renewable sources have been proposed at both the Federal and State level to encourage use of renewable technologies.

In EIA's analysis, standards that specify 2 percent of generation from nonhydroelectric renewable technologies in 2000, increasing to 5 percent in 2020, boost renewable generation by 32 percent over the reference case in 2020 (Figure 2), leading to electricity prices 2 percent higher, on average, than in the reference case. Total carbon emissions in the 5-percent standard case are 1 percent lower in 2020.

With a 10-percent renewable standard, renewable generation increases by 79 percent from the reference case in 2020. As a result of the higher renewable generation, electricity prices are higher by 5 percent in 2020 than in the reference case, adding about $3 to the average residential monthly electric bill. Carbon emissions in the 10-percent case are reduced by 3 percent, or 62 million metric tons, in 2020. In either renewable standard case, the price of electricity, in 1996 dollars, would be less than current levels.

Carbon Emissions

EIA's Outlook analysis shows that rapid penetration of more efficient technologies in end-use markets can lower energy consumption in 2020 to 111 quadrillion Btu, 7 percent below the reference case projection. As a result, carbon emissions would be 7 percent, or 140 million metric tons, lower than in the reference case (Figure 3). Even with more rapid technology penetration, the carbon emissions in 2020 are 24 percent higher than the 1996 level. Slower technology penetration, characterized by freezing all future end-use technology choices at the efficiency levels available in 1998, results in energy consumption that is 3 percent higher than in the reference case, while carbon emissions are 4 percent, or 73 million metric tons, higher.

EIA's analysis also shows the effects of other assumptions on carbon emissions:

• Extending the life of nuclear generating plants 10 years beyond the retirement dates assumed in the reference case reduces generation from fossil-fired plants and reduces total carbon emissions in 2020 by 2 percent, or 42 million metric tons. Conversely, retiring nuclear plants 10 years before the end of their 40-year license periods could increase emissions by 4 percent, or 74 million metric tons.

• Using more optimistic assumptions on capital, operating, and maintenance costs and capacity factors for renewable generating technologies from the Department of Energy Office of Energy Efficiency and Renewable Energy, increases projected renewable generation and reduces total projected carbon emissions in 2020 by 2 percent, or 30 million metric tons.

• Lower or higher economic growth than assumed in the Outlook reference case leads to a range in energy consumption in 2020, from 9 percent below the reference case level of 119 quadrillion Btu to 8 percent above, resulting in carbon emissions that are 10 percent (186 million metric tons) lower or 9 percent (178 million metric tons) higher (Figure 4). (The reference case assumes an average annual growth in the gross domestic product of 1.9 percent; the low and high growth cases assume 1.3 and 2.4 percent annual growth.)

The full report can be accessed immediately on EIA's World Wide Web Site (http://www.eia. doe.gov). The direct Internet address is: http://www.eia.doe.gov/oiaf/aeo98/homepage.html. Assumptions underlying the projections in the Outlook and more detailed, regional projections are also available on EIA's Web Site. Published copies of the Outlook are available from the U.S. Government Printing Office 202/512-1800 or through EIA's National Energy Information Center, Forrestal Building, Washington, DC 20585, 202/586-8800.

The figures referenced above may be viewed, together with this press release and the November 12, 1997, press release presenting the reference case results, on EIA's Web Site. Copies may also be obtained from EIA's press contact.

EIA Program Contact: Mary J. Hutzler, 202/586-2222

EIA Press Contact: Thomas Welch, 202/586-1178

EIA-97-37

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