2. Energy Market Impacts of a Clean Energy Portfolio Standard
The proposed CEPS leads to extensive growth in renewable and nuclear generation. Since this proposal calls for a higher share of clean energy than the earlier proposal4, the new generation mix further deviates from reference projections. Both renewable and nuclear energy grow more strongly with the new proposal. The expansion of these two technologies slows growth in coal and natural gas generation. As a result, carbon dioxide emissions are significantly less than in the reference case. The CEPS does raise electricity prices above those in the reference case, but only slightly (0.3 percent by 2030).
Generation and Capacity
The proposed CEPS results in changes to the fuels used for electricity generation and the mix of generating capacity added to meet growth in electricity demand. In 2030, this plan requires nearly a trillion kilowatthours of generation from qualifying sources. This is approximately double the requirements of the earlier proposal, and represents a 700-billion kilowatthour increase in qualifying generation compared to the reference case projections in 2030. These new goals, however, are moderated by the allowed 10-percent contribution from biological sequestration projects and the use of early clean energy credits accumulated in the five-year period before mandatory program compliance begins. Therefore, after starting out at 250 billion kilowatthours in 2015 (based on the incremental sales growth from the baseline-period sales), the adjusted targets reach about 880 billion kilowatthours of sales in 2030. The required amount increases the most in 2020 and 2025, as the milestones become more stringent.
Renewable generation grows much more quickly in the CEPS case than in the reference case. Total annual generation from renewable sources in 2030, including hydropower, reaches 1,026 billion kilowatthours (Figure 2) in the CEPS case, nearly double the 560 kilowatthours projected in the reference case. The earlier proposal only resulted in 592 billion kilowatthours of renewable generation in 2030.
Total nonhydropower renewable generating capacity grows by 759 percent between 2005 and 2030 in the CEPS case. Adding new renewable generating capacity becomes the compliance option of choice for the majority of the clean energy credits required because renewable technologies receive full credits and the share targets are higher in the revised CEPS. Renewable generating capacity grows from 97 gigawatts in 2004 to 124 gigawatts in the reference case and 198 gigawatts in the CEPS case. This is especially notable since hydropower capacity, currently the largest source of renewable generation, remains essentially flat over the period at 78 gigawatts.
Electricity from biomass accounts for a large component of the growth in renewable generation. Initially, the targets are met through biomass co-firing in fossil fuel plants. In 2015, 55 billion kilowatthours of electricity come from co-firing in the CEPS case. By 2020, generation from biomass co-firing increases to 177 billion kilowatthours and it continues to rise to more than 200 billion kilowatthours over the next 2 years. Gradually, as more dedicated biomass plants come online, generation from co-firing decreases. By 2030, 126 billion kilowatthours of electricity are generated from co-firing biomass. Compared to the reference case, electricity from biomass co-firing is higher in all years. Reference case levels are 35 billion kilowatthours, 36 billion kilowatthours, and 26 billion kilowatthours in 2015, 2020, and 2030, respectively.
Dedicated biomass plant generation growth remains slow until the final years in the CEPS case, with the first new plants coming online in 2019. In 2015, the first year of mandatory compliance, dedicated plants generate 8 billion kilowatthours of electricity. This rises to 15 billion kilowatthours by 2020 and 78 billion kilowatthours by 2025 in the CEPS case. By 2028 in the CEPS case, dedicated biomass generation is double the 2025 levels, and it reaches 240 billion kilowatthours in 2030. The combined generation totals for dedicated and co-firing biomass facilities displace hydropower as the largest source of renewable generation in 2030 in the CEPS case. Capacity growth for dedicated plants mirrors the trend in generation. There are slightly more than 6 gigawatts of dedicated biomass facilities in 2004, and it increases slowly to nearly 8 gigawatts of capacity in 2015 in the CEPS case. However, by 2020 in the CEPS case, there are 10 gigawatts of dedicated biomass capacity, and by 2030 it increases to nearly 42 gigawatts of capacity. This contrasts with the slow, steady growth of dedicated capacity in the reference case, which projects nearly 12 gigawatts of capacity by 2030.
Wind generation also grows rapidly in the CEPS case, along with growth from other renewable technologies. In the CEPS case, generation from wind, which is 14 billion kilowatthours in 2004, grows to 58 billion kilowatthours in 2015 and 210 billion kilowatthours in 2030. In the reference case, wind generation grows more slowly, reaching 65 billion kilowatthours by the end of the forecast. Wind capacity also quickly grows under the CEPS proposal, reaching 63 gigawatts in 2030, over three times the level projected in the reference case. Geothermal capacity and generation increase in the CEPS case, with nearly 8 gigawatts of capacity generating 60 billion kilowatthours of electricity in 2030. This compares to 7 gigawatts of capacity producing 53 billion kilowatthours of electricity in 2030 in the reference case.
The CEPS is projected to lead to increased nuclear generation despite a reduction in the credit share earned in the new proposal. Unlike the previous proposal, where nuclear technologies received one full credit per unit of generation, new nuclear power stations receive one-half credit for the same amount of electricity produced under the new CEPS. Yet, because of higher required shares and resulting higher credit prices, nuclear generation increases by a larger amount. However, it no longer accounts for the majority of qualifying sources, as it did in the earlier analysis. In the CEPS case, nuclear generation grows to 1,109 billion kilowatthours in 2030 (Figure 3). This is a 41 percent increase over 2004 levels, and 27 percent greater than the generation projected in the reference case. Moreover, generation in 2030 is 8 percent higher than the 2030 projections under the earlier CEPS proposal. In the reference case, nuclear capacity is projected to increase by 9 gigawatts between 2004 and 2030. This increase includes 3 gigawatts of capacity up-rates at existing plants and 6 gigawatts of new plant capacity. In the CEPS case, 36 gigawatts of new nuclear capacity are added by 2030, 10 gigawatts greater than under the previous proposal.
While coal generation still increases in the CEPS case, annual generation in 2030 is projected to be 17 percent lower than in the reference case. Coal generation grows from 1,977 billion kilowatthours of electricity in 2004, to 2,803 billion kilowatthours by 2030 in the CEPS case compared to 3,381 billion kilowatthours in the reference case (Figure 4). Annual coal generation in 2030 is 13 percent less than what was projected in the previous CEPS analysis.
In the CEPS case, coal expansion occurs much more slowly, resulting in 63 fewer gigwatts of capacity in 2030 than in the reference case projections. In the reference case forecast, coal capacity is expected to rise from 310 gigawatts in 2004 to 481 gigawatts in 2030. This growth is higher than that of all other sources, so it follows that under the CEPS proposal the growth in eligible clean energy technologies comes largely at the expense of coal. Coal capacity grows to 418 gigawatts in 2030 in the CEPS case. While this represents 33.0 percent growth over 2004 levels, it is 13 percent less than in the reference case, and 10 percent less than the previous proposal’s projections for the same year. IGCC plants with carbon sequestration, which is eligible for clean energy credits, are not economical under the proposal.
Electricity generation from petroleum and natural gas in the CEPS case shows a slight decline from reference case levels, since these fuels do not qualify for clean energy credits. While natural gas generation grows in the CEPS case, it generates 10 percent less electricity in 2030 when compared to the reference case. Natural gas combined cycle capacity is 12 gigawatts lower in the CEPS case than in the reference. While the CEPS results in slower growth in natural gas generation, it still shows an overall growth of 21 percent compared to 2004 levels.
Cost and Price Impacts
Overall, the cost and price impacts of the CEPS are small. Credit prices generally rise as the required clean generation share increases. During the first phase of the CEPS, from 2015 through 2019, credit prices range from 0.4 to 1.0 cent per kilowatthour. During the second phase of the program, from 2020 to 2024, credit prices rise, but stay below 2.0 cents per kilowatthour. Shortly after 2025, during the third phase of the program when the share required increases to 20 percent, credit prices temporarily rise to the 2.5 cent per kilowatthour price cap, but they fall over time as fossil fuel prices increase and new nuclear and renewable facilities are built. The credit price drops to 1.5 cents per kilowatthour by 2030.
The CEPS leads to higher costs for power producers. From 2006 to 2030, the cumulative incremental cost to the electric power sector of the CEPS case, in net present value terms using a seven-percent discount rate, is $7.8 billion (less than 0.5 percent of reference case industry costs).5 These costs include such costs as material and labor for plant construction and operation, fuel, and taxes. Costs for the purchase of compliance credits are internal transfer payments within the industry (that is, one power company paying a second power company to compensate them for the second company’s clean energy credits). This analysis considers credits purchased from the government as costs to the electric power sector. The primary changes to industry costs include nearly $22 billion in higher capital and fixed operations and maintenance expenditures for nuclear, wind, and biomass generating facilities from 2006 through 2030. However, $14 billion in reduced cumulative fuel and variable operating and maintenance costs caused by lower fossil fuel use and prices partially offsets these increase costs. Suppliers purchase approximately $223 million in compliance credits from the government.
Because EIA projects impacts on power industry costs to be small with respect to the reference case, consumer electricity prices and bills experience similarly small increases. Average end-use electricity prices increase with the proposal requirements, but the impact is small and it varies over time. The largest increases are in 2020 through 2022 and in 2029, when annual electricity prices are slightly more than 1 percent (nearly 0.1 cent) above reference case levels. However, by 2030 end-use electricity prices are only 0.02 cents (0.3 percent) higher. Compared with the reference case, cumulative residential expenditures on electricity from 2006 through 2030 are $4.7 billion (2.8 percent) higher. Table 1 provides summary results for the analysis.
Emissions
The reduced use of coal and natural gas in the CEPS case lowers CO2 emissions, particularly in the later years of the projections (Figure 5). Within the electric power sector, CO2 emissions in 2030 are 488 million metric tons (15 percent) lower in the CEPS case than in the reference case. Over the entire projection period, cumulative emissions are 4,162 million metric tons lower (6 percent) than the reference levels. The current proposal achieves deeper cuts than the previous one, which only decreased 2030 annual emissions by 136 million metric tons. Despite this change, electricity sector CO2 emissions in 2030 in the CEPS case are still 23 percent higher than the 2004 level. Emissions of sulfur dioxide, nitrogen oxides, and mercury are largely unchanged by the CEPS proposal. These emissions are subject to national or regional cap-and-trade regulations under the recently enacted Clean Air Interstate Rule and Clean Air Mercury Rule.
Table 1. Key CEPS Analysis Results, 2020, 2025 and 2030 |
