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Electricity Technologies in a Carbon-Constrained World

Electricity Technologies in a Carbon-Constrained World. Rural Electric Statewide Managers’ Association January 18, 2008 Bryan Hannegan Vice President, Environment. About EPRI. Founded in 1973 as an independent, nonprofit center for public interest energy and environmental research.

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Electricity Technologies in a Carbon-Constrained World

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  1. Electricity Technologies in a Carbon-Constrained World Rural Electric Statewide Managers’ AssociationJanuary 18, 2008 Bryan HanneganVice President, Environment

  2. About EPRI • Founded in 1973 as an independent, nonprofit center for public interest energy and environmental research. • Objective, tax-exempt, collaborative electricity research organization • Science and technology focus--development, integration, demonstration and applications • Broad technology portfolio ranging from near-term solutions to long-term strategic research Together…Shaping the Future of Electricity

  3. Large and Successful R&D Collaboration • More than 450 participants in over 40 countries • Over 90% of North American electricity generated • 66 technical programs • Generation • Power Delivery and Markets • Nuclear • Environment • Technology Innovation • 1600+ R&D projects annually • 10 to 1 average funding leverage • Research is directed to the public benefit • Limited regulatory, judicial and legislative participation

  4. Basic Research & Development Collaborative Technology Development Integration Application Technology Commercialization National Laboratories Universities EPRI Suppliers Vendors EPRI’s Role Depends Upon The Specific Technology or Discipline

  5. Context • Growing scientific and public opinion that CO2 emissions are contributing to climate change… • Priority of 110th Congress … • U.S. responsible for 1/4 of global CO2 emissions… • Electricity sector responsible for 1/3 of U.S. CO2 emissions… • General agreement that technology solutions are needed… How can the electricity industry respond?

  6. With accelerated deployment of advanced electricity technologies, how quickly could the U.S. electric sector cut its CO2 emissions?

  7. U.S. Electricity Sector CO2 Emissions • Base case from EIA “Annual Energy Outlook 2007” • includes some efficiency, new renewables, new nuclear • assumes no CO2 capture or storage due to high costs  Using EPRI deployment assumptions, calculate change in CO2 relative to EIA base case

  8. Technology Deployment Targets EPRI analysis targets do not reflect economic considerations, or potential regulatory and siting constraints.

  9. Electric Sector CO2 Reduction Potential * Achieving all targets is very aggressive, but potentially feasible. EIA Base Case 2007

  10. Key Technology Challenges • Smart grids and communications infrastructures to enable end-use efficiency and demand response, distributed generation, and PHEVs. • Transmission grids and associated energy storage infrastructures with the capacity and reliability to operate with 20–30% intermittent renewables in specific regions. • New advanced light-water nuclear reactors combined with continued safe and economic operation of the existing nuclear fleet and a viable strategy for managing spent fuel. • Coal-based generation units with CCS operating with 90+% CO2 capture and with the associated infrastructure to transport and permanently store CO2.

  11. “Smart” Grid for Efficiency and Renewables Efficient Building Systems Utility Communications Renewables Internet PV Consumer Portal and Building EMS Advanced Metering Control Interface Distribution Operations Dynamic Systems Control Plug-In Hybrids Smart End-Use Devices Distributed Generation and Storage Data Management

  12. Near-Term Nuclear Plant Deployment MHI APWR (1700 MWe) *Westinghouse AP1000 (1115 MWe) AREVA US EPR (1600 MWe) *ABWR (1371 MWe) GE ESBWR (1535 MWe) * Design Certified

  13. ● Chilled Ammonia Pilot Other Pilots ● AEP Mountaineer ● Southern/SSEB Ph 3 ● Basin Electric Other Demonstrations ● FutureGen UltraGen I ● ● UltraGen II 2007 2010 2015 2020 2025 Coal with CCS Development Timeline 2005 2010 2015 2020 Pilots Demonstration Integration Need Multiple Pilots and Demonstrations in Parallel

  14. What is the potential value of these advanced electricity technologies to the U.S. economy and to consumers?

  15. Future CO2 Emissions Scenarios Suppose the U.S. and other industrialized nations adopt one of the following CO2 emissions constraints: 9000 8000 • Policy Scenario A: • 2%/yr decline beginning in 2010 • Policy Scenario B: • Flat between 2010 - 2020 • 3%/yr decline beginning in 2020 • Results in “prism”-like CO2 constraint on electric sector • Policy Scenario C: • Flat between 2010 - 2020 • 2%/yr decline beginning in 2020 7000 6000 C A B 5000 U.S. Economy CO2 Emissions (million metric tons) 4000 3000 2000 1000 0 2000 2010 2020 2030 2040 2050

  16. Electricity Technology Scenarios Limited Portfolio Full Portfolio Supply-Side Demand-Side

  17. Coal Gas Oil Hydro Solar Demand with No Policy w/CCS w/CCS Nuclear Wind Biomass Demand Reduction U.S. Electric Generation: Limited Portfolio Emissions are reduced in two ways: • Carbon penalty drives price up, demand down • Supply shifts to less carbon-intensive technologies

  18. Coal Gas Oil Hydro Solar Demand with No Policy w/CCS w/CCS Nuclear Wind Biomass Demand Reduction U.S. Electric Generation: Full Portfolio • Demand reduction is limited, preserving market and managing cost to economy • Availability of CCS and expanded nuclear allow large-scale low-carbon generation

  19. Carbon Price Projections $/ton CO2 ($2000) Limited Full Carbon Price

  20. +250% +50% Wholesale Electricity Price Limited Index Relative to Year 2000 $/MWh* Full *Real (inflation-adjusted) 2000$

  21. Coal Gas Hydro w/CCS w/CCS Other Renewables U.S. Electric Generation in 2030 8% 13% 22% 27% 17% 28% 30% 43% 12% Full Portfolio Total: 5,125 TWh Limited Portfolio Total: 4,500 TWh

  22. Natural Gas Markets Limited Portfolio Full Portfolio

  23. Impact on U.S. Economy 0.0 Cost of Policy Full Portfolio + CCS Only + Efficiency Only + Nuclear Only -0.5 + Renewables Only Change in GDP Discounted through 2050 ($Trillions) Avoided Policy Costs Due to Advanced Technology + PHEV Only $1 Trillion Limited Portfolio -1.0 -1.5 Value of R&D Investment

  24. Economic Cost Sensitivity Policy Scenario A: 2010 – 2% Policy Scenario B: 2020 – 3% Policy Scenario C: 2020 – 2% Cost of Policy Full Full Full Limited Limited Limited Avoided Policy Costs Due to Advanced Technology Change in GDP Discounted through 2050 ($Trillions) Loss of “when” flexibility increases policy cost, but increases technology value

  25. Summary of Economic Analysis Absent advanced electricity technologies, CO2 constraints result in: • Price-induced “demand reduction” • Fuel switching to natural gas • Higher electricity prices • High cost to U.S. economy With advanced electricity technologies, CO2 constraints result in: • Growth in electrification • Expanded use of coal (w/CCS) and nuclear • Lower, more stable electricity prices • Reduced cost to U.S. economy

  26. How might the specific details of climate policy design make a difference? With a nod of thanks to Anne and CRA …

  27. EPRI/CRA Analysis of CA Climate Policy California has set ambitious climate policy goals • Governor: GHG emission reductions of 80% below 1990 levels by 2050 • AB 32: 6 GHGs; 1990 levels by 2020; uncertain post-2020 Early economic studies show net benefit to state • Climate Action Team Report – March 2006 +$4 billion and +83,000 jobs • UC Berkeley Report – January 2006 +$60 billion and +20,000 jobs • Center for Clean Air Policy – January 2006no net cost to consumers Later criticism of early studies: • Omit key cost components of some GHG reduction options • Overestimate savings of some GHG reduction options • Ignore difficulty of enacting policies required for some GHG options

  28. Our Approach Integrated Electricity Modeling System Scenario Definition MS-MRT EPPA Global Trade Models NEEM National electricity model • NEEM Output • Electricity prices • Allowance prices • Coal prices • Unit-level environmental retrofits • New capacity MRN State-level macroeconomic model • Electricity prices • Coal prices • Electricity gas use • Electricity demand • Carbon price • Industrial coal use Models included in iterative process

  29. Implementation Scenarios • Total of 20 scenarios reviewed that represent the full range of implementation possibilities, e.g. • Pure Trade – Comprehensive cap-and-trade program with standard assumptions about technology, except no new nuclear and renewables-only imports • LCA –low-cost-assumptions: high end energy efficiency, lowest capital costs for renewables, rapid introduction rate of non-emitting transportation backstop, doubling DSM benefits of “DSM Benefit” case • SV-LCA – Same as Pure Trade but with price safety-valve set at CO2 price in scenario with low-cost-assumptions (LCA) • Trgt40 – In 2050, achieve 40% emissions reduction below 1990 levels, with no new nuclear and renewables-only imports • Trgt80 – In 2050, achieve 80% emissions reduction below 1990 levels, with no new nuclear and renewables-only imports • Nuclear80 – Same as Trgt80, but allow unrestricted imports of nuclear • RPS 20 – Meet State Renewable Portfolio Standard (RPS) of 20% renewable energy by 2020, but don’t impose an overall emissions cap

  30. Projected California CO2 Emissions

  31. California CO2 Permit Prices

  32. Wholesale Electricity Prices Increase Higher electricity prices are a direct result of carbon constraint: +62% by 2020 under Pure_Trade scenario

  33. Higher Prices Reduce Electricity Demand …

  34. … and Regional Generation Mix Changes Wind and geothermal increase in-State… Gas-fired power plants move out of state Out-of-state coal capacity doesn’t get built

  35. CA Electric Sector Response Under the Pure_Trade scenario, electric-related CO2 cuts fall into 3 “buckets”: • Reductions in short-term purchases of imported power • Changes in longer-term contracts for imported power: coal contracts go to zero • Changes in instate generation mix, including out of state plants wholly owned by CA LSEs

  36. But Electricity Grows as Share of Total Energy kWh/ Total Final Energy

  37. New Investments … But Consumers Spend Less Pure_Trade Scenario

  38. 1.4 600 Comprehensive Cap-and-Trade: Pure_Trade: $229 billion 1.2 OffSets: $196 billion Trgt80 Low Cost Assumptions: $104 billion 500 Proxies for Command and Control : Nuclear80 1 Sector Specific Caps : $297 billion (optimistic) DSMBenefit: $206 billion 400 (pessimistic) DSMCost: $367 billion DSMCost 0.8 Welfare Loss through 2050 ($ Billions) Welfare Loss through 2050 (%) Trgt40 300 SS_Cap 0.6 Pure_Trade DSMBenefit 200 OffSets 0.4 Max_Imp SV_LCA LCA 100 0.2 RPS33 achieve 1990 RPS20 emissions level 0 0 0 2000 4000 6000 8000 10000 12000 14000 16000 18000 Cumulative Emission Reduction (MMTCO2) Cost to California Depends on Implementation

  39. Summary of Findings All policies analyzed showed real economic costs to state • Costs ranged from -0.24% to -1.17% through 2050 Broad, market-based cap-and-trade policies are most cost-effective • Command-and-control or sector-specific caps are more costly • An allowance price “safety valve” would limit costs, but fewer CO2 reductions Electric sector plays a pivotal role in achieving CO2 targets • Changes in power imports, in-state generation mix result • Electrification of other sectors enables them to meet their CO2 goals • Cost estimates do not include “system stability” costs Offsets can play an important role in reducing the costs • CAT estimates of in-state forestry offsets  $33 billion savings Role of out-of-state electricity generation needs careful examination • Stronger rules to prevent “leakage” would drive up costs to California

  40. EPRI Study Conclusions • The technical potential exists for the U.S. electricity sector to significantly reduce its CO2 emissions over the next several decades. • No one technology will be a silver bullet – a portfolio of technologies will be needed. • Much of the needed technology isn’t available yet – substantial R&D, demonstration is required. • A low-cost, low-carbon portfolio of electricity technologies can significantly reduce the costs of climate policy. • Flexible, market-based climate policies offer significant economic advantage over sector-specific approaches

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