Consumer Cost Effectiveness of Carbon Mitigation Policies in Restructured Electricity Market
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Consumer Cost Effectiveness of Carbon Mitigation Policies in Restructured Electricity Market Jared Moore and Jay Apt (adviser) CMU Engineering and Public Policy Carnegie Mellon Electricity Industry Center Technology, Management, and Policy Graduate Consortium Lisbon , Portugal June 2014
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Consumer Cost Effectiveness of Carbon Mitigation Policies in Restructured Electricity Market. Jared Moore and Jay Apt (adviser) CMU Engineering and Public Policy Carnegie Mellon Electricity Industry Center. Technology, Management, and Policy Graduate Consortium Lisbon , Portugal June 2014. - PowerPoint PPT Presentation
Transcript of Consumer Cost Effectiveness of Carbon Mitigation Policies in Restructured Electricity Market
Consumer Cost Effectiveness of Carbon Mitigation Policies in Restructured Electricity Market
Jared Moore and Jay Apt (adviser) CMU Engineering and Public Policy
Carnegie Mellon Electricity Industry Center
Technology, Management, and Policy Graduate Consortium Lisbon , Portugal June 2014
EPA to use Clean Air Act Section 111(d) to regulate existing power plants :
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• EPA has proposed how much each state must cut • EPA to approve State Implementations Plans which
are flexible• Research Question: How will consumers in restructured markets be affected?
Use CAA 111(d) cost-effectively for consumers:• White House to EPA: “…Ensure that the standards are
developed … with the continued provision of reliable and affordable electric power for consumers and businesses”
• Former EPA Administrator Lisa Jackson: We will “…implement the most cost-effective measures that do not burden small businesses and nonprofit organizations”.
• EPA estimates ~$8B cost and consumers savings of 9%3
0 50,000 100,000 150,000 200,0000
20
40
60
80
100
120 PJM
CoalGasNuclear
Capacity [GW]
Shor
t Run
Mar
gina
l Cos
ts [$
/MW
h]
Increased Producer Surplus
$25/t CO2 Tax
Carbon Price Wealth Transfer Payments
Coal generators lose revenue to
taxes
0 20000 40000 60000 800000
20
40
60
80
100
120 ERCOT
Coal
Gas
Nuclear
Capacity [GW]
Shor
t Run
Mar
gina
l Cos
ts [$
/MW
h]
$25/t CO2 Tax
Carbon Price Wealth Transfer Payments
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0 50,000 100,000 150,000 200,0000
20
40
60
80
100
120
NuclearCoalGasWind
Capacity [GW]
Shor
t Run
Mar
gina
l Cos
ts [$
/MW
h]Economic Dispatch with Renewable Portfolio Standard
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Renewables Shift Supply Curve to the right
0 50,000 100,000 150,000 200,0000
20
40
60
80
100
120
NuclearCoalGasWind
Capacity [GW]
Shor
t Run
Mar
gina
l Cos
ts [$
/MW
h]Economic Dispatch with Renewable Portfolio Standard
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Decreased Market Clearing Prices
0 50,000 100,000 150,000 200,0000
20
40
60
80
100
120
SRMP, PJM, Low Cost Gas
Capacity [MW]
Shor
t Run
Mar
gina
l Cos
ts [$
/MW
h]
CoalGasNuclear
Decreased Market Clearing Prices
Cost of renewables to LSE’s including variability and transmission
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Economic Dispatch with Renewable Portfolio Standard
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Assumptions for dispatch models:
• No new builds or retirements of capacity or ELCC
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Capacity additions in U.S.
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Assumptions:
• No new builds or retirements of power plants (with the exception of renewables)
• Model one year of hourly economic dispatch for existing generators in PJM, ERCOT, and MISO
• Vary price of gas from $4 to $7/MMBTU• No transmission constraints• No price elasticity of demand
Results in PJM
(no capacity reaction)
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0% 5% 10% 15% 20%0
25
50
75
100
125
150
175
200
Percent Reduction in CO2 Emissions
Cost
Effe
ctive
ness
[$/t
CO2]
$4 Gas$7 Gas
Cost Effectiveness of Carbon Price
Marginal Abatement Costs of Carbon Policies: PJM(Economist’s Perspective: Wealth Transfers Neutral)
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0% 5% 10% 15% 20%0
25
50
75
100
125
150
175
200
Percent Reduction in CO2 Emissions
Cost
Effe
ctive
ness
[$/t
CO2]
$4 Gas$7 Gas
Cost Effectiveness of RPS (wind at $100/MWh)
Cost Effectiveness of Carbon Price
Marginal Abatement Costs of Carbon Policies: PJM(Economist’s Perspective: Wealth Transfers Neutral)
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0% 5% 10% 15% 20%0
25
50
75
100
125
150
175
200
Percent Reduction in CO2 Emissions
Cost
Effe
ctive
ness
[$/t
CO2]
$4 Gas$7 Gas
Cost Effectiveness of RPS (wind at $100/MWh)
Cost Effectiveness of Carbon Price
Marginal Abatement Costs of Carbon Policies: PJM(Consumer Perspective)
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Results in ERCOT
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0% 5% 10% 15% 20%
-50
-30
-10
10
30
50
70
90
110
130
150Marginal Abatement Costs of Policies: ERCOT
Consumer Perspective
Percent Reduction in CO2 Emissions
Cost
Effe
ctive
ness
[$/t
CO2]
Cost Effectiveness of RPS (wind at $100/MWh)
$4 Gas$7 Gas
Cost Effectiveness of Carbon Price
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Capacity Market Reaction
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Capacity bids are the difference between fixed costs and profits earned in energy markets
0 20 40 60 80 100 120 140 1600
100
200
300
400
GW of Capacity
Offe
r Pri
ce [$
/MW
-day
]
Variable Resource Requirement
Capacity Market Bids in PJM (2014/2015)
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Market Clearing Price (2014/2015)
0% 5% 10% 15% 20% 25%0
50
100
150
200
250
300
350
400
Percent Reduction in CO2 [%]
Capa
city
Mar
ket B
id [$
/MW
-day
]Capacity Market Bids of Selected Power Plants Under Carbon Policies: PJM
($4/MMBTU)
New NGCC plant
Existing Sub-Critical Coal Plant in PJM (class average)
PJM RTO market clearing price range (2007-2016)
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0% 5% 10% 15% 20% 25%0
50
100
150
200
250
300
350
400
Percent Reduction in CO2 [%]
Capa
city
Mar
ket B
id [$
/MW
-day
]
RPS
Capacity Market Bids of Selected Power Plants Under Carbon Policies: PJM ($4/MMBTU)
New NGCC plant
Existing Sub-Critical Coal Plant in PJM (class average)
PJM RTO market clearing price range (2007-2016)
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0% 5% 10% 15% 20% 25%0
50
100
150
200
250
300
350
400
Percent Reduction in CO2 [%]
Capa
city
Mar
ket B
id [$
/MW
-day
]
RPSCarbon Price
Capacity Market Bids of Selected Power Plants Under Carbon Policies: PJM ($4/MMBTU)
New NGCC plant
Existing Sub-Critical Coal Plant in PJM (class average)
PJM RTO market clearing price range (2007-2016)
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Conclusion:
• Rational consumer might prefer RPS over market based mechanism
• The problem is that RPS has unintended consequences:– Renewables supply energy but not capacity
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Current Research: CCS Standard
CCUS Standard Pros– Increased low carbon energy supply (base load, but can
peak during times of high demand)– Increased capacity supply– Increased oil supply (through EOR)– Allows other industry emitters to use CCS infrastructure– Keeps coal, jobs in U.S.– Opens natural gas up to other industries, for use in long
haul trucking, or for LNG exports
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Thank You
This work was supported by grants from the Doris Duke Charitable Foundation, the R.K. Mellon Foundation, and the Heinz Endowments to the RenewElec program at Carnegie Mellon University, and the U.S. National Science Foundation under Award no. SES-0949710 to the Climate and Energy Decision Making Center.
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0 10 20 30 40 50 60 70
-20
0
20
40
60
80
100
Capacity Market Change Necessary for CCS Premium to be Cost Neutral for Consumers
Premium Paid per MWh for CCS [$/MWh]Diff
eren
ce in
Cap
acity
Cos
ts [$
/MW
-day
]
0 50 100 1500
100
200
300
400
GW of Capacity
Offe
r Pri
ce [$
/MW
-day
]
Variable Resource Requirement
Capacity Market Bids in PJM (2014/2015)
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Market Clearing Price (2014/2015)
Current Research
RPS Standard Pros– Increased low carbon energy supply (base load)– Increased capacity supply– Increased oil supply (through EOR)– CCS pipelines for other industry emitters– Keeps USA coal industry alive and keeps coal where
environmental standards are stringent– Opens natural gas up to other industries, for use in long
haul trucking, or for LNG exports?
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Conclusions
• Rational consumer in restructured market may prefer RPS over a carbon price if:– Gas is expensive– And capacity supply remains long– And nuclear generators continue to operate– And it is fair/legal for fossil producers to pay for
mitigation
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0 10 20 30 40 50 60 700%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Carbon Mitigation Due to Fuel Switching
Carbon Price [$/t CO2]
Redu
ction
in C
arbo
n Em
issio
ns fr
om B
asel
ine
[%]
New NGCC induced
PJM
$4 Gas
0 10 20 30 40 50 60 700%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Carbon Mitigation Due to Fuel Switching
Carbon Price [$/t CO2]
Redu
ction
in C
arbo
n Em
issio
ns fr
om B
asel
ine
[%]
PJM
$4 Gas$7 Gas
New NGCC induced New Wind
induced ($85/MWh)
0 10 20 30 40 50 60 70 80 900%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Carbon Price [$/t CO2]
Redu
ction
in C
arbo
n Em
issi
ons
from
Bas
elin
e [%
]
ERCOT
PJM
MISO
$4 Gas$7 Gas
Carbon Mitigation Due to Fuel Switching
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0% 5% 10% 15% 20%
-50
-30
-10
10
30
50
70
90
110
130
150Marginal Abatement Costs of Policies: ERCOT
(Economist's Perspective: Wealth Transfers Neutral)
Percent Reduction in CO2 Emissions
Cost
Effe
ctive
ness
[$/t
CO2]
Cost Effectiveness of RPS (wind at $100/MWh)
$4 Gas$7 Gas
Cost Effectiveness of Carbon Price
0% 5% 10% 15% 20%0
20
40
60
80
100
120
140
160
180
200
Percent Reduction in CO2 [%]
Cos
t E
ffec
tive
nes
s [$
/t C
O2]
$4 Gas$7 Gas
Cost Effectiveness of RPS (consumer perspective, wind at $100/MWh)
Cost Effectiveness of Carbon Price
(consumer perspective)
Cost Effectiveness of Carbon Price
(wealth transfers neutral)
Marginal Abatement Costs of Carbon Policies: PJM
Classification of Costs in Restructured Markets
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