Low-Carbon Electricity Scenarios for the

South: An Assessment of Costs & Options

By: Dr. Marilyn A. Brown

(With assistance from Gyungwon

Kim, and Alex Smith)

Georgia Institute of Technology

Workshop on The Future of

Electric Power in the South

April 3, 2015

NERC Regions in the South

(NERC=North American ElectricityReliability Corporation)

1

Research Questions

What are are the likely costs of compliance with the

Clean Power Plan in the South and the nation?

How much do these costs vary across regions in the

South?

What are the least-cost compliance options in the

South vs. the nation?

Would a regional approach to compliance have merit?

What do our results suggest for choosing between

mass- versus rate-based goals?

What can we deduce about the potential operation of a

trading system for carbon emissions credits in the

South?

2

Methodology

3

NEMS is Used to Model CPP’s

Compliance Costs and Options

NEMS (National Energy Modeling System) is a general equilibrium

model that is used by the U.S. Energy Information Agency to forecast

domestic energy trends.

Geographic resolution for the electricity module: 22 NERC

“NEMS projects the production, imports, conversion, consumption,

and prices of energy, subject to:

assumptions on macroeconomic and financial factors,

world energy markets,

resource availability and costs,

behavioral and technological choice criteria,

cost and performance characteristics of energy technologies, and

demographics.”

--Source: EIA 2009 NEMS Overview

4

(1) The Cost of Compliance:

Estimated with Variable Carbon Fees

• We modify GT-NEMS to model various levels of fees

levied on the carbon content of fossil fuels in the electric

power sector.

Three fees are studied: $10, $20, and $30/metric tons of CO2

In 2012 dollars

Applied in 2020 and operating through 2040

• The fee needed to achieve a goal is one way to

estimate compliance costs.

• NEMS operates with foresight, so changes in response

to the carbon fee begin earlier than 2020.

5

• LBNL’s tracking of solar PV prices* was used to assess

solar PV equipment costs in the NEMS Reference Case.

• We use EIA’s low-cost renewable side case that

assumes 20% lower equipment costs for residential and

commercial solar PV compared with the reference case,

which is in strong accord with LBNL’s projections.

• We reduce NEMS’ Reference case costs for utility-scale

systems by 36% to reflect LBNL’s projections because

NEMS estimates are higher.

• These cost reductions are assumed to begin in 2014.

6

(2) We Also Updated Solar Costs in the

NEMS Model

* Source: Barbose et al. (2014) “Tracking the Sun VII: An Historical Summary of the Installed Price of Photovoltaics in the United States from 1998-2013, Lawrence Berkeley National Laboratory

(3) An Integrated Energy-Efficiency

Case is also Modeled

• We employ the assumptions of EIA’s High Demand

Technology Side Case

Advanced equipment is available earlier, at lower costs, and/or at higher efficiencies

Stricter building codes…

• Stronger appliance and equipment standards

• Lower costs and extended tax credits for industrial CHP

• Increased energy efficiency in five manufacturing

sectors

• These changes are introduced throughout the planning

period, some beginning in 2014, others later.

7Note: For more information: http://cepl.gatech.edu/drupal/node/88

(4) EPA’s Mass- and Rate-based Goals

are Averaged for 7 NERC Regions

• Plant-based CO2 emissions data for 2012 are used to

weight the state 2030 goals of the Clean Power Plan.

• The proportioning method uses NEMS “EMMDB” data to

estimate state-by-state emissions from existing power

plants.

• It produces an acceptably small level of deviation from the

2012 CO2 emissions to the EPA’s 2012 baseline data and

EIA’s SEDS state data.

8

How Emission Rates Are

Calculated

7

CO₂ Emissions from Affected

Fossil Sources (lb)

MWh Generation by Affected Fossil

Sources

MWh of Nuclear Under

Construction and “At Risk”

MWh of Non-Hydro

Renewables + Incremental

Hydro

MWh of Energy Efficiency Beyond

Business-as-Usual

Regional Results

10

450

550

650

750

850

950

1050

1150

2005 2010 2015 2020 2025 2030 2035 2040

South

Reference$10 Fee$20 FeeUpdated Solar CostIntegrated EE$10 Fee + EE + Solar$20 Fee + EE + Solar$30 Fee + EE + Solar

1000

1200

1400

1600

1800

2000

2200

2400

2600

2005 2010 2015 2020 2025 2030 2035 2040

Mill

ion

To

ns

of

CO

2

Nation

CO2

Reduction Compliance Costs

Appear to be Higher in the South

11= Mass-based goal for existing affected and new sources

• National CO2 mass goal for existing + new sources could be met with a

$15 Fee + EE + Solar scenario.

• A $35 Fee + EE + Solar approach is needed to meet the average mass

goal in the South.

$15 Fee + EE + Solar

$35 Fee + EE + Solar

Rate-Based Goals are Less Costly than

Mass-Based Goals in the South

Mass-Based Goals Appear to be More

Difficult to Meet

13

Performance with Respect to CPP Goals for 2030 Based on the $20 Fee+EE+Solar Scenario

Mass-Based Goals (Existing & New Units)

RegionFalls Short

RegionMeets

RegionExceeds

Rate-BasedGoals

(Existing Units Only)

Exceeds SRVC “The Nation

Meets“The South”

SRSE, SRDA, SRCE,

FRCC, SPPS

Falls Short TRE

9350

9400

9450

9500

9550

9600

9650

9700

9750

Reference 2030 $10 Fee $20 Fee Low Solar Integrated EE $10 Tax + EE +Solar

$20 Tax + EE +Solar

Bill

20

05

$

U.S. Value of Industrial Shipments in 2030

21000

21050

21100

21150

21200

21250

21300

Reference2030

$10 Fee $20 Fee Low Solar Integrated EE $10 Tax + EE+ Solar

$20 Tax + EE+ Solar

U.S

GD

P P

roje

ctio

ns

in B

ill 2

00

5$

GDP Projections for 2030

GDP: Shrinks with Carbon Fee;

Grows with EE and Updated Solar Costs

14

0

500

1000

1500

2000

2500

2012 2030 2012 2030 2012 2030 2012 2030

Reference $10 Fee Updated Solar Cost $10 Fee+EE+Solar

Bill

kW

h

South

Efficiency Renewables Nuclear Natural Gas Petroleum Coal

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

2012 2030 2012 2030 2012 2030 2012 2030

Reference $10 Fee Updated SolarCost

$10 Fee+EE+Solar

Bill

kW

h

United States

76%

19%

24%

-55%

15%

98%

20%

22%

7%

-57% -55%

12%

10%

19%

207%

-68%

-22%

-4%

19%

124%

44%

1%

25%

-14%

12%

53%

2%

24%

6%

-16% -15%

9%

10%

1%

85%

-31%

-20%

1%

1%

48%

• In the $10Fee + EE + Solar scenario: EE, natural gas and renewable energy would grow Renewable energy and nuclear would expand more in the South than

the U.S. Coal would decline rather than expand

What are the Least-Cost Carbon

Reduction Options: U.S. vs South?

15

TRE

SPPS

SRSE

FRCC

SRVCSRCE

SRDA

Fuel Changes by NERC Region (Bill kWh)

With a $10 Fee + EE + Solar:• EE grows in all regions• SRCE & SRVC: Nuclear displaces

coal; NG & RE grow• SRDA & SRSE: RE displaces coal

and nuclear is steady • FRCC: Nuclear & RE displaces

coal and NG.• TRE: RE grows • SPSS: RE & NG displace coal

16

0

20

40

60

80

100

120

140

160

180

2012 2030 2012 2030 2012 2030 2012 2030

Reference $10 Fee Updated SolarCost

$10Fee+EE+Solar

Bill

kW

h

SPPS

-50

0

50

100

150

200

250

300

350

400

2012 2030 2012 2030 2012 2030 2012 2030

Reference $10 Fee Updated SolarCost

$10Fee+EE+Solar

SRVC

-50

0

50

100

150

200

250

300

2012 2030 2012 2030 2012 2030 2012 2030

Reference $10 Fee Updated SolarCost

$10Fee+EE+Solar

SRCE

0

50

100

150

200

250

300

350

2012 2030 2012 2030 2012 2030 2012 2030

Reference $10 Fee Updated SolarCost

$10Fee+EE+Solar

Bill

kW

h

SRSE

020406080

100120140160180200

2012 2030 2012 2030 2012 2030 2012 2030

Reference $10 Fee Updated SolarCost

$10Fee+EE+Solar

SRDA

-50

0

50

100

150

200

250

300

2012 2030 2012 2030 2012 2030 2012 2030

Reference $10 Fee Updated SolarCost

$10Fee+EE+Solar

FRCC

0

50

100

150

200

250

300

350

400

450

2012 2030 2012 2030 2012 2030 2012 2030

Reference $10 Fee Low PV Cost $10Fee+EE+Solar

BIl

l kW

h

TRE

0

100

200

300

400

500

600

700

800

900

1000

2012 2030 2012 2030 2012 2030 2012 2030

Reference $10 Fee Updated Solar Cost $10 Fee + EE + Solar

Bill

kW

h

United States

0

50

100

150

200

250

300

2012 2030 2012 2030 2012 2030 2012 2030

Reference $10 Fee Updated Solar Cost $10 Fee + EE + Solar

Bill

kW

h

South

Wind

Solar PV

Solar Thermal

Biomass

Biogenic Municipal Waste

Geothermal

Hydro

Least-Cost Renewable Energy

Options Vary Across Regions

• Nation: solar PV, biomass, geothermal, and wind would grow significantly

• South: solar PV and biomass would grow significantly (hydro slightly)

17

Rate-Based Constraint

Mass-Based Constraint

Large growth of renewables

High Imports

Large EE programs

Low growth

Limited growth of renewables

High Exports

Small EE programs

High growth

High exports of fossil-based power would penalize the source state for associated emissions; therefore rates would be better.

Large EE programs will offset mass emissions, but may not improve rates if reductions are balanced across the portfolio; therefore mass goals would be better.

High growth could lead to new natural gas capacity and hence more CO2 emissions, which would put pressure on the state’s mass goal; rates would be better.

A large addition of new clean energy would likely displace fossil power and therefore reduce mass emissions.

Mass- Versus Rate-Based Goals:

Some Preliminary Thoughts

18

State-by-State Compliance Regional

Compliance

Mass-based goals across neighbors

High political trust of neighboring states

Capacity to establish a trading program

Heterogeneous compliance costs

No cross-state parent utility company

Low political trust of neighboring states

Limited capacity establish a trading program

Homogeneous compliance costs

No excess clean capacity and little experience to expand it quickly would lead to state approach.

Heterogeneous compliance costs mean there is an opportunity for efficiency gains through cross-state trading.

If compliance costs are similar across states, the motivation to trade is reduced.

Trading systems and regional accords require legal & other capabilities, facilitated by cross-state parent company.

Trading requires some minimal level of trust; more challenging without a cross-state parent company.

To date, carbon trading programs have mostly been mass-based.

State-by-State vs Regional Compliance

Approach: Some More Preliminary Thoughts

19

For More Information*

Marilyn A. BrownBrook Byers Professor of Sustainable SystemsSchool of Public PolicyGeorgia Institute of TechnologyAtlanta, GA 30332-0345Marilyn.Brown@pubpolicy.gatech.edu

Research Assistants:

Gyungwon Kimjoykim@gatech.edu

Alexander Smith asmith313@gatech.edu

Climate and Energy Policy Lab: http://www.cepl.gatech.edu

20

*Thanks to the Strategic Energy Institute at Georgia Tech for

supporting this initiative.

Comparison of Mass- and Rate-

Based CO2

Reduction Goals

Sources: 2012 Emissions - EPA State CO2 Emissions, http://epa.gov/statelocalclimate;

2030 Goals - EPA Fact Sheet, http://www2.epa.gov/carbon-pollution-standards/fact-sheet-

clean-power-plan-technical-support-document#print 21

NationSouth

FRCC (FL)

SPPS

SRCE

SRDA

SRSE

SRVCTRE (TX)

AL

ARGA

KY

LA

MSNC

OK

SC

TNVA

0%

10%

20%

30%

40%

50%

60%

0% 5% 10% 15% 20% 25% 30% 35%

% C

O2

Red

ucti

on

s R

eq

uir

ed

by

Rate

-ba

sed

Go

als

(f

rom

Exis

tin

g o

nly

): 2

012 a

nd

2030

% CO₂ Reductions Required by Mass-based Goals (from Existing and New Units): 2012 and 2030

Mass and rate goals generally track one another.Virginia and Tennessee are “outliers” with higher

High Nuclear

High Coal