NEW ENERGY STANDARD (RES) WON’T RAISE RATES

Impacts of a 25-Percent Renewable Electricity Standard as Proposed in the American Clean Energy and Security Act Discussion Draft
April 2009 (Energy Information Administration of the U.S. Department of Energy)

SUMMARY
Impacts of a 25-Percent Renewable Electricity Standard as Proposed in the American Clean Energy and Security Act Discussion Draft was produced by the Energy Information Administration (EIA) of the U.S. Department of Energy (DOE) in response to a request from Congressman Ed Markey (D-Mass). Markey is Chair of the Energy Subcommittee of the House Energy and Commerce Committee and co-author of the American Clean Energy and Security Act (ACESA) of 2009, the draft legislation that contains the Renewable Electricity Standard (RES) evaluated by the EIA.

Markey asked the EIA to consider what impact a national Renewable Electricity Standard (RES) would have on U.S. energy prices. The EIA's conclusion is that an RES would have little impact on prices.

The analysis begins with an updated version of the EIA’s Annual Energy Outlook 2009 that takes into consideration projected impacts of the American Recovery and Reinvestment Act (ARRA), the $787 billion stimulus bill passed by Congress in February.

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President Obama has repeatedly said he wants to see U.S. New energy capacity doubled in the next 3 years. EIA says ARRA (the stimuluas bill) will kick-start the process. Finding that ARRA funds will have a “significant impact” on the growth of New Energy in the next 5 years, EIA has adjusted its “reference case” scenario accordingly.

As written in the ACESA (the energy and climate change bill), the proposed RES will require U.S. utilities to obtain 25% of their power from New Energy sources by 2025.

As written in the ACESA, the New Energies that meet the standard are: (1) wind energy, (2) solar energy, (3) geothermal energy, (4) biomass or landfill gas, (5) qualified ydropower, (6) marine and hydrokinetic renewable energies.

As written in the ACESA, the required percent of U.S. power to come from New Energy would begin in 2012 at 6% and proceed stepwise: 2013 – 6.0%, 2014/15 – 8.5%, 2016/17 – 11.0%, 2018/19 – 14.0%, 2020/21 – 17.5%, 2022/23 – 21.0%, 2024 – 23.0%, 2025 through 2039 – 25%.

20% of each year’s requirement can be met, if so granted by the state’s Governor, by stepped up efficiency measures but the Governor must reconcile the Energy Efficiency Resource Standard (EERS) included in the ACESA so that the improved efficiencies are not counted twice. The EIA analysis considers a scenario with full use of the 20% efficiency allowance (RESFEC) and a scenario with no use of the 20% efficiency allowance (RESNEC).

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COMMENTARY
The EIA assessment’s key findings:
(1) Provisions of the bill allowing various leeways (such as the efficiency allowance) in reaching the 25% standard could keep New Energy capacity to 17% of total electricity.
(2) The main New Energy sources in meeting the standard are expected to be biomass and wind. Solar and geothermal are projected to grow significantly. The emphasis on biomass has surprised many in the New Energy community.
(3) EIA says most of wind’s growth will come from state RESs and ARRA funds and the national RES will have a greater impact on biomass growth. EIA’s numbers are somewhat confusing but, according to chatter in the New Energy blogosphere, it may be assuming significantly less than 20% of U.S. electricity to come from wind by 2030. If the wind industry is to reach its 20% goal by 2030, the national RES will play a significant role.

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(4) The national RES will increase the use of New Energy and therefore decrease the use of coal and natural gas. Coal use will drop 8-to-11% and natural gas use will drop 6-to-15%.
(5) The RES will not affect power prices (“national average electricity prices”) until after 2020 and only 2.7-to-2.9% after that. Prices by 2030 will not likely change by more than 1% from what they otherwise would have been.
(6) Smaller-scale regional impacts on price will vary from 1-to-6% between 2025 and 2030.
(7) Renewable Energy credits used to offset standard requirements will not be of significance before 2020 and lose value after as supplies of New Energy outreach demand.
(8) Greenhouse gas emissions will fall 7-to-12% by 2030.
(9) Impacts could be different due to unanticipated effects from unconsidered provisions in the ACESA discussion draft.
(10) A cap-and-trade system to reduce GhGs should cause faster growth of New Energy by driving up the cost of fossil fuel use. Whether the growth is attributable to the RES or cap-and-trade is in question but could be determined by a study in the change in value of emissions allowances.
(11) The interaction of the RES with EERS, cap–and-trade or other policies could affect the EIA assessment conclusions. Examples: (a) If the EERS and other Energy Efficiency policies cut demand for electricity, utilities may not be willing to invest in New Energy. (b) Cap-and-trade could drive the building of nuclear and “clean” coal, diminishing interest in New Energy.

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The EIA assessment acknowledges other uncertainties:
(1) Future fuel and technology costs are “highly” uncertain. Decreased fossil fuel prices discourage New Energy investment. Increased fossil fuel prices drive New Energy investment.
(2) EIA assumes technology costs go down and performance goes up with economies of scale but obstacles could emerge.
(3) Assumptions about biomass co-firing at existing coal plants could be way off if GhG regulation forces coal plants to close because the cost of retrofits are too high.
(4) Lack of adequate transmission could foil the growth of New Energy and the improvement of the grid could facilitate growth.

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QUOTES
- From the EIA assessment: “The level of renewables required to comply with the RES will be lower than the nominal target because of the exemptions and baseline adjustments…”
- From the EIA assessment: “The increase in renewable generation stimulated by the Federal RES leads to lower projected coal and natural gas generation…”
- From the EIA assessment: “Given the amount of eligible renewable generation projected in the reference case, the RES is not expected to affect national average electricity prices until after 2020…The peak effect on national average electricity prices, 2.7 percent [to]…2.9 percent…, occurs as the required renewable share ramps up more rapidly than the demand for electricity is growing. In the later years of the projections, the impact on national average electricity prices is smaller, as the impact of the RES requirement on the cost of coal and natural gas, fuels whose use is reduced by added renewables, is increasingly reflected in electricity prices. By 2030, electricity prices are projected to be little changed…with 2030 prices less than 1 percent higher than in the reference case…”
- From the EIA assessment: “Within the electric power sector, the RES is projected to result in reductions in carbon dioxide emissions…”
- From the EIA assessment: “Among the key uncertainties are projections of the growth in the demand for electricity, future fuel prices, and the cost and performance of new generating equipment, both renewable and nonrenewable technologies. Future energy and environmental policy is also a key uncertainty…”