ANALYSIS OF COMPETING NEW ENERGY STANDARDS

Comparative Analysis of Three Proposed Federal Renewable Electricity Standards
Patrick Sullivan, Jeffrey Logan, Lori Bird, and Walter Short, May 2009 (National Renewable Energy Laboratory)

SUMMARY
Comparative Analysis of Three Proposed Federal Renewable Electricity Standards, by Patrick Sullivan, Jeffrey Logan, Lori Bird and Walter Short of the National Renewable Energy Laboratory (NREL), is an analysis of proposed national Renewable Electricity Standards (RESs) that has recently become particularly relevant.

An RES sets a standard requiring regulated utilities to obtain a specified percentage of their power from New Energy sources by a specified date.

The analysis was done when 3 RES proposals were on the table (1 in the Senate and 2 in the House) and the promises of the Obama administration’s mandate for change and commitment to New Energy made possibilities seem real.

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Now that compromises in emerging legislation have reduced the standard likely to be enacted to worse than NREL’s worst case scenario, environmental and New Energy advocates are looking at the NREL study’s projected outcomes and debating about whether to support the legislation or declare it unworthy.

The analysis compared (1) a base case without an RES, (2) a 20% by 2021 RES that allows for 25% of the New Energy requirement to be met with new Energy Efficiency (“Bingaman”), (3) a 25% by 2025 RES with no Energy Efficiency substitution (“Markey”) and (4) a 25% by 2025 RES with a 20% efficiency substitution and a required 15% load reduction by 2020 (“Waxman”).

The efficiency substitutions in the Bignaman and Waxman scenarios are limited Energy Efficiency Resource Standards (EERSs) allowing a quarter of the New Energy requirements to be met with new Energy Efficiency measures.

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In each of the 3 RES scenarios, some utilities are exempted from the requirements.

The researchers used the Regional Energy Deployment System (ReEDS) model, an NREL tool, to do their analysis.

The analysis assumes the standards can be met with (1) utility-owned New Energy, (2) distributed generation, such as rooftop solar photovoltaic (PV) systems or small wind systems, which earns 3 times the value of utility-owned New Energy in the requirement accounting, (3) the purchase of Renewable Energy Certificates (RECs), or (3) “alternative compliance payments,” which are essentially a check on the cost of RECs.

Existing hydropower and municipal solid-waste-to-energy do not count toward the RES in this model.

New national standards do not pre-empt existing state RESs that are equal to or stronger than the national RES, either in the actual Congressional legislation or in the NREL modeling.

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COMMENTARY
The effective New Energy requirement in the “Bingaman” case, after deductions for exempted utilities and the energy efficiency substitution allowance, is 12.1% of total U.S. retail electricity sales in 2021.

The effective New Energy requirement in the “Markey” case, after deductions for exempted utilities and the energy efficiency substitution allowance, is 22% of total U.S. retail electricity sales in 2025.

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The effective New Energy requirement in the “Waxman” case, after deductions for exempted utilities and the energy efficiency substitution allowance, is 17% of total U.S. retail electricity sales in 2025.

In reality, Representatives Waxman and Markey combined their proposals into a 25% by 2025 RES but to get it out of committee and eligible to come to the House for a vote, they were forced to compromise with conservative Democrats from fossil fuel-dependent and/or New Energy-reluctant states. The negotiated Waxman-Markey RES now calls for a 20% by 2020 standard with a 40% substitution allowance. This makes the effective New Energy requirement less than 12% of retail sales for 2020.

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The Bingaman proposal, compromised by obstructionist Senators from the same conservative states, now requires 15% by 2021 with a 25% efficiency substitution. Even so weakened, it is given little chance of passage by the full Senate due to the unique filibuster power of the recalcitrant minority.

NREL’s base case scenario, where there is no national RES but 28 states continue to implement their own RESs and other incentives, estimates 10.4% of power generation in 2020 and 12.4% in 2024 would come from New Energy. The Bingaman scenario, probably as strong or stronger than the actual Waxman-Markey provision, foresees meeting ~2% more of its New Energy requirement – but gives triple credit for distributed generation and allows a quarter of the requirement to be met with efficiencies. Reducing the estimated New Energy actually created by those factors, the NREL researchers suggest the hypothetical Bingaman scenario - and by extension the all-too-real Waxman-Markey RES in the legislation now working its way through the House - probably creates less New Energy than the base case, no-RES, scenario.

A No-RES base case projects 208 gigawatts of New Energy capacity in 2030. The hypothetical Bingaman case projects 197 gigawatts of New Energy capacity in 2030. Though it shows that the No-RES case is better than the poor RES case, this is not entirely bad. Part of the decreased New Energy capacity is due to decreased demand from the introduction of Energy Efficiency. That's good. Another part of the decreased New Energy capacity is attributable to a high rate of rooftop solar PV distributed generation predicted by a separate Union of Concerned Scientists study. Because it counts 3 times toward meeting the RES, distributed generation results in less total installed New Energy capacity but more distributed generation is good news, nevertheless.

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Thanks primarily to improved efficiency, the hypothetical Bingaman RES - and by extension Waxman-Markey - results in a (small) 95 million metric ton (MMT) annual reduction in carbon dioxide (CO2) emissions in 2030 compared to the base case.

The NREL conclusions assume a minimum new transmission capacity for electricity transport and system reliability. Without enhanced transmission, all bets are off.

NREL’s study predicts Western states, rich in wind, solar and geothermal assets can exceed RES requirements with their New Energy capacities. Southeastern states would be likely to mostly use biomass resources and REC purchases to meet the requirements.

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One other point: Though it does not immediately pertain to the question of whether to support legislation with a severely diminished RES, it is crucial for future debates on the subject to note the NREL analysis conclusions on power price changes resulting from an RES.

The difference in power price under even the strongest RES and No-RES is only 1%. The stronger (hypothetical Waxman and hypothetical Markey) RESs bring some states’ power prices below the no-RES case under some circumstances. No state would be expected to have power prices go up more than 5% over the 2022 base case scenario under any RES scenario.

National 2022 REC prices are likely to be $15-to-$22 per megawatt-hour under the various RES scenarios.

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QUOTES
- From the NREL analysis: “The base case scenario estimates that qualifying renewable generators will provide 10.4% of the national load in 2020 and 12.4% in 2024…due to a combination of existing state RES mandates, other existing incentives, and the forecasted, least-cost economics of electricity generation. The proposed Bingaman legislation would ostensibly require about an additional 2% of total load to be met with qualifying renewables by 2021 beyond the assumed base case. However, the triple credits granted to generation from distributed PV satisfy the Bingaman RES requirements with less than 10% of total generation coming from qualified renewable sources. Thus, this analysis indicates a slight reduction in energy generated from renewables in the Bingaman case compared to the base case…”

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- From the NREL analysis: “All results noted here assume that transmission capacity is built as required for both transporting electricity and maintaining system reliability. Results would differ if construction of transmission is delayed.”
- From the NREL analysis: “None of the RES bills modeled have a significant impact on consumer electricity prices at the national level. Differences between average national electricity prices in the RES cases and the base case are less than 1%…”