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  • WEEKEND VIDEOS, July 2-3:
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  • An Answer To The Energy, Climate, And Geopolitical Crises

    Tuesday, November 22, 2011


    Toward a Sustainable Future for the U.S. Power Sector: Beyond Business as Usual 2011
    Geoff Keith, Bruce Biewald, Ezra Hausman, Kenji Takahashi, Tommy Vitolo, Tyler Comings and Patrick Knight, November 16, 2011 (Synapse Energy Economics/Civil Society Institute)

    Introduction and Summary

    In 2010 the Civil Society Institute released Beyond Business as Usual, a study evaluating a strategy for the U.S. electric industry that would provide large-scale public health and environmental benefits at a reasonable cost. The strategy, built around energy efficiency and renewable resources, would also provide substantial reductions in carbon emissions. Since then, the debate has continued over the best way forward for the electric industry.

    Advocates of a future based on coal with new environmental controls and carbon capture continue to make their case, as do advocates of nuclear power.

    Away from this debate, new evidence has emerged that major changes in this industry are needed. Several mining tragedies globally have underscored the human toll of the coal supply chain. New EPA initiatives targeting air toxics, coal ash, and effluent releases highlight the environmental impacts of coal and the cost of addressing them with control technologies. The use of fracking in natural gas exploration is coming under scrutiny, with evidence of groundwater contamination and greenhouse gas emissions. Concerns are increasing about the vast amounts of water used at coal-fired and nuclear power plants, particularly in regions of the country facing water shortages. Events at the Fukushima nuclear plant have renewed doubts about the ability to operate large numbers of nuclear plants safely over the long term. Further, cost estimates for “next generation” nuclear units continue to climb, and lenders are unwilling to finance these plants without taxpayer guarantees.

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    In addition to these troubling events, however, information has emerged over the past year suggesting that the cost of replacing coal with clean energy is falling. The current and projected price of coal has increased, and the price of photovoltaic (PV) systems has fallen sharply since 2009, a result of unprecedented growth in this sector globally.

    Further, the financial sector is increasingly placing risk premiums on technologies with carbon emissions, making renewable energy and efficiency more attractive in comparison. Given these trends, a revision of last year’s study seemed especially timely.

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    For this revision, we have incorporated the price changes mentioned above, and we have revised several other assumptions based on feedback received on last year’s study. We have lowered our assumed capacity factors for wind generators and increased the assumed cost of wind energy. We have increased the assumed cost of sustaining high levels of efficiency savings over the study period and revised our estimate of the cost savings that would accrue from retiring coal-fired plants rather than retrofitting them with new environmental controls.

    Our methodology remains essentially the same as in the 2010 study. We use the U.S. Energy Information Administration’s annual modeling work to establish a reference case, or “business as usual” (BAU) scenario. We compare this to a “Transition Scenario” in which the country moves toward a power system based on efficiency and renewable energy. In this scenario all coal-fired power plants are retired, along with nearly a quarter of the nation’s nuclear fleet, by 2050.

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    Reliance on energy efficiency and renewable energy is significantly increased, while natural gas use is lower than under BAU. Importantly, the Transition Scenario does not rely on hoped-for breakthroughs; nearly all of demand is met throughout the study period with technologies that are commercial today.

    We estimate the net costs and benefits of the Transition Scenario relative to BAU using a spreadsheet model that accounts for generating capacity, energy, fuel use, costs, emissions, and water use. We perform the analysis on a regional basis, with the country divided into ten regions. We are careful to ensure that there is sufficient generating capacity in both scenarios and that there is a reasonable mix of energy sources in each region from the perspective of power system operation. For most of our technology cost and performance assumptions we rely on the Annual Energy Outlook (AEO) 2011 data.

    For some resources, however, we believe that other sources provide a more accurate picture of current and expected costs, and we base our assumptions on those sources. Finally, we perform sensitivity analyses around a number of important input assumptions.

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    The Transition Scenario compares to BAU as follows.

    Total U.S. electricity use grows by 0.9% per year under BAU to 5,590 Terawatt-hours (TWh) in 2050. In the Transition Scenario, more aggressive energy efficiency programs across the country reduce electricity use by about 0.1% per year to 3,760 TWh in 2050.

    Under BAU, coal-fired generation grows from just over 1,860 TWh in 2010 to 2,340 TWh in 2050 – a 26% increase. In the Transition Scenario, coal-fired generation is eliminated by 2050.

    Natural gas-fired generation grows from 1,010 to 1,840 TWh under BAU, while it rises to only 1,230 TWh in the Transition Scenario.

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    Nuclear generation rises from 800 to 870 TWh under BAU, due to uprates at existing plants across the country and the addition of new units totaling 6,200 MW in the Southeast. Nuclear generation falls to 618 TWh in the Transition Scenario, a reduction of 23%.

    Wind energy grows from 92 to 189 TWh under BAU, while it grows to 611 TWh in the Transition Scenario. This includes over 60 TWh from offshore wind farms.

    PV generation grows from 4 to 24 TWh under BAU, and it grows to 842 TWh in the Transition Scenario.

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    The results of this analysis are encouraging. We find that a transition to efficiency and renewable energy in the power sector is likely to be less expensive than BAU. Table 1 shows the net costs of the Transition Scenario relative to BAU at four points in time.

    These are annual costs, not cumulative. The net present value of the 40-year stream of savings and costs is a savings of $83 billion, discounted at 4.8%.

    The net annual cost impacts range from savings of $18 billion in 2050 to costs of $9 billion in 2040. To put this in perspective, $18 billion is about 5% of total electric industry revenues in 2010, assuming 3,730 TWh sold at an average price of ¢10 per kWh. As seen in Table 1, when spread over all kWhs sold in the relevant year, the annual savings in 2020 are ¢0.4 per kWh consumed, and the costs in 2040 are ¢0.3 per kWh.

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    We present several sensitivity analyses to gauge the range of uncertainty around these net savings. The variables with the largest impacts on the results are the cost of energy saved through efficiency measures, the cost of coal, and the cost of new PV capacity. However, in all of the sensitivity analyses, the Transition Scenario provides savings on an NPV basis relative to BAU.

    The idea that we could capture the kind of benefits this scenario provides while also saving money is a significant change in our thinking about this industry. It reflects a fundamental shift in the cost of renewable energy relative to fossil-fueled and nuclear energy. These findings are particularly striking, given that the BAU scenario includes no carbon costs or carbon reductions. If the cost of carbon reductions were included under BAU, the savings provided by the Transition Scenario would grow dramatically. We also have not included externalized costs of pollution in our cost analysis, although we have estimated some of the health benefits of the Transition Scenario.

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    The benefits of the Transition Scenario include the following:

    By 2020, power sector CO2 emissions fall 25% below 2010 levels. By 2050 they are 81% below 2010 levels. Under BAU, CO2 emissions grow by 28% through 2050.

    Other environmental and health impacts of coal-fired electricity are dramatically reduced and, by 2050, eliminated altogether. This includes the air and water impacts of generation, coal ash and other solid waste, and the impacts of mining and coal transportation.

    Cooling water withdrawals at power plants fall from 55 to 0.6 trillion gallons per year in the Transition Scenario. In 2050 they are more than 90% below BAU levels. Water consumption at power plants (via evaporation) falls from 1.5 to 0.6 trillion gallons per year, 76% below BAU levels.

    Over $450 billion in health effects related to air pollution would be avoided over the study period, based on damage factors developed by the National Research Council. (We do not include these costs in calculating the net cost of electricity production for the Transition Scenario.) This translates into roughly 55 thousand fewer premature deaths in the Transition Scenario than under BAU.

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    The construction and operation of the new power plants in the first decade of the Transition Scenario creates roughly 3.1 million new job-years – the equivalent of 310,000 people employed for the entire decade.

    Over $100 billion would be saved by retiring coal-fired plants rather than retrofitting them with new environmental controls.

    The annual production of high-level radioactive waste would be reduced by nearly a
    quarter, and the risks associated with nuclear power generation and the nuclear fuel cycle would be reduced as well.

    Natural gas use would be lower than BAU in all years of the study period. In 2050, gas use would be below BAU by 3.7 quadrillion Btu per year, or 28%.

    It is important to note that this scenario seeks to address a wide range of problems, and we have had to make tradeoffs among competing benefits. The study does not intend to lay out an optimized or detailed roadmap for the industry. Rather, it explores a fundamental change in direction. The intent is to challenge assumptions and inform the debate about U.S. energy policy. CSI expects to continue adjusting this Transition Scenario as more information becomes available, and we hope that other groups will explore variations on it as well. In terms of further research, the study points to the following areas of uncertainty.

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    1. What is the most reliable and cost effective way for system operators to integrate high levels of variable generation into regional power systems? How much variable generation can a balancing area accommodate when the other resources are predominantly flexible ones rather than inflexible, baseload plants?

    2. How will developments in the transportation sector affect the electric industry? Will transportation move to electricity on a large scale or to other fuels? If that sector does move toward electricity, how much power will it require and what kind of energy storage resource will electric vehicles offer?

    3. What are the risks and carbon emissions associated with drilling in shale formations? What technologies and practices do we need to develop to minimize the use of natural gas as we phase out coal-fired generation?

    Work in these areas is already underway at research labs, utilities, and government agencies globally. We hope that this study adds momentum to this and other work focused on the transition to a sustainable electric industry.

    Finally, the fact that CO2 emissions increase in our BAU scenario is important. While BAU is a useful baseline against which to compare alternative scenarios, it is not a tenable future. We must achieve significant carbon reductions over the next several decades. Therefore, the net costs and benefits of the Transition Scenario should be compared to those of other proposals that provide meaningful carbon reductions. To date we have not seen cost benefit analyses of futures built around new nuclear power or coal with carbon sequestration.


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