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The Costs of Going Green

Carbon costs will reshape the generation fleet and affect retail rates.

Fortnightly Magazine - June 2009

still a fraction of the size.

4. GHG-emissions reductions of 80 percent below 2005 levels by 2050 has been called for by EEI and USCAP and a similar goal is in the Waxman-Markey Discussion Draft Legislation released earlier this year.

5. As demonstrated later in this article, every $10/ton of CO 2 has the impact of raising the cost of power from coal generation on a levelized basis by about 1 cent/kWh. The average cost of power nationwide, according to EIA, was 8.9 cents/kwh at the end of 2007, while the average residential price was 10.4 cents/kWh. See http://www.eia.doe.gov/cneaf/electricity/epa/epat7p4.html.

6. A separate question is whether anything can be done that would outright lower the cost of power, as virtually every aspect of supplying electricity—capital costs, fuel costs, transmission costs, environmental costs (not just for CO 2 control)— all have fluctuated substantially, and many have risen sharply. Every region and utility is different of course, but nationwide, perhaps lowering the rate of increase is the best we can expect.

7. Xcel Energy recently announced the closure of two coal plants, the development of a 200 MW solar project, and a solicitation for 850 MW of wind energy. Utilities such as PNM, PG&E, Duke and others are part of the US Climate Action Program. There are many other examples.

8. The Energy Independence and Security Act of 2007 required the improvement of lighting efficiency by approximately 1/3 by 2012, and by another 1/3 by 2020, virtually making the incandescent light obsolete. The same legislation mandated an increase in corporate average fuel economy for the first time in over 30 years (to 35 MPG), though some would argue that this was not aggressive enough. The Stimulus bill will provide billions for projects to promote renewables, biofuels and transmission that will reduce GHGs.

9. There are RPS programs in more than half the states; energy efficiency standards in about a dozen states; AB 32 in California; and increasing numbers of states that mandate net metering (retail rate payments) for renewable power generation facilities that sell their excess to the utility

10. CCS is currently expected to be able to reduce CO 2 emissions by up to 90 percent.

11. Continued natural gas prices of $3-4/mmBtu would certainly change this equation, but ICF believes current natural gas prices are unsustainably low and not representative of a long-term trajectory.

12. Assumes a continuation of a cap and trade system for SO 2 and NO x, albeit at tighter levels.

13. This analysis assumes the choice of plant isn’t sensitive to regulatory considerations— i.e., that it is equally challenging to site and develop each type of plant. This is clearly not the case everywhere—traditionally gas plants are easier to site than coal or nuclear—but this simplifying assumption makes sense for an overview assessment.

14. The results shown are from ICF’s Expected Case scenario, which forms the basis of the firm’s recently released Emissions and Fuel Markets Outlook.

15. ICF is currently analyzing the Waxman-Markey Discussion Draft and will be providing the results as part of the firm’s Emissions