As U.S. policymakers consider how to tackle the challenge of greenhouse-gas constraints, the U.K.’s approach to the problem offers instructive examples.
Electric Vehicles and Gas-Fired Power
A strategic approach to mitigating rate increases and greenhouse gas price risk.
change in generation capacity for each scenario by comparing the 2010 generation mix to the 2030 mix. The figure shows a reduction in coal capacity of about 8,000 MW by 2030 in the last three scenarios, replaced with between 10,000 and 18,000 MW of new natural gas capacity, depending on the scenario. There’s a small expansion of nuclear, hydro and renewables in all cases.
The impact of the additional electrification of vehicles from Scenarios 4 and 5 on Duke’s load and the associated CO 2 savings are shown in Figure 5. Figure 6 summarizes the key assumptions and differences in the low-risk and the high-risk electrification scenarios.
The differences between the high vehicle electrification cases shown in Figure 6 highlight the importance of: 1) controlled vehicle charging; the high-risk electrification case requires additional capacity to meet uncontrolled electric vehicle demand; 2) flexible compliance with low-carbon energy policies such as renewable portfolio standards; the high-risk electrification case requires additional renewable energy to meet the RPS due to additional electric vehicle loads; and 3) a policy for utilities to share carbon savings from electric vehicles. The high-risk electrification scenario has higher carbon risk because none of the electric vehicle emissions savings are attributed to the electric utility.
Retail Rates and Revenue Requirement
Figure 7 shows the system-wide average retail rate, calculated as the total utility revenue requirement divided by total retail sales, and the total utility revenue requirement through 2030 under each of the scenarios.
The results are based on a simple annual revenue requirement model which uses as inputs a forecast of Duke Carolinas’ retail sales, generation mix, and utility costs. Average retail rates were calculated on a hypothetical annual rate case and a fixed utility rate of return.
The expected change in the average retail rate over time is an important metric for electric utilities, because utilities generally prefer to keep retail rates as low as possible while expanding the rate base ( i.e., revenue requirement) to demonstrate growth and earnings to their shareholders. To reflect the impact on retail customers, the analysis focuses just on the average rate as indicative of the overall impact of electrification on the utility’s entire electric customer base, rather than analyzing impacts to specific customer classes.
Importantly, the low-risk electrification case shows lower rate impacts than the BAU scenario, but a higher revenue requirement than the BAU case. This is contrary to the conventional wisdom among some utility executives that reducing emissions must necessarily be costly for their customers or will damage the utility’s bottom line. The higher revenue requirement in the low-risk electrification case is offset in the rates by the fact that this scenario has significantly higher sales, which leads to lower average rates. In contrast, the high-risk electrification scenario shows higher average retail rates than the BAU scenario. This is because the increased retail sales from electric vehicles aren’t sufficient to offset the significantly higher utility costs, largely due to increased emissions costs as well as the costs of adding additional generation capacity to charge the vehicles in this scenario.