# Presentation: 079159

## How Much Does Renewable Energy Really Cost?Impacts of a National Renewable Energy Standard

**Steve Clemmer**
**Senior Energy Analyst**
**Union of Concerned Scientists**
_**http://www.ucsusa.org**_
_**sclemmer@ucsusa.org**_
**NEMS 2002 Conference**
**Washington, DC**
**March 12, 2002**

## Approach

**Used modified version of NEMS developed for AEO 2001**
**Identified modeling issues as reviewer on EIA RPS and power plant multi-pollutant reduction reports **
**Identified and made changes to certain renewable energy assumptions based on input from renewable energy experts familiar with NEMS and previous work**
**including DOE, NREL, ORNL, LBL, consultants **
**Analyzed national renewable energy standard proposals and other clean energy policies**

## Key Renewable Energy Constraints in NEMS

**Growth rate constraints**
**0.5% increase in capital cost for every 1% increase in annual growth rate above 30%**
** ****Long-term capital cost multipliers to reflect additional costs of resource degradation, transmission network upgrades, and market factors.**
**Regional annual build limits for certain resources**
**Cap on regional penetration of variable output resources (wind and solar) of 15%**
**Limits on building in one region to serve another**
**Biomass cofiring in coal plants limited to 5% **

## General technology assumptionsModel modifications - policy cases only

** ****Replaced EIA’s pessimistic cost and performance assumptions for renewable energy technologies**
**Used assumptions consistent with the EPRI/DOE and Clean Energy Future Studies**
**except for higher initial capital costs for wind and reduced NEMS site-specific capital costs for geothermal**
**Costs are lower than EIAs for all renewable technologies except biomass gasification**
**Capital costs hard-wired instead of using EIAs learning function that lowers costs as domestic capacity increases**

**Notes:**
Bullet 1 Notes: CEF study, which assumed EPRI/DOE projections will be achieved through increased R&D funding together with industry learning, growth in domestic capacity that occurs under our renewables policy package, and growth in international capacity.  Cadogan and Brower claim EIA’s learning function underestimates cost reductions from growth in international capacity and R&D and likely overestimates cost reductions due to growth in domestic capacity.

## WindModel modifications

**Regional penetration constraint raised from 15% to 30%**
**Regions in Germany, Denmark and Spain over 20% **
**Reclassified windy land area in each region to account for additional siting constraints as more wind is developed**
**35% reduction in mountainous region potential**
**17% reduction in other regions**
**Original data already excludes 100% of urban and environmentally sensitive land, 50% of forested land, 30% of ag land, 10% of rangeland, and land further than 20 miles from existing transmission lines**
**Replaced EIA regional capital cost multipliers of up to 3x with maximum increase of 40%**
**Included cost of backup power from natural gas CT when regional wind penetration >10%; max. increase of 20% when penetration >20%**
**Additional 20% cost increase as best sites are used based on CEF study**
**Extra transmission costs already included for wind**

**Notes:**

Basis for bullet 2: CEF study; wind is already providing more than 20% of the electricity used in parts of Denmark, Germany, and Spain; supported by Brower, Cadogan, and Short; Caldwell and Olsen think its too conservative; studies in Europe show actual penetrations above 20% have been achieved at little cost and with little impact to the system.

Basis for bullet 4: CEF claims no empirical evidence of penalties above 20%; contrary to historical experience; EIA assumptions are based on limited, outdated and misinterpreted studies from the Northwest, CA and MN; no evidence of these penalties in recent projects proposed in California. Windy land area reductions are half of what we assumed in our 1999 study based on a reevaluation of the study EIA uses from the Northwest and because class 3 wind resources, which could become economic in the future, are not included in NEMS.

## EIA’s Wind Capital Cost Multipliers

- 28

- 41

- 81

- 88

- 2,223

- 0

- 500

- 1,000

- 1,500

- 2,000

- 2,500

- 1

- 1.2

- 1.5

- 2

- 3

**Wind Capital Cost Multiplier**

**Gigawatts**

***90% of total US class 4-6 wind resource faces highest cost penalty***

**Source: EIA, “Modeling Costs of U.S. Wind Supply,” *****Issues in Midterm Analysis and Forecasting*****, 1999.**

## BiomassModel modifications

**Increased cofiring from a max of 5% per region with no capital costs to up to 10% with capital costs of $200/kW**
**Removed regional capital cost multipliers of up to 100% for new gasification plants as more biomass is used**
**Reduced forestry residues by half to provide extra margin against using unsustainable sources**
**Excluded 5 percent of C&D debris, on top of existing 75% exclusion, to provide extra margin against using contaminated materials**
**Removed regional annual build limits**

**Notes:**
Basis for bullet 1: Actual experience from around the world (e.g. Denmark) has shown a typical size coal plant can cofire up to 15% biomass, with minimal impacts on plant efficiency and resource limits within a 50-100 mile radius around the plant. CEF assumed 5%, but authors acknowledge this was overly conservative.

Basis for bullet 2: No empirical basis or documented explanation by EIA; fuel supply curves take into account increasing costs; more flexibility in siting plants closer to transmission lines. 

## GeothermalModel modifications

** ****Removed site specific capital cost multipliers as successive amounts of the resource is developed**
**Reduced capital costs for power plants by 25%, field costs by 12%, and drilling costs by 15% to reflect current technology. **
**Source:  Dan Entingh, PERI.**

**Notes:**
Basis for bullet 1: Expert input from Dan Entingh, PERI, co-author of the EPRI/DOE study and the study EIA uses for the site-specific data, who claims EIA’s assumptions are based on late 1980s technology. Drilling and other exploration costs for successive developments at an already developed field can actually be lower than initial costs based on a better understanding of the field.

Basis for bullet 2: Recent EIA revisions to NEMS; recommendation from Dan Entingh.

Basis for bullet 3: CEF study; duplicated by NEMS short-term capital cost multipliers; has little impact on results because not enough new solar and biomass capacity is added.

## Unchanged EIAconservative assumptions

**EIA underestimates potential contribution of state renewables policies**
**UCS: 12,700 MW of new renewables by 2012 vs. EIA 7,500 MW by 2020**
**No extension/expansion of the federal Production Tax Credit**
**More renewable planned additions would likely lower the cost of meeting the RPS**
**EIA limits renewables that can be built in one region to serve another**
**constrains wind development in the Plains states**
**EIA excludes class 3 wind resources**
**constrains potential future wind development in eastern US**
**EIA reduced geothermal technical potential by over 40%**
**EIA underestimates future volatility in natural gas prices**
**No growth rate or siting penalties applied to new gas & coal plants**

## UCS: Impact of 20% RPSon electricity mix

***Includes wind, solar, geothermal, biomass, and landfill gas.**
****Includes oil, municipal solid waste, and other wastes.**

**Business as Usual**

**RPS - 20% by 2020**

**Source: UCS, *****Renewing Where We Live*****, 2002**

## Renewable Energy Mix in 2020 under 20% RPS

- Sources: UCS, *Renewing Where We Live*, 2002 **EIA, *****Strategies for Reducing Multiple Emissions from Electric Power Plants*****, July 2001**

**Biomass**

**58%**

**Wind**

**28%**

**Geothermal**

**12%**

**Landfill **

**Gas**

**2%**

**Solar**

**0.4%**

_**EIA**_

## Renewable EnergyCredit Prices

- Source: UCS, *Renewing Where We Live*, 2002;EIA, *Strategies for Reducing Multiple Emissions from Electric Power Plants*, July 2001

## EIA overstates electricity production cost increase of RPS

**EIA claims 20% RPS by 2020 would increase electricity production costs by $118 billion over next 18 years**
**Costs are not discounted**
**Includes 100% of capital cost in year plants are built. Costs should be annualized over 20-30 year period to be consistent with annual fuel cost reductions **
**Doesn’t include additional fossil fuel savings after 2020**
**RPS reduces windfall profits to coal and gas plants**
**Impact on consumer costs more important**

## EIA: RPS is Affordable  Total Consumer Energy Bills (excluding transportation)

**Source: EIA, *****Strategies for Reducing Multiple Emissions from Electric Power Plants*****, July 2001, Table E3.**** **

## UCS:  RPS is AffordableTotal Consumer Energy Bills (excluding transportation)

**Source: UCS, *****Renewing Where We Live*****, 2002**

## EIA: Change in Consumer Energy Bills Under 20% RPS

**Source: EIA, *****Strategies for Reducing Multiple Emissions from Electric Power Plants*****, July 2001, Tables E2 and E3, not including refinery energy consumption or transportation. **

## EIA: Change in Consumer Energy Bills Under 10% RPS

**Source: EIA, *****Strategies for Reducing Multiple Emissions from Electric Power Plants*****, July 2001, Tables E2 and E3, not including refinery energy consumption or transportation.**** **

## EIA: Average Consumer Electricity Prices Slightly Higher under RPS

**Source: EIA, *****Strategies for Reducing Multiple Emissions from Electric Power Plants*****, July 2001.**

## EIA: Average Consumer Natural Gas Prices Lower under RPS

- Source: EIA, *Strategies for Reducing Multiple Emissions from Electric Power Plants*, July 2001, Table E3.

## EIA: RPS Lowers Cost of 4-Pollutant Reductions

**Source: EIA, *****Strategies for Reducing Multiple Emissions from Electric Power Plants*****, July 2001, Table H3.**** **

## 	EIA: Combining 4 Pollutant Reductions with an RPS and Efficiency Saves Money

**Source: EIA, *****Strategies for Reducing Multiple Emissions from Electric Power Plants with Advanced Technology Scenarios*****, Oct. 2001, Table D3.**

## UCS:  Combining a 20% RPS with Efficiency Increases Savings Clean Energy Blueprint

**UCS:  Combining a 20% RPS with Efficiency Increases Savings *****Clean Energy Blueprint***

**Net savings reach $105 billion per year in 2020**

**Cumulative savings = $440 billion**

## UCS: Renewing Where We LiveBenefits of 20% RPS

**Employment**
**$80 billion in new investment**
**$5 billion in property tax revenues for communities**
**$1.2 billion in new income for farmers**
**> 80,000 new jobs**
**Environment****	**
**19% CO****2**** reductions by 2020 compared to BAU**
**~ 100 million metric tonnes **
**Reduction in Nox, Sox, particulates, mercury**
**Consumers**
** ****Reduce fossil fuel dependence, price volatility, costs**
**$4.8 billion energy bill savings through 2020**

## Conclusions

**EIA/NEMS overstates the costs of increasing renewable energy use**
**A national RPS is affordable, even using EIAs pessimistic renewable energy assumptions**
**A RPS provides important energy diversity, security, environmental and rural economic benefits not fully captured by energy markets**
**National RPS is needed to capture these national benefits**