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|Impacts of a 25-Percent Renewable Electricity Standard as Proposed in the American Clean Energy and Security Act Discussion Draft                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               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|Executive  Summary
                      This report responds to requests from Chairman Edward Markey,  for an analysis of a 25-percent Federal renewable electricity standard (RES).  The RES proposal analyzed in this report is included in  the discussion draft of broader legislation, the American Clean Energy and  Security Act (ACESA) of 2009, issued on the Energy and Commerce Committee website  at the end of March 2009.1  The two request letters and the relevant  section of the ACESA discussion draft are provided as Appendices A, B, and C of  this report.
                      While Chairman Markey’s original letter asked that  sensitivities with alternative greenhouse gas policies be prepared, his  subsequent letter released the Energy Information Administration (EIA) from that  requirement.  Consequently, the analysis presented  here does not consider the interactions of the RES  provisions contained in ACESA with other key provisions of that legislation,  although the report does include some qualitative discussion of how the RES might interact with other key provisions in  ACESA.
                      The  analysis presented in this report starts from an updated version of the *Annual Energy Outlook 2009* reference  case that reflects the projected impacts of the American Recovery and  Reinvestment Act (ARRA), enacted in February 2009, and revised economic  assumptions.  ARRA has a significant  impact on the projected growth of renewable energy over the next 5 years, so it  is important to account for its enactment in considering the projected impacts  of an RES requirement.   The development of the updated reference case is described in a recent  EIA report *An Updated Annual Energy  Outlook 2009 Reference Case Reflecting Provisions of the American Recovery and  Reinvestment Act and Recent Changes in the Economic Outlook.*2  As noted  in that report, EIA intends to use this updated baseline in its analyses of  proposed changes in laws and regulations, including the RES  analysis presented in this report.  Therefore,  the term “reference case” in this report means the updated reference case  presented in the aforementioned report.
                      The RES program in the  ACESA discussion draft includes provisions that may allow credits for  qualified State energy efficiency programs to satisfy up to 20 percent of the RES requirement, but the availability of these  credits is tied to implementation of the energy efficiency resource standard  (EERS) program that is also included in ACESA.   As the baselines for and details of the yet-to-be-established EERS  program are unknown, the extent to which States would have access to efficiency  credits for purposes of the RES is  not clear.  In order to assess how  different outcomes might affect the projected impacts of the RES, EIA analyzed two RES  policy cases.  The RES with Full Efficiency Credits (RESFEC) case  assumes that the maximum level of efficiency credits, up to one-fifth of the  credits in the target in any given year, are claimed.  This is reflected as a 20-percent reduction  in the effective target for eligible renewable generation.  The RES  with No Efficiency Credits (RESNEC) case assumes that States cannot qualify  for, or elect not to use, efficiency credits.
                      Key findings include:
                      While  the nominal target sales share for renewables eligible for the RES is 25  percent in 2025, exempting the small retailers lowers the effective target to  22 percent of total electricity sales.   The effective target is lowered further to 21 percent when the  generation from hydroelectric power and municipal solid waste is removed from  the sales baseline.  If States are able  to, and elect to, take full advantage of the energy efficiency credits for  compliance, the effective share of renewables required could drop to  approximately 17 percent of total electricity sales.
                      Power sellers will turn to a mix of renewable  fuels to comply with the RES.  In absolute terms, the key fuels are projected  to be biomass and wind, but other renewable fuels including solar and  geothermal are also projected to grow significantly in percentage terms.Most of the projected increase in wind  generation is due to existing State renewable portfolio standard programs and  the passage of ARRA.  This occurs in both  the reference case and the RES  cases.  Total wind generation in the two RES cases is projected to increase from 32 billion  kilowatthours in 2007 to between 208 billion kilowatthours and 249 billion  kilowatthours in 2030.  Total biomass  generation increases from 39 billion kilowatthours in 2007 to between 438  billion kilowatthours and 577 billion kilowatthours in 2030 in the two RES cases. The renewable provisions of ARRA do not  have as large an impact on biomass as on wind, because the production subsidies  provided for the co-firing of biomass are smaller and because new dedicated  biomass plants generally take longer to develop than would be required to meet  the deadline to qualify for production subsidies under ARRA.
                      The higher renewable generation stimulated by  the Federal RES leads to lower  coal and natural gas generation.  In the  two RES cases, coal generation  ranges between 182 billion kilowatthours (8 percent) and 257 billion  kilowatthours (11 percent) below the reference case level.  Similarly, natural gas generation in the two RES cases in 2030 is between 55 billion  kilowatthours (6 percent) and 150 billion kilowatthours (15 percent) below the  level projected in the reference case.Given the amount of eligible renewable  generation projected in the reference case, the RES  is not expected to affect national average electricity prices until after  2020.  As the required RES share increases to its maximum value in 2025,  the value of RES credits increases,  and impacts on national average electricity prices become evident.  The peak effect on national average  electricity prices, 2.7 percent in the RESFEC case and 2.9 percent in the  RESNEC case, occurs as the required renewable share ramps up more rapidly than  the demand for electricity is growing.   In the later years of the projections, the impact on national average  electricity prices is smaller, as the impact of the RES  requirement on the cost of coal and natural gas, fuels whose use is reduced by  added renewables, is increasingly reflected in electricity prices.  By 2030, electricity prices are projected to  be little changed from the reference case in both RES  cases, with 2030 prices less than 1 percent higher than in the reference case.Electricity price impacts vary from region to  region, with renewable–resource-rich regions like the northern Great Plains States and the northwest States  potentially seeing prices decline from reference case levels, while other  regions see price increases ranging from 1 percent to 6 percent above reference  case levels between 2025 and 2030.Because of the level of renewables projected in  the reference case, renewable credits have no value before 2020.  After 2020, they rise to the 5-cent-per-kilowatthour  cap in 2024 as the renewable requirement grows more rapidly than electricity  sales.  In the last few years of the  projections, they begin to fall as electricity demand and fossil fuel prices  continue to grow.Table ES-1. Summary Results.  Need help, contact the National Energy Information Center at 202-586-8800.printer-friendly versionThe increased use of renewables stimulated by  the RES leads to lower electricity  sector carbon dioxide emissions.   Electricity sector carbon dioxide emissions in 2030 are between 196 million  metric tons (7 percent) and 307 million metric tons (12 percent) below the  reference case level in the two RES  cases.EIA’s modeling of the RES  in the ACESA discussion draft was a standalone analysis that did not consider  interactions with other key programs in the ACESA discussion draft.  While EIA cannot develop an integrated  analysis until there are clearer insights into how some of the other ACESA  programs would actually be implemented, interactions among the elements of  ACESA could be significant.In  previous analyses of economy-wide policies to limit or reduce emissions of  greenhouse gases, EIA has generally found that a cap-and-trade program for  greenhouse gases leads to significant growth in the use of renewable energy for  electricity generation, which becomes more attractive when the cost of using  fossil fuels goes up.  Where there are multiple targets that can be  satisfied with the same energy resources and projects, the target that sets the  upper limit on the use of the resource will generally absorb all of the  incremental costs from that resource, making compliance with the non-binding  goal appear to be costless.  To the extent that the proposed cap and trade  program induces more renewable resources than required by the concurrent RES proposal, one might expect a reduction in apparent  RES compliance costs, since those  costs would already be reflected in the value of carbon dioxide allowances.The potential interactions of an RES policy with other policy instruments such as an  EERS or a cap–and-trade program for limiting or reducing greenhouse gas  emissions could also impact the findings.   If the EERS and other energy efficiency policies are successful in  leading to falling demand for electricity, reducing the need for capacity  additions of any kind, it could be very difficult to stimulate utilities to  invest in new renewable capacity.  While  previous EIA analyses have found that increased investment in renewables would  be attractive under a greenhouse gas emission reduction policy, successful  development of competing “clean” technologies such as nuclear and fossil plants  with carbon capture and storage equipment could hamper renewable development.Numerous uncertainties exist in this analysis.  Key unknowns include:Future fuel and technology costs are highly  uncertain.  Lower-than-expected fossil  fuel prices would make it more difficult to stimulate investments in  renewables, while higher fossil fuel prices would have the opposite impact.  With regard to technology costs, this analysis generally assumes that  technology costs and performance will improve as technologies penetrate the  market, but insurmountable hurdles could arise.With respect to biomass co-firing at existing  coal plants, powerplant operators may be reluctant to make the necessary  investments if they believe they may have to retire or reduce the utilization  of their plants under a greenhouse gas emission reduction policy.For wind, solar, and biomass technologies, the level  of development called for with the proposed RES  may require developers or grid operators to pay to build or upgrade long  transmission lines from the remote areas with ample wind resources to the areas  with significant electricity demand.Notes
|Executive  Summary
                      This report responds to requests from Chairman Edward Markey,  for an analysis of a 25-percent Federal renewable electricity standard (RES).  The RES proposal analyzed in this report is included in  the discussion draft of broader legislation, the American Clean Energy and  Security Act (ACESA) of 2009, issued on the Energy and Commerce Committee website  at the end of March 2009.1  The two request letters and the relevant  section of the ACESA discussion draft are provided as Appendices A, B, and C of  this report.
                      While Chairman Markey’s original letter asked that  sensitivities with alternative greenhouse gas policies be prepared, his  subsequent letter released the Energy Information Administration (EIA) from that  requirement.  Consequently, the analysis presented  here does not consider the interactions of the RES  provisions contained in ACESA with other key provisions of that legislation,  although the report does include some qualitative discussion of how the RES might interact with other key provisions in  ACESA.
                      The  analysis presented in this report starts from an updated version of the *Annual Energy Outlook 2009* reference  case that reflects the projected impacts of the American Recovery and  Reinvestment Act (ARRA), enacted in February 2009, and revised economic  assumptions.  ARRA has a significant  impact on the projected growth of renewable energy over the next 5 years, so it  is important to account for its enactment in considering the projected impacts  of an RES requirement.   The development of the updated reference case is described in a recent  EIA report *An Updated Annual Energy  Outlook 2009 Reference Case Reflecting Provisions of the American Recovery and  Reinvestment Act and Recent Changes in the Economic Outlook.*2  As noted  in that report, EIA intends to use this updated baseline in its analyses of  proposed changes in laws and regulations, including the RES  analysis presented in this report.  Therefore,  the term “reference case” in this report means the updated reference case  presented in the aforementioned report.
                      The RES program in the  ACESA discussion draft includes provisions that may allow credits for  qualified State energy efficiency programs to satisfy up to 20 percent of the RES requirement, but the availability of these  credits is tied to implementation of the energy efficiency resource standard  (EERS) program that is also included in ACESA.   As the baselines for and details of the yet-to-be-established EERS  program are unknown, the extent to which States would have access to efficiency  credits for purposes of the RES is  not clear.  In order to assess how  different outcomes might affect the projected impacts of the RES, EIA analyzed two RES  policy cases.  The RES with Full Efficiency Credits (RESFEC) case  assumes that the maximum level of efficiency credits, up to one-fifth of the  credits in the target in any given year, are claimed.  This is reflected as a 20-percent reduction  in the effective target for eligible renewable generation.  The RES  with No Efficiency Credits (RESNEC) case assumes that States cannot qualify  for, or elect not to use, efficiency credits.
                      Key findings include:
                      While  the nominal target sales share for renewables eligible for the RES is 25  percent in 2025, exempting the small retailers lowers the effective target to  22 percent of total electricity sales.   The effective target is lowered further to 21 percent when the  generation from hydroelectric power and municipal solid waste is removed from  the sales baseline.  If States are able  to, and elect to, take full advantage of the energy efficiency credits for  compliance, the effective share of renewables required could drop to  approximately 17 percent of total electricity sales.
                      Power sellers will turn to a mix of renewable  fuels to comply with the RES.  In absolute terms, the key fuels are projected  to be biomass and wind, but other renewable fuels including solar and  geothermal are also projected to grow significantly in percentage terms.Most of the projected increase in wind  generation is due to existing State renewable portfolio standard programs and  the passage of ARRA.  This occurs in both  the reference case and the RES  cases.  Total wind generation in the two RES cases is projected to increase from 32 billion  kilowatthours in 2007 to between 208 billion kilowatthours and 249 billion  kilowatthours in 2030.  Total biomass  generation increases from 39 billion kilowatthours in 2007 to between 438  billion kilowatthours and 577 billion kilowatthours in 2030 in the two RES cases. The renewable provisions of ARRA do not  have as large an impact on biomass as on wind, because the production subsidies  provided for the co-firing of biomass are smaller and because new dedicated  biomass plants generally take longer to develop than would be required to meet  the deadline to qualify for production subsidies under ARRA.
                      The higher renewable generation stimulated by  the Federal RES leads to lower  coal and natural gas generation.  In the  two RES cases, coal generation  ranges between 182 billion kilowatthours (8 percent) and 257 billion  kilowatthours (11 percent) below the reference case level.  Similarly, natural gas generation in the two RES cases in 2030 is between 55 billion  kilowatthours (6 percent) and 150 billion kilowatthours (15 percent) below the  level projected in the reference case.Given the amount of eligible renewable  generation projected in the reference case, the RES  is not expected to affect national average electricity prices until after  2020.  As the required RES share increases to its maximum value in 2025,  the value of RES credits increases,  and impacts on national average electricity prices become evident.  The peak effect on national average  electricity prices, 2.7 percent in the RESFEC case and 2.9 percent in the  RESNEC case, occurs as the required renewable share ramps up more rapidly than  the demand for electricity is growing.   In the later years of the projections, the impact on national average  electricity prices is smaller, as the impact of the RES  requirement on the cost of coal and natural gas, fuels whose use is reduced by  added renewables, is increasingly reflected in electricity prices.  By 2030, electricity prices are projected to  be little changed from the reference case in both RES  cases, with 2030 prices less than 1 percent higher than in the reference case.Electricity price impacts vary from region to  region, with renewable–resource-rich regions like the northern Great Plains States and the northwest States  potentially seeing prices decline from reference case levels, while other  regions see price increases ranging from 1 percent to 6 percent above reference  case levels between 2025 and 2030.Because of the level of renewables projected in  the reference case, renewable credits have no value before 2020.  After 2020, they rise to the 5-cent-per-kilowatthour  cap in 2024 as the renewable requirement grows more rapidly than electricity  sales.  In the last few years of the  projections, they begin to fall as electricity demand and fossil fuel prices  continue to grow.Table ES-1. Summary Results.  Need help, contact the National Energy Information Center at 202-586-8800.printer-friendly versionThe increased use of renewables stimulated by  the RES leads to lower electricity  sector carbon dioxide emissions.   Electricity sector carbon dioxide emissions in 2030 are between 196 million  metric tons (7 percent) and 307 million metric tons (12 percent) below the  reference case level in the two RES  cases.EIA’s modeling of the RES  in the ACESA discussion draft was a standalone analysis that did not consider  interactions with other key programs in the ACESA discussion draft.  While EIA cannot develop an integrated  analysis until there are clearer insights into how some of the other ACESA  programs would actually be implemented, interactions among the elements of  ACESA could be significant.In  previous analyses of economy-wide policies to limit or reduce emissions of  greenhouse gases, EIA has generally found that a cap-and-trade program for  greenhouse gases leads to significant growth in the use of renewable energy for  electricity generation, which becomes more attractive when the cost of using  fossil fuels goes up.  Where there are multiple targets that can be  satisfied with the same energy resources and projects, the target that sets the  upper limit on the use of the resource will generally absorb all of the  incremental costs from that resource, making compliance with the non-binding  goal appear to be costless.  To the extent that the proposed cap and trade  program induces more renewable resources than required by the concurrent RES proposal, one might expect a reduction in apparent  RES compliance costs, since those  costs would already be reflected in the value of carbon dioxide allowances.The potential interactions of an RES policy with other policy instruments such as an  EERS or a cap–and-trade program for limiting or reducing greenhouse gas  emissions could also impact the findings.   If the EERS and other energy efficiency policies are successful in  leading to falling demand for electricity, reducing the need for capacity  additions of any kind, it could be very difficult to stimulate utilities to  invest in new renewable capacity.  While  previous EIA analyses have found that increased investment in renewables would  be attractive under a greenhouse gas emission reduction policy, successful  development of competing “clean” technologies such as nuclear and fossil plants  with carbon capture and storage equipment could hamper renewable development.Numerous uncertainties exist in this analysis.  Key unknowns include:Future fuel and technology costs are highly  uncertain.  Lower-than-expected fossil  fuel prices would make it more difficult to stimulate investments in  renewables, while higher fossil fuel prices would have the opposite impact.  With regard to technology costs, this analysis generally assumes that  technology costs and performance will improve as technologies penetrate the  market, but insurmountable hurdles could arise.With respect to biomass co-firing at existing  coal plants, powerplant operators may be reluctant to make the necessary  investments if they believe they may have to retire or reduce the utilization  of their plants under a greenhouse gas emission reduction policy.For wind, solar, and biomass technologies, the level  of development called for with the proposed RES  may require developers or grid operators to pay to build or upgrade long  transmission lines from the remote areas with ample wind resources to the areas  with significant electricity demand.Notes
|Table ES-1. Summary Results.  Need help, contact the National Energy Information Center at 202-586-8800.printer-friendly version