# DRAFT REPORT



# Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency

Recommendations

Prepared for

Western Regional Air Partnership Air Pollution Prevention Forum

Prepared by

ICF Consulting Group

October 2002

### Executive Summary .................................

................................................... ......................... i

I. Introduction ..................................

................................................... ............................... 1 II. Overview ......................................

................................................... ............................... 2 II.1 Background ...................................

................................................... ........................ 2 II.2 Objective ....................................

................................................... ........................... 2 II.3 Summary of Key Findings ......................

................................................... .............. 3 III. Analytical Approach ..........................

................................................... ........................ 5 III.1 Scenarios Analyzed ..........................

................................................... .................... 6 III.2 Analytical Tool .............................

................................................... ....................... 8 III.3 Data and Assumptions ........................

................................................... ............... 15 IV. Emissions and Production Costs Impacts ........

................................................... ........ 26 IV.1 Key Elements Under the Business-As-Usual (BAU) Scenario ............................ 26 IV.2 Electric System Capacity and Generation Impact s ............................................... 2 8 IV.3 Production Costs Impacts .....................

................................................... ............. 31 IV.4 Emissions Impacts ............................

................................................... ................. 34 IV.5 Impact on the Regional Backstop SO 2 

### Trading Program .................................. ... 35 IV.6 Wholesale Electricity Price Impacts ..........

................................................... ........ 36 V. Secondary Regional Economic Impacts ...........

................................................... ....... 41 VI. Caveats and Uncertainties.....................

................................................... .................. 43 VII. Conclusions .................................

................................................... .......................... 45 Appendix I: Regional Economic Impacts ............

................................................... ......... 47 Appendix II: Energy Efficiency Analysis and Method ology .......................................... 50Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations Draft Executive Summary; October 2002



### i 

## Executive Summary

With a view towards improving visibility and air qu ality in the national parks and wilderness areas of the Colorado plateau, the Grand Canyon Visibility Transport Commission (GCVTC) issued several recommendations i n 1996 on strategies for air pollution prevention. In its recommendations, the GCVTC emphasized the need to integrate air pollution prevention with cost-effect ive pollution control strategies in order to prevent degradation of natural resources in the Wes t. 1

Two key recommendations from the GCVTC focused on t he development of renewable energy sources and the promotion of energy conserva tion. Labeled the “10/20 goals”, the recommendation on development of renewable ener gy sources encouraged states and tribes in the Transport Region to undertake ste ps that would increase the use of renewable energy to 10 percent of the regional powe r needs by 2005 and 20 percent of the regional power needs by 2015. For energy conse rvation, the commission supported the continued development of energy efficiency stan dards and suggested that the emphasis on energy conservation be maintained withi n the changing electric power markets. In addition to the 10/20 goals and energ y conservation recommendations, the GCVTC suggested that future modeling work be conduc ted to analyze the potential emission reductions, cost savings and secondary ben efits associated with the use of renewable energy, energy efficiency and pollution p revention.

The Regional Haze Rule issued by the US Environment al Protection Agency in April 1999 included the air pollution prevention recommen dations of the GCTVC. Under the rule, the states of the Transport Region must inclu de in their State Implementation Plans (SIP) an outline of the programs and policies that each state will rely on to work towards meeting the air pollution prevention recommendation s. Tribal governments may seek approval from EPA to incorporate the requirements o f the regional haze regulations, including the GCVTC recommendations, in their Triba l Implementation Plans (TIP) under the provisions of the Tribal Authority Rule (TAR).

The Air Pollution Prevention (AP2) forum of WRAP ha s been charged with implementing the air pollution prevention recommendations of the GCVTC. The AP2 forum commissioned ICF Consulting to analyze the potentia l emissions reductions, costs and secondary regional economic impacts of meeting the 10/20 goals and energy efficiency recommendations.

This study documents the analytic and technical sup port to the AP2 forum’s report detailing its recommendations regarding renewable e nergy and energy efficiency to the WRAP Board. The AP2 forum’s report provides a disc ussion of the policy imperatives and broader implications of the GCVTC air pollution prevention recommendations, while this report describes the emissions reductions, cos ts and secondary economic impacts of meeting the 10/20 goals and implementing the ene rgy efficiency recommendations, given the assumptions and scenarios developed by th e AP2 forum. The analysis examines the impacts for the nine states and tribal lands of the Transport region and was focused around stationary sources engaged in th e production of electricity and

1 “Recommendations for Improving Western Vistas,” Th e Grand Canyon Visibility Transport Commission, June 1996, page 28.Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations Draft Executive Summary; October 2002



### ii industrial steam along with and process-related SO 2 sources such as refineries and smelters.

Analytical Framework

The AP2 forum developed a three-phase analytical fr amework to assess the potential emissions reduction, costs and secondary regional e conomic impacts of implementing the 10/20 goals and energy efficiency recommendatio ns. These included: (1) assumptions and scenario development, (2) modeling of the electric, steam and process source sectors, and (3) modeling of the secondary r egional economic impacts.

The AP2 forum developed two types of scenarios in o rder to examine the emissions, costs and secondary regional economic impacts of me eting the 10/20 goals and implementing the energy efficiency recommendations. The first was the Business-AsUsual (BAU) scenario that characterized how the fut ure might unfold with the proposed regional backstop SO 2 trading program but without any policy measures de signed to accomplish the 10/20 goals and energy efficiency re commendations. The second set of scenarios reflected a future with the regional back stop SO 2 trading program and policy drivers designed to meet the 10/20 goals or energy efficiency recommendations, or both. Assessments of emissions, costs and secondary regio nal economic impacts were estimated by analyzing the changes in the policy sc enarios relative to the BAU scenario.

The AP2 forum selected as the business-as-usual sce nario the Annex cap-and-trade scenario developed by the WRAP/Market Trading Forum (MTF) 2 for its economic analysis, with minor modifications to account for t he planned additions to renewable energy capacity. The policy scenarios developed by the AP2 forum were focused around objectives of implementing the 10/20 goals a nd energy efficiency recommendations with some additional scenarios desi gned to analyze the sensitivity of the results to higher gas prices and improvements i n renewable energy technology cost and performance.

In designing the policy scenarios and in developing the data for those scenarios, the AP2 forum modified some of the assumptions on the c ost and performance of renewable energy technologies from those used in the MTF Anne x scenario. The AP2 recognized that the 10/20 goals had the potential to not only affect the level of renewable energy generation in the West, but would also had to poten tial to influence the underlying market conditions for those technologies. Under a climate where policies are in place designed to achieve the 10/20 renewable energy goal s and energy efficiency recommendations, the AP2 forum believes that the wi nd resource development costs could improve over time because of the cost benefit s of “learning by doing”, because of better alignment of incentives for improving techno logies’ cost and performance and because of reduced barriers to entry.

The adjustments in the assumptions for the policy s cenarios were focused only around wind technologies because wind was likely to be the largest renewable energy and it was resource also where the forum anticipated most improvements in cost and performance would occur. However, recognizing the uncertainty inherent in such

2 “Economic Impacts of Implementing a Regional SO2 E missions Program in the Grand Canyon Visibility Transport Region,” Western Regional Air Partnership/ Market Trading Forum, September 2000. (MTF 2000).Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations Draft Executive Summary; October 2002



### iii assumptions about technology improvements, the AP2 forum developed a sensitivity scenario to test the cost implications of implement ing the 10/20 goals without the assumed improvements in renewable technology cost a nd performance.

In Phase II of the analysis, ICF Consulting’s Integ rated Planning Model (IPM ® ) was used as the analytical tool for modeling the costs and e missions impacts of the policy scenarios. IPM simulates productions activity in t he electricity generation and industrial steam production markets using an integrated view o f fuel, emissions, capacity and generation markets. Results from IPM served as inp uts to modeling of the secondary regional economic impacts in Phase III of the analy sis. The Policy Insights model produced by Regional Economic Models Inc. (hereafte r referred to as REMI) was used as the analytical tool for estimating the secondary regional economic impacts.

Emissions Reductions and Cost Impacts

The 10/20 goals require renewable energy to satisfy 10 percent of the regional energy needs by 2005 and 20 percent of the regional energy needs by 2015. The energy efficiency recommendations developed by the AP2 for um calls for electricity demand reductions in the Transport Region to grow to 8 per cent of the electricity generation demand by 2018. The analysis indicates that both t hese policy objectives could serve as cost-effective air pollution prevention strategi es because they provide opportunities for emissions reductions at modest costs or with so me savings.

Because the assessment of impacts are based on anal ysis of the differences between the policy scenarios and the BAU scenario, some not able elements of the BAU scenario are described below to provide a helpful context fo r understanding the results. One of the most important components of the BAU scenario d riving the results is the growth of gas-fired generation capacity. Under the BAU scena rio, the growth in electricity demand is met by additions of new gas-fired combined cycle capacity. As illustrated in Figure ES-1 below, almost 30 GW of new combined cycle capa city is projected under the BAU scenario by 2018. This represents 80 percent of th e growth in capacity additions and accounts for 37 percent of all generation in the Tr ansport Region in that year.

Figure ES-1: Capacity Additions Under the BAU Scen ario 3

3 O/G steam & Turbines refers to Oil/Gas Steam and Gas Turbines; combined cycles refer to gas-fired combined cycles and cogeneration refers to combined heat and power.

- 5,000 10,000 15,000 20,000 25,000 30,000 35,000

2005 2010 2018Capacity Additions by 2018 (MW) Coal

O/G Steam & Turbines
Combined Cycles

Renew ables
CogenerationEconomic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations Draft Executive Summary; October 2002



### iv The mix of generation and capacity additions under the BAU scenario has important implications both for the growth in emissions under the BAU scenario and the potential for emissions reductions from the 10/20 goals and e nergy efficiency recommendations. Because generation from new gas capacity is assumed to be relatively clean, NO
x emissions under the BAU scenario remains relatively changed between 2005 and 2018, growing by 1 percent to 606 thousand tons in 2018. During that same period, the NO
x emissions rate for oil/gas units declines from 0.2 lbs/MWh in 2005 to 0.05 lbs/MWh, reflecting the projected turnover to newer efficien t combined cycle generation.

As a result of increased fossil fuel generation, CO 2 emissions under the BAU scenario increases by 19 percent between 2005 and 2018 to 40 1 million metric tones. SO 2 emissions under the BAU scenario is held to the reg ional targets specified in the Annex because the scenario includes the assumptions that the regional SO 2 trading program proposed under the Annex will be in place. Because of the SO 2 cap-and-trade program, none of the policy scenarios will result in any cha nges in SO 2 emissions.

Implementation of the 10/20 goals and energy effici ency recommendations will lead to significant growth in renewable energy capacity, to taling 20 GW by 2018. The growth reflects the requirements of the 10/20 goals and th e assumption that the policy climate of the 10/20 goals may better align incentives to spur the improvements in renewable technology cost and performance through accelerated learning by doing and by easing some of the barriers to entry for renewable energy. Figure ES-2 below summarizes the growth in renewable energy capacity under the 10/20 goals and Figure ES-3 below contrasts the generation mix in 2018 between the BA U and 10/20 goals policy scenario. 38%

18% 3% 5% 8% 17% 11%

Coal

O/G Steam & Turbines
Combined Cycles

Renewables
Cogens
Hydro

Nuclear 31%

0%

37% 4% 8% 14% 6% Generation Mix Under BAU

2005 543 thousand GWh 2018 680 thousand GWhEconomic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations Draft Executive Summary; October 2002



### v Figure ES-2: Renewable Energy Capacity Additions Un der the 10/20 Goals

0 5 10 15 20 25

Wind Geothermal Landfill GasCapacity Additions by 2018 (GW)

Figure ES-3: Generation Mix in 2018 Under the BAU a nd 10/20 Goals

As illustrated in Figures ES-2 and ES-3, wind power dominates most of the growth in new renewable capacity and the increased use of ren ewable energy displaces new gasfired generation. While these results illustrate o nly the impact for the 10/20 goals, similar impacts occurs with increased use of energy efficie ncy. The important results in capacity changes of the 10/20 goals and energy effi ciency is that new renewable energy capacity and energy conservation compete against ne w conventional capacity while leaving the existing electricity generation stock r elatively undisturbed.

The fact that the renewable energy and energy effic iency are likely to compete against generation from new gas-fired capacity affects the emissions reductions projected under the 10/20 goals and energy efficiency recommendatio ns. As illustrated in Figure ES-4 below, the analysis indicates that under the 10/20 goals and energy efficiency, the potential savings in NO
x emissions are likely to range between 8,000 tons a nd 14,000 tons (or 1 percent to 2 percent relative to the BAU ). In Figure ES-4 below, the bars labeled “10/20 goals” represents the policy scenari o with the 10/20 goals, “EE” 31%

0%

37% 4% 8% 14% 6%

29%

0%

26% 4% 7% 14% 6% 14%

Coal

O/G Steam & Turbines
Combined Cycles
Existing Renewables
Cogens
Hydro

Nuclear

New RenewablesEconomic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations Draft Executive Summary; October 2002



### vi represents the policy scenarios with the energy eff iciency recommendations and “EE + 10/20 goals” represents the policy scenario with bo th the 10/20 goals and the energy efficiency recommendations.

Figure ES-4: Potential NO x Emissions Reductions Under the 10/20 Goals and

Energy Efficiency Recommendations

Implementation of the 10/20 goals and energy effici ency recommendations also lead to reductions in CO 2 emissions through displaced fossil fuel generation . As illustrated in Figure ES-5, CO 2 emissions savings in 2018 from meeting the 10/20 g oals and implementing the energy efficiency recommendations is projected to range between 40 million metric tones and 55 million metric tones (o r 10 percent to 14 percent relative to the BAU).

Figure ES-5: Potential CO 2 Emissions Reductions Under the 10/20 Goals and

Energy Efficiency Recommendations

- 10 20 30 40 50 60

2005 2010 2015 2018Change in CO2Emissions Relative to BAU(Million Metric Tonnes of CO2) 10/20 Goals

EE

EE + 10/20 Goals - 2 4 6 8 10 12 14 16

2005 2010 2015 2018Change in NOxEmission Relative to BAU(Thousands Tons of NOX) 10/20 Goals

EE

EE + 10/20 GoalsEconomic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations Draft Executive Summary; October 2002



### vii Though the emissions reduction potential for NO
x and CO 2 appears to be modest, it is important to recognize the source of those reductio ns and the implications for air pollution prevention. Because these emissions redu ctions come from new generating sources, the 10/20 goals and energy efficiency reco mmendations provide opportunities to hedge against future emissions growth.

Implementation of the 10/20 goals and energy effici ency scenarios does not reduce SO 2 emissions because of the regional SO 2 trading program proposed under the Annex. However, because the trading program creates a mone tary value for emissions reductions, any potential for emissions reductions is fully offset by increases in SO 2 emissions from sources affected by the trading prog ram. In other words, with the 10/20 goals and energy efficiency, the level of SO 2 emissions in 2013 and 2018 will remain unchanged from the emissions caps specified by the Annex. The 10/20 goals and energy efficiency could, however, decrease the comp liance cost of the SO 2 trading program by as much as $ 7 million (or 10 percent of projected compliance cost 4 ) in 2018 and could displace 1,200 MW to 1,700 MW of new scru bber capacity by 2018.

In addition to the potential emissions savings, imp lementation of the10/20 goals and energy efficiency recommendations could be achieved through modest production cost or with some savings. In particular, implementatio n of the energy efficiency recommendations leads to net annual levelized produ ction costs 5 savings of $750 million to $1 billion (or 4 percent to 7 percent relative t o the BAU scenario). These net savings reflect the cost of implementing the recommendation s, the avoided investment costs of transmissions and distribution, and the reductions in electricity and steam production costs resulting from lower electricity demand. Fig ure ES-6 compares the production cost across the BAU and energy efficiency policy scenari os.

Figure ES-6: Annual Levelized Production Cost Unde r the BAU and Energy Efficiency Policy Scenarios

$16.4 $16.7 $17.4

$0 $5 $10 $15 $20

BAU EE EE + 10/20 GoalsAnnual Levelized Production Costs (Billion 2001$)

4 MTF 2000.

5 Annual levelized production costs reflect the capi tal, fuel and operation and maintenance expenditures associated with the production of elec tricity and industrial steam levelized over the years 2005 – 2022. These modeled production costs do not include the sunk costs (capital cost or carrying charges) of existing units.Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations Draft Executive Summary; October 2002



### viii Implementation of the10/20 goals by themselves will lead to modest increases in annual levelized production costs. The impact on producti on costs could range between $300 million and $900 million (or 2 percent to 5 percent relative to the BAU scenario). The range reflects the impacts under alternative assump tions about renewable technology cost and performance: the former includes the assum ption that renewable technology cost and performance will improve over time, while the latter cost impacts do not allow for those improvements. The increase in production costs under the 10/20 goals is largely driven by the capital investments in new re newable energy generation capacity and is offset by the production cost savings from t he displaced fossil fuel generation. Figure ES-7 compares the annual levelized productio n costs across the BAU and 10/20 goals policy scenarios.

Figure ES-7: Annual Levelized Production Costs Und er the BAU and 10/20 Goals Policy Scenarios

Secondary Regional Economic Impacts

The objective of the secondary regional economic an alysis was to assess the impacts of the 10/20 goals and energy efficiency recommendatio ns on the regional economy of the Transport Region. For this analysis, the results f rom the IPM modeling served as inputs to the REMI model. This assessment of regional eco nomic impacts is focused around changes in employment, gross regional product and p ersonal disposable income.

Implementation of the 10/20 goals and energy effici ency recommendations has little or no impact on the regional economy. Most of the reg ional impacts are less than one half of one percent. Table ES-1 summarizes the annual a verage secondary region economic impacts under the policy scenarios for the years 20 05 - 2020. $17.7 $18.3 $17.4

$0 $5 $10 $15 $20

BAU 10/20 Goals 10/20 Goals with No Cost & Performance ImprovementsAnnual Levelized Production Costs (Billion 2001$)Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations Draft Executive Summary; October 2002



### ix Table ES-1: Annual Average (2005 – 2020) Changes I n Key Economic Indicators

for the Transport Region Under the Policy Scenarios

The results of the regional economic analysis indic ate that the 10/20 goals and energy efficiency may, on average, lead to an increase in economic activity. Over time, the policies lead to small increases in economic activi ty in the early years a small decline in later years. The impacts in the 2005 to 2015 time period are largely the result of investment in new renewable energy facilities that increase labor demand and have secondary impacts on output and income. Following the investment and construction boom, the region will see some decline in employmen t, gross regional product and personal disposable income.

On average, the 10/20 goals will lead to small incr eases in employment and personal income along with a small decline in gross regional product. Implementation of the energy efficiency recommendations results in small increases in employment, personal disposable income and gross regional product. The economic impacts under the 10/20 goals and energy efficiency are largely the result of increased capital investments in new renewable energy generating capacity. The boom in construction sparked by the investments appears to be the key reason for growth

.

Caveats and Uncertainties

This analysis was conducted to help the AP2 forum u nderstand the potential emissions reductions, costs and secondary regional economic i mpacts of the implementing the 10/20 goals and the energy efficiency recommendatio ns. The assumptions developed by the AP2 for this study are based on a variety of different sources including research of existing literature, data developed by the Energ y Information Administration, and the National Renewable Energy Laboratory. Key drivers affecting the results on projections of renewable energy capacity, emissions savings and costs include the assumptions on renewable energy technology cost and performance.

Though the modeling and analytical results provide detailed estimates of potential impacts, it is important to recognize that the magn itude of the results are quite small, particularly in estimates of the regional economic impacts. As with any analytical results, small perturbations are difficult to interpret prec isely. In instances where the changes appear to be very small, analysis of broader trends , rather than specific numbers, will often provide a more robust and meaningful descript ion of the impacts.

Conclusions

The analysis indicates that the 10/20 goals and ene rgy efficiency recommendations could both serve as cost-effective air pollution pr evention strategies. The 10/20 goals will lead to increases renewable energy capacity, w hile the energy efficiency recommendations will result in lower energy demand through conservation. Because both the 10/20 goals and energy efficiency displace new additions of fossil fuel capacity and generation, they are likely to provide a hedge against future emissions growth in Employment Gross Regional Product Personal Disposable Income (Persons) (% Change) (Million 2001$) (% Change) (Million 2001$) (% Change)
10/20 Goals 627 0.00% -312 -0.01% 73 0.00% Energy Efficiency (EE) 8,415 0.02% 450 0.02% 776 0.04% 10/20 Goals + EE 4,097 0.01% -58 0.00% 547 0.03%Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations Draft Executive Summary; October 2002



### x NO
x and CO 2 . The 10/20 goals can be achieved under modest cos t impacts, while energy efficiency will result some cost savings and both the objectives have little or no regional economic impacts.Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

Draft Report; October 2002



### 1 

## I. Introduction

This analysis was commissioned by the Air Pollution Prevention (AP2) forum of the Western Regional Air Partnership (WRAP) to help WRA P participants, western states and Indian tribes understand the potential emission s reductions, costs and secondary economic impacts from meeting the 10/20 renewable e nergy goals and implementing the energy efficiency recommendations. This study builds upon the framework, data and assumptions previously developed by the Market Trad ing Forum 1 (MTF) of WRAP and examines the impacts on electricity, industrial and process sources located within the nine states and tribal lands of Transport Region.

This report includes seven sections discussing the analytical framework, data, assumptions and results. Specifically:

• Section II provides background to the study, descr ibes the key objectives of the analysis and summarizes the main findings.

• Section III details the scenarios, data, assumptio ns and analytical framework. Details on renewable energy technology costs and pe rformance assumptions developed by the AP2 forum are also described. The section also provides an overview of the modeling tools used -- ICF’s Integr ated Planning Model ® (IPM) and REMI’s Policy Insights ® model-- and a discussion of the approach used to integrate the two models.

• Section IV discusses the emissions and production costs impacts of implementing the 10/20 goals and energy efficiency recommendations based on the IPM modeling results.

• Section V discusses the secondary regional economi c impacts based on the results of the REMI model. The analysis focuses on impacts on employment, gross regional product and disposable income.

• Section VI contains a discussion of the caveats an d uncertainties underlying the results.

• Section VII describes the conclusions of the study

.

1 “Economic Impacts of Implementing a Regional SO2 Em issions Program in the Grand Canyon Visibility Transport Region,” Western Regional Air Partnership/ Market Trading Forum, September 2000. (MTF 2000).Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

Draft Report; October 2002



### 2 

## II. Overview

II.1 Background

With a view towards improving visibility and air qu ality in the national parks and wilderness areas of the Colorado plateau, the Grand Canyon Visibility Transport Commission (GCVTC) issued several recommendations i n 1996 on strategies for air pollution prevention in the West. In its recommend ations, the GCVTC emphasized the need to integrate air pollution prevention with cos t-effective pollution control strategies in order to prevent degradation of natural resources i n the West. 2

Two key GCVTC recommendations focused on the develo pment of renewable energy sources and the promotion of energy conservation. The recommendation on development of renewable energy sources encouraged states and tribes in the Transport Region to undertake steps that would incr ease the use of renewable energy to 10 percent of the regional power needs by 2005 and 20 percent of the regional power needs by 2015 (hereinafter the “10/20 goals”). For energy conservation, the commission supported the continued development of energy effic iency standards and suggested that the emphasis on energy conservation be maintained w ithin the changing electric power markets. In addition to the renewable resource an d energy conservation recommendations, the GCVTC suggested that future an alysis examine the potential emission reductions, cost savings and secondary ben efits associated with the use of renewable energy and energy efficiency.

The Regional Haze Rule issued by U.S. Environmental Protection Agency in April 1999 included the air pollution prevention recommendatio ns of the GCTVC. Under the rule, the states of the Transport Region must include in their State Implementation Plans (SIP) an outline of the programs and policies that each state will rely on to work towards meeting the air pollution prevention recommendation s. Tribal governments may seek approval from EPA to incorporate the requirements o f the regional haze regulations, including the GCVTC recommendations, in their Triba l Implementation Plans (TIP) under the provisions of the Tribal Authority Rule (TAR) 3

.
The AP2 forum of WRAP has been charged with impleme nting the air pollution prevention recommendations of the GCVTC and commiss ioned ICF Consulting to examine the potential emissions reductions, costs a nd secondary economic impacts of meeting the 10/20 goals and energy efficiency recom mendations.



## II.2 Objective

This study serves as the documentation of the analy tic and technical support to the AP2 forum’s report detailing its recommendations regard ing renewable energy and energy efficiency to the WRAP Board. While the AP2 forum’ s report provides a discussion of the policy imperatives and broader implications of the GCVTC air pollution prevention

2 “Recommendations for Improving Western Vistas,” Th e Grand Canyon Visibility Transport Commission, June 1996, page 28.

3 63 Fed. Reg. 7254-7274, codified at 40 CFR Part 49

.Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

Draft Report; October 2002



### 3 recommendations, this report describes the potentia l emissions reductions, costs and secondary economic impacts of meeting the 10/20 goa ls and implementing the energy efficiency recommendations, given the assumptions a nd scenarios developed by the AP2 forum. The analysis examined the impacts for t he nine states and tribal lands of the Transport region and was focused around stationary sources engaged in the production of electricity and industrial steam along with proc ess sources (e.g., copper smelters and refineries).



## II.3 Summary of Key Findings

The analysis indicates that the 10/20 goals and ene rgy efficiency could both serve as cost-effective air pollution prevention strategies.

• The objective of the 10/20 goals is to have renewa ble energy providing 10 percent of the regional energy demand by 2005 and 2 0 percent by 2015. The AP2 forum’s recommendations for energy efficiency s eeks to reduce electricity demand in the Transport region by 8 percent by 2018 from the Business-AsUsual (BAU) conditions through energy conservation in the residential, commercial, industrial and manufacturing sectors.

• Wind power is expected to provide the largest sour ce of renewable energy generation in meeting the 10/20 goals, accounting f or much as 80 percent of the growth in renewable energy capacity. By 2018, the expansion in wind capacity under the 10/20 goals is expected to reach 18 GW. The 10/20 goals will also lead to some expansion of renewable energy generati on from geothermal and landfill gas.

• Penetration of energy efficiency and renewable ene rgy will primarily compete against new conventional capacity additions. In th e absence of energy efficiency and the 10/20 goals, most of the expansion in conve ntional capacity will likely consist of gas-fired combined cycles. New addition s to renewable energy capacity and demand reductions motivated by the 10/ 20 goals and the energy efficiency recommendations are projected to displac e new gas-fired combined cycle capacity while leaving the existing stock rel atively unaffected.

• Under the scenarios analyzed, energy efficiency an d 10/20 goals provide 1 to 2 percent reductions in NO
x emissions and 10 to 14 percent reductions in CO 2 emissions. The reduction potential appears to be m odest partly because the displaced generation consists almost entirely of re latively clean gas-fired combined cycle. Since the 10/20 goals and energy e fficiency primarily displace generation from new fossil fired capacity additions , the 10/20 goals and energy efficiency can provide a hedge against future emiss ions growth.

• The 10/20 goals and energy efficiency do not provi de any SO 2 reductions in the presence of a regional SO 2 emissions cap and trading program proposed in the Annex. However, the 10/20 goals and energy efficie ncy may lower the compliance cost of the trading program by as much a s $ 10 million in 2018 (or 7 percent) and displace the need for 1,200 MW to 1,70 0 MW of new scrubber capacity.Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

Draft Report; October 2002



### 4 • The increase in annual levelized production costs under the 10/20 goals will range between $ 300 million and $ 900 million (or 2 percent to 5 percent relative to the business-as-usual scenario). Under an energ y efficiency scenario, the savings in annual levelized production cost may ran ge between $ 700 million to $ 1 billion (or 5 percent to 7 percent relative to th e business-as-usual scenario).

• Implementation of the 10/20 goals and energy effic iency recommendations will have small or no impacts on the regional economy. Under the 10/20 goals scenario, employment and personal income is project ed to increase on average by less than one half of one percent per year. Gro ss regional product is likely to decline by approximately the same percentage impact . Similarly, implementation of the energy efficiency recommendations is project ed to lead to small increases in employment, gross regional product and personal income of less than one half of one percent each.Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

Draft Report; October 2002



### 5 

## III. Analytical Approach

This section describes the analytical approach, dat a, assumptions, methodology and modeling tools used in the analysis. There were th ree distinct phases to the analysis: (1) assumptions and scenario development, (2) model ing of the electric and steam sectors, and (3) modeling of the secondary regional economic impacts. Figure I presented below illustrates the three phases of the analysis and the overall analytical approach. Details on each of the phases of the ana lysis are described below.

Figure I: Overview of Analytical Approach

Phase III: Modeling of Secondary Economic Impact REMITM Modeling

• Secondary regional economic impacts  Employment Impacts  Gross Regional Product Impacts  Income Impacts 

# WR Economic Impacts of Implementing a Regional SO 2 Emissions Program in the Grand Canyon Visibility Transport Region

Volume I

Prepared for:

Western Regional Air Partnership Market Trading Forum

Prepared by:

ICF Consulting

September 2000 WRAP/MTF Economic Analysis

• Served as starting point for analysis

• AP2 selected Annex Scenario as Business-As-Usual scenario

Phase I: Assumptions and Scenario Development AP2 Forum

• Reviewed and revised assumptions for renewable energy technology

• Developed energy efficiency cost and performance assumptions

• Developed scenarios for analysis of 10/20 goals and energy efficiency (EE)

Integrated Approach

Environmental Markets Fuel Markets Electric Markets

IPM ® Modeling

• Modeled 10/20 and EE Scenarios developed under Phase I  Electric/Steam Sector System Impacts  Emission Impacts  Production Cost Impacts Phase II: Modeling of Electric and Steam Sector

Demand

Employment
Demand

by Industry, by Occupation Market Shares

Local and export
market shares

by Industry Output

Final Demand by Type

Output by Industry

Wage Rate

Wage Rate, Prices and Profits

by Industry Supply

Population by Age, Gender, Race

Labor SupplyEconomic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

Draft Report; October 2002



### 6 

## III.1 Scenarios Analyzed

The AP2 forum developed two types of scenarios in o rder to examine the emissions, costs and secondary regional economic impacts of me eting the 10/20 goals and implementing the energy efficiency recommendations. The first was the Business-AsUsual (BAU) scenario that characterized how the fut ure might unfold without any policy measures designed to accomplish the 10/20 goals and energy efficiency recommendations. The second set of scenarios refle cted a future with policy drivers designed to meet the 10/20 goals or energy efficien cy recommendations, or both. Assessments of emissions, costs and secondary regio nal economic impacts were estimated by analyzing the changes in the policy sc enarios relative to the BAU scenario.

This analysis examined the 10/20 goals and energy e fficiency recommendations in the context of the regional backstop SO 2 trading program proposed in the Annex. In September 2000 the WRAP/MTF conducted extensive ana lysis of the economic impacts of the Annex proposal. 4 The AP2 forum selected the WRAP/MTF scenario with the Annex as the basis for the BAU scenario. However, the existing stock of renewable energy plants under the WRAP/MTF Annex scenario was modified to account for firm projected renewable energy plants.

The policy scenarios developed by the AP2 forum wer e focused around the policy objectives of the 10/20 goals and energy efficiency recommendations. Policy scenarios also included cases designed to test the sensitivit y of the impacts to changes in technology improvements and higher gas prices. The results of the sensitivity scenarios are mentioned briefly in the report since they do n ot appear to add substantively to the insights gained from the core policy scenarios.

In designing the policy scenarios and in developing the data for those scenarios, the AP2 forum modified some of the assumptions on the c ost and performance of renewable energy technologies from those used in the BAU scen ario. There were two reasons for this. First, the AP2 forum felt that the BAU sce nario, which was adopted from the WRAP/MTF Annex scenario, did not contain enough det ails on renewable energy technologies since that had not been the focus of t he WRAP/MTF.

Second, and more importantly, the AP2 recognized th at the 10/20 goals would not only affect the level of renewable energy generation in the west, but also had the potential to influence the underlying market conditions for thos e technologies. Under a climate where policies are in place designed to achieve the 10/20 renewable energy goals and energy efficiency recommendations, the AP2 forum be lieves that the wind resource development costs could improve over time because o f the cost benefits of “learning by doing”, from better alignment of incentives for imp roving technologies’ cost and performance and from reduced barriers to entry. Th e adjustments in the assumptions for the policy scenarios were focused only around w ind technologies since wind was likely to be the largest sources of renewable energ y and it was also where the forum anticipated most improvements in cost and performan ce would occur.

Recognizing the inherent uncertainty in assumption on technological improvements over time, the AP2 forum developed a sensitivity scenari o that did not include the assumed

4 MTF 2000.Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

Draft Report; October 2002



### 7 improvements in renewable technology cost and perfo rmance. The objective of this sensitivity scenario was to capture the higher end of the potential cost impacts of the 10/20 goals. Table 1 presented below provides a su mmary of the scenarios developed by the AP2 forum.

Table 1: Scenarios

Scenario Assumptions Used

Business-As- Usual Scenario • Used WRAP/MTF Annex scenario

• Includes firm new renewable projects in existing generation stock

Policy Scenarios 10/20 Goals • Updated renewable technology cost and performance assumptions

• Includes 10/20 goals as requirements that electric system has to meet

• Retained all other assumptions from WRAP/MTF Annex scenario

10/20 Goals and Energy Efficiency • Updated renewable technology cost and performance assumptions

• Includes energy efficiency recommendations

• Includes 10/20 goals as requirements that electric system has to meet

• Retained all other assumptions from WRAP/MTF Annex scenario

Energy Efficiency Only • Updated renewable technology cost and performance assumptions

• Includes energy efficiency recommendations

• Retained all other assumptions from WRAP/MTF Annex scenario

Sensitivity Scenarios • Impact of 10/20 goals assuming no improvements in renewable technology cost and performance over time

• Impact of higher gas prices on 10/20 goals

All the scenarios summarized in Table 1 above were modeled under Phase II of the analysis that examined the electric and steam secto rs. In Phase III where the regional economic impacts were modeled, only selected policy scenarios were analyzed. These included the 10/20 goals policy scenario, the 10/20 goals and energy efficiency policy scenario and the energy efficiency policy scenarios

.Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

Draft Report; October 2002



### 8 

## III.2 Analytical Tool

Integrated Planning Model (IPM ® )

ICF’s Integrated Planning Model (IPM) was used as t he analytical tool for modeling the costs and emissions impacts of the policy scenarios under Phase II of the analysis. IPM is a well-established electric and industrial boile r sectors model. For the WRAP/MTF analysis of the SO 2 program, it was enhanced to capture emissions from process sources. The model has been used in a wide range o f analyses by government and industry. Within WRAP, the model was used by WRAP/ MTF for the economic analyses and for the analysis of market issues related to th e SO 2 emissions trading program. The model is also currently being used by the National Tribal Environmental Council (NTEC) to analyze issues related to the tribal set-asides under the regional backstop SO 2 trading
program.

IPM is a detailed engineering-economic capacity exp ansion and production-costing model of the power and industrial sectors supported by an extensive database of every boiler and generator in the nation. It is a multi-r egion model that provides least-cost capacity expansion plans, credible plant dispatch, and electric prices forecasts. IPM explicitly considers gas, oil, and coal markets, po wer plant costs and performance characteristics, environmental constraints and emis sions markets, and other power market fundamentals.

As illustrated in Figure 2 below, IPM provides an i ntegrated analysis of electricity and steam markets. The model captures the interactions of real world constraints and simulates electric and steam markets based on econo mic fundamentals using a linear programming structure. Figure 2 illustrates the ke y components of IPM.

Figure 2: The Integrated Planning Model

IPM models the contiguous U.S. using distinct power markets represented as “model regions.” These regions correspond in most cases t o the regions and sub-regions of the North American Electric Reliability Council (NERC). For this analysis, the nine western 

## IPM Environmental Compliance Technologies and Costs

• Capacity Additions

• Fuel Prices • Electric Prices • Asset Values • Emissions • Retrofit Decisions • Compliance Costs

• Steam Demand • Electric Demand • Gas Supply • Coal Supply

Environmental Regulatory Scenario New Electric and CHP TechnologiesEconomic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

Draft Report; October 2002



### 9 states and tribes of the GCVTC region are contained within the model regions of California and Southwest Nevada (CNV), Pacific Nort hwest (WSCP) and interior West (WSCR). The models regions used in this study are illustrated in Figure 3 below.

Figure 3: Regional Structure of IPM for AP2 Forum Analysis

C N V SPPN

ERCT NENG

LILC UPNY

FRCC WUMS

MECS

MACS MACE MACW

SOU SPPS WSCP

WSCR MAPP

TVA ECAO

MANO

VACA

The modeling for this analysis covered the electric ity, industrial steam and other industrial process sources of SO 2 emissions (e.g., copper smelters and refineries). The electricity sector includes all existing boilers an d generators. IPM forecasts new capacity builds to meet the growth in electricity d emand. The industrial steam sector includes sources that sell steam to industrial, com mercial and institutional facilities. Expansion in steam demand is met through new boiler s and/or combined heat and power (CHP) cogeneration facilities. Process sourc es of SO 2 such as refineries and smelters are also included in the modeling to captu re their potential interactions in the regional SO 2 allowance markets. The analysis does not model pr oduction activity of these industrial process sources.

In IPM the 10/20 goals are modeled as electricity g eneration constraint on the power system that requires that the system must produce a t a minimum the renewable generate targets specified by the 10/20 goals. The IPM model determines the optimal mix of renewable energy taking into account the tar get levels and their timing and geographic scope. In determining the optimal plan, the model also takes into account all existing and future air regulations included in the scenario, fuel prices and availability, and emission markets. The energy efficiency recomm endations are modeled as reductions in energy requirements and peak demand l evels. Reductions in demand are specified exogenously; the model responds to the ne w demand and determines the least cost method for satisfying that demand.Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

Draft Report; October 2002



### 10 Regional Economic Assessment: REMI’s Policy Insight s ® Model (REMI)

The Policy Insights ®

model produced by Regional Economic Models Inc. (h ereinafter “REMI”) was used to estimate the secondary regional economic impacts of the implementing the 10/20 goals and the energy efficie ncy recommendations. REMI is a widely accepted tool for analyzing regional economi c impacts and was previously used by WRAP/MTF for economic analysis of alternative em issions milestones (or caps) on the regional SO 2 trading program.

The REMI model is composed of five basic blocks – o utput, supply, demand, market shares and wage rate - that broadly characterize th e regional economy. These blocks are inter-linked and the model uses a single set of simultaneous equations to estimate how a change from a policy might filter through the economy. Figure 4 illustrates the analytical framework of the REMI model.

Figure 4: Analytical Framework in the REMI Model

The REMI model used in this analysis consists of 10 regions, which include Arizona, Colorado, California, New Mexico, Nevada, Utah, Wyo ming, Oregon, Idaho and the rest of the country. Because of the analytical difficul ty in modeling tribal areas as a separate model region, tribal areas have been integrated in with the state in which they are located.

The AP2 Forum selected three scenarios for analysis of the regional economic impacts. These include:

1. 10/20 Goals; 2. Energy Efficiency Recommendations; and 3. 10/20 Goals and Energy Efficiency Recommendation s.

For all the three scenarios, the inputs to REMI are derived from the IPM modeling results. Most of the inputs to REMI require change s relative to a reference point and the Business-As-Usual (BAU) scenario was used as the re ference case in developing the inputs to REMI. All REMI inputs are specified by y ear, state and sector. Demand

Employment
Demand

by Industry, by Occupation Market Shares

Local and export
market shares

by Industry Output

Final Demand by Type

Output by Industry

Wage Rate

Wage Rate, Prices and Profits

by Industry Supply

Population by Age, Gender, Race

Labor Supply

Source: REMI ® Demand

Employment
Demand

by Industry, by Occupation Market Shares

Local and export
market shares

by Industry Output

Final Demand by Type

Output by Industry

Wage Rate

Wage Rate, Prices and Profits

by Industry Supply

Population by Age, Gender, Race

Labor Supply

Source: REMI ®Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

Draft Report; October 2002



### 11 There are three IPM outputs that form the basis for the inputs to REMI. These include

1. Incremental Production Cost Impacts; 2. Changes in Wholesale Electricity Price; and 3. Revenue Changes from Allowance Allocations.

The approach and methodology used in adapting the I PM outputs for use in REMI are discussed in detail below.

Incremental Production Cost Impacts

Incremental production costs in IPM are composed of the capital, fixed operating, variable operating and fuel costs associated with t he 10/20 goals and energy efficiency recommendations. Under the 10/20 goals, for instan ce, the incremental annual levelized production cost was $ 300 million annually and refl ects the total change in production costs in meeting the 10/20 targets.

Impacts on production costs of sectors aside from p ower generators as a result of the policies are captured through REMI variables that r eflect the factors of production in these sectors. Within REMI, these changes in produ ction costs affect both market shares and final demand for each sector’s products through changes in the relative price of the products. Industries within these sectors t hat compete in regional markets (and thus are price setters for their product) are able to pass through cost via regional price increases, while sectors that compete nationally (a nd thus are “price takers”) experience a change in competitiveness relative to other regio ns and rest of the U.S.

For electric generators, the production cost impact s are not modeled directly in REMI because the electricity price impact is already kno wn through IPM modeling. Instead, the production cost impacts are combined with the e lectricity price change and the net revenue impacts are input into REMI as changes in d ividends or shareholder income. Changes in dividends and shareholder income directl y affect changes in personal income, which in turn affects output and employment demand. For purposes of REMI modeling, avoided transmission and distribution avo ided costs under the EE recommendations are treated as changes in productio n cost.

The capital investments for new electric generation capacity projected in IPM were modeled as construction and electric equipment dema nd in REMI. An increase in construction demand has a pronounced effect on the regional economy because it leads to an increase in employment, which in turn affects output, income, wages, population and labor supply. The increase in electrical equip ment demand also affects output but the regional impacts are less pronounced than const ruction demand impacts because some of the expenditures flow out of the region for capital purchases made elsewhere. The regional purchase coefficients in REMI determin es how much of the expenditures are spent locally versus outside of the region.

Changes in fuel expenditures, which are a component of total production costs, have been modeled in REMI as mining demand impacts. The change in mining demand affects employment and also flows through to change s in income and output.Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

Draft Report; October 2002



### 12 Figure 5 below illustrates how production cost impa cts from IPM have been modeled in REMI and also describes how those impacts relate to changes in the regional economy.

Figure 5: Production Cost Impacts in REMI

Changes in Wholesale Electricity Prices

Wholesale electricity prices are outputs of IPM and have been used in REMI to describe how retail rates might change as a result of the po licies. Wholesale electricity price impacts have been converted to retail rates based o n the assumption that distribution and retailing cost do not change under the policies and that the changes in wholesale electricity price changes are fully realized by end use customers.Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

Draft Report; October 2002



### 13 Under the 10/20 goals, the wholesale electricity pr ice impacts modeled in REMI also include the premium necessary for implementing the renewable energy targets. In this analysis, the premium is based on a System Benefits Charge (SBC) type approach where every end user pays the levelized renewable e nergy credit price. Under the scenarios involving the EE recommendations, the EE implementations cost were also included in the electricity price impacts. EE impl ementation costs were provided by state and sector and were converted to a kWh basis using the share of electricity demand for that state and sector. In effect, the EE implement ation costs are recovered through changes in electricity prices. In sum, the electri city price changes modeled in REMI include the following components: 1. Wholesale electricity prices; 2. Premium for 10/20 goals; and 3. EE implementation costs.

The changes in electricity prices are modeled separ ately for the residential, commercial and industrial sectors.

For the industrial and commercial sectors the chang es in electricity prices affect their raw material cost. The change in the price of elec tricity affects the relative price of their factors of production and affects the type of resou rces (labor, capital) that the sectors might employ in production. With lower electricity prices, these sectors might substitute capital for labor thereby leading to an increase in investments, which in turn affects demand and output.

For the residential sector, the change in electrici ty price is modeled through the consumer price index. In this case, a reduction in electricity price implies an increase in income because consumers have more to spend on othe r goods and services, which in turn increases consumption, demand and output.

Figure 6 below illustrates how the electricity pric e impacts have been modeled in REMI and its linkages in the regional economy.Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

Draft Report; October 2002



### 14

Figure 6: Electricity Price Impacts in REMI



### Demand

Employment
Demand

by Industry, by Occupation 

### Market Shares

Local and export
market shares

by Industry 

### Output

Final Demand by Type

Output by Industry



### Wage Rate

Wage Rate, Prices and Profits

by Industry 

### Supply

Population by Age, Gender, Race

Labor Supply 

### Demand

Employment
Demand

by Industry, by Occupation 

### Market Shares

Local and export
market shares

by Industry 

### Output

Final Demand by Type

Output by Industry



### Wage Rate

Wage Rate, Prices and Profits

by Industry 

### Supply

Population by Age, Gender, Race

Labor Supply

Change in electricity price in the industrial
and commercial sector affects the relative price of inputs in the factors of production. Change in electricity price in the residential sector affects the consumer expenditure price index, which in turn affects income.

Revenue Changes from Allowance Allocation

The revenue changes from allowance allocation accou nt for changes in the allowance position under the SO 2 trading program of the Annex. Although the cap in the trading program does not change under the 10/20 goals and t he energy efficiency recommendations, the compliance strategy changes, w hich in turn affects the number of allowances that sources in a state will have to buy or sell.

The expenditures/revenues from the sale/purchase of allowances is based on the allowance price of the regional SO 2 trading program and the net allowance position of the state. A state that has allowances to sell wil l realize an increase in revenues, while a state that needs to purchase allowances will see an increase in expenditures. Because these revenues/expenditures accrue to the sources a ffected by the trading program, the changes in expenditures/revenues from allowance all ocations have been modeled in REMI as dividend and shareholder income. The impact of the allowance allocation does not change the overall cost to the region (because expenditures and revenues cancel out) but merely redistributes the impacts across th e region. Some of the dividend and shareholder incomes are assumed to flow out of the region based on the income distribution. Figure 7 illustrates how revenue cha nges from allowance allocations have been modeled in REMI and the related impacts on the regional economy.Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

Draft Report; October 2002



### 15

Figure 7: Revenue Impacts from Allowance Allocatio ns



### Changes in revenue/expenditures from purchase or sale of allowances in the regional SO 2 

### trading program affects
dividend and shareholder income.



## Demand

Employment
Demand

by Industry, by Occupation 

## Market Shares

Local and export
market shares

by Industry 

## Output

Final Demand by Type

Output by Industry



## Wage Rate

Wage Rate, Prices and Profits

by Industry 

## Supply

Population by Age, Gender, Race

Labor Supply 

## Demand

Employment
Demand

by Industry, by Occupation 

## Market Shares

Local and export
market shares

by Industry 

## Output

Final Demand by Type

Output by Industry



## Wage Rate

Wage Rate, Prices and Profits

by Industry 

## Supply

Population by Age, Gender, Race

Labor Supply



## III.3 Data and Assumptions

As noted before, for this analysis the AP2 forum us ed much of the data and assumptions developed by the WRAP/MTF. These assumptions are f ully documents in the economic analysis report produced by the WRAP/MTF in Septemb er 2000 5 and have not been replicated in this report. The section describes o nly the data and assumptions that changed relative to the WRAP/MTF economic analysis. In addition, as noted before, the AP2 forum updated the renewable energy technology c ost and performance assumptions for the policy scenarios. Because the BAU scenario did not include any projected additions to renewable energy capacity (o utside of firm new capacity), for renewable energy technologies, this section describ es only the assumptions used in the policy scenarios.

5 MTF 2000.Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

Draft Report; October 2002



### 16 Environmental Regulations

Regional and national existing environmental regula tions affecting stationary sources that produce electricity and/or industrial steam ar e represented identically in both the BAU and policy scenarios. The regulations modeled include:

• 1990 Clean Air Act Amendments Title IV NO
x and SO 2 ,

• Title IV SO 2 national trading program,

• Northeast NO
x SIPCALL, and

• Regional backstop SO 2 trading program proposed under the Annex for the states and tribes of the Transport Region with the assumption that all states/tribes will participate in the trading progr am. The specific milestones used in modeling the Annex are summarized in Table 2 below.

Table 2: Milestones Used for the Regional Backstop SO 2 Trading Program Proposed In the Annex

2013 2018
Thousands Tons of SO 2 630 507

Natural Gas Prices

The AP2 forum retained the natural gas price assump tions developed by the WRAP/MTF for this analysis. In addition, the AP2 f orum developed the high natural gas prices for the sensitivity scenario based on the ap proach used in the WGA Transmission Report. 6 Table 3 below provides a summary of the natural g as prices assumed in the study. The BAU and policy scenarios both include t he base price while the high prices were used only in the high gas price sensitivity po licy scenario.

Table 3: Assumptions on Delivered Natural Gas Pric e

National Average Delivered Natural Gas Price (2001 $/mmbtu)
Year Base High Gas Price 2005 $3.16 $4.44 2010 $3.31 $4.99 2020 $3.49 $5.93



### Cost and Performance for Grid Connected Utility Sca le Solar Technologies

The AP2 forum assumed that two types of grid-connec ted utility scale solar technologies -- solar photovoltaic and solar thermal -- would be available under the policy scenarios. Recognizing that some cost improvements in these te chnologies would occur over time, the forum allowed for some cost decline in both tec hnologies after 2010. Table 4 presented below provides the cost and performance a ssumptions for solar photovoltaic and solar thermal.

6 “Conceptual Plans for Electricity Transmission in the West,” Report to the Western Governors’ Association, August 2001. High gas prices were bas ed on gas prices in Annual Energy Outlook 2001 plus
50%.Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

Draft Report; October 2002



### 17 Table 4: Cost and Performance Assumptions for Sola r Technologies 7

Available Years Technology Annual Average Capacity Factor Overnight

Capital Cost Fixed O&M

Cost (2001$/kW) (2001$/kW-Yr)

2000-2009 Solar PV 28% 4,576 11

Solar Thermal 42% 3,170 50

2010-2030 Solar PV 28% 2,737 11

Solar Thermal 42% 2,853 50

The analysis reflects the fact that solar plants ar e not dispatchable by basing the generation estimates on generation profiles that de scribe the hourly generation for a typical day in the winter and summer. Furthermor e, in order to account for the intermittency in generation from solar technologies , solar photovoltaic and solar thermal plants do not receive capacity credit on their enti re nameplate capacity. Instead, the capacity credit is limited to their capacity factor in the peak 30 percent of hours.



### Cost and Performance for Biomass Technologies

The AP2 forum assumed that both direct combustion a nd biomass gasification combined cycles (BGCC) would be available for commercial app lication to electricity generation. However, recognizing that BGCC is not yet a mature technology, the forum assumed that BGCC would be available only after 2010. Tabl e 5 presented below summarizes the cost and performance assumptions for biomass te chnologies.

Table 5: Cost and Performance Assumptions for Biom ass Technologies 8

Available Year Technology Heat Rate (Btu/kWh) Overnight

Capital Cost (2001$/kW) Fixed O&M

(2001$/kW-Yr) Variable O&M

(2001mills/kWh)

2000 Direct

Combustion 8,219 1,420 48 5.75

2010 Biomass

Gasification Combined Cycle 13,000 1,489 66 7.74

Biomass fuel supply is reflected in a composite sup ply curve containing energy crops, agricultural residue, forestry residue, and urban w ood waste and mill residue available for electricity generation. For each model region and year, the supply curve denotes the price-quantity relationship of biomass. 9

7 Annual Energy Outlook (AEO) 2001.

8 Data for Direct Combustion Biomass from Technology Characterization report by DOE-NREL 1997. Data for Biomass Gasification Combined Cycle from Annual Energy Outlook 2001.

9 Biomass supply curve based on data from Annual Ene rgy Outlook 2001.Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

Draft Report; October 2002



### 18 Cost and Performance for Geothermal Technologies

For geothermal generating technologies, the AP2 for um wanted to ensure that the effects of resource depletion were included in the cost and performance. Consequently, rather than a single option, the policy scenarios i nclude a geothermal supply curve that characterize the relationship between available cap acity and development-production cost. The supply curve is specified for each of th e three model regions that circumscribe the Transport Region and is presented in Table 6 be low.

Table 6: Cost and Performance Assumptions for Geot hermal Technologies 10



### Region Potential

Capacity (MW) Overnight

Capital Cost (2001$/kW) Fixed O&M

(2001$/kW-Yr) Capacity

Factor (%)

CNV [California and Southern Nevada) 653 2,137 75 90 6,782 2,312 98 90 3,806 3,311 122 90 12,836 5,979 258 90

WSCP [Pacific Northwest] 3,500 2,332 72 90
2,200 3,563 130 90
3,075 5,156 195 90

WSCR [Interior West] 920 2,113 70 90 250 2,735 96 90 5,713 3,515 122 90 5,606 6,877 238 90

Cost and Performance for Landfill Gas Technologies

A limited amount of potential landfill gas capacity was expected to be available in the Transport Region in the future and this resource wa s included by the AP2 in its policy scenarios. The potential capacity reflects landfil l gas with a gas collection system already in place; capital costs reflect addition of generating equipment. Table 7 presented below summarizes the cost and performance assumptions for landfill gas generation.

10 Annual Energy Outlook 2001.Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

Draft Report; October 2002



### 19 Table 7: Cost and Performance Assumptions for Land fill Gas Generation 11

Region Potential

Capacity (MW) Overnight

Capital Cost (2001$/kW) Fixed O&M

(2001$/kW-Yr) Variable O&M

(2001 mills/kWh) Capacity

Factor (%)
CNV [California and Southern Nevada] 528 1,291 85 11 87

WSCP [Pacific Northwest] 128 1,291 85 11 87

WSCR [Interior West] 336 1,291 85 11 87



### Cost and Performance for Wind Technologies

Because wind generation is the renewable energy res ource most likely to penetrate in the future, the AP2 forum spent considerable time c haracterizing wind resources for the policy scenarios. In developing the assumptions, t he forum sought to capture the issues of intermittency, resource availability, reliabilit y and transmission access that are often associated with wind generation.

The AP2 forum assumed that grid-connected central s tation wind plants could be located in wind classes 6 or greater, 5 and 4 12 ; lower wind classes were unlikely to support commercial electricity generation. Within each win d class, the total resource is divided into four cost categories to account for resource d egradation and impact on electric system reliability stemming from the intermittency in wind generation.

Cost multipliers are applied to each of the four wi nd classes to reflect these factors. The four cost categories reflect multipliers of 1, 1.2, 1.4 and 1.6 applied to base cost. The result is a wind resource supply curve that limits how much wind capacity is available at each cost point. The AP2 forum assumed that the hi ghest cost category could not exceed 1.6 since at the very most (or at high level s of wind generation) a combustion turbine could be used to provide backup for the int ermittency in wind generation to guard against any system reliability concerns. The avail able wind capacity resources were distributed among the four cost categories as outli ned below with the best wind resource being assigned to the lowest cost scalar first. 13

• Cost Scalar 1.0: Wind capacity equal to 10 percent of the region’s generation or

10 percent of available capacity whichever is lower ;

11 “Energy Project Landfill Gas Utilization Software Manual,” Appendix A, US EPA 1997 and “Turning a Liability into An Asset: A Landfill Gas- to-Energy Project Development Handbook,” US EPA September 1996.

12 Wind classes are based on average wind speed in the area. Class 6 or greater have the highest average wind speeds, while class 4 has the least average wind speed.

13 Data provided by Walter Short, National Renewable Energy Laboratory. A similar methodology was also used in “Scenarios for Clean Energy Future ,” Union of Concerned Scientists.Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

Draft Report; October 2002



### 20 • Cost Scalar 1.2: Wind capacity meeting 10 percent – 15 percent of region’s

generation;

• Cost Scalar 1.4: Wind capacity meeting 15% - 20% o f region’s generation; and

• Cost Scalar 1.6: Remaining wind capacity.

Table 8 presented below summarizes the potential ca pacity by wind class and cost category for each model region.

Table 8: Potential Wind Capacity by Model Region, Wind Class and Cost Class

To characterize the cost and performance of wind te chnologies, the AP2 forum developed four technology vintages that become avai lable for commercial application at different times in the planning horizon. The four vintages reflect expectations of declining costs and technological improvements. Ta ble 9 provides a summary of the cost and performance assumptions for wind technolog ies. (in MW) Cost Scalars Model Region Wind Class 1 1.2 1.4 1.6 CNV Class 6 1,574 4,543 (California and South- Class 5 2,775 West Nevada) Class 4 4,699 2,145 CNV Total 1,574 12,017 2,145

-
WSCP Class 6 678 (Pacific Northwest) Class 5 6,088 Class 4 962 3,316

17,935 WSCP Total 678 7,050 3,316 17,935

WSCR Class 6 6,593 3,297

3,297

55,156 (Interior West) Class 5 32,384 Class 4 292,468 WSCR Total 6,593 3,297 3,297 380,008Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

Draft Report; October 2002



### 21 Table 9: Cost and Performance Assumptions for Wind Technologies 14

Available Years Overnight

Capital Costs (2001$/kW) Fixed O&M

(2001$/kW-Yr) Variable O&M

(2001 cents/kWh) Annual Average Capacity Factor

Wind Class 6
2000-2004 1000 4.00 0.5 40.4
2005-2009 915 4.00 0.2 45.3
2010-2014 800 4.00 0.18 46.4 2015-onward 770 4.00 0.17 47.9
Wind Class 5
2000-2004 1000 4.00 0.5 35.3
2005-2009 915 4.00 0.2 40.2
2010-2014 855 4.00 0.18 41.3 2015-onward 825 4.00 0.17 42.75
Wind Class 4
2000-2004 1000 4.00 0.5 30.2
2005-2009 915 4.00 0.2 35.1
2010-2014 910 4.00 0.18 36.2 2015-onward 880 4.00 0.17 37.6

Notes: Does not include Production Tax Credit.

For this analysis, the generation output from wind plants is based on generation profiles that describe the hourly generation for a typical d ay in summer and winter. The annual average capacity factor presented in Table 9 above is therefore a summary characteristic of that generation profile. Further more, because wind plants are not dispatchable, the capacity credit for wind is restr icted to the average generation in the peak 30% of the hours represented by the profile.

Recognizing that wind technologies may encounter pr oblems with transmission bottlenecks, particularly in the interior West wher e significant resources are located, the AP2 forum decided to include a transmission cost ad der of $208 ($2001/kW) 15 for wind resources located in the interior west. While the cost of interconnection to the grid is reflected in the capital costs reported in Table 9 above, the transmission cost adder for the interior West reflects the fact that these reso urces may also require some upgrades to the existing transmission system in order to del iver the power to the load centers. Connection to the grid alone does not guarantee del ivery because there may not be sufficient capacity on the transmission lines to ca rry the additional power. The forum felt that this cost was particularly warranted for the i nterior west because much of the wind resource there is located in Wyoming. The forum fe lt that developing the resources in the interior west would, at a minimum, require some upgrades to the local transmission system to get the power to the demand centers.

14 Data provided by Walter Short, National Renewable E nergy Laboratory.

15 Based on “Conceptual Plans for Electricity Transmi ssion in the West,” Report to the Western Governors’ Association, August 2001. Estimated usi ng the incremental cost between the Gas transmission scenario and the Alternative Fuel Scen arios. Consistent with this report, the transmission cost adder is also applied to new coal capacity in the interior west.Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

Draft Report; October 2002



### 22 The assumptions presented in Table 9 reflect declin ing technology costs and improved capacity factors over time. In the sensitivity pol icy scenario that do not allow for those improvements, the 2000-2004 costs and performance a re held constant over all time periods.



### Assumptions on the 10/20 Renewable Energy Goals

The 10/20 goals were an explicit requirement in man y of the policy scenarios and the characterization of that policy goal is based on th e recommendations of the GCVTC. The AP2 forum assumed that the minimum renewable en ergy generation targets for the 10/20 goals would be based on the electricity deman d in the nine states and tribal land of the Transport Region. The 10/20 goals, as model ed in this analysis, requires that by 2005 10 percent of the regional electricity demand be met by generation from renewable energy and by 2015 20 percent of the regional elect ricity demand be met by generation from renewable resources. Existing generation from renewable energy also counts towards that target. Figure 8 presented below prov ides a summary of the targets and the existing generation from renewable energy under the BAU.



### Figure 8: 10/20 Renewable Energy Generation Target s

- 40,000 80,000 120,000 160,000

2005 2010 2015 2018GWh

10/20 Goals Existing RE Generation Under BAU

This analysis assumes that the 10/20 renewable ener gy targets can be met by generation from wind, solar photovoltaic, solar the rmal, biomass gasification combined cycle, biomass direct combustion, landfill gas and geothermal. The analysis did not include options for small hydro (due to data limita tions), though small hydro is a potential renewable energy supply option. In addition, the r enewable energy targets can be met by generation from renewable technologies located a nywhere within the nine states andEconomic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

Draft Report; October 2002



### 23 tribal lands of the Transport Region and also withi n the state of Washington and Montana 16

. 

### Assumptions on Energy/Capacity Savings and Implemen tation Costs for Energy Efficiency Recommendations

The AP2 forum commissioned the Tellus Institute to develop the energy savings and implementation cost assumptions for the energy effi ciency recommendations. A description of the approach and method used for the energy efficiency analysis along with the detailed results are presented in Appendix II.

The assumptions on the energy savings and implement ation costs for the energy efficiency measures were developed outside of IPM, the power-industrial-process sources sectors modeling framework. The energy and peak capacity savings associated with energy efficiency were introduced into IPM to estimate the emissions reductions and cost savings resulting from lower energy demand . The potential emissions reductions were estimated using the change in emiss ions between the energy efficiency policy scenarios and the BAU scenario. The net pro duction costs impacts were determined based on the following: (1) The energy efficiency implementation costs esti mated outside of IPM; (2) The avoided investment cost savings in transmis sion and distribution estimated outside of IPM; (3) The cost saving from reduced generation estimat ed using IPM.

The assumptions for the energy efficiency recommend ations were specified by model region (CNV – California and Southwest Nevada; WSCP – Pacific Northwest; and WSCR – Interior West) to fit in with the modeling s pecification for IPM. Though the three model regions encompass more than the nine states a nd tribal lands of the Transport Region, the saving and cost estimates were based on ly the states and tribal lands of the Transport Region. Savings were characterized as el ectricity demand savings, the annual reduction in electricity demand inclusive of loss, and peak savings, the avoided generation capacity associated with the electricity demand savings. Figures 9 and 10 presented below describe the total regional energy and capacity savings. The total savings reflects the sum of savings across the indu strial, residential and commercial sectors and represents 1 percent of electricity dem and in 2005 and growing to 8 percent by 2018 under BAU conditions.

16 Renewable generation located in Washington and Mon tana were allowed to count towards the 10/20 targets because, in the modeling, these states shar e common electricity markets with many of the states/tribes of the Transport Region.Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

Draft Report; October 2002



### 24 Figure 9: Annual Electricity Demand Savings Under the Energy Efficiency Recommendations

- 5,000 10,000 15,000 20,000 25,000 30,000 35,000

CNV (California and

Southwestern Nevada) WCSP (Pacific Northwest) WSCR (Interior West)Energy Savings (GWh) 2005 2010 2018

Figure 10: Generation Capacity Savings Under the E nergy Efficiency Recommendations

0 2 4 6 8 10

CNV (California and

Southwestern Nevada) WCSP (Pacific Northwest) WSCR (Interior West)Peak Demand Savings (GW) 2005 2010 2018

The costs for implementing the energy efficiency re commendations include the costs borne by both the customer and the sponsor and refl ect the equipment purchase, fuel, operations, administration and marketing costs. In addition to the implementation costs, the AP2 forum assumed that the energy efficiency me asures would lead to avoid investments in the transmission and distribution sy stem at an annual average cost savings of 2.4 cents/kWh (2001 $). Because IPM is a wholesale electricity model that captures cost savings only at the wholesale generat ion levels, it was necessary toEconomic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

Draft Report; October 2002



### 25 account for these avoided transmission and distribu tion (T&D) costs outside the model. Figure 11 provides a summary of the assumptions on total implementation costs and avoided T&D investments costs savings for the energ y efficiency recommendations. In IPM modeling of the energy efficiency scenarios, th e projected production cost savings from IPM are compared against the assumed implement ation and avoided T&D costs to estimate net savings.

Figure 11: Annual Implementation Costs and Avoided T&D Cost Savings Under

the Energy Efficiency Recommendations

(2,000) (1,500) (1,000) (500) - 500 1,000 1,500 2,000

2005 2010 2018Million 2001$

Implementation Costs T&D Savings Net Annual CostsEconomic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

Draft Report; October 2002



### 26 

## IV. Emissions and Production Costs Impacts

This section describes the emissions and costs impa cts on the electricity, industrial and process source sectors under the policy scenarios. The impacts are described in terms of the changes relative to the BAU scenario, thus t he first section outlines the notable elements under the BAU scenario.



## IV.1 Key Elements Under the Business-As-Usual (BAU) Scenario

The BAU scenario represents a projection of the fut ure without additional efforts to promote renewable energy and energy efficiency in t he West. It provides a good reference point for analyzing the impacts of meetin g the 10/20 goals and implementing the energy efficiency recommendations. The BAU sce nario includes about 1 GW of additional renewable resources that are currently u nder construction or near the construction phase. However, no additional renewabl e resources beyond these planned additions are projected in the BAU. As a point of reference, over the last decade about 2 GW of new renewable resources have been brought on line.

Figure 12: Existing Renewable Energy Capacity 17

5% 24% 4% 20%

47%

0% 4%

21%

15% 49% 49% 19%

2%

11%

19%

Geothermal

Solar/PV

Wind

Landfill Gas

Biomass/Waste

9%

48%

6% 36% 1% Geothermal US

GCVTC Region 10 GW 15 GW



### 1990 1998

4 GW 6 GW

17 1990 Data: Energy Information Administration (EIA) Form 860 and EIA Form 867. Some 1990 capacity has been withheld for confidentiality. 19 98 Data: EIA Form 860A and EIA Form 860B.Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

Draft Report; October 2002



### 27 The BAU does not assume any major policy efforts to increase renewable energy or energy efficiency, aside from the indirect benefits afforded clean energy sources by existing air regulations including the Title IV SO 2 program under the Clean Air Act Amendments and the regional SO 2 backstop trading program proposed under the Annex. The growth in renewable capacity under the BAU is limited to the firm capacity additions planned and/or under construction.

Under the BAU scenario, the growth in electricity d emand is likely to be met by additions of new gas-fired capacity. By 2018, almost 30 GW o f new combined cycle capacity, representing 80 percent of the total growth in new capacity is projected under the BAU. The new combined cycle capacity will likely consist of new combined-cycle and repowering of the older stock of oil/gas steam unit s to more efficient combined cycle units. As illustrated in Figure 13, by 2018 gas-fi red generation from combined cycles represents 37 percent of all generation in the Tran sport Region up from 21 percent in 2005 (oil/gas steam and combined cycle). The gener ation from nuclear, hydro and renewable energy remains unchanged between 2005 and 2018, but accounts for a smaller share of the total generation in 2018.

Figure 13: Capacity Growth and Generation Mix Unde r the BAU

- 5,000 10,000 15,000 20,000 25,000 30,000 35,000

2005 2010 2018Capacity Additions by 2018 (MW) Coal

O/G Steam & Turbines
Combined Cycles

Renew ables
Cogeneration

Generation Mix Under BAU

38%

18% 3% 5% 8% 17% 11%

Coal

O/G Steam & Turbines Combined Cycles

Renewables Cogens Hydro

Nuclear 31%

0%

37% 4% 8% 14% 6%

2005 543 thousand GWh 2018 680 thousand GWh

The changes in emissions over time under the BAU sc enario reflect the changing mix in capacity and generation. SO 2 emissions under the BAU scenario remain relatively unchanged till 2013, after which the emissions decl ine as a result of the assumed SO 2Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

Draft Report; October 2002



### 28 cap and regional trading program. Though NO
x emissions remain relatively unchanged under the BAU scenario between 2005 and 2018, the N O
x emissions rate declines significantly as a result of the repowering of exis ting oil/gas steam units. For CO 2 , the change in emissions between 2005 and 2018 mirrors t he increase in fossil fuel usage and rises by 19 percent between the two years. Fig ure 14 presented below provides a summary of projected emissions under the BAU scenar io.

Figure 14: Emissions Under the BAU Scenario



## - 200 400 600 800

2005 2010 2015 2018 CO2 (Million Metric Tonnes) NOx ('000 tons) SO2 ('000 tons)



## IV.2 Electric System Capacity and Generation Impact s

Implementation of the10/20 goals and energy efficie ncy recommendations lead to significant increases in renewable energy capacity, totaling nearly 20 GW by 2018. The increase in renewable energy capacity is driven by the combination of two key factors. First, under the policy scenarios that include the 10/20 goals there is an explicit requirement that by 2005 10 percent of the regional electricity demand must be met by renewable resources. By 2015, the requirement incre ases to 20 percent. Second, the growth in renewable energy capacity is spurred by d eclining renewable technology cost and performance improvements that the AP2 forum ass umed would occur in the policy scenarios.

Under the 10/20 goals policy scenario, as illustrat ed in Figure 15 below, renewable energy generation in the states and tribal lands of the Transport region expands to 18 percent, up from 4 percent under the BAU scenario 18 . Most of this expansion comes from new wind capacity, which accounts for 65 perce nt of the renewable energy generation.

18 Two percent of the renewable energy generation for the 10/20 goals comes from states and tribal regio ns outside the Transport Region but that share common electric market with the states/tribes in the Trans port Region. The scenario assumes that renewable energy generation from such sources can be used towards
the 10/20.Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

Draft Report; October 2002



### 29 Figure 15: Renewable Energy Capacity and Generatio n Under the 10/20 Goals

0 5 10 15 20 25

Wind Geothermal Landfill GasCapacity Additions by 2018 (GW)

31%

0%

37% 4% 8% 14% 6%

29%

0%

26% 4% 7% 14% 6% 14%

Coal

O/G Steam & Turbines
Combined Cycles
Existing Renewables
Cogens
Hydro

Nuclear

New Renewables 

### 2018 Generation Mix

BAU 10/20 Goals

The expansion of renewable energy capacity under th e 10/20 goals predominantly displaces new gas-fired capacity. As illustrated i n Figure 16 below, by 2018 displaced gas fired combined cycles accounts for almost 80 pe rcent of the 13 GW of the total displaced capacity. The type of displaced capacity (i.e., gas fired combined cycle) reflects the fact that renewable energy capacity wi ll compete against new fossil capacity additions rather than affect the stock of existing units.Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

Draft Report; October 2002



### 30

Figure 16: Capacity Displaced Under the 10/20 Goal s

Coal Oil/Gas Steam &

Gas Turbines

Gas Combined Cycles Cogens

-10,000 -8,000 -6,000 -4,000 -2,000 0 2,000Capacity Displaced by 2018 (MW)

Results of the analysis indicate that wind will rem ain the dominant renewable energy technology across a range of different sensitivitie s and assumptions, particularly when renewable energy generation accounts for 10 percent to 20 percent of regional electricity generation. As illustrated in Figure 16 below, acr oss the other policy scenarios analyzed by the AP2 forum, new wind capacity accounts for at least 75 percent of the additions to renewable energy capacity. In Figure 17 presented below, “EE” refers to the energy efficiency policy scenario, “EE + 10/20” refers to the policy scenario that includes energy efficiency along with the 10/20 goals, “10/20 Goals with No Improvements in RE Technologies” refers to the policy scenario that in cludes the 10/20 goals but does not allow for improvements in renewable technology cost and performance and “High Gas Prices” refers to the policy scenario with 50% high er gas prices.

Figure 17: Renewable Energy Capacity Additions Und er Alternative Policy Scenarios

0 5 10 15 20 25 30 35 40

EE EE + 10/20 Goals 10/20 Goals with No Improvements in RE Technologies High Gas PriceCapacity Additions by 2018 ('000 MW) Wind Geothermal Landfill GasEconomic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

Draft Report; October 2002



### 31 In summary, the changes in electric capacity and ge neration under the policy scenarios provide some interesting insights. First, the resu lts of the analysis suggest that wind is likely to be the primary choice for renewable energ y technology in the West. Even with renewable energy generation providing over 20 perce nt of the region’s electricity generation demand, as in the high gas price scenari o, wind appears to be the dominant technology of choice. Second, the penetration of t he renewable energy capacity and energy efficiency appears to displace mostly new ad ditions to capacity rather than affecting the existing generation stock. Because m ost of the new capacity additions under the BAU are gas-fired combined cycle, the res ults indicate that new gas-fired capacity will be primarily displaced under the poli cy scenarios. The more important, broader implication is also that renewable energy a nd energy efficiency compete against new capacity in the supplying electricity.



## IV.3 Production Costs Impacts

Implementing the 10/20 renewable energy goals will lead to increased production costs, while the energy efficiency recommendations will re sult in production costs savings. Production costs, in this case, reflects the increm ental or going forward costs 19 associated with producing electricity and industria l steam and includes incremental capital costs, fuel costs and operation and mainten ance costs.

As mentioned previously, the AP2 forum considered t he production cost impacts of meeting the 10/20 goals under two alternative polic y scenarios. In the first policy scenario, the AP2 forum assumed that the cost of de veloping renewable energy, particularly wind, would improve in the future as a result of the growth in renewable energy capacity. In the second scenario, the AP2 f orum wanted to examine the production costs impacts without allowing for any i mprovements in renewable technology cost and performance. As illustrated in Figure 18 below, the annual levelized production cost impacts under the two policy scenar ios could range between $300 million (2001 $) and $900 million (2001 $) or 2 per cent to 5 percent of the production costs under the BAU respectively.

Figure 18: Production Cost Impacts in Meeting the 10/20 Renewable Energy Goal s

$17.7 $18.3 $17.4

$0 $5 $10 $15 $20

BAU 10/20 Goals 10/20 Goals with No Improvements in RE TechnologiesAnnual Levelized Production Costs (Billion 2001$)

19 Embedded cost associated with the capital cost of e xisting units are not included in modeled production costs.Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

Draft Report; October 2002



### 32 The increase in production costs in meeting the 10/ 20 goals is largely driven by the capital expenditures required for new renewable ene rgy projects. While the penetration of renewable energy leads to reductions in costs fr om displaced fossil fuel generation, it is not sufficient to fully offset the increased cap ital expenditures. Nonetheless, there is a shift in production costs away from fuel and toward s capital. Under the 10/20 goals, operation-and-maintenance costs remain relatively u nchanged. Figure 19 presented below highlights the composition of the change in a nnual levelized production costs for 2018.

Figure 19: Composition of Annual Levelized Product ion Cost Impacts in Meeting the 10/20 Goals

$14

-$1,216 $1,485 $1,930

$299

-$1,321 -$1,500 -$1,000 -$500 $0 $500 $1,000 $1,500 $2,000 $2,500

10/20 Goals 10/20 Goals with No Improvements in RE TechnologiesChange in Production Cost Relative to BAU(Million 2001$) Operations & Maintenance Fuel Capital

Unlike the 10/20 goals, implementation of the energ y efficiency recommendation with and without the 10/20 goals leads to annual leveliz ed production costs savings of $730 million to $1 billion (2001 $) respectively. These net savings reflect the cost of implementing the recommendations, the avoided inves tment costs for transmission and distribution infrastructure and the reduction in el ectricity production costs from decreased electricity demand. Though the requirements of the 10/20 goals somewhat lowers the savings from energy efficiency, the 10/20 goals and energy efficiency recommendations still result in annual levelized production costs s avings of over $700 million. These savings represent 4 percent to 7 percent of the ann ual levelized production costs of the BAU scenario. Figure 20 presented below contrasts the annual levelized production costs under the BAU and policy scenarios with the e nergy efficiency recommendations.Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

Draft Report; October 2002



### 33 Figure 20: Annual Levelized Production Costs Under the BAU and Policy Scenarios with the Energy Efficiency Recommendation s

$16.4 $16.7 $17.4

$0 $5 $10 $15 $20

BAU EE EE + 10/20 GoalsAnnual Levelized Production Costs (Billion 2001$)

The projected production costs savings presented in Figure 19 reflects the assumed improvements in renewable energy technology cost an d performance. The AP2 forum assumed that the energy efficiency recommendations would occur under a policy regime that would actively promote renewable energy, thoug h without explicit targets, thus leading to enhancements in technology cost and perf ormance.

Much like the policy scenarios with the 10/20 goals , the production cost savings under the policy scenarios with are driven by reductions in fuel expenditures because energy efficiency displaces gas generation. Figure 21 pre sented below illustrates that by 2018, energy efficiency and energy efficiency with the 10 /20 goals leads to almost $ 2 billion in fuel expenditure savings, offset only by increased capital investments in renewable energy capacity.

Figure 21: Composition of Production Cost Impacts Under the Energy Efficiency Policy Scenarios

-$260

-$1,060 $181 $1,189

-$181

-$1,815 -$2,000 -$1,500 -$1,000 -$500 $0 $500 $1,000 $1,500

EE EE + 10/20 GoalsChange in Production Costs Relative to BAU(Million 2001$) Operations & Maintenance

Fuel CapitalEconomic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

Draft Report; October 2002



### 34 In summary, the production cost impacts of the poli cy scenarios yield some interesting insights for the 10/20 goals and energy efficiency recommendations. First, the 10/20 goal will results in modest production cost impacts of 2 percent to 5%, while energy efficiency recommendations will achieve production cost savings of 5 percent to 7 percent. Second, and perhaps the most notable feat ure of these policies is that because both the 10/20 goals and energy efficiency recommen dations shift production expenditures away from fuel and towards capital, th ese policy objectives can offer some security against fuel price volatility and fuel sup ply shocks.



## IV.4 Emissions Impacts

Under the 10/20 goals, the emissions reductions occ ur because conventional fossil fuel generation is replaced with clean or low emissions generation from renewable energy. With energy efficiency, demand savings displaces el ectricity generation, which in turn creates the opportunities for emissions reductions. The level of associated emissions reductions depends on the pollutant being examined. Fuel based emissions (CO 2 ) generally follow fuel consumption, while technology /fuel dependent emissions such as NO
x depends on the relative emission rate of displaced technologies.

Under the policy scenarios of the 10/20 and energy efficiency, the change in NO
x emissions relative to the BAU scenario range betwee n 1 percent and 2 percent. As illustrated in Figure 22 below, by 2018 the emissio ns reduction in NO
x from implementing the 10/20 goals and the energy efficie ncy will be between 8,000 tons and 14,000 tons annually. Most of the emissions reduct ions are likely to occur after 2010, when the penetration of renewable energy and energy efficiency is most significant.

Figure 22: Reductions In NO x Emissions Under the Policy Scenarios

- 2 4 6 8 10 12 14 16

2005 2010 2015 2018Change in NOxEmission Relative to BAU(Thousands Tons of NOX) 10/20 Goals

EE

EE + 10/20 Goals

The modes emissions reductions in NO
x under the 10/20 goals and energy efficiency recommendations reflect that the fact that they lar gely displaced new gas-fired combined cycles, which are expected to have relatively low N O
x emission rates. However, it is important to recognize that because these reduction s come from new generation capacity, renewable energy and energy efficiency wi ll provide a hedge against future NO
x emissions growth.Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

Draft Report; October 2002



### 35 Estimated emissions reductions in CO 2 , on the other hand, are driven largely by reductions in fossil fuel use. As highlighted in F igure 23 below, the reductions in CO 2 emissions range between 10 percent and 14 percent u nder the various policy scenarios. By 2018, when the penetration of renewable energy a nd energy efficiency are most significant, the reductions are projected to betwee n 40 million metric tonnes and 55 million metric tones.

Figure 23: Reductions In CO 2 Emissions Under the Policy Scenarios

- 10 20 30 40 50 60

2005 2010 2015 2018Change in CO2Emissions Relative to BAU(Million Metric Tonnes of CO2) 10/20 Goals

EE

EE + 10/20 Goals

As was true for NO
x emissions, because CO 2 emissions reductions derive from reductions in fossil fuel use in new capacity addit ions, the 10/20 goals and energy efficiency will likely provide a hedge against futu re CO 2 emissions growth.

Unlike NO
x and CO 2 emissions, the analysis projects no reductions in SO 2 emissions reflecting the regional emissions cap and SO 2 trading program as proposed in the Annex and modeled in all scenarios. However, because the SO 2 trading program creates a monetary value for SO 2 emissions, affected sources under the cap and trad e program take advantage of reduced fuel use and associated l ower emissions to reduce their overall cost of compliance with the cap. Thus, ther e is an economic benefit to fully offsetting any SO 2 emissions reductions provided by the 10/20 goals a nd energy efficiency recommendations. This result is not uni que to this particular situation but is rather a general outcome under an emissions cap and trading program. Analysis of the extent to which the 10/20 goals might lower the cos ts of compliance in the regional backstop SO 2 trading program in the Transport Region is discuss ed below.



## IV.5 Impact on the Regional Backstop SO 2 

## Trading Program

The compliance cost of the regional trading program such as the Annex depends on the level of reductions required. The 10/20 goals and energy efficiency programs help to lower the compliance cost of the regional backstop SO 2 trading program by lowering the amount of reductions needed to meet the milestone. The penetration of renewable energy under the 10/20 goals displaces fossil fuel generation, which in turn provides theEconomic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

Draft Report; October 2002



### 36 remaining plants in the trading program with more h eadroom under the emissions cap. The implementation of the energy efficiency recomme ndations would have the same effect because it also displaces fossil fuel genera tion.

The results of the analysis indicate that by implem enting the 10/20 goals, the compliance cost of meeting the SO 2 reduction requirements through a trading program a s proposed in the Annex could decline by approximately $10 mil lion (or 7 percent of the compliance cost without the 10/20 goals 20 ) in 2018. This estimate is based on a comparison between two scenarios, one including the 10/20 goal s without the regional trading program and the other including the 10/20 goals and the regional trading program (i.e., the 10/20 goals policy scenario).

The fact that the 10/20 goals may make it cheaper t o comply with the SO 2 cap and trade program can be illustrated by examining projected a mount of SO 2 scrubbers constructed under the scenarios. Scrubber installations (or en hancements to existing scrubbers) are likely to be a key compliance strategy in meeting t he SO 2 reduction requirements under the Annex trading program. As illustrated in Figur e 24 below, 1,200 MW to 1,700 MW, representing 13 percent to 17 percent, of fewer scr ubber installations are projected under the policy scenarios relative to the BAU scen ario.

Figure 24: Projected Scrubber Installations Under the Annex SO 2 Trading Program

- 2,000 4,000 6,000 8,000 10,000 12,000

2015 2018Installed Scrubber Capacity (MW) BAU 10/20 Goals 10/20 Goals + EE EE

In summary, the results of the analysis suggest tha t implementation of the10/20 goals and energy efficiency recommendations will help to reduce the compliance cost of the regional backstop SO 2 trading program by as much as $ 10 million (or 7 p ercent) in 2018 and displaces 1,200 MW to 1,700 MW of new scrubber installations.



## IV.6 Wholesale Electricity Price Impacts

This section discusses the wholesale electricity pr ice impacts and the renewable energy credit price under the policy scenarios of the 10/2 0 goals and the energy efficiency recommendations. The distinction between the whole sale electricity price and the renewable energy credit price has been maintained f or this discussion because the policy design of the 10/20 goals, particularly on h ow the compliance cost of the 10/20

20 Ibid., MTF 2000.Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

Draft Report; October 2002



### 37 goals might be recovered, has not been determined.

In the IPM framework, wholesale electricity prices represent the price at which electricity would be sold by a generator to a retail distributo r, assuming competitive generation markets. The model is a wholesale power market mod el and thus does not model retail markets or project electricity retail prices. 21 In IPM, wholesale electricity prices are based on two separate components, energy price and capacity price, which together reflect the price of simultaneously satisfying elec tricity and reliability demand.

• Energy prices reflect the variable cost of operati on and include fuel cost, variable operating costs and emissions-related cost s. Emissions-related costs only exist if an emissions trading program is in place and the allowance price in the trading program is greater t han zero.

• Capacity prices relate to fixed costs and include the capital and fixed operating costs. Some generating units, such as pe aking combustion turbines, often come on-line to serve reliability a nd only operate a very small fraction of the hours in a year. Such plants often recover their costs through capacity payments. The capacity price can be zero if an electricity market has excess capacity.

The wholesale electricity price is the sum of the e nergy price and capacity price and both prices reflect the cost of the marginal unit. For energy, the marginal unit is the generating unit that provides the last kWh to satis fy demand and the energy price is based on the variable cost of that marginal unit. All generators, independent of their own cost of generation, receive the same price for the energy sold. Marginal energy prices vary hourly in energy markets. In IPM, marginal en ergy prices vary by season and load segment (i.e., base, peak, etc). Similarly, the ma rginal unit in capacity markets is the last unit that has to come on-line to satisfy the p eak plus reliability demand and the resulting capacity price is based on the capital an d fixed operating costs of that marginal unit.

As illustrated in Figure 24 below, the 10/20 goals and energy efficiency leads to a decline in wholesale electricity prices, of as much as 10 percent under the policy scenario with the 10/20 goals and energy efficiency . The electricity price impacts are differentiated by model region because each of the three regions has separate electricity markets. Though electricity prices often vary with in a year and across years, for clarity Figure 25 contrasts the levelized annual average wh olesale electricity price between the BAU and policy scenarios.

21 For purposes of regional economic modeling, where c hanges in prices (rather than the actual price) serve as modeling inputs, we have included t he assumption that end-use electricity customers realize the full benefit (or cost) of the change in wholesale electricity price. In other words, the distribution and/or retailing costs betw een the Business-As-Usual scenario and the 10/20 goals scenario are assumed to remain constant and the changes in wholesale electricity prices fully flows through to retail rates.Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

Draft Report; October 2002



### 38

Figure 25: Levelized Annual Average Wholesale Elec tricity Price

$0 $5 $10 $15 $20 $25 $30 $35

CNV (California, Southwest

Nevada) WSCP (Pacific Northwest) WSCR (Interior West)Levelized Annual AverageWholesale Electrcity Price (2001 $/MWhr)

BAU 10/20 Goals EE + 10/20 Goals EE

Under the 10/20 goals, the wholesale electricity pr ice declines for two reasons: (1) generation from renewable energy have little or no variable cost of operation and (2) because the 10/20 goals essentially requires the po wer system to produce the level of generation associated with the targets, in generati on markets, wholesale electricity price is determined by the marginal cost in meeting the i ncremental demand (i.e., the demand left after the generation required by the 10/20 goa ls have been accounted for). Under energy efficiency, the change in wholesale electric ity price results from reduced demand, which eliminates the need for the higher cost units and thus leads to lower prices.

Figure 25 presented above, however, does not accoun t for the “compliance cost” of the 10/20 goals or the implementation costs associated with energy efficiency. The issue of how those costs are recovered is more an issue of p olicy design but for purposes of this analysis the AP2 forum assumed that the costs of me eting the 10/20 goals and implementing the energy efficiency recommendations would be recovered uniformly through all end-users, as in a Systems Benefit Char ge (SBC) type framework.

To achieve the 10/20 goals, developers of renewable energy must earn sufficient revenue to cover their investment costs and earn a reasonable return. These required earnings are reflected in the marginal costs of sat isfying the goal – or in the language of renewable portfolio approaches – the renewable ener gy credit (REC) price. The value of the REC represents the incremental costs over the w holesale energy price that the marginal renewable energy producer must earn – over the commodity energy price – to give him sufficient returns and incentives to const ruct the renewable capacity. RECs reflect the market price implications of achieving the 10/20 goals while production costs impacts only describe the total production cost imp lications of meeting the 10/20 targets without describing the price implications (opportun ity cost) of the target.

Figure 25 presented below summarizes the annual lev elized REC for the policy scenarios with the 10/20 goals. In addition, Figur e 26 also describes the value of the REC levelized over the electricity demand of the Tr ansport Region.Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

Draft Report; October 2002



### 39

Figure 26: Renewable Energy Credit Price for the 1 0/20 Goals

$7.03 $7.96

$0.98 $1.09

$0.00 $2.00 $4.00 $6.00 $8.00 $10.00

10/20 Goals EE + 10/20 Goals2001$/MWh

Renewable Eenergy Credit (REC) Price REC Price Levelized over Electricity Demand

Similarly implementation costs of the energy effici ency recommendations have been translated into price impacts by assuming that the annual levelized implementation costs of $ 45 million 22 will be distributed evenly through all end-users, resulting in an annual levelized cost of $ 0.07/MWh.

The wholesale electricity price along with the rene wable energy credit price and the energy efficiency implementation costs provide a be tter description of electricity price impacts because it explicitly accounts for the comp liance cost of the policy objectives. As presented in Figure 27 below, the wholesale elec tricity price in the Transport Region will increase by 1 percent to 2 percent under the 1 0/20 goals, decrease by as much as 5 percent with energy efficiency and decrease by as m uch as 8 percent with energy efficiency and the 10/20 goals. This projected ele ctricity price impact is measured at the wholesale level (the price at which generators will sell to utilities or distribution companies for end-use sales) because it does not ac count for the distribution and retailing costs. Retail price impacts would be low er in proportion to the share of retail prices that are wholesale price component.

22 Includes implementation costs and avoided investme nts costs in transmission & distribution, see Section III.2 above for details.Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

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### 40 Figure 27: Wholesale Electricity Price Impacts Unde r the Policy Scenarios

$30.2 $31.8 $31.0 $32.4 $31.4 $31.6 $32.5

$29.6 $31.3 $32.3 $31.1 $32.0

$0 $5 $10 $15 $20 $25 $30 $35

CNV (California, Southwest

Nevada) WSCP (Pacific Northwest) WSCR (Interior West)Levelized Annual AverageWholesale Electricity Price (2001$/MWh)

BAU 10/20 Goals EE +10/20 Goals EE
In summary, the analysis indicates that the 10/20 g oals can be achieved with modest price impacts of 1 percent to 2 percent, while ener gy efficiency could help to reduce the wholesale price by as much as 8 percent in some reg ions. The largest gains appear to be concentrated in regions that achieve the highest levels of renewable energy and energy efficiency penetration.Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

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### 41 

## V. Secondary Regional Economic Impacts

This section describes the secondary regional econo mic impacts resulting from the implementation of the 10/20 goals and the energy ef ficiency recommendations. The AP2 forum selected three policy scenarios for analy sis of the regional economic impacts: (1) 10/20 goals; (2) energy efficiency; and (3) 10/ 20 goals and energy efficiency. Details of the modeling framework and assumptions on region al economic impacts are contained in Section III.2.

Although the REMI model provides estimates on a var iety of different impacts, the analysis has been focused around gross regional pro duct (GRP), employment and real disposable personal income. These selected paramet ers provide a reasonably clear picture of the overall economic impacts of the 10/2 0 goals and energy efficiency. Gross regional product is analogous to national gross dom estic product and describes the final demand or output of the regional economy. It consi sts of consumption, investment, government expenditures and net exports, while real personal disposable income describes personal income after taxes.

The most informative aspects of the economic impact s are contained in the estimates of the overall regional impacts rather than the state- by-state impacts. While the state-bystate impacts provide a description of how the broa der regional impacts may be distributed by state, the state level results may b e sensitive to assumption on the distribution of the initial impacts. In particular , the state level results may be sensitive to assumption on how renewable energy investments are allocated across states. IPM projects renewable energy capacity only by model re gions and the state level allocations were based on how the renewable energy resources we re distribution by state.

On average over the analysis horizon, the 10/20 goa ls and the EE recommendations have a small impact on GRP, employment and personal income, often less one half of one percent. Most of the impacts are closely align ed with the construction boom that results from capital investment in renewable energy . In addition, the decline in electricity prices from the 10/20 goals and energy efficiency l owers the cost of production in the commercial, industrial and manufacturing sector, wh ich in turns leads to higher income and output. The reduction in electricity prices fo r the residential sector also leads to higher real income, increased consumption and inves tments. Table 10 presented below summarizes the change in employment, gross regional product and personal disposable income across the three policy scenarios. State/le vel details are presented in Appendix I.

Table 10: Annual Average (2005 – 2020) Changes In K ey Economic Indicators for

the Transport Region Under the Policy Scenarios

Under the 10/20 goals, the employment impacts occur mostly in the 2005 to 2015 time period because most of the investment in renewable energy capacity occurs at that time. Employment Gross Regional Product Personal Disposable Income (Persons) (% Change) (Million 2001$) (% Change) (Million 2001$) (% Change)
10/20 Goals 627 0.00% -312 -0.01% 73 0.00% Energy Efficiency (EE) 8,415 0.02% 450 0.02% 776 0.04% 10/20 Goals + EE 4,097 0.01% -58 0.00% 547 0.03%Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

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### 42 Under the scenario that includes only the EE recomm endations, the increase in capital investments occur a little later, in the 2011-2015 time period, resulting in an increase in employment over that time period.

The increase in employment also affects gross regio nal product (or output) through changes in investment and consumption. The increas e in employment demand briefly causes wage rates to increase, as labor markets adj ust, and this along with the increase in output leads to the increase in personal income. In short, the increase in employment caused by increased investments in renewable energy has the most dominant impact in the regional economy and also leads to related incr ease in gross regional product and personal income.

The change in employment, though, is temporary and begins to ebb after the 2015 time period as investments in renewable energy decline. The decline in income, which have a less pronounced effect during times of high inves tments but continue to occur even after the investments have tapered off, add to the regional economic impacts after 2015. The decline in income reflects the drop in profits as a result of the changes in electricity prices and mining revenues from reduced fossil fuel consumption. These income effects are somewhat mitigated by the lower electricity cos t faced by the residential, commercial and industrial sector but are not sufficient to off set the decline in income from profits. In addition, wages begins to decline slightly after 20 10 as the construction demand begins to taper off and labor markets readjust.

On average over the analysis horizon, the 10/20 goa ls lead to small increases in employment and personal income and to a minor decli ne in gross regional product. Energy efficiency leads to increases in employment, personal disposable income and gross regional product over the entire analysis hor izon.

In summary, the results of the regional economic an alysis indicate that the 10/20 goals and the energy efficiency recommendations will have small or no impacts on the regional economy. The policies may lead to small increases in economic activity in the early years and a small decline in the later years. The impacts in the 2005 to 2015 time period are largely the result of investment in new renewable energy facilities that increase labor demand and have secondary impacts on output and income. Following the investment and construction boom, the region se es some decline in employment, gross regional product and personal disposable inco me because of the income impacts from lower profits in the electric and mining secto r.Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

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### 43 

## VI. Caveats and Uncertainties

The objective of this analysis was to assist the AP 2 forum in understanding the potential emissions reductions, costs and secondary regional economic impacts of implementing the 10/20 goals and energy efficiency recommendatio ns. The AP2 forum intends for this report to serve as a technical appendix, providing the analytical support for its recommendation to WRAP. As with any analytical ass essment, the findings presented in this report should be understood and applied in the context of which it was developed and recognizing the assumptions, analytical framewo rk, caveats and uncertainties underlying the analysis.

One of the key factors driving the results of the a nalysis is the assumption on renewable energy technology cost and performance. Existing l iterature on this subject provide a wide range of estimates, particularly in how the co st and performance might change in future years. The assumptions developed by the AP2 forum for the policy scenarios was based on a variety of different sources, including research of existing literature, data developed by the Energy Information Administration, data developed by the National Renewable Energy Laboratory and stakeholder input. The assumptions represent the forum’s best view of renewable energy technologies given the policy climate likely under the 10/20 goals and energy efficiency recommendatio ns.

Outside of the cost and performance assumptions for renewable energy technologies, this analysis was conducted using the data, assumpt ions and analytical framework developed by the WRAP/MTF in 2000 for the economic analysis of regional trading program in support of the Annex. Those assumptions describe the electric system operation, technology cost and performance includin g pollution control equipment, fuel prices and economic conditions. 23 In addition, the AP2 forum adopted the WRAP/Annex scenario as the BAU scenario for this analysis with minor modifications to account for the planned additions to renewable energy capacity.

The state level description of the secondary region al economic impacts presented in Appendix I should be used with some caution because the results may be sensitive to the assumptions on how the impacts were allocated b y state. A key driver of the regional economic impacts was the capital investmen ts for renewable energy projects. In IPM, which provided inputs for the REMI modeling , the growth in renewable energy capacity is described only by model region and the investments for new capacity were allocated by state based on distribution of renewab le resource availability.

Though the modeling and analytical results provide detailed estimates of emissions reductions, cost and secondary regional economic im pacts, it is important to recognize that the magnitude of the projected changes are qui te small. This is particularly important for analysis of secondary regional econom ic impacts projected through the REMI model because most of the impacts are less tha n one half of one percent. Similarly, many of the costs projected from the IPM model are small relative to the total production costs of the sectors modeled. As with a ny analytical results, small perturbations are difficult to interpret precisely. In instances where the changes appear

23 MTF 2000.Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

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### 44 to be very small, analysis of broader trends, rathe r than specific numbers, will often be a more robust and meaningful description of the impac ts.Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

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### 45 

## VII. Conclusions

The objective of the analysis was to assist the AP2 forum in assessing the potential emissions reduction, costs and secondary regional e conomic impacts of meeting the 10/20 goals and implementing the energy efficiency recommendations in the states and tribal lands of the Transport Region. The analysis suggests that the 10/20 goals and energy efficiency could both serve as cost-effectiv e air pollution prevention strategies because they provide opportunities for emissions re ductions with modest cost or with some cost savings.

The 10/20 goals require that renewable energy resou rce satisfy 10 percent of the regional energy needs by 2005 and 20 percent of the regional energy needs by 2015. Most of the expansion in renewable energy is likely to come from wind power, where the greatest improvements in technology cost and perfor mance are expected. Additional penetration of geothermal and landfill gas capacity are also projected under the 10/20 goals. The investments required for this expansion is likely to increase annual levelized production costs by $300 million to $900 million, r epresenting a production cost increase of 2 percent to 5 percent relative to the BAU scena rio. The increase in wholesale electricity prices from meeting the 10/20 goals are likely to be less than 2 percent.

The energy efficiency recommendations developed by the AP2 forum calls for electricity demand reductions in the Transport Region growing t o 8 percent of the electricity demand by 2018. Implementation of the energy effic iency recommendations will lead to annual levelized production cost savings between $7 00 million and $1 billion in addition to some reductions in wholesale electricity prices. The savings under the energy efficiency policy scenarios accrue from reduced ele ctricity and steam production cost and from avoided investment costs in transmissions and distribution, but are offset by the energy efficiency implementation costs.

Future expansion of renewable energy capacity and i ncreased penetration of energy efficiency is likely to compete against new convent ional generation technologies. Analysis of the BAU scenario indicates that in the absence of 10/20 goals or energy efficiency, the growth of conventional capacity wil l consist mostly of gas-fired combined cycles. The penetration of renewable energy and en ergy efficiency under the policy scenario is likely to displace new gas-fired combin ed cycles, which are relatively low emissions technologies.

For 2018, the analysis indicates that annual emissi ons savings from implementing the 10/20 goals and energy efficiency recommendations w ill be between 1 percent and 2 percent in NO
x and 10 percent to 14 percent in CO 2 . Though the potential for emissions reductions may appear to be modest because renewabl e energy and energy efficiency compete against new gas fired generation sources, t he 10/20 goals and energy efficiency will provide a hedge against future emis sions growth.

Though the 10/20 goals and energy efficiency are un likely to reduce SO 2 emissions in the presence of regional backstop SO 2 trading program proposed in the Annex, they could help reduce the compliance cost of trading pr ogram. By meeting the 10/20 goals, the compliance cost of the trading program could de crease the compliance cost by asEconomic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

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### 46 much as $ 10 million (or 7%) and may displace 1,200 MW to 1,700 MW of new scrubber installations.

The 10/20 goals and energy efficiency are likely to have very small impacts on the regional economy. On average over the analysis hor izon, energy efficiency will lead to small gains of less than one half of one percent in employment, gross regional product and personal disposable income. Similarly, on aver age over the analysis horizon, the 10/20 goals will lead to small increases of less th an one half of one percent in employment and personal income along with an equall y small decline the gross regional product. The economic impacts under the 10/20 goals and energy efficiency are the result of increased capital investment in renewable technologies and lower electricity prices. In implementing the 10/20 goals and the en ergy efficiency recommendations, the boom in construction job sparked by the investments along with the lower production costs from lower electricity prices appear to be ke y reasons for the changes in the regional economy.Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

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### 47 

## Appendix I: Regional Economic Impacts

Economic Impacts by State

10/20 Goals Scenario Annual Average Change in Employment

2005-2010 2011-2015 2016-2020

Persons Percent Persons Percent Persons Percent Annual Av erage AZ 278 0.01% -768 -0.02% -1,530 -0.04% -614 CA -612 0.00% -4,123 -0.02% -6,724 -0.03% -3,619 CO 651 0.02% 450 0.01% 1,160 0.03% 747 ID 854 0.10% 1,274 0.15% 264 0.03% 801 NM 177 0.02% -522 -0.04% -1,372 -0.11% -525
NV 285 0.02% 451 0.03% 791 0.05% 495 OR -2,541 -0.11% -1,351 -0.06% -1,549 -0.06% -1,859
UT 720 0.05% 172 0.01% -391 -0.02% 201 WY 6,271 1.70% 10,380 2.71% -1,897 -0.48% 5,003 9 States 6,080 0.02% 5,961 0.02% -11,250 -0.03% 627

Economic Impacts by State EE Only Scenario Annual Average Change in Employment 2005-2010 2011-2015 2016-2020 Annual Average

Persons Percent Persons Percent Persons Percent AZ 902 0.03% 3,434 0.10% 1,837 0.05% 1,986 CA -3,269 -0.01% 5,131 0.02% -11,315 -0.05% -3,158 CO 849 0.03% 4,060 0.12% 6,603 0.19% 3,651
ID 925 0.11% 680 0.08% -193 -0.02% 499
NM 270 0.02% 762 0.06% -406 -0.03% 212
NV -81 -0.01% 724 0.05% 252 0.02% 275 OR 1,084 0.05% 1,871 0.08% 997 0.04% 1,303 UT 321 0.02% 1,347 0.08% -98 -0.01% 511 WY -27 -0.01% 11,148 2.91% -1,071 -0.27% 3,139 9 States 975 0.00% 29,156 0.08% -3,397 -0.01% 8,415

Economic Impacts by State

EE + 10/20 Goals Scenario Annual Average Change in Employment

2005-2010 2011-2015 2016-2020

Persons Percent Persons Percent Persons Percent Annual Av erage AZ 859 0.03% 2,811 0.08% 3,297 0.10% 2,231 CA -4,828 -0.02% -6,640 -0.03% -10,943 -0.05% -7,305 CO 1,218 0.04% 2,930 0.09% 8,049 0.23% 3,888 ID 986 0.12% 2,573 0.29% -297 -0.03% 1,081
NM 307 0.03% 230 0.02% -274 -0.02% 101
NV 302 0.02% 481 0.03% 543 0.03% 433 OR -923 -0.04% 167 0.01% -1,131 -0.05% -647 UT 959 0.06% 1,048 0.06% 422 0.03% 819 WY 6,169 1.67% 4,843 1.27% -1,055 -0.27% 3,497 9 States 5,050 0.01% 8,441 0.02% -1,389 0.00% 4,097Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

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### 48 Economic Impacts by State

10/20 Goals Scenario Annual Average Changes in Gross Regional Product

2005-2010 2011-2015 2016-2020

Million $ (Fixed 2001)

Percent Million $ (Fixed 2001) Percent Million $ (Fixed 2001) Percent Annual

Levelized (million 2001$)
AZ 26 0.01% -46 -0.02% -129 -0.05% -29 CA -135 -0.01% -554 -0.03% -958 -0.04% -423 CO 42 0.02% 36 0.01% 90 0.03% 49
ID 31 0.06% 49 0.08% -14 -0.02% 27
NM 4 0.01% -35 -0.04% -98 -0.11% -30
NV 15 0.02% 25 0.02% 56 0.05% 27 OR -148 -0.10% -95 -0.06% -138 -0.07% -129
UT 36 0.04% 7 0.01% -35 -0.03% 12
WY 242 0.95% 392 1.39% -172 -0.54% 185 9 States 112 0.00% -221 -0.01% -1399 -0.04% -312

Economic Impacts by State EE Only Scenario Annual Average Changes in Gross Regional Product

2005-2010 2011-2015 2016-2020

Million $ (Fixed 2001)

Percent Million $ (Fixed 2001) Percent Million $ (Fixed 2001) Percent Annual

Levelized (million 2001$)
AZ 57 0.02% 249 0.10% 141 0.05% 129 CA -200 -0.01% 293 0.01% -1108 -0.05% -233 CO 63 0.03% 318 0.13% 613 0.22% 251
ID 41 0.07% 42 0.07% -17 -0.02% 27
NM 12 0.02% 40 0.05% -21 -0.02% 13 NV -4 0.00% 53 0.05% 26 0.02% 18 OR 67 0.04% 146 0.08% 77 0.04% 91
UT 22 0.02% 100 0.09% 31 0.03% 46 WY -5 -0.02% 451 1.60% -100 -0.32% 109 9 States 52 0.00% 1,692 0.05% -359 -0.01% 450

Economic Impacts by State

EE + 10/20 Goals Scenario Annual Average Changes in Gross Regional Product

2005-2010 2011-2015 2016-2020

Million $ (Fixed 2001)

Percent Million $ (Fixed 2001) Percent Million $ (Fixed 2001) Percent Annual

Levelized (million 2001$)
AZ 61 0.03% 194 0.08% 230 0.08% 133 CA -409 -0.02% -720 -0.03% -1232 -0.05% -650 CO 85 0.04% 236 0.09% 712 0.25% 258
ID 38 0.07% 113 0.18% -36 -0.05% 43
NM 8 0.01% 1 0.00% -33 -0.04% -3
NV 16 0.02% 30 0.03% 40 0.03% 24 OR -57 -0.04% 16 0.01% -91 -0.05% -44
UT 52 0.05% 74 0.07% 51 0.04% 57
WY 235 0.92% 156 0.56% -115 -0.36% 125 9 States 30 0.00% 100 0.00% -475 -0.01% -58Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

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### 49 Economic Impacts by State

10/20 Goals Scenario Annual Average Changes in Real Disposable Income

2005-2010 2011-2015 2016-2020

Million $ (Fixed 2001)

Percent Million $ (Fixed 2001) Percent Million $ (Fixed 2001) Percent Annual

Levelized (million 2001$)
AZ 31 0.02% 13 0.01% -35 -0.02% 11 CA -77 -0.01% -221 -0.02% -373 -0.03% -175 CO 42 0.03% 97 0.06% 125 0.07% 75
ID 18 0.05% 36 0.08% 6 0.01% 21
NM 11 0.02% -8 -0.01% -46 -0.07% -7
NV 16 0.02% 45 0.05% 52 0.05% 33 OR -110 -0.10% -85 -0.07% -80 -0.06% -95
UT 29 0.05% 19 0.03% -8 -0.01% 18
WY 183 1.06% 379 2.01% 3 0.02% 193 9 States 143 0.01% 277 0.01% -357 -0.02% 73

Economic Impacts by State EE Only Scenario Annual Average Changes in Real Disposable Income

2005-2010 2011-2015 2016-2020

Million $ (Fixed 2001)

Percent Million $ (Fixed 2001) Percent Million $ (Fixed 2001) Percent Annual

Levelized (million 2001$)
AZ 72 0.05% 331 0.19% 245 0.13% 182 CA -55 0.00% 217 0.02% -401 -0.03% -40 CO 67 0.04% 382 0.22% 612 0.32% 272
ID 33 0.08% 45 0.10% -3 -0.01% 28 NM 22 0.04% 88 0.14% 32 0.05% 42
NV 9 0.01% 96 0.11% 83 0.09% 50 OR 54 0.05% 110 0.09% 92 0.07% 78
UT 21 0.03% 99 0.14% 48 0.06% 49 WY 2 0.01% 371 1.97% 23 0.11% 115 9 States 224 0.01% 1,741 0.09% 731 0.03% 776

Economic Impacts by State

EE + 10/20 Goals Scenario Annual Average Changes in Real Disposable Income

2005-2010 2011-2015 2016-2020

Million $ (Fixed 2001)

Percent Million $ (Fixed 2001) Percent Million $ (Fixed 2001) Percent Annual

Levelized (million 2001$)
AZ 69 0.04% 285 0.16% 414 0.22% 204 CA -140 -0.01% -352 -0.03% -599 -0.04% -285 CO 76 0.05% 325 0.19% 747 0.39% 288
ID 31 0.08% 90 0.20% 4 0.01% 42 NM 21 0.04% 62 0.10% 70 0.10% 43
NV 24 0.03% 80 0.09% 109 0.11% 58 OR -27 -0.03% 6 0.00% 1 0.00% -12
UT 42 0.07% 83 0.11% 87 0.11% 63 WY 180 1.05% 209 1.11% 21 0.10% 146 9 States 278 0.02% 788 0.04% 854 0.04% 547Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

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### 50 

## Appendix II: Energy Efficiency Analysis and Methodology

ESTIMATION OF POTENTIAL ENERGY EFFICIENCY SAVINGS F OR THE WESTERN REGIONAL AIR PARTNERSHIP BY THE AIR POLLUTION PREVE NTION FORUM



## Approach, Methods and Summary Results

David Von Hippel and David Nichols

Tellus Institute (Revised draft, June 26, 2002)

Introduction Tellus Institute was asked by the Air Pollution Pre vention Forum (the AP2 Forum) to prepare estimates of electric energy effi ciency savings in order to determine the potential impact of energy efficiency programs on air pollutant emissions from the electricity generation sector in the West. The For um asked the Tellus team to estimate the achievable potential for electricity savings th rough energy efficiency programs in three air pollutant modeling regions: the Interior West (the "WSCR" region including Utah, Colorado, Arizona, New Mexico, Wyoming, Easte rn Idaho, and Nevada excluding the Las Vegas area), part of the Pacific Northwest (the "WSCP" region, including Oregon and Western Idaho), and California/Las Vegas (the " CNV" region). Energy efficiency programs for the three areas were modeled over the period from 2002 through 2018, with impacts of measures installed under the programs co unted through 2026. Only a limited set of energy efficiency measures were included in the program, so the estimates prepared were not, nor were they intended to be, fully compr ehensive assessments of all potential electricity savings. The electricity savings (ener gy and peak) and the incremental costs of the programs were provided for use in ICF's IPM mod eling system, and were used to generate air pollution scenario results as describe d in the Draft Final Report on Energy Efficiency and Renewable Energy , to which this document is a supplement. The sections below describe the overall approach us ed to estimate the potential impacts of energy efficiency programs, present a br ief summary of the overall results of the estimation process, and indicate what next step s might be undertaken to elaborate the assessment of energy efficiency opportunities in th e West.



## Overall Approach The key steps in the estimation of energy efficienc y opportunities in the Interior West and Oregon/Western Idaho regions were as follo ws:

• Identification of energy efficiency measures , by Forum group members and the
Tellus team

• Measure evaluation , to determine the basic cost-effectiveness of indi vidual measure
installations.Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

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### 51 • Program evaluation , including assembly of illustrative energy efficie ncy programs (application of measures to markets) and estimation of program impacts and costs, by

year. Each of these steps is described briefly below. A different, more aggregate approach was used for the California/Las Vegas regi on.



## Identification of Measures The Forum group, based on their knowledge of electr icity demand in the West, prepared a preliminary list of energy efficiency me asures for the Tellus team to evaluate. The measures spanned all customer categories (inclu ding residential, commercial/institutional, industrial, and agricultu ral consumers), and ranged widely in scope and applicability. Measures designed strictl y to reduce or displace load (load response and load management programs), but not sav e energy, were not included, nor were major uses of renewable energy in end-use sett ings (such as solar water heating). Likewise distributed generation technologies withou t heat production, gas energy efficiency measures, and transportation sector meas ures were also excluded from the study. The Tellus team performed an initial, qualitative s creening of the suggested measures, eliminating (in a relatively few cases) m easures from the list, and adding other
measures that the team felt merited consideration. The final list of measures considered in the Interior West is presented in Table 1, below . The same list of measures was considered in the Oregon/Western Idaho region, exce pt that two measures for application in the aluminum industry (aluminum production cell retrofit and advanced forming processes) were investigated in the latter region. Summary descriptions of these measures are provided in Attachment 1 to this document.Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

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### 52 Table 1: Energy Efficiency Measures Evaluated, Inte rior West Region
Residential Sector Measures Commercial Sector Measures Industrial Sector Measures Efficient Central Air Conditioning Lighting, Advan ced Measures Motor Downsizing Efficient Room Air Conditioning Lighting, Efficien t Fluorescent Premium Motors versus Rewinding

Evaporative Cooling Refrigeration, High-cost Measur es Premium Motors (versus standard new motors) Indirect-direct Evaporative Cooling Refrigeration, Low-cost Measures Air Compressor System Measures Appliance Recycling (refrigerators) Air Conditionin g Improvement Residential-type Central AC Fan System Measures

Compact Fluorescent Torchieres Air Conditioning Imp rovement Residential-type Room-type AC Pump System Measures

CFL Fixtures--Indoor Air Conditioning Improvement, Small Heat Pumps CHP 24 , 10 MW Combustion Turbine (replacing gas boiler) CFL Fixtures--Outdoor Air Conditioning Improvement, 20- ton Package Units CHP, 3000 kW diesel-type (replacing gas boiler) CFL Bulbs Air Conditioning Improvement, 350- ton Centrifugal Units CHP, 40 MW Combustion Turbine (replacing gas boiler) Duct Test and Seal--Homes with Central AC Air Conditioning, IDDEC 25 , 20, 150, and 350-ton Equivalent Units Industrial CHP, 800 kW diesel-type (replacing gas boiler) Duct Test and Seal--Homes with Electric Space Heat Ground-source Heat Pumps, 1000 to 3000 operating hours/yr High-efficiency Transformers

Energy Star (Vertical Axis) Clothes Washer Efficient Clothes Washers

SEHA (Horizontal Axis) Clothes Washer LED Exit Signs

Appliance Standby Loss Reduction, Incentive Approach LED Traffic Signals

Appliance Standby Loss Reduction-- Standards Approach Retrocommissioning of Buildings

Home Weatherization Space Heat High Efficiency Gas Boiler New Home Building Envelope Improvement to IECC 2000 levels Space Heat, Standard Gas Boiler

New Home Building Envelope Improvement--Enhanced levels Space Heat, Gas Unit Heater

Water Heat Gas Boiler Fuel Switch
Water Heater Fuel Switching
Water Heating, Heat Pump Unit

24 CHP = Combined Heat and Power (or Cogeneration)

25 IDDEC = Indirect-direct Evaporative CoolingEconomic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

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### 53 Table 1 (Continued): Energy Efficiency Measures Eva luated, Interior West Region
Additional Commercial Sector Measures Gas Air Conditioning (with heat recovery displacing Electric WH 26 ) Gas Air Conditioning (with heat recovery displacing Gas WH) Gas Air Conditioning (w/o heat recovery) Building Envelope--Improvements to ASHRAE Standards Building Envelope--Improvements to Enhanced Level Cooling Tower VSD 27 (CA Central Valley-type Climate) Cooling Tower VSD (CA Desert-type Climate) High-efficiency Transformers CHP, 100 kW diesel-type replacing Electric WH CHP, 100 kW diesel-type replacing Gas WH CHP, 30 kW Micro-turbine replacing Electric WH CHP, 30 kW Micro-turbine replacing Gas WH CHP, 800 kW diesel-type replacing Electric WH CHP, 800 kW diesel-type replacing Gas Boiler



## Measure Evaluation For each measure listed in Table 1, plus several ot her measures 28 

### , MS ExcelTM
workbook tools were used to evaluate the measure co st-effectiveness. For each measure,
cost-effectiveness was calculated relative to stand ard technologies, that is, technologies providing the same energy service but with efficien cies just meeting existing or planned standards, or technologies that correspond to stand ard practice for the end-use. Inputs to the measure cost-effectiveness calculatio n included:

• Measure cost information , including incremental or total measure capital co st (of both the energy-efficient and standard measure) per unit, and incremental or total non-fuel annual operating and maintenance (O&M) cos ts.

• Energy use impacts , including annual energy and peak power savings or usage, and annual gas use, if applicable, expressed on the sam e unit basis as the costs.

• An assumed discount rate (4.88 percent per year on a real basis).

• Real levelized avoided capacity and energy costs , in this case, estimates based on "proxy" gas-fired combustion turbine or combined-cy cle units, using gas prices as defined by the Forum for use in the IPM modeling pr ocess. Note that these costs were used for rough screening purposed only, and ar e not the same as the costs used in the IPM modeling work to derive the impacts of e nergy efficiency programs on overall power system costs.

• Estimated electricity rates , calculated very roughly as the weighted averages of year 2000 electricity rates in the regions being studied , by sector, escalated at 1 percent annually (on a real basis).

• Gas avoided costs based on the costs used in the IPM modeling work.
The data elements above were derived from a wide va riety of national and regional publications. Additional inputs were deve loped through consultation with experts in the energy-efficiency field. In cases w here electricity usage in a measure was

26 WH = Water Heating

27 VSD = Variable Speed Drive

28 Including fuel cell-based and other types/sizes of combined heat and power equipment, as well as seve ral energy-efficiency measures that proved less than co st-effective.Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

Draft Report; October 2002



### 54 likely to be weather-sensitive (space cooling, for example), adjustments to national or regional values were made based on conditions in th e region (Interior West or Oregon/W. Idaho) modeled. Attachment 2 to this document provides a tabular summary of key measure cost and savings figures, as well as key pr ogram-related inputs to the energy efficiency analysis. The outputs of the measure cost analyses included l ife-cycle costs, for those measures where standard units were compared directl y with higher-than-standardefficiency measures, and in all cases benefit-cost ratios for energy-efficiency measures relative to standard practice were calculated. The resulting ratios thus represent “incremental” measure costs and savings, relative t o standard equipment. Benefit-cost ratios calculated from a total resource cost perspe ctive were the primary yardstick used to assess whether measures should be included in progr ams, but in some cases participant cost measures were used to (roughly) inform the lev el of incentives that might be required.



## Program Evaluation Increasing the market penetration of energy-efficie ncy measures in an aggressive manner generally implies the provision of financial incentives to customers. As a consequence, the program evaluation phase of the de velopment of energy-efficiency estimates for use by the AP2 Forum focused on estim ating the sponsor costs of reaching a broader market for energy efficiency measures 29 

### . The estimation of energy-efficiency program costs and benefits involved the following s teps:

• Grouping of measures into "programs" based, typically, on the end-uses and sectors addressed by the measures.

• Estimating the program market by consideration of the electricity demand in the sector and end-use addressed by the program, and of the nature and current market for the measure to be implemented. Sources for informa tion on markets for energyefficiency measures included national end-use surve ys, statistics on electricity use by sector, State, and utility area, and a host of spec ific studies on particular markets from the national and regional literature.

• Estimating program penetration rates based on a com bination of penetration rates historically achieved by utilities mounting aggress ive energy efficiency efforts, and on program targets that were felt to be "aggressive but achievable" in the markets
studied.

• Estimating expenditures for administering energy-efficiency programs, including both start-up and ongoing costs, based on considera tion of the types of activities and interactions with customers that would be required to initiate the energy efficiency programs considered and to carry them out on an ong oing basis. In a few cases, program impacts were based on the a ssumption that mandatory standards would be implemented in the future (for e xample, in 2008), which would raise

29 The AP2 Forum wished to leave open the question of what types of agencies might organize and offer energy-efficiency programs of the types implied in the work described here. Accordingly, the organizations offering the programs are referred to as "sponsors", which could include government agencies, energy-efficiency program administrators retained to coordinate the use of funds collected through systems benefit charges, or, as in the past , distribution utilities.Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

Draft Report; October 2002



### 55 effective program participation to near 100 percent (and reduce sponsor measure costs to zero). The ECO2TM DSM analysis software package, developed at Tellus Institute, was used to evaluate the candidate energy-efficiency pr ograms. Key program inputs—such as the number of participants annually per measure, pr ogram administrative costs, and shares of measure costs assumed paid by the sponsor and by customers—were developed
and documented in the same set of workbooks used to develop measure data. Program results from the ECO2 runs included annual energy s avings, peak power savings (summer and winter peak), customer measure costs, s ponsor measure costs, administration costs, customer O&M costs, net fuel (gas) and water costs (if any), estimated energy and capacity costs avoided by the program (from the perspectives of customers and society), and end-use pollutant emiss ions for the years 2002 through 2026. Net present values of program costs (and estimated benefits), as well as costs of saved energy, were calculated in a set of Excel workbooks that compiled ECO2 results for each region. Specific examples, for several of the meas ures and programs evaluated, of the overall analytical approach used to estimate energy efficiency costs and impacts for the WSCR and WSCP regions, are provided in Attachment 3 to this document.



## Approach Used in the CNV Modeling Region Savings and costs for energy efficiency in the CNV (California/Las Vegas) region were estimated based on a parameterization of a nat ional (American Council for an Energy Efficient Economy or ACEEE) study. Based on its national analysis, ACEEE provided Tellus with estimated electricity reductio ns by sector for a number of policies. The Tellus team used results of some of these polic ies ("Appliance Standards", "Public Benefits Funds", and "Tax Credits") as a base for a rough estimate of potential electricity savings in the CNV modeling region. National elect ricity reductions through application of energy efficiency measures were allocated to the region based on the base case level of electricity consumption from NEMS (National Energy Modeling System) runs for each sector. From NEMS output, the Tellus team determin ed the region's electricity sales by sector as a fraction of national sales by sector. This fraction was applied to the national estimate of electricity use reductions from ACEEE t o determine CNV reductions. A similar approach was used to estimate program costs 30



### . Once estimates based on ACEEE results were obtained , these estimates were "trued-up" for consistency with end-use based energ y efficiency costs and savings as estimated by the Tellus team for the Interior West and Oregon/W. Idaho regions. In the process, ACEEE savings estimates were reduced by ne arly two-thirds 31 

### . The results of this "true-up" procedure should be considered only a rough approximation of the probable results if an end-use method were applied for the California/Las Vegas region.

30 The ACEEE source document for which the original A CEEE estimates were prepared is Nadel, S. and H. Geller with the Tellus Institute (2001), Smart Ener gy Policies: Savings Money and Reducing Pollutant Emissions Through Greater Energy Efficiency . American Council for an Energy-Efficient Economy

, Report No. E012, September, 2001.

31 Note that this "true-up" also implicitly excludes savings due to free-riders, since the WSCR savings used to accomplish the true-up exclude savings from free -riders.Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

Draft Report; October 2002



### 56 

## Selection of Measures and Programs for Use in IPM E missions Modeling Effort The AP2 Forum reviewed the results of the energy-ef ficiency analyses described above in order to decide which results to carry for ward for use in the IPM emission modeling effort. In addition to deciding to exclud e the results of the combined heat and power analyses (see discussion below), the Forum fe lt that it would be prudent to remove the costs and savings for those measures with highe r costs of saved energy from the packages of energy-efficiency programs modeled in e ach region. A threshold of 5.4 cents (2001 dollars) per kWh saved (on a levelized basis) was set, based very roughly on current average avoided costs for electricity gener ation in the West regions, and measures with costs higher than the threshold level were acc ordingly excluded from the final packages of energy-efficiency programs for which en ergy/power savings and costs were included in the IPM modeling effort. The cost and savings of the resulting packages of energy-efficiency programs are described below.



## Summary Results The summary results provided below present energy a nd peak power savings, as well as costs, estimated for the energy-efficiency programs and measures included in the final package of programs used in the IPM modeling effort. Results are presented by region, and on an overall basis.



## Energy Savings Figures 1 through 3 show annual GWh electricity sav ings for the years 2002 through 2018 in the WSCR (Interior West), WSCP (Ore gon/W. Idaho), and CNV (California/Las Vegas) regions, respectively. Resu lts are shown by sector, and indicate that commercial sector savings dominate the package of programs (though the suite of industrial measures examined was relatively limited ), followed by residential sector savings. By 2018, annual electricity savings from the package of energy efficiency programs in the Interior West totals about 20,000 G Wh, versus about 5,200 GWh in the Oregon/W. Idaho region, and about 28,000 in Califor nia/Las Vegas 32



### .

32 Note that these figures do not include credit for avoided transmission and distri bution losses, so the net effect on required generation will be higher than t he end-use savings indicated here.Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

Draft Report; October 2002



### 57 Figure 1:

Energy Savings from AP2 Forum Energy Efficiency

Recommedations: Interior West

- 5,000 10,000 15,000 20,000 25,000

2 001 200 2 2 003 200 4 2 005 2 0 0 6 2 007 2 0 0 8 2 009 2 0 1 0 2 011 2 0 1 2 2013 2 0 1 4 2015 2 0 1 6 2017 2 0 1 8Annual GWH Industrial

Commercial/Institutional

Residential



### Figure 2:

Energy Savings from AP2 Energy Efficiency Recommend ations: WSCP Region

- 1,000 2,000 3,000 4,000 5,000 6,000

2001 2002 200

3 2 004 2005 2006 2007 2008 200 9 20 10 2 011 2012 2013 2014 2015

201 6 2 017 2018Annual GWH Industrial

Commercial/ Institutional

ResidentialEconomic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

Draft Report; October 2002



### 58 Figure 3:
Estimated GWH Savings from Energy Efficiency

Programs: CNV Region

- 5,000 10,000 15,000 20,000 25,000 30,000 35,00020022003200420052006200720082009201020112012201320142015201620172018GWh Industrial--EE

Commercial--EE

Residential--EE



### Figure 4 indicates the magnitude of energy savings for each of the programs included in the energy-efficiency package for the I nterior West.

Figure 4:

Energy Savings for Illustrative Interior West DSM P rograms

- 5,000 10,000 15,000 20,000 25,000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 201 3 2014 2015 2016 2017 2018Annual GWH Resident. Evap. Cooling Res. Appliance Recycle

Res. CFL Bulb Introduct. Res. CFL Fixtures Res. CFL Torchieres Resident. Clothes Washers Res. Appl. Standby Redn. Resident. Weather-ization C/I Lighting C/I Refrig. C/I Cooling Efficiency C/I Cooling IDDEC C/I Gas AC C/I GSHP
C/I Misc Devices C/I Retro-Commiss C/I Gas Space Heat C/I Water Heat C/I VSD Cooling Towers C/I and Industrial Transform
Industrial Motors Industr. Drive Systems



## Peak Power Savings Figures 5 and 6 present annual summer peak power sa vings, by region and by sector, for the Interior West and Oregon/W. Idaho r egions. By 2018, summer peak savings in the Interior West are over 6,000 MW, and savings in the Oregon/W. Idaho region are over 1,400 MW. Total summer peak power savings for the California/LasEconomic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

Draft Report; October 2002



### 59 Vegas region from the energy-efficiency package wer e estimated at approximately 780 MW in 2005, 3,500 MW in 2010, 6,600 MW in 2015, and 8,700 MW in 2018. Figure 7 shows summer peak savings by sector for the period 2002 to 2018 in the Interior West. Figure 5:

Summer Peak Savings from AP2 Energy Efficiency

Recommedations: WSCR Region

- 1,000 2,000 3,000 4,000 5,000 6,000 7,000

2001 2002 2

003 2004 2005 2006 2

007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018Summer Peak MW Industrial

Commercial/ Institutional

Residential



### Figure 6:

Summer Peak Savings from AP2 Energy Efficiency

Recommendations: WSCP

- 200 400 600 800 1,000 1,200 1,400 1,600

20 0 1 2002 20

0 3 2004 20

0 5 2006 20

0 7 2008 20

09 20 1 0 2 0 11 20 1 2 2 0 13 20 1 4 2 0 15 20 1 6 2 0 17 20 1 8Summer Peak MW Industrial

Commercial/ Institutional

ResidentialEconomic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

Draft Report; October 2002



### 60 Figure 7:

Summer Peak Savings for Illustrative Interior West DSM Programs

- 1,000 2,000 3,000 4,000 5,000 6,000 7,000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 201 3 2014 2015 2016 2017 2018MW Savings Resident. Evap. Cooling Res. Appliance Recycle

Res. CFL Bulb Introduct. Res. CFL Fixtures Res. CFL Torchieres Resident. Clothes Washers Res. Appl. Standby Redn. Resident. Weather-ization C/I Lighting C/I Refrig. C/I Cooling Efficiency C/I Cooling IDDEC C/I Gas AC C/I GSHP C/I Misc Devices C/I Retro-Commiss C/I Water Heat C/I VSD Cooling Tow ers C/I and Industrial Transform Industrial Motors Industr. Drive Systems



## Program Costs The total incremental costs of the packages of ener gy-efficiency programs for each region are presented in Figures 8 through 10 f or the three regions modeled. These costs are presented as annualized costs, that is, incremental capital costs for purc hase of measures are levelized so that a portion of those c osts are ascribed to each year in which a given device installed under the program is in op eration. By 2018, total annualized costs in the Interior West region reach about $550 million and costs in the Oregon/W. Idaho region reach $130 million, both in year 2018 dollars (or about $340 and $80 million 2001 dollars, respectively), while total an nualized costs in the California/Las Vegas region reach approximately $1,100 million 200 1 dollars.Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

Draft Report; October 2002



### 61 Figure 8:

Total Annual Costs of AP2 Forum Energy Efficiency R ecommendations

for Interior West Region (Measure Costs Annualized)

$- $50 $100 $150 $200 $250 $300 $350 $400

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 201 3 2014 2015 2016 2017 2018Million 2001 Dollars Customer Gas Costs

Customer Water Costs

Customer O&M Costs Sponsor Admin Costs Sponsor Measure Costs

Customer Measure Costs



### Figure 9:

Total Annual Costs of AP2 Forum Energy Efficiency R ecommendations for Oregon/Western Idaho Region (Measure Costs Annu alized)

$- $10 $20 $30 $40 $50 $60 $70 $80 $90

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 201 3 2014 2015 2016 2017 2018Million 2001 Dollars Customer Gas Costs

Customer Water Costs

Customer O&M Costs Sponsor Admin Costs Sponsor Measure Costs

Customer Measure CostsEconomic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

Draft Report; October 2002



### 62 Figure 10:
Annualized Program Costs by Sector: California/Las Vegas Region

$- $200 $400 $600 $800 $1,000 $1,20019992000200120022003200420052006200720082009201020112012201320142015201620172018Million 2001 Dollars Industrial

Commercial

Residential



## Costs of Saved Energy Figure 11 show the curve of the cost of saved energ y for the measures ultimately included in the Interior West energy efficiency pac kage. Table 2 presents the same
information in a tabular format that identifies the measures at each cost level. Note that
the costs shown in Table 2 are discounted total inc remental program costs for the period
2002 to 2026 33 

### . Cost curve results for the Oregon/W. Idaho regio n are not shown here,
but are similar.

Figure 11:

Cost of Saved Energy vs. Lifetime GWh Savings for M easures Included in Interior West Energy Efficiency Study

-$0.06 -$0.04 -$0.02 $0.00 $0.02 $0.04 $0.06

- 50,000 100,000 150,000 200,000 250,000 300,000 350,000

GWh Lifetime SavingsReal Levelized $/kWh Saved

33 Note that the discounting formulae used to prepare the values in Table 2 incorporate zero cost values for 2001, so the values shown are effectively in year 2 001 dollars.Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

Draft Report; October 2002



### 63 Table 2: Cost Of Saved Energy Results Sorted By Cos t Per kWh:

Measure Discounted TRC Cost ($1000) MWh Savings

Through 2026 Real Levelized

Cost of Saved Energy ($/kWh) Percent of

Total Cummul. Package Savings Cummulative

MWh Savings through 2026 Percent of

Total Cummul. Package Costs Cummulative

Discounted TRC Cost Residential Evaporative Cooling (111,017) $ 5,007,946

(0.0489)

$ 1.7% 5,007,946 -4.4% (111,017) $ Residential IDDEC Cooling (15,554) $ 2,305,001

(0.0151)

$ 2.5% 7,312,947 -5.0% (126,571) $ Comml/Instit. Space Heat Std. Gas Boiler (458) $ 465,659

(0.0022)

$ 2.6% 7,778,606 -5.0% (127,029) $ Comml/Instit. Space Heat High Eff. Gas Boiler (565) $ 962,327

(0.0013)

$ 3.0% 8,740,933 -5.1% (127,594) $ Comml/Instit. Water Heat Gas Boiler Fuel Switch (1,1 45) $ 3,325,686

(0.0008)

$ 4.1% 12,066,619 -5.1% (128,739) $ Comml/Instit. Water Heater Fuel Switching (505) $ 3,484,222

(0.0003)

$ 5.3% 15,550,841 -5.1% (129,244) $ Comml/Instit. Space Heat Gas Unit Heater 422 $ 803,719

0.0011

$ 5.6% 16,354,560 -5.1% (128,821) $ Industrial Fan System Measures 7,041 $ 2,473,382

0.0062

$ 6.4% 18,827,942 -4.8% (121,780) $ Industrial Air Compressor System Measures 23,789 $ 8,347,664

0.0062

$ 9.2% 27,175,606 -3.9% (97,991) $ Residential CFL Torchiere 62,045 $ 21,232,172

0.0067

$ 16.5% 48,407,778 -1.4% (35,946) $ Industrial Motor Downsizing 3,416 $ 865,684

0.0086

$ 16.8% 49,273,462 -1.3% (32,531) $ Comml/Instit. Refrigeration, Low-cost Measures 29,22 4 $ 6,446,877

0.0098

$ 19.0% 55,720,339 -0.1% (3,307) $
Residential CFL Bulbs 49,797 $ 8,999,064

0.0099

$ 22.0% 64,719,403 1.8% 46,490 $ Comml/Instit. Water Heating, Heat Pump Unit 4,169 $ 833,390

0.0106

$ 22.3% 65,552,793 2.0% 50,659 $ Comml/Instit. LED Exit Signs 10,551 $ 2,212,350

0.0109

$ 23.1% 67,765,143 2.4% 61,210 $ Comml/Instit. Lighting, Efficient Fluorescent 120,84 2 $ 22,406,144

0.0117

$ 30.7% 90,171,287 7.2% 182,052 $ Residential CFL Fixtures--Indoor 24,370 $ 4,477,776

0.0124

$ 32.2% 94,649,063 8.2% 206,422 $ Industrial Premium Motors 32,469 $ 4,640,110

0.0137

$ 33.8% 99,289,173 9.5% 238,891 $ Residential Appl. Standby Loss Red.--Mandatory 186,8 08 $ 31,092,432

0.0138

$ 44.4% 130,381,605 16.9% 425,699 $ Residential Appl. Standby Loss Red.--Incentive 19,09 1 $ 2,018,494

0.0148

$ 45.1% 132,400,099 17.7% 444,789 $ Comml/Instit/Industrial Transformers (C/I) 14,260 $ 1,903,312

0.0172

$ 45.7% 134,303,411 18.2% 459,050 $ Industrial Pump System Measures 130,051 $ 15,459,078

0.0183

$ 51.0% 149,762,489 23.4% 589,101 $ Comml/Instit. Retrocommissioning 35,765 $ 4,203,554

0.0186

$ 52.4% 153,966,043 24.8% 624,866 $ Comml/Instit. Refrigeration, High-cost Measures 30,1 51 $ 3,487,028

0.0188

$ 53.6% 157,453,071 26.0% 655,018 $ Residential Appliance Recycling 40,598 $ 2,593,122

0.0204

$ 54.5% 160,046,193 27.6% 695,616 $ Comml/Instit/Industrial Transformers (Industrial) 2, 150 $ 223,428

0.0220

$ 54.6% 160,269,621 27.7% 697,766 $ Residential CFL Fixtures--Outdoor 5,562 $ 515,112

0.0228

$ 54.7% 160,784,733 27.9% 703,328 $ Comml/Instit. AC Impr., 20-ton Package Units 296,085 $ 28,046,667

0.0236

$ 64.3% 188,831,400 39.7% 999,414 $ Comml/Instit. Ground-source HP, 3000 hrs/yr 30,955 $ 2,745,355

0.0249

$ 65.2% 191,576,755 40.9% 1,030,369 $ Comml/Instit. Lighting, Advanced Measures 795,012 $ 64,744,193

0.0266

$ 87.2% 256,320,948 72.4% 1,825,380 $ Comml/Instit. AC Impr., Residential-type CAC 57,876 $ 4,042,410

0.0307

$ 88.6% 260,363,358 74.7% 1,883,257 $ Comml/Instit. LED Traffic Signals 13,697 $ 931,600

0.0322

$ 88.9% 261,294,958 75.3% 1,896,954 $ Comml/Instit. Efficient Clothes Washers 15,511 $ 914,946

0.0335

$ 89.2% 262,209,904 75.9% 1,912,465 $ Comml/Instit. AC Impr., Small Heat Pump 93,753 $ 5,867,466

0.0343

$ 91.2% 268,077,370 79.6% 2,006,218 $ Comml/Instit. Ground-source HP, 2000 hrs/yr 30,955 $ 1,830,237

0.0373

$ 91.9% 269,907,607 80.9% 2,037,173 $ Comml/Instit. AC Impr., Res. Room-type AC 66,814 $ 3,738,494

0.0383

$ 93.1% 273,646,101 83.5% 2,103,987 $ Residential Weatherization 109,264 $ 5,824,614

0.0402

$ 95.1% 279,470,715 87.8% 2,213,251 $ Comml/Instit. Gas AC, w/ heat recov. (EWH) 53,763 $ 2,896,170

0.0420

$ 96.1% 282,366,885 90.0% 2,267,014 $ Comml/Instit. Cooling Tower VSD--Desert Climate 6,40 8 $ 336,718

0.0431

$ 96.2% 282,703,603 90.2% 2,273,422 $ Industrial Prem. Motor vs. Rewind 10,383 $ 436,716

0.0464

$ 96.4% 283,140,319 90.6% 2,283,805 $ Residential SEHA Clothes Washer 66,392 $ 3,052,546

0.0476

$ 97.4% 286,192,865 93.3% 2,350,197 $ Residential Energy Star Clothes Washer 57,518 $ 2,527,540

0.0498

$ 98.3% 288,720,405 95.6% 2,407,715 $ Comml/Instit. AC, IDDEC, 150-ton Equiv. Units 111,95 8 $ 5,072,414

0.0501

$ 100.0% 293,792,819 100.0% 2,519,673 $ ALL MEASURES/ALL PROGRAMS 2,519,673 $ 293,792,819

0.0186

$



## Combined Heat and Power Based on the results of two national studies, the T ellus team identified a considerable achievable potential for the applicati on of combined heat and power (CHP) in all three of the modeled regions. Implementatio n of CHP could result in significant cost savings, displacement of capacity (about 7.5 G W at the end-use level), and overall fuel (gas) savings relative to separate production of power and heat, and would also help, in many instances, to ease transmission constraints by providing distributed generation. Gas-fired CHP systems do, however, produce emission s of nitrogen oxides (NO
x 

### ) that might , depending on the type of CHP used and the type an d extent of emissions control equipment with which it is fitted, result in an inc rease of NO
x 

### emissions relative to separate heat production and power generation. Thi s result is far from certain, as it depends on the average emission factors for CHP sys tems meeting current standards in major air sheds in the West. Though any increase i n NO
x 

### emissions from the implementation of modern, regulations-compliant CHP system is likely to be modestEconomic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

Draft Report; October 2002



### 64 relative to overall NO
x 

### emissions from power generation in the West, Forum members were sufficiently concerned about the potential imp act of CHP systems on local and regional air quality, as well as about the ultimate "marketability" of CHP systems, that a consensus decision was made to leave savings (and c osts) of CHP programs out of the total energy-efficiency savings figure passed on to the IPM modeling effort.



## Summary Results, All Regions Figures 12, 13, and 14 show, respectively the energ y savings, summer peak savings, and annualized costs of the sum of all thr ee regional energy efficiency packages modeled for the AP2 Forum. Together, the energy ef ficiency packages save approximately 54,000 GWh of electricity annually by 2018, with peak savings in that year of about 16,000 MW, at an annualized cost in 2 018 of about $1.6 billion (2001 dollars). The savings, both energy and peak power, from the energy efficiency packages in the three regions combined are shown by sector ( residential, commercial/institutional, and industrial) in Figures 15 and 16 (peak results are not available by sector for the CNV region).

Figure 12:

Estimated Total Energy Efficiency (EE) Savings by Region, AP2 Forum Recommendations

- 10,000 20,000 30,000 40,000 50,000 60,000

2 0 02 20 0 3 20 04 2005 20

0 6 2 0 07 2008 2 0 09 2010 20

1 1 2 0 12 20 1 3 2 0 14 2015 20

1 6 2 0 17 20 1 8Annual GWh Savings

CNV-EE

WSCP-EE

WSCR-EE



### Figure 13:

Estimated Energy Efficiency (EE) Summer Peak Savings by Region: AP2 Forum Recommendations

- 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000

2002 2 0 0 3 20 0 4 2 0 05 2 0 0 6 2007 2

0 0 8 20 0 9 2010 20

1 1 2012 2 0 1 3 2014 2

0 15 20 1 6 2017 2

0 1 8MW Summer Peak Savings

CNV-EE

WSCP-EE

WSCR-EEEconomic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

Draft Report; October 2002



### 65 Figure 14:

Estimated Annualized Incremental Costs of Energy Efficiency Programs by Region

0 200 400 600 800 1000 1200 1400 1600 1800

200 2 200 3 200 4 200 5 20 0 6 200 7 200 8 200 9 201 0 201 1 201 2 201 3 201 4 201 5 201 6 201 7 201 8M illion 2001 Dollars

CNV

WSCP

WSCR



### Figure 15:

Estimated Energy Efficiency Savings by Sector (all Regions): AP2 Forum Recommendations

- 10,000 20,000 30,000 40,000 50,000 60,000

2002 20 0 3 2 00 4 20 0 5 20 0 6 2 00 7 2 00 8 2009 2 01 0 2011 2012 20

1 3 20 1 4 2 01 5 20 1 6 20 1 7 2 01 8Annual GWh Savings

Industrial

Commercial

Residential



### Figure 16:Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

Draft Report; October 2002



### 66

Estimated Energy Efficiency (EE) Summer Peak Savings by Sector: AP2 Forum Recommendations

- 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000

2002 2003 200

4 20 05 20 06 2007 2008 2009 2010 2011 2012 2013 201 4 20 15 2 016 2017 2018MW Summer Peak Savings California (All Sectors) Industrial (WSCR + WSCP) Commercial/ Institutional (WSCR + WSCP) Residential (WSCR + WSCP)



## Potential "Next Steps" in Energy Efficiency Analysi s for the West The analysis described above has identified a numbe r of significant energy efficiency opportunities in the West. As with most energy-efficiency analyses of this type, the reliability and accuracy of the work done for the Forum might, given time and resources, be broadened, deepened, and followed-up in a number of ways. Possible "next steps" in identifying, evaluating, and implementing energy-efficiency programs in the
West include:

• Obtain additional expert review of the assumptions and other inputs used in the energy-efficiency analysis.

• Preparing a measure-by-measure estimate of energy-e fficiency potential, similar to that done for the other two regions, for the Califo rnia/Las Vegas region.

• Review the air pollutant emissions (especially NO
x 

### ) impacts of potential combined heat and power systems, factoring in local regulati ons on new emissions sources and the types of pollution control used on new CHP syst ems.

• Deepen the overall analysis by evaluating additiona l measures, and by incorporating more region-, state-, tribe- and utility-area-speci fic information into the estimates wherever possible.

• Provide the energy-efficiency analysis on a State-b y-State or Tribal level and/or work with state- or tribe-level teams (for example, from State Energy Offices or Tribal groups) to develop individual state- or tribal-leve l analyses.

• Identify and tailor approaches for implementation o f energy-efficiency programs on regional, statewide, or tribal area bases.Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

Draft Report; October 2002



### 67 

## ATTACHMENT 1: BRIEF DESCRIPTIONS OF MEASURES CONSIDERED IN THE WESTERN REGIONAL AIR PARTNERSHIP (WRAP) ENERGY

EFFICIENCY ANALYSES

Background Several members of the Air Pollution Partnership (A P2) Forum have requested, on behalf of their constituents, a listing with bri ef definitions of the energy efficiency measures considered during the WRAP energy efficien cy analyses carried out for the WSCR (Interior West) and WSCP (Northwest—Oregon and Western Idaho) regions. The listing below is divided into residential, comm ercial/institutional, industrial, and combined heat and power (CHP) measures. This listi ng is intended to supplement the document Estimation of Potential Energy Efficiency Savings for the Western Regional Air Partnership by the Air Pollution Prevention For um: Approach, Methods and Summary Results , itself an annex to Final Report on Energy Efficie ncy and Renewable Energy , which reports on the overall pollution impacts mo deling effort overseen by the
AP2 Forum. The descriptions that follow cover all of the energ y efficiency measures evaluated, including some measures (higher cost and CHP measures) ultimately not included in the package of energy efficiency measur es used in pollutant emissions modeling. For each of the descriptions, names in i talics and parentheses (for example

" Residential Efficient CAC ") correspond to the short measure names found in t ables of "Cost of Saved Energy Results" presented in Estimat ion of Potential Energy Efficiency Savings for the Western Regional Air Partnership by the Air Pollution Prevention Forum: Approach, Methods and Summary Results (to which these descriptions are attached) and used by the AP2 Forum to review the energy efficien cy analyses.

RESIDENTIAL SECTOR MEASURES Residential Appliance Recycling : The appliance recycling program approach provides incentives to customers to allow their operable ref rigerators or freezers to be disposed of. Appliance recycling has been operated successfully in several regions. A recycling company is contracted to collect the appliances and dispose of them in an environmentally responsible way. The electricity sa vings result from the fact that the average stock of refrigerators and freezers now in use consumes more than twice the electricity of the new units available on the marke t today (" Residential Appliance Recycling "). Residential Air Conditioning—High-efficiency Units : Compressor, control, fan, heatexchanger, seal, and other improvements in central and room air conditioners make the
most efficient residential units available substant ially more efficient than those just meeting standards (" Residential Efficient CAC ", " Residential Efficient Room AC "). Residential Air Conditioning—Evaporative Cooling : In contrast to typical compressor-driven air conditioners, evaporative coo lers lower indoor temperatures by evaporating a mist of water, which carries away hea t. Evaporative or "swamp" coolers are effective in low-humidity areas, and use only a small fraction of the electricity used by compressor-driven air conditioners (" Residential Evaporative Cooling ").Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

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### 68 Residential Air Conditioning—IDDEC : A variant of residential evaporative cooling called indirect/direct evaporative cooling, or IDDE C, is under development that will provide reliable cooling with significantly less el ectricity input than typical compressordriven air conditioning, and is useful in applicati ons where standard evaporative cooling might not be appropriate (" Residential IDDEC Cooling "). Residential Heating and Cooling—System and Duct Ser vice and Repair : Many existing heating systems can be made significantly more efficient by applying a package of system and duct repair measures, including tune- ups for heat-pump condenser and evaporator units, cleaning, sealing and insulating duct work, or re-routing duct work to make the flow of heat from the furnace to living ar eas more efficient (evaluated as two
measures: " Residential Duct Test and Seal--CAC ", and " Residential Duct Test and Seal--
ESH "). Residential Heating and Cooling—Weatherization Retr ofits : The thermal performance of a dwelling—the degree to which a hea ted house stays warm and a cooled house stays cool, is a function of many factors, in cluding how well insulated the house is, the integrity of its windows and doors, whether it has been well-sealed to control the incursion of outside air, its overall design, its o rientation relative to sun and wind, and its proximity to nearby vegetation. Of these factors, the first three are usually addressed by measures installed during a weatherization retrofit of an existing dwelling (" Residential Weatherization "). Residential Heating and Cooling—Better-than-Code Bu ilding Envelopes for New
Homes : Although some parts of the West already have sta te (and sometime local) residential building codes that mandate quite high residential building performance, there are opportunities to exceed code levels. There are also opportunities to ensure that more buildings are actually built to code, through impro ved code enforcement, and to strengthen building codes to other states. For the WRAP energy efficiency analysis, incentives were assumed used until 2009 to bring ho mes to IECC 2000 (International Energy Conservation Code) levels (" Residential Building Envelope Impr.--IECC 2000 "), and that thereafter code changes mandate enhancemen ts in performance beyond the IECC 2000 level (" Residential Building Envelope Impr.--Enhanced "). Residential Lighting—Compact Fluorescent (CFL) Bulb s : Over the last decade or so, compact fluorescent light bulbs (CFLs) designed for use in incandescent fixtures – and lamps and fixtures specifically designed to use CFL technology – have been making inroads in the U.S. market. CFLs use roughly one-q uarter of the electricity to produce the same amount of light as incandescent bulbs, and last up to 10 times longer (" Residential CFL Bulbs "). Residential Lighting—Indoor CFL Fixtures : CFLs work best when used in fixtures specifically designed for them (" Residential CFL Fixtures--Indoor "). Residential Lighting—Outdoor CFL Fixtures : Using CFLs in outdoor fixtures presents an attractive way to save both money and e lectricity, as long-lived CFL bulbs are used for many hours per day when installed for outdoor security lighting. In addition, as many outdoor incandescent bulbs designed for out door use are both expensive and short-lived, there are significant operation and ma intenance savings from using outdoor CFL-based fixtures (" Residential CFL Fixtures--Outdoor "). Residential Lighting—CFL Torchieres : The "torchiere" style of tall floor lamp gained tremendous popularity in recent years as inexpensiv e units have become widely available.Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

Draft Report; October 2002



### 69 Most units use bright, but inefficient, halogen bul bs, while some use incandescent bulbs. Their high electricity use and the fire hazards created by high temperature halogen units have prompted the development of the CFL torchiere. The CFL torchiere produces the same light output as the halogen and incandescent u nits, using 20-30 percent of the electricity and eliminating an important fire risk (" Residential CFL Torchiere "). Residential Appliance Standby Loss Reduction : Even when turned off, many
household electronic devices consume small amounts of electricity. While insignificant on an individual device basis, the total energy con sumed by standby equipment adds up to about 5 percent of current residential electrici ty use, due to the multitude of devices and their steady power drain. The EPA Energy Star program already includes an initiative to encourage the reduction in average st andby consumption from 4.4 to 1 watt per device, a drop of over 75 percent. For WRAP, i ntroduction of measures for standby loss reduction were modeled as an incentive program through 2009 (" Residential Appl. Standby Loss Red.--Incentive "), and as a mandatory standard thereafter (" Residential Appl. Standby Loss Red.--Mandatory "). Residential Clothes Washing : Improvements in clothes washers allow clothes to be cleaned with less hot water use, and often "spin" c lothes faster so that less energy is required to dry them. Two types of higher-than-sta ndard-efficiency clothes washers were included in the WRAP analysis: vertical-axis Energy Star -qualified machines (" Residential Energy Star Clothes Washer "), and horizontal-axis washers (" Residential
SEHA Clothes Washer ", where SEHA is "Super-Efficient Home Appliance").

COMMERCIAL/INSTITUTIONAL SECTOR MEASURES Commercial/Institutional Cooling—"Package" AC and Chillers : Use of higher-thanstandard efficiency "package" air conditioning (AC) units and centrifugal chillers for small-to-medium-sized and large commercial/institut ional buildings produce more cold air (or chilled water) per unit of electricity inpu t than standard models (" Comml/Instit. AC Impr., 20-ton Package Units " and " Comml/Instit. AC Impr., 350-ton Centrif. Units "). Commercial/Institutional Cooling—Residential-type U nits : Many smaller commercial buildings use units that are the same as, or larger but similar to, the AC systems used in homes. For the WRAP study, models of room-type ai r conditioners, central air conditioners, and heat pumps with energy efficiency ratings significantly higher than standard units were evaluated (" Comml/Instit. AC Impr., Res. Room-type AC ",

" Comml/Instit. AC Impr., Residential-type CAC ", " Comml/Instit. AC Impr., Small Heat Pump "). Commercial/Institutional Cooling—Evaporative Coolin g : Evaporative cooling technologies use the latent heat of vaporization of water to cool air. One of the most promising configurations, indirect-direct evaporati ve cooling (IDDEC) can substantially reduce electricity requirements relative to convent ional cooling systems and operate well in the relatively low humidity conditions that prev ail during Western summers. For
WRAP measures in three size classes were modeled fo r use in different types of commercial/institutional buildings, based on the si ze of conventional AC equipment that would otherwise be used (" Comml/Instit. AC, IDDEC, 20-ton Equiv. Units ",

" Comml/Instit. AC, IDDEC, 150-ton Equiv. Units ", and " Comml/Instit. AC, IDDEC, 350- ton Equiv. Units ").Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

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### 70 Commercial/Institutional Cooling—Gas-fired Air Cond itioning : Electricity use can be reduced by replacing electric air conditioners w ith gas-fired air conditioners. Gasfired air conditioners use either an absorption coo ling cycle or a gas-fired internalcombustion engine that turns an air conditioning co mpressor. Additional energy is saved by using waste heat from the gas-fired engine to he at water. Three gas-fired AC configurations were evaluated: without heat recover y (" Comml/Instit. Gas AC, w/o heat

recovery "), with heat recovery and with the recovered heat avoiding the use of a gas-fired water heater (" Comml/Instit. Gas AC, w/ heat recov. (GWH) "), and with the recovered heat displacing an electric water heater (" Comml/Instit. Gas AC, w/ heat recov. (EWH) "). Commercial/Institutional Cooling—Cooling Tower Vari able-Speed Drives : Cooling systems for large buildings often have cooling towe rs, where waste heat is exhausted using fans. Variable-speed drives for the fan moto rs on cooling tower allow the speed of the fans to be adjusted to cooling needs, and thus save electricity. Efficiency savings were estimated for WRAP using data from different r egions of California. For example, for the WSCP (Oregon/Western Idaho) region, " Comml/Instit. Cooling Tower VSD-- Valley Climate " denotes an installation in a climate similar to t hat of the Central Valley in California, while " Comml/Instit. Cooling Tower VSD--N. Coast Clim. " Uses a California North Coast climate as an analog. Commercial/Institutional Space Heat : Electricity, and energy overall, can be saved by switching from electric resistance heating to gas-fired heating systems, preferably gasfired systems of higher than standard efficiency. In some cases, gas-fired heaters and boilers are less expensive to buy (as well as opera te) than electric ones of equivalent capacity. Three measures were evaluated for WRAP: High efficiency and standard gas boilers replacing electric resistance boilers (" Comml/Instit. Space Heat High Eff. Gas
Boiler " and " Comml/Instit. Space Heat Std. Gas Boiler "), and gas "unit heaters" (standalone or ceiling-mounted, fan-forced heaters often used in spaces such as warehouses or workshops; (" Comml/Instit. Space Heat Gas Unit Heater "). Commercial/Institutional Ground-Source Heat Pumps : Ground-source heat pumps (sometimes called "geothermal" heat pumps) are used for both heating and cooling, and differ from typical heat pumps in that they use bur ied "loops" of piping with water or other fluid running through it to extract heat from (or, in cooling mode, exhaust heat to) the earth below ground level. The relatively const ant temperature of the earth allows the heat pump to run more efficiently, under some condi tions, than a typical air-source heat pump. As the number of hours a ground-source heat pump will need to run depends on climate, installations with running times (both hea ting and cooling) of 1000, 2000, and 3000 hours per year were assumed (" Comml/Instit. Ground-source HP, 1000 hrs/yr ",

" Comml/Instit. Ground-source HP, 2000 hrs/yr ", and " Comml/Instit. Ground-source HP, 3000 hrs/yr "). Commercial/Institutional Water Heat : Water heating electricity use can be reduced substantially by switching from standard electric r esistance-type water heaters to heatpump-type water heaters (" Comml/Instit. Water Heating, Heat Pump Unit "). Switching from electric water heating to natural gas-fired wa ter heating, using both boilers and tanktype water heaters, can also reduce both electricit y use and overall energy requirements after losses in electricity generation are accounte d for (" Comml/Instit. Water Heater Fuel Switching ", " Comml/Instit. Water Heat Gas Boiler Fuel Switch ").Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

Draft Report; October 2002



### 71 Commercial/Institutional Building "Retrocommissioni ng" : Retrocommissioning is defined as "a process of thoroughly identifying the current needs for services within a building, assessing the functionality and appropria teness of the equipment now serving the building, devising and implementing a systemati c plan for repairing, rejuvenating or replacing the existing systems, and finally creatin g operations and maintenance practices to assure continued functionality of the systems". It is therefore the process of reviewing all of the energy uses in an existing building, and making changes to maintenance and operation, and in some cases in equipment, to make sure that the building operates as efficiently as possible (" Comml/Instit. Retrocommissioning "). Retrocommissioning usually is designed to reduce a building's need for heating, cooling, and/or lighting. Commercial/Institutional Building Standards : Higher standards for insulation, window performance, thermal seals, and other buildi ng components help reduce heating and cooling energy use. Two levels of building sta ndards, one meeting ASHRAE (American Society of Heating, Refrigerating and Air -Conditioning Engineers) 90.1.99 building guidelines (" Comml/Instit. Building Envelope--ASHRAE Stds. "), and one exceeding ASRAE guidelines by about 20 percent (" Comml/Instit. Building Envelope--
Enhanced Level "). Commercial/Institutional Refrigeration : Commercial sector refrigeration ranges from large refrigerators not much different from residen tial units to walk-in or building-sized cold storage rooms or freezers. Options for improv ing the energy efficiency of refrigeration systems in the commercial sector incl ude improving door seals, compressors, insulation, and controls. The WRAP a nalysis included two sets of measures, one of which includes measures having pay back times of less than two years ("lower-cost measures", " Comml/Instit. Refrigeration, Low-cost Measures ") and the other having offering paybacks of between two and five ye ars (" Comml/Instit. Refrigeration, High-cost Measures "). Commercial/Institutional Lighting—Fluorescent Bulbs and Ballasts : Replacing
standard bulbs and ballasts in the four-foot fluore scent fixtures that are most common in office and other applications with high-efficiency bulbs and ballasts produces significant savings (" Comml/Instit. Lighting, Efficient Fluorescent ". Commercial/Institutional Lighting—Advanced Lighting Measures : This measure includes a "package" of "emerging" lighting measure s, ranging from use of daylighting to lighting controls to the use of advanced bulbs and fixtures, offering average energy savings over standard practice of more than 50 perc ent (" Comml/Instit. Lighting,
Advanced Measures "). Commercial/Institutional Lighting—LED Exit Signs : LEDs are also increasingly used in commercial and institutional exit signs in place of incandescent or fluorescent bulbs. LED exit signs save a considerable amount o f energy, and may not need to be replaced for a decade or more, significantly reduci ng maintenance (" Comml/Instit. LED Exit Signs "). Commercial/Institutional Clothes Washers : Upgrades in commercial clothes washers, as with residential washers, can yield significant energy savings in water heating and clothes drying, as well in the washer itself (" Comml/Instit. Efficient Clothes Washers "). LED Traffic Signals (" Comml/Instit. LED Traffic Signals "): Light emitting diodes (LEDs) have been widely used in electronics for yea rs, are now starting to find new lighting applications. As with LED exit signs, long -lasting LED traffic signals, thoughEconomic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

Draft Report; October 2002



### 72 they cost more per bulb than incandescent signals, dramatically reduce energy use (by 90%) as well as O&M costs. Although LED traffic si gnals do not produce the same amount of overall light as incandescent signals, th e focused points of bright light produced by LEDs make them easy for the eye to pick out, and thus ideal for traffic lights and other signage. Commercial/Institutional/Industrial Electrical Tran sformers : In larger commercial buildings and in industrial installations, transfor mers are used to "step down" highvoltage power from the electrical grid to usable lo wer voltages. Transformer losses are not substantial, but as each kWh of electricity use d in a building typically must pass through a transformer, even a small reduction in lo sses improves the energy-efficiency of the entire building. The measures " Comml/Instit/Industrial Transformers (C/I) " and

" Comml/Instit/Industrial Transformers (Industrial) " model the purchase of higherefficiency "TP-1" transformers instead of standard units.

INDUSTRIAL SECTOR MEASURES Industrial Motors Efficiency Improvements : The efficiency of industrial motors can be improved in several ways: by replacing failed moto rs with premium (highest efficiency) instead of standard models (" Industrial Premium Motors "), by substituting premium motors where motors would otherwise be rewound (" Industrial Prem. Motor vs.
Rewind "), and by downsizing motors to appropriate capacit y for the systems they power (" Industrial Motor Downsizing "). These types of improvements typically save onl y 1-4 percent of motor electricity requirements, but when applied across the large number of industrial motors, the savings can be considerable. Industrial Motor System Improvements : Even greater savings of motor electricity use can be achieved by modifying the design and operati on of systems that motors drive: air compressors, pumps and valves, fans, and other syst ems (such as conveyors). For the WRAP energy efficiency analysis, the potential savi ngs for improving each of three types of motor systems (" Industrial Air Compressor System Measures ", " Industrial Fan System
Measures ", and " Industrial Pump System Measures ") were evaluated. Savings for these measures can range, on average, from 5 percent for fans to nearly 20 percent for pumps and air compressors. Industrial—Aluminum Production Process Improvements : Primary aluminum production – as opposed to secondary production fro m recycled aluminum feedstocks -- is a very energy-intensive process. One of the key options for reducing electricity consumption per unit of aluminum produced is to ret rofit aluminum production cells for higher electrolytic efficiency and lower heat loss (" Industrial Aluminum Process Impr.: Cell Retrofit "). Other technological advances are possible, suc h as advanced forming and near net-shape casting. These advances are designe d to save energy by producing aluminum in shapes that are close to their final fo rm, can provide considerable O&M and thermal energy (typically gas energy) savings, thou gh typically small electricity savings (" Industrial Aluminum Process Impr.: Adv. Forming "). Industrial Electrical Transformers : (see listing under Commercial/Institutional sec tor, above)

COMBINED HEAT AND POWEREconomic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

Draft Report; October 2002



### 73 From half to two-thirds of the energy used for fuel -based electricity generation is typically lost as waste heat. Combined heat and po wer (CHP) systems effectively capture this waste heat and supply it to a facility’s proce ss or building heat requirements, and can thereby approximately double the overall efficiency of fuel use to 80 percent or so. We included in our analysis several types of natura l gas-fired CHP systems in
several size classes:

• Internal Combustion Engines : Internal combustion (IC) engines have been used i n stationary power generation applications for a cent ury or more, and are a very mature technology. Heat from gas-fired water-cooled IC en gines can be captured from the engine's coolant system via a radiator, and used to heat or pre-heat air or water to help provide space or water heat.

• Combustion Turbines : Conventional combustion turbines (CT) are a newer , but still quite mature, electric generation option, having be en in wide use for decades. Here heat can be captured from the hot exhaust gases of the turbine via a heat exchange unit, and used for space or water heat, or (more li kely) for process heat in industrial plants. We incorporated 10 and 40 MW combustion tu rbines into the industrial sector
CHP initiative that we evaluated.

• "Micro" Turbines : Micro-turbines (MT) are self-contained CHP devic es that are new on the market. These units, the size of a larg e household refrigerator (in the 30 kW size) produce heat and electricity using a high- speed but very reliable miniature turbine coupled to a generator. These units, recen tly commercialized, will be available in size classes other than 30 kW soon, bu t only the 30 kW units are included in our analysis. The types of CHP systems included in the commercial /institutional and industrial sector WRAP energy efficiency analyses are as follo ws:

• Commercial CHP : CHP measures in the commercial sector included 30 kW MT units, 100 kW IC units, and 800 kW IC units, with s ome of the units displacing grid electricity and heat from electric resistance boile rs or water heaters (" Comml/Instit. CHP, 30 kW MT repl. Elect. WH ", " Comml/Instit. CHP, 100 kW IC repl. Elect. WH ",
and " Comml/Instit. CHP, 800 kW IC repl. Elect. WH "), and other units displacing grid electricity and heat from gas-fired boilers or wate r heaters (" Comml/Instit. CHP, 30 kW MT repl. Gas WH ", " Comml/Instit. CHP, 100 kW IC repl. Gas WH ", and

" Comml/Instit. CHP, 800 kW IC repl. Gas Blr. ")

• Industrial CHP : For the industrial sector, our estimate included 800 and 3000 kW IC units, and 10 and 40 MW CT units. All co-genera ted heat from these units was assumed to displace gas-fired boilers or process he ating equipment (" Industrial CHP, 800 kW IC repl. Gas Blr. ", " Industrial CHP, 3000 kW IC repl. Gas Blr. ", " Industrial CHP, 10 MW CT repl. Gas Blr. ", and " Industrial CHP, 40 MW CT repl. Gas Blr. ")Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

Draft Report; October 2002



### 74 

## ATTACHMENT 2: TABULAR SUMMARY OF DSM MEASURE AND PROGRAM

INPUTS AND ASSUMPTIONS

WSCR, Residential Sector

SUMMARY OF DSM MEASURE AND PROGRAM ASSUMPTIONS
USED IN EVALUATING AN ENERGY EFFICIENCY PORTFOLIO F OR THE INTERIOR WEST (WSCR) REGION

PROGRAM /MEASURE Units of
Measure Application Measure

Lifetime (years) Annual kWh

Savings per
Unit Summer

Peak Savings:
kW/Unit Incremental

Installed Cost ($/unit) Incremental

Annual O&M Cost ($/unit) Program

Incentives Ongoing

Admin. Costs Start-up Admin.

Costs

Residential Efficient Cooling Equipment 6.5% of spon. Costs $1,000,000

High-efficiency Central AC AC Units 15 863 0.98 $550 $0 70% of incr.

cost

High-efficiency Room AC AC Units 15 121 0.21 $150 $0 70% of incr.

cost

Residential Evaporative Cooling 10% of spon. Costs $1,000,000

Direct Evaporative Cooling AC Units 15 1,870 2.14 (1,000)

$ 63

$ $550

Indirect/Direct Evaporative Cooling AC Units 15 1,578 1 .80 (300)

$ 63

$ $550

Residential Lighting--CFL Bulbs 50% of spon. Costs $500,000

Compact Fluorescent Lamps (CFL) Bulbs 9 60.2 0.0181 $2.5 0 $0 $3.75

Residential Lighting--CFL Fixtures 65% of spon. Costs $1,000,000

CFL Fixtures--Indoor Fixtures 19 167 0.050

$14.21 $1.10 100% of
incr. cost

CFL Fixtures--Outdoor Fixtures 11 143 0.0128

$17.14 ($10.60) 100% of
incr. cost

Residential Lighting--Torchieres 20% of spon. Costs $500,000

CFL Torchieres Lamps 20 599 0.1797

$40.00 ($4.88) 75% of incr.

cost Residential Appliance Recycling $500,000

Second Refrigerator Pickup Appliances 6 1,149 0.196 $125 $0 $75/unit (see note)

Residential Clothes Washers 15% of spon. Costs $500,000

EnergyStar Vertical Axis Washers Appliances 15 674 0.28 0 $324 $0 50% of incr.

cost

SEHA Horizontal Axis Washers Appliances 15 814 0.339 $37 4 $0 50% of incr.

cost

EnergyStar Devices, Incentive Program Devices 7 29.8 0. 0034 $2.50 $0 50% of incr.

cost 15% of spon.

Costs $500,000

EnergyStar Devices, Mandatory Program Devices 7 29.8 0. 0034 $2.50 $0 none none $500,000

Residential "Weatherization" 6.6% of spon. Costs $500,000

Weatherization of Elect. Heated Homes Homes 15 1,344 1. 02 $529 $0 20% of incr.

cost

0.242 16% of spon. Costs $500,000

Duct Measures, Space Heating Savings Homes 10 212 0.24 2 $309 $0 70% of incr.

cost

Duct Measures, Space Cooling Savings Homes 10 153 0.17 5 $309 $0 70% of incr.

cost
8.6% of

spon. Costs

Improvements to IECC 2000 Level Homes 50 230 0.096 $1,16 1 $0 50% of incr.

cost $1,000,000

Enhancements beyong IECC 2000 Homes 50 491 0.205 $2,253 $0 none $3,000,000 Residential Electronics Standby Loss
Reduction

Residential Duct Testing and Sealing

Residential New Construction Building Shell ImprovementsEconomic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

Draft Report; October 2002



### 75 PROGRAM /MEASURE Units of Measure Application Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Notes

Residential Efficient Cooling Equipment

High-efficiency Central AC AC Units 10,666 21,412 36,05 8 37,187 37,064 37,239 SEER 13.5 vs. 10.5

High-efficiency Room AC AC Units 4,646 9,316 15,639 15,9 78 15,941 15,993 SEER 10 vs. 8.5

Residential Evaporative Cooling

Direct Evaporative Cooling AC Units 3,555 7,137 14,423 1 4,875 14,826 14,895 Evaporative vs. direct cooling

Indirect/Direct Evaporative Cooling AC Units 178 1,784 7,212 7,437 7,413 7,448 IDDEC vs. direct cooling

Residential Lighting--CFL Bulbs

Compact Fluorescent Lamps (CFL) Bulbs 237,961 729,749

994,749

1,018,306

1,041,666

1,065,305

Residential Lighting--CFL Fixtures

CFL Fixtures--Indoor Fixtures 20,450 62,713 106,859 109, 389 111,899 114,438

CFL Fixtures--Outdoor Fixtures 3,870 11,869 20,223 20,70 2 21,177 21,658

Residential Lighting--Torchieres

CFL Torchieres Lamps 26,812 63,952 140,102 143,420 146,71 0 150,040 Compares CFL torchiere with std halogen or incand. lamp Residential Appliance Recycling

Second Refrigerator Pickup Appliances 186,004 190,138 0 0 0 0 Measure cost includes pickup
cost and administrative costs

Residential Clothes Washers

EnergyStar Vertical Axis Washers Appliances 5,463 10,9 54 18,389 18,790 18,744 18,800

SEHA Horizontal Axis Washers Appliances 5,463 10,954 18 ,389 18,790 18,744 18,800

EnergyStar Devices, Incentive Program Devices 518,428 1,038,328 1,737,351 1,758,052 1,755,797 1,758,99 5 Incentive program ends in
2009

EnergyStar Devices, Mandatory Program Devices 20,105,881 20,173,792

20,265,715

20,489,221

20,484,333

20,522,500 Mandatory program starts in
2010

Residential "Weatherization" Includes savings of both

Weatherization of Elect. Heated Homes Homes 16,739 16,944

17,157

17,400

17,637

17,876 heating and cooling energy.

Duct Measures, Space Heating Savings Homes 16,848 17,075

17,292

17,511

17,738

17,997 Winter peak savings

Duct Measures, Space Cooling Savings Homes 15,996 16, 211 16,417 16,625 16,841 17,087 Summer peak savings

Improvements to IECC 2000 Level Homes 24,458 24,592 24, 963 26,093 25,970 26,144 Incentive program ends in
2009

Enhancements beyong IECC 2000 Homes 241,068 243,198 244 ,371 245,181 246,049 246,352 Mandatory program starts in
2010 Annual Program Participation (in measure units)

Residential Electronics Standby Loss
Reduction

Residential Duct Testing and Sealing

Residential New Construction Building Shell ImprovementsEconomic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

Draft Report; October 2002



### 76 

## ATTACHMENT 3:
EXAMPLES OF ENERGY EFFICIENCY MEASURE AND PROGRAM E VALUATIONS PERFORMED FOR THE WESTERN REGIONAL AIR PARTNERSHIP (WRAP)



### The three "text boxes" that follow provide example of the procedures used in the evaluation of energy efficiency measures for the Ai r Pollution Partnership Forum of WRAP. The examples shown—for Commercial/Institutio nal/Industrial Transformers, Residential Air Conditioning, and Commercial Refrig eration—illustrate the process used in the "bottom-up" (end-use based) energy efficienc y analysis carried out for the Interior West and Oregon/Western Idaho regions, and provide examples of some of the data sources and assumptions used. Each example documen ts three analytical “steps” for the measures and programs considered. The first two st eps, compilation of measure costs and performance data and measure benefit/cost analy sis, and estimation of program markets and participation, are carried out and docu mented in MS ExcelTM workbooks. The third step, estimation of program costs and sav ings, was accomplished using the ECO energy-efficiency program analysis software too l, developed by Tellus Institute.

Commercial/Institutional/Industrial Transformers Step 1: Compilation of Measure Cost and Performance Data, and Measures Benefit/Cost Analysis: Incremental costs for commercial-sized units were t aken to be $4.42 per kVA, and for industrial-sized transformers, $1.81 per kVA (where “kVA” is thousand volt-amps, a measure of transformer capacity). These high-effic iency “TP-1” transformers save, for commercial and industrial applications, respectivel y, an average of 23.3 and 7.4 kWh per kVA of transformer capacity, relative to standard n ew transformers 34 

### . In order to estimate peak savings, a “peak factor” of 0.156 kW per MWh of energy savings was used, along with a transformer lifetime of 30 years 35



### .

The measure cost and savings data described above w ere used, along with rough estimates of avoided energy and capacity costs for electricity generation, to estimate benefit/cost ratios for the two transformer measure s. Both proved very cost-effective (with benefit/cost ratios of about 3.3 for commerci al transformers and 2.6 for industrial units), and were thus included in the WRAP energy e fficiency package.

34 Data on incremental costs and savings for high-eff iciency transformers were derived based on Tables 5 .4, 5.7, and 5.8 of Supplement to the "Determination An alysis" (ORNL-6847) and Analysis of the NEMA Efficiency Standard for Distribution Transformers , by P. R. Barnes, S. Das, B. W. McConnell, and J. W. Van Dyke. This Oak Ridge National Laboratory Repor t No. ORNL-6925, dated September 1997, was received as ORNL6925.pdf from Jan Berry of ORNL, 10 /24/01. The designation "TP-1" refers to a USEPA EnergyStar program standard for transformers. An ORNL expert on transformer technology (Mr. Lance McCord) was consulted regarding estimates for other parameters needed to estimate average transformer costs and savings.

35 The peak factor used, 0.000156 kW per kWh saved, i s taken from the "National" worksheet of the workbook "neep1017.xls", prepared by various resear chers for the NEEP (Northeast Energy Efficiency Partnerships, Inc.) energy efficiency analyses, and summarizing national energy savings potential for a variety of energy efficiency improvements, most rel ated to appliance or equipment standards. The avera ge lifetime of transformers is also from this source.Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

Draft Report; October 2002



### 77 Step 2: Program Market and Participation Estimation , and Estimation of Administration Costs
The markets for commercial and industrial transform ers in the Interior West (WSCR) region were estimated starting with an estimate tha t of nationwide annual sales of “drytype” transformers in 2000 totaled 22 million kVA 36 

### . In order to estimate the fraction of these transformers that were sold in each sector, a verage commercial-sector and industrial-sector load factors of 20 and 40 percent , respectively, were applied 37 

### . Using these load factors, the implied distribution of tra nsformer sales nationally was calculated as 14.7 million kVA in the commercial sector, and 7 .3 million kVA in the industrial sector. Based on WSCR region commercial and indust rial electricity sales in 2000 (61,615 and 54,858 GWh, respectively) and analogous figures for the U.S. as a whole, estimated year-2000 sales of transformers in the WS CR were calculated as 870,654 kVA in the commercial sector, and 375,684 kVA in the in dustrial sector 38 

### . These year-2000 sales by sector were then extrapolated through 2018 using the rates of growth in commercial and industrial electricity sales include d in National Energy Modeling System (NEMS) projections for the Mountain Census Region, yielding estimates of the markets for transformer sales during the 2002 to 2018 progr am period. Program participation was assumed to be 15 percent of transformer sales in the first program year, and 30 percent in subsequent years. This participation rate was based on judgment as to what a well-advertised, aggressive p rogram might accomplish, and included the assumption of a budget of $500,000 to start up the program (the equivalent of perhaps 5 full-time staff, plus funds for develo ping program marketing materials), and a sponsor incentive equal to 50 percent of the incr emental cost of the transformers. Administrative costs equal to 15 percent of sponsor measure costs were assumed, based on consideration of the effort likely to be require d to process incentive payments and for ongoing program marketing, and the “free- rider” fr action was taken to be 15 percent 39



### .



## Step 3: Program Costs and Savings Estimates Measure cost, savings, and lifetime estimates prepa red as described in Step 1, above, together with estimates of annual program participa tion for each measure, administrative cost factors, sponsor cost fractions, and free-ride rship estimates estimated as described in Step 2, were entered into the ECO software tool, to gether with estimates of parameters such as discount rates (4.88 percent annually, on a real basis) capital recovery factors (based on device lifetimes and the assumed discount rate), and the future inflation rate (2.8 percent annually) 40 

### . ECO was then used to calculate streams of annual costs (on

36 From the 1997 ORNL report cited earlier.

37 See, for example, The Cadmus Group, Inc (1999), Me tered Load Factors for Low-Voltage, Dry-Type Transformers in Commercial, Industrial, and Public Buildings . File 120799_cadmus.pdf, downloaded 10/23/01 from www.neep.org.

38 National and state-level electricity sales data f rom the Energy Information Administration (EIA) of the US Department of Energy (USDOE).

39 “Free-riders” are program participants that would have adopted the measure even in the absence of the sponsor’s incentive program. In practice, “free-ri dership” is sometimes measured by post-program evaluation surveys or by market studies, but in man y instances, for planning of DSM programs, values i n the range of 10 to 20 percent are assumed.

40 The discount rate used here is similar to real dis count rates used by large utilities operating in th e West.Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations

Draft Report; October 2002



### 78 both “expensed” and annualized bases) and savings ( electrical energy and peak power) for each of the two measures (commercial and indust rial transformers) in the program, as well as for the program as a whole. Cost data from ECO (presented as customer and sponsor measure costs, and sponsor administrative c osts) and savings data were aggregated with costs from other programs, and savi ngs data were likewise aggregated, and the “package” of annual costs and savings resul ts was summarized for consideration by the Air Pollution Prevention Forum and for inclu sion in air pollution and economic impacts modeling using ICF, Inc.’s IPM software too l.