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 Impacts............................................... 28 

IV.3 Production Costs Impacts ..................................................................................... 31 

IV.4 Emissions Impacts ................................................................................................ 34 

IV.5 Impact on the Regional Backstop SO2 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 Methodology .......................................... 50 
Economic 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 quality in the national parks and 

wilderness areas of the Colorado plateau, the Grand Canyon Visibility Transport 

Commission (GCVTC) issued several recommendations in 1996 on strategies for air 

pollution prevention. In its recommendations, the GCVTC emphasized the need to 

integrate air pollution prevention with cost-effective pollution control strategies in order to 

prevent degradation of natural resources in the West.1

 

Two key recommendations from the GCVTC focused on the development of renewable 

energy sources and the promotion of energy conservation. Labeled the “10/20 goals”, 

the recommendation on development of renewable energy sources encouraged states 

and tribes in the Transport Region to undertake steps that would increase 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. For energy conservation, the commission supported 

the continued development of energy efficiency standards and suggested that the 

emphasis on energy conservation be maintained within the changing electric power 

markets. In addition to the 10/20 goals and energy conservation recommendations, the 

GCVTC suggested that future modeling work be conducted to analyze the potential 

emission reductions, cost savings and secondary benefits associated with the use of 

renewable energy, energy efficiency and pollution prevention. 

The Regional Haze Rule issued by the US Environmental Protection Agency in April 

1999 included the air pollution prevention recommendations 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 recommendations. Tribal governments may seek 

approval from EPA to incorporate the requirements of the regional haze regulations, 

including the GCVTC recommendations, in their Tribal Implementation Plans (TIP) under 

the provisions of the Tribal Authority Rule (TAR). 

The Air Pollution Prevention (AP2) forum of WRAP has been charged with implementing 

the air pollution prevention recommendations of the GCVTC. The AP2 forum 

commissioned ICF Consulting to analyze the potential 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 support to the AP2 forum’s report 

detailing its recommendations regarding renewable energy and energy efficiency to the 

WRAP Board. The AP2 forum’s report provides a discussion of the policy imperatives 

and broader implications of the GCVTC air pollution prevention recommendations, while 

this report describes the emissions reductions, costs and secondary economic impacts 

of meeting the 10/20 goals and implementing the energy efficiency recommendations, 

given the assumptions and scenarios developed by the 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 the production of electricity and 

 

1

 “Recommendations for Improving Western Vistas,” The 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 SO2 sources such as refineries and 

smelters. 

Analytical Framework 

The AP2 forum developed a three-phase analytical framework to assess the potential 

emissions reduction, costs and secondary regional economic impacts of implementing 

the 10/20 goals and energy efficiency recommendations. These included: (1) 

assumptions and scenario development, (2) modeling of the electric, steam and process 

source sectors, and (3) modeling of the secondary regional economic impacts. 

The AP2 forum developed two types of scenarios in order to examine the emissions, 

costs and secondary regional economic impacts of meeting the 10/20 goals and 

implementing the energy efficiency recommendations. The first was the Business-AsUsual (BAU) scenario that characterized how the future might unfold with the proposed 

regional backstop SO2 trading program but without any policy measures designed to 

accomplish the 10/20 goals and energy efficiency recommendations. The second set of 

scenarios reflected a future with the regional backstop SO2 trading program and policy 

drivers designed to meet the 10/20 goals or energy efficiency recommendations, or both. 

Assessments of emissions, costs and secondary regional economic impacts were 

estimated by analyzing the changes in the policy scenarios relative to the BAU scenario. 

The AP2 forum selected as the business-as-usual scenario 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 the planned additions to renewable 

energy capacity. The policy scenarios developed by the AP2 forum were focused 

around objectives of implementing the 10/20 goals and energy efficiency 

recommendations with some additional scenarios designed to analyze the sensitivity of 

the results to higher gas prices and improvements in 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 cost and performance of renewable 

energy technologies from those used in the MTF Annex 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 potential 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 goals and energy efficiency 

recommendations, the AP2 forum believes that the wind resource development costs 

could improve over time because of the cost benefits of “learning by doing”, because of 

better alignment of incentives for improving technologies’ cost and performance and 

because of reduced barriers to entry. 

The adjustments in the assumptions for the policy scenarios 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 Emissions 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 implementing the 10/20 goals without the 

assumed improvements in renewable technology cost and performance. 

In Phase II of the analysis, ICF Consulting’s Integrated Planning Model (IPM®) was used 

as the analytical tool for modeling the costs and emissions impacts of the policy 

scenarios. IPM simulates productions activity in the electricity generation and industrial 

steam production markets using an integrated view of fuel, emissions, capacity and 

generation markets. Results from IPM served as inputs to modeling of the secondary 

regional economic impacts in Phase III of the analysis. The Policy Insights model 

produced by Regional Economic Models Inc. (hereafter 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 forum calls for electricity demand 

reductions in the Transport Region to grow to 8 percent of the electricity generation 

demand by 2018. The analysis indicates that both these policy objectives could serve 

as cost-effective air pollution prevention strategies because they provide opportunities 

for emissions reductions at modest costs or with some savings. 

Because the assessment of impacts are based on analysis of the differences between 

the policy scenarios and the BAU scenario, some notable elements of the BAU scenario 

are described below to provide a helpful context for understanding the results. One of 

the most important components of the BAU scenario driving the results is the growth of 

gas-fired generation capacity. Under the BAU scenario, 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 capacity is projected under the BAU 

scenario by 2018. This represents 80 percent of the growth in capacity additions and 

accounts for 37 percent of all generation in the Transport Region in that year. 

Figure ES-1: Capacity Additions Under the BAU Scenario3

 

 

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 2018

Capacity Additions by 2018 (MW)

Coal

O/G Steam & Turbines

Combined Cycles

Renew ables

Cogeneration
Economic 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 energy efficiency recommendations. 

Because generation from new gas capacity is assumed to be relatively clean, NOx

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 NOx

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 efficient combined cycle generation. 

As a result of increased fossil fuel generation, CO2 emissions under the BAU scenario 

increases by 19 percent between 2005 and 2018 to 401 million metric tones. SO2

emissions under the BAU scenario is held to the regional targets specified in the Annex 

because the scenario includes the assumptions that the regional SO2 trading program 

proposed under the Annex will be in place. Because of the SO2 cap-and-trade program, 

none of the policy scenarios will result in any changes in SO2 emissions. 

Implementation of the 10/20 goals and energy efficiency recommendations will lead to 

significant growth in renewable energy capacity, totaling 20 GW by 2018. The growth 

reflects the requirements of the 10/20 goals and the 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 BAU and 10/20 goals policy scenario. 

38%

3% 18%

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

Draft Executive Summary; October 2002 

 v 

Figure ES-2: Renewable Energy Capacity Additions Under the 10/20 Goals 

0

5

10

15

20

25

Wind Geothermal Landfill Gas

Capacity Additions by 2018 (GW)

Figure ES-3: Generation Mix in 2018 Under the BAU and 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 renewable energy displaces new gasfired generation. While these results illustrate only the impact for the 10/20 goals, similar 

impacts occurs with increased use of energy efficiency. The important results in 

capacity changes of the 10/20 goals and energy efficiency is that new renewable energy 

capacity and energy conservation compete against new conventional capacity while 

leaving the existing electricity generation stock relatively undisturbed. 

The fact that the renewable energy and energy efficiency are likely to compete against 

generation from new gas-fired capacity affects the emissions reductions projected under 

the 10/20 goals and energy efficiency recommendations. As illustrated in Figure ES-4 

below, the analysis indicates that under the 10/20 goals and energy efficiency, the 

potential savings in NOx emissions are likely to range between 8,000 tons and 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 scenario with the 10/20 goals, “EE” 

31%

0%

37%

4%

8%

14%

6%

29%

0%

4% 26%

7%

14%

6%

14%

Coal

O/G Steam & Turbines

Combined Cycles

Existing Renewables

Cogens

Hydro

Nuclear

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

Draft Executive Summary; October 2002 

 vi 

represents the policy scenarios with the energy efficiency recommendations and “EE + 

10/20 goals” represents the policy scenario with both the 10/20 goals and the energy 

efficiency recommendations. 

Figure ES-4: Potential NOx Emissions Reductions Under the 10/20 Goals and 

Energy Efficiency Recommendations 

 

 

Implementation of the 10/20 goals and energy efficiency recommendations also lead to 

reductions in CO2 emissions through displaced fossil fuel generation. As illustrated in 

Figure ES-5, CO2 emissions savings in 2018 from meeting the 10/20 goals and 

implementing the energy efficiency recommendations is projected to range between 40 

million metric tones and 55 million metric tones (or 10 percent to 14 percent relative to 

the BAU). 

Figure ES-5: Potential CO2 Emissions Reductions Under the 10/20 Goals and 

Energy Efficiency Recommendations 

-

10

20

30

40

50

60

Change in CO

2005 2010 2015 2018

2 Emissions Relative to BAU 

(Million Metric Tonnes of CO2)

10/20 Goals

EE

EE + 10/20 Goals

-

2

4

6

8

10

12

14

16

Change in NO

2005 2010 2015 2018

x Emission Relative to BAU 

(Thousands Tons of NOX)

10/20 Goals

EE

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

Draft Executive Summary; October 2002 

 vii 

Though the emissions reduction potential for NOx and CO2 appears to be modest, it is 

important to recognize the source of those reductions and the implications for air 

pollution prevention. Because these emissions reductions come from new generating 

sources, the 10/20 goals and energy efficiency recommendations provide opportunities 

to hedge against future emissions growth. 

Implementation of the 10/20 goals and energy efficiency scenarios does not reduce SO2

emissions because of the regional SO2 trading program proposed under the Annex. 

However, because the trading program creates a monetary value for emissions 

reductions, any potential for emissions reductions is fully offset by increases in SO2

emissions from sources affected by the trading program. In other words, with the 10/20 

goals and energy efficiency, the level of SO2 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 compliance cost of the SO2 trading 

program by as much as $ 7 million (or 10 percent of projected compliance cost4

) in 2018 

and could displace 1,200 MW to 1,700 MW of new scrubber capacity by 2018. 

In addition to the potential emissions savings, implementation of the10/20 goals and 

energy efficiency recommendations could be achieved through modest production cost 

or with some savings. In particular, implementation of the energy efficiency 

recommendations leads to net annual levelized production costs5

 savings of $750 million 

to $1 billion (or 4 percent to 7 percent relative to the BAU scenario). These net savings 

reflect the cost of implementing the recommendations, the avoided investment costs of 

transmissions and distribution, and the reductions in electricity and steam production 

costs resulting from lower electricity demand. Figure ES-6 compares the production cost 

across the BAU and energy efficiency policy scenarios. 

Figure ES-6: Annual Levelized Production Cost Under the BAU and Energy 

Efficiency Policy Scenarios 

$16.4 $16.7 $17.4

$0

$5

$10

$15

$20

BAU EE EE + 10/20 Goals

Annual Levelized Production Costs (Billion 2001$)

 

4

 MTF 2000. 

5

 Annual levelized production costs reflect the capital, fuel and operation and maintenance 

expenditures associated with the production of electricity 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 production 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 assumptions about renewable technology 

cost and performance: the former includes the assumption 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 renewable energy generation capacity 

and is offset by the production cost savings from the displaced fossil fuel generation. 

Figure ES-7 compares the annual levelized production costs across the BAU and 10/20 

goals policy scenarios. 

Figure ES-7: Annual Levelized Production Costs Under the BAU and 10/20 Goals 

Policy Scenarios 

Secondary Regional Economic Impacts

The objective of the secondary regional economic analysis was to assess the impacts of 

the 10/20 goals and energy efficiency recommendations on the regional economy of the 

Transport Region. For this analysis, the results from the IPM modeling served as inputs 

to the REMI model. This assessment of regional economic impacts is focused around 

changes in employment, gross regional product and personal disposable income. 

Implementation of the 10/20 goals and energy efficiency recommendations has little or 

no impact on the regional economy. Most of the regional impacts are less than one half 

of one percent. Table ES-1 summarizes the annual average secondary region economic 

impacts under the policy scenarios for the years 2005 - 2020. 

$17.7 $18.3

$17.4

$0

$5

$10

$15

$20

BAU 10/20 Goals 10/20 Goals with No Cost &

Performance Improvements

Annual 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 In Key Economic Indicators 

for the Transport Region Under the Policy Scenarios 

The results of the regional economic analysis indicate 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 activity 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 employment, gross regional product and 

personal disposable income. 

On average, the 10/20 goals will lead to small increases 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 understand the potential emissions 

reductions, costs and secondary regional economic impacts of the implementing the 

10/20 goals and the energy efficiency recommendations. 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 Energy 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 magnitude 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 precisely. 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 description of the impacts. 

Conclusions 

The analysis indicates that the 10/20 goals and energy efficiency recommendations 

could both serve as cost-effective air pollution prevention strategies. The 10/20 goals 

will lead to increases renewable energy capacity, while 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 

NOx and CO2. The 10/20 goals can be achieved under modest cost 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 WRAP participants, western states 

and Indian tribes understand the potential emissions reductions, costs and secondary 

economic impacts from meeting the 10/20 renewable energy goals and implementing 

the energy efficiency recommendations. This study builds upon the framework, data and 

assumptions previously developed by the Market Trading Forum1

 (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, describes the key objectives of the 

analysis and summarizes the main findings. 

• Section III details the scenarios, data, assumptions and analytical framework. 

Details on renewable energy technology costs and performance assumptions 

developed by the AP2 forum are also described. The section also provides an 

overview of the modeling tools used -- ICF’s Integrated 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 economic 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 and uncertainties underlying the 

results. 

• Section VII describes the conclusions of the study. 

 

1 “Economic Impacts of Implementing a Regional SO2 Emissions 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 quality in the national parks and 

wilderness areas of the Colorado plateau, the Grand Canyon Visibility Transport 

Commission (GCVTC) issued several recommendations in 1996 on strategies for air 

pollution prevention in the West. In its recommendations, the GCVTC emphasized the 

need to integrate air pollution prevention with cost-effective pollution control strategies in 

order to prevent degradation of natural resources in the West.2

 

Two key GCVTC recommendations focused on the development 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 increase 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 efficiency standards and suggested that 

the emphasis on energy conservation be maintained within the changing electric power 

markets. In addition to the renewable resource and energy conservation 

recommendations, the GCVTC suggested that future analysis examine the potential 

emission reductions, cost savings and secondary benefits 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 recommendations 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 recommendations. Tribal governments may seek 

approval from EPA to incorporate the requirements of the regional haze regulations, 

including the GCVTC recommendations, in their Tribal Implementation Plans (TIP) under 

the provisions of the Tribal Authority Rule (TAR)3

. 

The AP2 forum of WRAP has been charged with implementing the air pollution 

prevention recommendations of the GCVTC and commissioned ICF Consulting to 

examine the potential emissions reductions, costs and secondary economic impacts of 

meeting the 10/20 goals and energy efficiency recommendations. 

II.2 Objective 

This study serves as the documentation of the analytic and technical support to the AP2 

forum’s report detailing its recommendations regarding 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,” The 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 potential emissions reductions, costs and 

secondary economic impacts of meeting the 10/20 goals and implementing the energy 

efficiency recommendations, given the assumptions and scenarios developed by the 

AP2 forum. The analysis examined the impacts for the 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 process sources (e.g., copper smelters and 

refineries). 

II.3 Summary of Key Findings 

The analysis indicates that the 10/20 goals and energy efficiency could both serve as 

cost-effective air pollution prevention strategies. 

• The objective of the 10/20 goals is to have renewable energy providing 10 

percent of the regional energy demand by 2005 and 20 percent by 2015. The 

AP2 forum’s recommendations for energy efficiency seeks 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 source of renewable energy 

generation in meeting the 10/20 goals, accounting for 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 generation from geothermal and 

landfill gas. 

• Penetration of energy efficiency and renewable energy will primarily compete 

against new conventional capacity additions. In the absence of energy efficiency 

and the 10/20 goals, most of the expansion in conventional capacity will likely 

consist of gas-fired combined cycles. New additions to renewable energy 

capacity and demand reductions motivated by the 10/20 goals and the energy 

efficiency recommendations are projected to displace new gas-fired combined 

cycle capacity while leaving the existing stock relatively unaffected. 

• Under the scenarios analyzed, energy efficiency and 10/20 goals provide 1 to 2 

percent reductions in NOx emissions and 10 to 14 percent reductions in CO2 

emissions. The reduction potential appears to be modest partly because the 

displaced generation consists almost entirely of relatively clean gas-fired 

combined cycle. Since the 10/20 goals and energy efficiency primarily displace 

generation from new fossil fired capacity additions, the 10/20 goals and energy 

efficiency can provide a hedge against future emissions growth. 

• The 10/20 goals and energy efficiency do not provide any SO2 reductions in the 

presence of a regional SO2 emissions cap and trading program proposed in the 

Annex. However, the 10/20 goals and energy efficiency may lower the 

compliance cost of the trading program by as much as $ 10 million in 2018 (or 7 

percent) and displace the need for 1,200 MW to 1,700 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 energy efficiency scenario, the 

savings in annual levelized production cost may range between $ 700 million to $ 

1 billion (or 5 percent to 7 percent relative to the business-as-usual scenario). 

• Implementation of the 10/20 goals and energy efficiency recommendations will 

have small or no impacts on the regional economy. Under the 10/20 goals 

scenario, employment and personal income is projected to increase on average 

by less than one half of one percent per year. Gross regional product is likely to 

decline by approximately the same percentage impact. Similarly, implementation 

of the energy efficiency recommendations is projected 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, data, assumptions, methodology and 

modeling tools used in the analysis. There were three distinct phases to the analysis: 

(1) assumptions and scenario development, (2) modeling 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 analysis are described below. 

Figure I: Overview of Analytical Approach 

Phase III: 

Modeling of 

Secondary 

Economic Impact

REMITM Modeling 

• Secondary regional economic 

impacts 

3⁄4 Employment Impacts 

3⁄4 Gross Regional Product 

Impacts 

3⁄4 Income Impacts 

WR

Economic Impacts of Implementing a 

Regional SO2 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 

3⁄4 Electric/Steam Sector System 

Impacts 

3⁄4 Emission Impacts 

3⁄4 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 Supply
Economic 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 order to examine the emissions, 

costs and secondary regional economic impacts of meeting the 10/20 goals and 

implementing the energy efficiency recommendations. The first was the Business-AsUsual (BAU) scenario that characterized how the future might unfold without any policy 

measures designed to accomplish the 10/20 goals and energy efficiency 

recommendations. The second set of scenarios reflected a future with policy drivers 

designed to meet the 10/20 goals or energy efficiency recommendations, or both. 

Assessments of emissions, costs and secondary regional economic impacts were 

estimated by analyzing the changes in the policy scenarios relative to the BAU scenario. 

This analysis examined the 10/20 goals and energy efficiency recommendations in the 

context of the regional backstop SO2 trading program proposed in the Annex. In 

September 2000 the WRAP/MTF conducted extensive analysis 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 were focused around the policy 

objectives of the 10/20 goals and energy efficiency recommendations. Policy scenarios 

also included cases designed to test the sensitivity 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 not 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 cost and performance of renewable 

energy technologies from those used in the BAU scenario. There were two reasons for 

this. First, the AP2 forum felt that the BAU scenario, which was adopted from the 

WRAP/MTF Annex scenario, did not contain enough details on renewable energy 

technologies since that had not been the focus of the WRAP/MTF. 

Second, and more importantly, the AP2 recognized that 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 those 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 believes that the wind resource 

development costs could improve over time because of the cost benefits of “learning by 

doing”, from better alignment of incentives for improving technologies’ cost and 

performance and from reduced barriers to entry. The adjustments in the assumptions 

for the policy scenarios were focused only around wind technologies since wind was 

likely to be the largest sources of renewable energy and it was also where the forum 

anticipated most improvements in cost and performance would occur. 

Recognizing the inherent uncertainty in assumption on technological improvements over 

time, the AP2 forum developed a sensitivity scenario 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 performance. 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 summary 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 

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 

Policy Scenarios 

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 sectors. 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 the 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 boiler sectors model. For the WRAP/MTF 

analysis of the SO2 program, it was enhanced to capture emissions from process 

sources. The model has been used in a wide range of 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 the SO2 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 SO2 trading 

program. 

IPM is a detailed engineering-economic capacity expansion 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-region model that provides least-cost 

capacity expansion plans, credible plant dispatch, and electric prices forecasts. IPM 

explicitly considers gas, oil, and coal markets, power plant costs and performance 

characteristics, environmental constraints and emissions markets, and other power 

market fundamentals. 

As illustrated in Figure 2 below, IPM provides an integrated analysis of electricity and 

steam markets. The model captures the interactions of real world constraints and 

simulates electric and steam markets based on economic fundamentals using a linear 

programming structure. Figure 2 illustrates the key 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 to 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 Technologies
Economic 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 Northwest (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 

CNV

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 electricity, industrial steam and other 

industrial process sources of SO2 emissions (e.g., copper smelters and refineries). The 

electricity sector includes all existing boilers and generators. IPM forecasts new 

capacity builds to meet the growth in electricity demand. The industrial steam sector 

includes sources that sell steam to industrial, commercial and institutional facilities. 

Expansion in steam demand is met through new boilers and/or combined heat and 

power (CHP) cogeneration facilities. Process sources of SO2 such as refineries and 

smelters are also included in the modeling to capture their potential interactions in the 

regional SO2 allowance markets. The analysis does not model production activity of 

these industrial process sources. 

In IPM the 10/20 goals are modeled as electricity generation constraint on the power 

system that requires that the system must produce at 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 target 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 recommendations are modeled as 

reductions in energy requirements and peak demand levels. Reductions in demand are 

specified exogenously; the model responds to the new 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 Insights® Model (REMI) 

The Policy Insights® model produced by Regional Economic Models Inc. (hereinafter 

“REMI”) was used to estimate the secondary regional economic impacts of the 

implementing the 10/20 goals and the energy efficiency recommendations. REMI is a 

widely accepted tool for analyzing regional economic impacts and was previously used 

by WRAP/MTF for economic analysis of alternative emissions milestones (or caps) on 

the regional SO2 trading program. 

The REMI model is composed of five basic blocks – output, supply, demand, market 

shares and wage rate - that broadly characterize the 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, Wyoming, Oregon, Idaho and the rest 

of the country. Because of the analytical difficulty 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 Recommendations. 

For all the three scenarios, the inputs to REMI are derived from the IPM modeling 

results. Most of the inputs to REMI require changes relative to a reference point and the 

Business-As-Usual (BAU) scenario was used as the reference case in developing the 

inputs to REMI. All REMI inputs are specified by year, 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 IPM 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 the 10/20 goals and energy efficiency 

recommendations. Under the 10/20 goals, for instance, the incremental annual levelized 

production cost was $ 300 million annually and reflects the total change in production 

costs in meeting the 10/20 targets. 

Impacts on production costs of sectors aside from power generators as a result of the 

policies are captured through REMI variables that reflect the factors of production in 

these sectors. Within REMI, these changes in production 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 that 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 (and thus are “price takers”) experience 

a change in competitiveness relative to other regions and rest of the U.S. 

For electric generators, the production cost impacts are not modeled directly in REMI 

because the electricity price impact is already known through IPM modeling. Instead, 

the production cost impacts are combined with the electricity price change and the net 

revenue impacts are input into REMI as changes in dividends or shareholder income. 

Changes in dividends and shareholder income directly affect changes in personal 

income, which in turn affects output and employment demand. For purposes of REMI 

modeling, avoided transmission and distribution avoided costs under the EE 

recommendations are treated as changes in production cost. 

The capital investments for new electric generation capacity projected in IPM were 

modeled as construction and electric equipment demand 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 equipment demand also affects output but 

the regional impacts are less pronounced than construction demand impacts because 

some of the expenditures flow out of the region for capital purchases made elsewhere. 

The regional purchase coefficients in REMI determines 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 changes 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 impacts 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 policies. Wholesale electricity price 

impacts have been converted to retail rates based on 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 price 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 energy credit price. Under the 

scenarios involving the EE recommendations, the EE implementations cost were also 

included in the electricity price impacts. EE implementation 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 implementation costs are recovered through 

changes in electricity prices. In sum, the electricity 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 separately for the residential, commercial 

and industrial sectors. 

For the industrial and commercial sectors the changes in electricity prices affect their 

raw material cost. The change in the price of electricity affects the relative price of their 

factors of production and affects the type of resources (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 electricity 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 other goods and services, which in 

turn increases consumption, demand and output. 

Figure 6 below illustrates how the electricity price 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 account for changes in the allowance 

position under the SO2 trading program of the Annex. Although the cap in the trading 

program does not change under the 10/20 goals and the energy efficiency 

recommendations, the compliance strategy changes, which 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 SO2 trading program and the net allowance position of 

the state. A state that has allowances to sell will 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 affected by the trading program, the 

changes in expenditures/revenues from allowance allocations 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 the 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 changes 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 Allocations 

Changes in revenue/expenditures from

purchase or sale of allowances in the

regional SO2 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 used much of the data and assumptions 

developed by the WRAP/MTF. These assumptions are fully documents in the economic 

analysis report produced by the WRAP/MTF in September 20005

 and have not been 

replicated in this report. The section describes only 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 cost and performance 

assumptions for the policy scenarios. Because the BAU scenario did not include any 

projected additions to renewable energy capacity (outside of firm new capacity), for 

renewable energy technologies, this section describes 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 regulations affecting stationary sources 

that produce electricity and/or industrial steam are represented identically in both the 

BAU and policy scenarios. The regulations modeled include: 

• 1990 Clean Air Act Amendments Title IV NOx and SO2, 

• Title IV SO2 national trading program, 

• Northeast NOx SIPCALL, and 

• Regional backstop SO2 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 program. The specific milestones 

used in modeling the Annex are summarized in Table 2 below. 

Table 2: Milestones Used for the Regional Backstop SO2 Trading Program 

Proposed In the Annex 

2013 2018 

Thousands Tons of SO2 630 507 

Natural Gas Prices 

The AP2 forum retained the natural gas price assumptions developed by the 

WRAP/MTF for this analysis. In addition, the AP2 forum developed the high natural gas 

prices for the sensitivity scenario based on the approach used in the WGA Transmission 

Report.6

 Table 3 below provides a summary of the natural gas prices assumed in the 

study. The BAU and policy scenarios both include the base price while the high prices 

were used only in the high gas price sensitivity policy scenario. 

Table 3: Assumptions on Delivered Natural Gas Price

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 Scale Solar Technologies 

The AP2 forum assumed that two types of grid-connected utility scale solar technologies 

-- solar photovoltaic and solar thermal -- would be available under the policy scenarios. 

Recognizing that some cost improvements in these technologies would occur over time, 

the forum allowed for some cost decline in both technologies after 2010. Table 4 

presented below provides the cost and performance assumptions 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 based 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 Solar Technologies7

Overnight 

Capital Cost 

Fixed O&M 

Available Years Technology Cost Annual Average 

Capacity Factor (2001$/kW) (2001$/kW-Yr) 

Solar PV 28% 4,576 11 2000-2009 Solar Thermal 42% 3,170 50 

Solar PV 28% 2,737 11 2010-2030 Solar Thermal 42% 2,853 50 

The analysis reflects the fact that solar plants are not dispatchable by basing the 

generation estimates on generation profiles that describe the hourly generation for a 

typical day in the winter and summer. Furthermore, 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 entire 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 and biomass gasification combined 

cycles (BGCC) would be available for commercial application to electricity generation. 

However, recognizing that BGCC is not yet a mature technology, the forum assumed 

that BGCC would be available only after 2010. Table 5 presented below summarizes 

the cost and performance assumptions for biomass technologies. 

Table 5: Cost and Performance Assumptions for Biomass Technologies8

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 supply curve containing energy crops, 

agricultural residue, forestry residue, and urban wood 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 Energy 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 forum 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 include a geothermal supply curve that 

characterize the relationship between available capacity and development-production 

cost. The supply curve is specified for each of the three model regions that circumscribe 

the Transport Region and is presented in Table 6 below. 

Table 6: Cost and Performance Assumptions for Geothermal Technologies10

Region 

Potential 

Capacity 

(MW) 

Overnight 

Capital Cost

(2001$/kW)

Fixed O&M 

(2001$/kW-Yr) 

Capacity 

Factor 

(%) 

653 2,137 75 90 

6,782 2,312 98 90 

3,806 3,311 122 90 

CNV 

[California and Southern 

Nevada) 12,836 5,979 258 90 

3,500 2,332 72 90 

2,200 3,563 130 90 WSCP 

[Pacific Northwest] 

3,075 5,156 195 90 

920 2,113 70 90 

250 2,735 96 90 

5,713 3,515 122 90 

WSCR 

[Interior West] 

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 was included by the AP2 in its policy 

scenarios. The potential capacity reflects landfill 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 Landfill Gas Generation11

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 resource most likely to penetrate in 

the future, the AP2 forum spent considerable time characterizing wind resources for the 

policy scenarios. In developing the assumptions, the forum sought to capture the issues 

of intermittency, resource availability, reliability and transmission access that are often 

associated with wind generation. 

The AP2 forum assumed that grid-connected central station wind plants could be located 

in wind classes 6 or greater, 5 and 412; lower wind classes were unlikely to support 

commercial electricity generation. Within each wind class, the total resource is divided 

into four cost categories to account for resource degradation and impact on electric 

system reliability stemming from the intermittency in wind generation. 

Cost multipliers are applied to each of the four wind 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 highest cost category could not 

exceed 1.6 since at the very most (or at high levels of wind generation) a combustion 

turbine could be used to provide backup for the intermittency in wind generation to guard 

against any system reliability concerns. The available wind capacity resources were 

distributed among the four cost categories as outlined 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% of region’s generation; and 

• Cost Scalar 1.6: Remaining wind capacity. 

Table 8 presented below summarizes the potential capacity 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 technologies, the AP2 forum 

developed four technology vintages that become available for commercial application at 

different times in the planning horizon. The four vintages reflect expectations of 

declining costs and technological improvements. Table 9 provides a summary of the 

cost and performance assumptions for wind technologies. 

(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 3,297 380,008 
Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations 

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 21 

Table 9: Cost and Performance Assumptions for Wind Technologies14

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 day in summer and winter. The annual 

average capacity factor presented in Table 9 above is therefore a summary 

characteristic of that generation profile. Furthermore, because wind plants are not 

dispatchable, the capacity credit for wind is restricted to the average generation in the 

peak 30% of the hours represented by the profile. 

 

Recognizing that wind technologies may encounter problems with transmission 

bottlenecks, particularly in the interior West where significant resources are located, the 

AP2 forum decided to include a transmission cost adder 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 resources may also require some upgrades 

to the existing transmission system in order to deliver the power to the load centers. 

Connection to the grid alone does not guarantee delivery because there may not be 

sufficient capacity on the transmission lines to carry the additional power. The forum felt 

that this cost was particularly warranted for the interior west because much of the wind 

resource there is located in Wyoming. The forum felt 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 Energy Laboratory. 15 Based on “Conceptual Plans for Electricity Transmission in the West,” Report to the Western 

Governors’ Association, August 2001. Estimated using the incremental cost between the Gas 

transmission scenario and the Alternative Fuel Scenarios. 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 declining technology costs and improved 

capacity factors over time. In the sensitivity policy scenario that do not allow for those 

improvements, the 2000-2004 costs and performance are held constant over all time 

periods.

Assumptions on the 10/20 Renewable Energy Goals 

The 10/20 goals were an explicit requirement in many of the policy scenarios and the 

characterization of that policy goal is based on the recommendations of the GCVTC. 

The AP2 forum assumed that the minimum renewable energy generation targets for the 

10/20 goals would be based on the electricity demand in the nine states and tribal land 

of the Transport Region. The 10/20 goals, as modeled 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 electricity demand be met by generation 

from renewable resources. Existing generation from renewable energy also counts 

towards that target. Figure 8 presented below provides a summary of the targets and 

the existing generation from renewable energy under the BAU. 

Figure 8: 10/20 Renewable Energy Generation Targets 

-

40,000

80,000

120,000

160,000

2005 2010 2015 2018

GWh

10/20 Goals Existing RE Generation Under BAU

This analysis assumes that the 10/20 renewable energy targets can be met by 

generation from wind, solar photovoltaic, solar thermal, biomass gasification combined 

cycle, biomass direct combustion, landfill gas and geothermal. The analysis did not 

include options for small hydro (due to data limitations), though small hydro is a potential 

renewable energy supply option. In addition, the renewable energy targets can be met 

by generation from renewable technologies located anywhere within the nine states and 
Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations 

Draft Report; October 2002 

 23 

tribal lands of the Transport Region and also within the state of Washington and 

Montana16. 

Assumptions on Energy/Capacity Savings and Implementation Costs for Energy 

Efficiency Recommendations 

The AP2 forum commissioned the Tellus Institute to develop the energy savings and 

implementation cost assumptions for the energy efficiency 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 implementation 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 emissions between the energy efficiency 

policy scenarios and the BAU scenario. The net production costs impacts were 

determined based on the following: 

(1) The energy efficiency implementation costs estimated outside of IPM; 

(2) The avoided investment cost savings in transmission and distribution estimated 

outside of IPM; 

(3) The cost saving from reduced generation estimated using IPM. 

 

The assumptions for the energy efficiency recommendations were specified by model 

region (CNV – California and Southwest Nevada; WSCP – Pacific Northwest; and 

WSCR – Interior West) to fit in with the modeling specification for IPM. Though the three 

model regions encompass more than the nine states and tribal lands of the Transport 

Region, the saving and cost estimates were based only the states and tribal lands of the 

Transport Region. Savings were characterized as electricity 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 industrial, residential and commercial 

sectors and represents 1 percent of electricity demand in 2005 and growing to 8 percent 

by 2018 under BAU conditions. 

 

16 Renewable generation located in Washington and Montana were allowed to count towards the 10/20 

targets because, in the modeling, these states share 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 

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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 Energy 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 recommendations include the costs 

borne by both the customer and the sponsor and reflect the equipment purchase, fuel, 

operations, administration and marketing costs. In addition to the implementation costs, 

the AP2 forum assumed that the energy efficiency measures would lead to avoid 

investments in the transmission and distribution system 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 generation levels, it was necessary to 
Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations 

Draft Report; October 2002 

 25 

account for these avoided transmission and distribution (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 energy efficiency recommendations. In 

IPM modeling of the energy efficiency scenarios, the projected production cost savings 

from IPM are compared against the assumed implementation 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 2018

Million 2001$

Implementation Costs T&D Savings Net Annual Costs

 
Economic 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 impacts 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 the 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 future without additional efforts to 

promote renewable energy and energy efficiency in the West. It provides a good 

reference point for analyzing the impacts of meeting the 10/20 goals and implementing 

the energy efficiency recommendations. The BAU scenario includes about 1 GW of 

additional renewable resources that are currently under construction or near the 

construction phase. However, no additional renewable 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 Capacity17

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. 1998 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 SO2 program under the Clean Air Act 

Amendments and the regional SO2 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 demand is likely to be met by additions 

of new gas-fired capacity. By 2018, almost 30 GW of 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 units to more efficient combined cycle 

units. As illustrated in Figure 13, by 2018 gas-fired generation from combined cycles 

represents 37 percent of all generation in the Transport Region up from 21 percent in 

2005 (oil/gas steam and combined cycle). The generation 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 Under the BAU 

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

2005 2010 2018

Capacity Additions by 2018 (MW)

Coal

O/G Steam & Turbines

Combined Cycles

Renew ables

Cogeneration

Generation Mix Under BAU

38%

3% 18%

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 scenario reflect the changing mix in 

capacity and generation. SO2 emissions under the BAU scenario remain relatively 

unchanged till 2013, after which the emissions decline as a result of the assumed SO2
Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations 

Draft Report; October 2002 

 28 

cap and regional trading program. Though NOx emissions remain relatively unchanged 

under the BAU scenario between 2005 and 2018, the NOx emissions rate declines 

significantly as a result of the repowering of existing oil/gas steam units. For CO2, the 

change in emissions between 2005 and 2018 mirrors the increase in fossil fuel usage 

and rises by 19 percent between the two years. Figure 14 presented below provides a 

summary of projected emissions under the BAU scenario.

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 Impacts 

Implementation of the10/20 goals and energy efficiency 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 increases to 20 percent. Second, the 

growth in renewable energy capacity is spurred by declining renewable technology cost 

and performance improvements that the AP2 forum assumed would occur in the policy 

scenarios. 

 

Under the 10/20 goals policy scenario, as illustrated 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 scenario18. Most of this expansion comes 

from new wind capacity, which accounts for 65 percent of the renewable energy 

generation. 

 

18 Two percent of the renewable energy generation for the 10/20 goals comes from states and tribal regions 

outside the Transport Region but that share common electric market with the states/tribes in the Transport 

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 Generation Under the 10/20 Goals 

0

5

10

15

20

25

Wind Geothermal Landfill Gas

Capacity Additions by 2018 (GW)

31%

0%

37%

4%

8%

14%

6%

29%

0%

4% 26%

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 the 10/20 goals predominantly 

displaces new gas-fired capacity. As illustrated in Figure 16 below, by 2018 displaced 

gas fired combined cycles accounts for almost 80 percent 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 will 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 Goals 

Coal

Oil/Gas Steam & 

Gas Turbines

Gas Combined 

Cycles

Cogens

-10,000

-8,000

-6,000

-4,000

-2,000

0

2,000

Capacity Displaced by 2018 (MW)

Results of the analysis indicate that wind will remain the dominant renewable energy 

technology across a range of different sensitivities and assumptions, particularly when 

renewable energy generation accounts for 10 percent to 20 percent of regional electricity 

generation. As illustrated in Figure 16 below, across 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 includes 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% higher gas prices. 

Figure 17: Renewable Energy Capacity Additions Under 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 Price

Capacity Additions by 2018 ('000 MW)

Wind Geothermal Landfill Gas
Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations 

Draft Report; October 2002 

 31 

In summary, the changes in electric capacity and generation under the policy scenarios 

provide some interesting insights. First, the results of the analysis suggest that wind is 

likely to be the primary choice for renewable energy technology in the West. Even with 

renewable energy generation providing over 20 percent of the region’s electricity 

generation demand, as in the high gas price scenario, wind appears to be the dominant 

technology of choice. Second, the penetration of the renewable energy capacity and 

energy efficiency appears to displace mostly new additions to capacity rather than 

affecting the existing generation stock. Because most of the new capacity additions 

under the BAU are gas-fired combined cycle, the results indicate that new gas-fired 

capacity will be primarily displaced under the policy scenarios. The more important, 

broader implication is also that renewable energy and 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 result in production costs savings. 

Production costs, in this case, reflects the incremental or going forward costs 19

associated with producing electricity and industrial steam and includes incremental 

capital costs, fuel costs and operation and maintenance costs. 

As mentioned previously, the AP2 forum considered the production cost impacts of 

meeting the 10/20 goals under two alternative policy scenarios. In the first policy 

scenario, the AP2 forum assumed that the cost of developing 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 forum wanted to examine the 

production costs impacts without allowing for any improvements in renewable 

technology cost and performance. As illustrated in Figure 18 below, the annual levelized 

production cost impacts under the two policy scenarios could range between $300 

million (2001 $) and $900 million (2001 $) or 2 percent to 5 percent of the production 

costs under the BAU respectively. 

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

$17.7 $18.3

$17.4

$0

$5

$10

$15

$20

BAU 10/20 Goals 10/20 Goals with No

Improvements in RE

Technologies

Annual Levelized Production Costs (Billion 2001$)

 

19 Embedded cost associated with the capital cost of existing 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 energy projects. While the penetration 

of renewable energy leads to reductions in costs from displaced fossil fuel generation, it 

is not sufficient to fully offset the increased capital expenditures. Nonetheless, there is a 

shift in production costs away from fuel and towards capital. Under the 10/20 goals, 

operation-and-maintenance costs remain relatively unchanged. Figure 19 presented 

below highlights the composition of the change in annual levelized production costs for 

2018. 

 

Figure 19: Composition of Annual Levelized Production 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

Technologies

Change in Production Cost Relative to BAU

(Million 2001$)

Operations & Maintenance

Fuel

Capital

Unlike the 10/20 goals, implementation of the energy efficiency recommendation with 

and without the 10/20 goals leads to annual levelized production costs savings of $730 

million to $1 billion (2001 $) respectively. These net savings reflect the cost of 

implementing the recommendations, the avoided investment costs for transmission and 

distribution infrastructure and the reduction in electricity 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 savings of over $700 million. These 

savings represent 4 percent to 7 percent of the annual 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 energy 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 Recommendations 

$16.4 $16.7 $17.4

$0

$5

$10

$15

$20

BAU EE EE + 10/20 Goals

Annual Levelized Production Costs (Billion 2001$)

The projected production costs savings presented in Figure 19 reflects the assumed 

improvements in renewable energy technology cost and performance. The AP2 forum 

assumed that the energy efficiency recommendations would occur under a policy regime 

that would actively promote renewable energy, though without explicit targets, thus 

leading to enhancements in technology cost and performance. 

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 presented 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

-$2,000 -$1,815

-$1,500

-$1,000

-$500

$0

$500

$1,000

$1,500

Change in Production Costs Relative to BAU 

EE EE + 10/20 Goals

(Million 2001$)

Operations & Maintenance

Fuel

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

Draft Report; October 2002 

 34 

In summary, the production cost impacts of the policy 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 feature of these policies is that because 

both the 10/20 goals and energy efficiency recommendations shift production 

expenditures away from fuel and towards capital, these policy objectives can offer some 

security against fuel price volatility and fuel supply shocks. 

IV.4 Emissions Impacts 

Under the 10/20 goals, the emissions reductions occur because conventional fossil fuel 

generation is replaced with clean or low emissions generation from renewable energy. 

With energy efficiency, demand savings displaces electricity 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 (CO2) 

generally follow fuel consumption, while technology/fuel dependent emissions such as 

NOx depends on the relative emission rate of displaced technologies. 

Under the policy scenarios of the 10/20 and energy efficiency, the change in NOx

emissions relative to the BAU scenario range between 1 percent and 2 percent. As 

illustrated in Figure 22 below, by 2018 the emissions reduction in NOx from 

implementing the 10/20 goals and the energy efficiency will be between 8,000 tons and 

14,000 tons annually. Most of the emissions reductions are likely to occur after 2010, 

when the penetration of renewable energy and energy efficiency is most significant. 

Figure 22: Reductions In NOx Emissions Under the Policy Scenarios 

-

2

4

6

8

10

12

14

16

Change in NO

2005 2010 2015 2018

x Emission Relative to BAU 

(Thousands Tons of NOX)

10/20 Goals

EE

EE + 10/20 Goals

The modes emissions reductions in NOx under the 10/20 goals and energy efficiency 

recommendations reflect that the fact that they largely displaced new gas-fired combined 

cycles, which are expected to have relatively low NOx emission rates. However, it is 

important to recognize that because these reductions come from new generation 

capacity, renewable energy and energy efficiency will provide a hedge against future 

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

Draft Report; October 2002 

 35 

Estimated emissions reductions in CO2, on the other hand, are driven largely by 

reductions in fossil fuel use. As highlighted in Figure 23 below, the reductions in CO2

emissions range between 10 percent and 14 percent under the various policy scenarios. 

By 2018, when the penetration of renewable energy and energy efficiency are most 

significant, the reductions are projected to between 40 million metric tonnes and 55 

million metric tones. 

Figure 23: Reductions In CO2 Emissions Under the Policy Scenarios

-

10

20

30

40

50

60

Change in CO

2005 2010 2015 2018

2 Emissions Relative to BAU 

(Million Metric Tonnes of CO2)

10/20 Goals

EE

EE + 10/20 Goals

As was true for NOx emissions, because CO2 emissions reductions derive from 

reductions in fossil fuel use in new capacity additions, the 10/20 goals and energy 

efficiency will likely provide a hedge against future CO2 emissions growth. 

Unlike NOx and CO2 emissions, the analysis projects no reductions in SO2 emissions 

reflecting the regional emissions cap and SO2 trading program as proposed in the Annex 

and modeled in all scenarios. However, because the SO2 trading program creates a 

monetary value for SO2 emissions, affected sources under the cap and trade program 

take advantage of reduced fuel use and associated lower emissions to reduce their 

overall cost of compliance with the cap. Thus, there is an economic benefit to fully 

offsetting any SO2 emissions reductions provided by the 10/20 goals and energy 

efficiency recommendations. This result is not unique 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 costs of compliance in the regional 

backstop SO2 trading program in the Transport Region is discussed below. 

IV.5 Impact on the Regional Backstop SO2 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 SO2 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 the 
Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations 

Draft Report; October 2002 

 36 

remaining plants in the trading program with more headroom under the emissions cap. 

The implementation of the energy efficiency recommendations would have the same 

effect because it also displaces fossil fuel generation. 

The results of the analysis indicate that by implementing the 10/20 goals, the compliance 

cost of meeting the SO2 reduction requirements through a trading program as proposed 

in the Annex could decline by approximately $10 million (or 7 percent of the compliance 

cost without the 10/20 goals20) in 2018. This estimate is based on a comparison 

between two scenarios, one including the 10/20 goals 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 to comply with the SO2 cap and trade 

program can be illustrated by examining projected amount of SO2 scrubbers constructed 

under the scenarios. Scrubber installations (or enhancements to existing scrubbers) are 

likely to be a key compliance strategy in meeting the SO2 reduction requirements under 

the Annex trading program. As illustrated in Figure 24 below, 1,200 MW to 1,700 MW, 

representing 13 percent to 17 percent, of fewer scrubber installations are projected 

under the policy scenarios relative to the BAU scenario. 

Figure 24: Projected Scrubber Installations Under the Annex SO2 Trading 

Program 

-

2,000

4,000

6,000

8,000

10,000

12,000

2015 2018

Installed Scrubber Capacity (MW)

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

In summary, the results of the analysis suggest that implementation of the10/20 goals 

and energy efficiency recommendations will help to reduce the compliance cost of the 

regional backstop SO2 trading program by as much as $ 10 million (or 7 percent) 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 price impacts and the renewable energy 

credit price under the policy scenarios of the 10/20 goals and the energy efficiency 

recommendations. The distinction between the wholesale electricity price and the 

renewable energy credit price has been maintained for this discussion because the 

policy design of the 10/20 goals, particularly on how 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 distributor, assuming competitive generation 

markets. The model is a wholesale power market model 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 electricity and reliability demand. 

• Energy prices reflect the variable cost of operation and include fuel cost, 

variable operating costs and emissions-related costs. Emissions-related 

costs only exist if an emissions trading program is in place and the 

allowance price in the trading program is greater than zero. 

• Capacity prices relate to fixed costs and include the capital and fixed 

operating costs. Some generating units, such as peaking combustion 

turbines, often come on-line to serve reliability and 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 energy 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 satisfy 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 energy prices vary by season and load 

segment (i.e., base, peak, etc). Similarly, the marginal unit in capacity markets is the 

last unit that has to come on-line to satisfy the peak plus reliability demand and the 

resulting capacity price is based on the capital and 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 within a year and across years, for clarity 

Figure 25 contrasts the levelized annual average wholesale electricity price between the 

BAU and policy scenarios. 

 

21 For purposes of regional economic modeling, where changes in prices (rather than the actual 

price) serve as modeling inputs, we have included the 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 between 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 Electricity Price 

$0

$5

$10

$15

$20

$25

$30

$35

CNV (California, Southwest

Nevada)

WSCP (Pacific Northwest) WSCR (Interior West)

Levelized Annual Average 

Wholesale Electrcity Price (2001 $/MWhr)

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

Under the 10/20 goals, the wholesale electricity price 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 power system to produce the level of 

generation associated with the targets, in generation markets, wholesale electricity price 

is determined by the marginal cost in meeting the incremental demand (i.e., the demand 

left after the generation required by the 10/20 goals have been accounted for). Under 

energy efficiency, the change in wholesale electricity 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 account 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 policy design but for purposes of this 

analysis the AP2 forum assumed that the costs of meeting the 10/20 goals and 

implementing the energy efficiency recommendations would be recovered uniformly 

through all end-users, as in a Systems Benefit Charge (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 satisfying the goal – or in the language of 

renewable portfolio approaches – the renewable energy credit (REC) price. The value of 

the REC represents the incremental costs over the wholesale energy price that the 

marginal renewable energy producer must earn – over the commodity energy price – to 

give him sufficient returns and incentives to construct 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 implications of meeting the 10/20 targets 

without describing the price implications (opportunity cost) of the target. 

Figure 25 presented below summarizes the annual levelized REC for the policy 

scenarios with the 10/20 goals. In addition, Figure 26 also describes the value of the 

REC levelized over the electricity demand of the Transport 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 10/20 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 Goals

2001$/MWh

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

Similarly implementation costs of the energy efficiency recommendations have been 

translated into price impacts by assuming that the annual levelized implementation costs 

of $ 45 million22 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 renewable energy credit price and the 

energy efficiency implementation costs provide a better description of electricity price 

impacts because it explicitly accounts for the compliance cost of the policy objectives. 

As presented in Figure 27 below, the wholesale electricity price in the Transport Region 

will increase by 1 percent to 2 percent under the 10/20 goals, decrease by as much as 5 

percent with energy efficiency and decrease by as much as 8 percent with energy 

efficiency and the 10/20 goals. This projected electricity 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 account for the distribution and 

retailing costs. Retail price impacts would be lower in proportion to the share of retail 

prices that are wholesale price component. 

 

22 Includes implementation costs and avoided investments costs in transmission & distribution, 

see Section III.2 above for details. 
Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations 

Draft Report; October 2002 

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Figure 27: Wholesale Electricity Price Impacts Under the Policy Scenarios 

$30.2 $32.4 $31.0 $31.8

$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 Average 

Wholesale Electricity Price (2001$/MWh)

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

In summary, the analysis indicates that the 10/20 goals can be achieved with modest 

price impacts of 1 percent to 2 percent, while energy efficiency could help to reduce the 

wholesale price by as much as 8 percent in some regions. 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 

Draft Report; October 2002 

 41 

V. Secondary Regional Economic Impacts 

This section describes the secondary regional economic impacts resulting from the 

implementation of the 10/20 goals and the energy efficiency recommendations. The 

AP2 forum selected three policy scenarios for analysis 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 regional economic impacts are 

contained in Section III.2. 

 

Although the REMI model provides estimates on a variety of different impacts, the 

analysis has been focused around gross regional product (GRP), employment and real 

disposable personal income. These selected parameters provide a reasonably clear 

picture of the overall economic impacts of the 10/20 goals and energy efficiency. Gross 

regional product is analogous to national gross domestic product and describes the final 

demand or output of the regional economy. It consists 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 impacts 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 broader regional impacts may be 

distributed by state, the state level results may be 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 regions and the state level allocations 

were based on how the renewable energy resources were distribution by state. 

On average over the analysis horizon, the 10/20 goals 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 aligned 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 lowers the cost of production in the 

commercial, industrial and manufacturing sector, which in turns leads to higher income 

and output. The reduction in electricity prices for the residential sector also leads to 

higher real income, increased consumption and investments. Table 10 presented below 

summarizes the change in employment, gross regional product and personal disposable 

income across the three policy scenarios. State/level details are presented in Appendix 

I. 

Table 10: Annual Average (2005 – 2020) Changes In Key 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 

Draft Report; October 2002 

 42 

Under the scenario that includes only the EE recommendations, 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 regional product (or output) through 

changes in investment and consumption. The increase in employment demand briefly 

causes wage rates to increase, as labor markets adjust, 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 increase 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 investments 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 cost faced by the residential, commercial 

and industrial sector but are not sufficient to offset the decline in income from profits. In 

addition, wages begins to decline slightly after 2010 as the construction demand begins 

to taper off and labor markets readjust. 

On average over the analysis horizon, the 10/20 goals lead to small increases in 

employment and personal income and to a minor decline in gross regional product. 

Energy efficiency leads to increases in employment, personal disposable income and 

gross regional product over the entire analysis horizon. 

In summary, the results of the regional economic analysis 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 sees some decline in employment, 

gross regional product and personal disposable income because of the income impacts 

from lower profits in the electric and mining sector. 
Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations 

Draft Report; October 2002 

 43 

VI. Caveats and Uncertainties 

The objective of this analysis was to assist the AP2 forum in understanding the potential 

emissions reductions, costs and secondary regional economic impacts of implementing 

the 10/20 goals and energy efficiency recommendations. 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 assessment, the findings presented 

in this report should be understood and applied in the context of which it was developed 

and recognizing the assumptions, analytical framework, caveats and uncertainties 

underlying the analysis. 

One of the key factors driving the results of the analysis is the assumption on renewable 

energy technology cost and performance. Existing literature on this subject provide a 

wide range of estimates, particularly in how the cost 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 recommendations. 

Outside of the cost and performance assumptions for renewable energy technologies, 

this analysis was conducted using the data, assumptions 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 including 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 regional 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 by state. A key driver of the 

regional economic impacts was the capital investments 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 renewable resource availability. 

Though the modeling and analytical results provide detailed estimates of emissions 

reductions, cost and secondary regional economic impacts, it is important to recognize 

that the magnitude of the projected changes are quite small. This is particularly 

important for analysis of secondary regional economic impacts projected through the 

REMI model because most of the impacts are less than 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 any 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 

Draft Report; October 2002 

 44 

to be very small, analysis of broader trends, rather than specific numbers, will often be a 

more robust and meaningful description of the impacts. 
Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations 

Draft Report; October 2002 

 45 

VII. Conclusions 

The objective of the analysis was to assist the AP2 forum in assessing the potential 

emissions reduction, costs and secondary regional economic 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-effective air pollution prevention strategies 

because they provide opportunities for emissions reductions with modest cost or with 

some cost savings. 

The 10/20 goals require that renewable energy resource 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 performance 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, representing a production cost increase 

of 2 percent to 5 percent relative to the BAU scenario. 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 to 8 percent of the electricity 

demand by 2018. Implementation of the energy efficiency recommendations will lead to 

annual levelized production cost savings between $700 million and $1 billion in addition 

to some reductions in wholesale electricity prices. The savings under the energy 

efficiency policy scenarios accrue from reduced electricity 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 increased penetration of energy 

efficiency is likely to compete against new conventional generation technologies. 

Analysis of the BAU scenario indicates that in the absence of 10/20 goals or energy 

efficiency, the growth of conventional capacity will consist mostly of gas-fired combined 

cycles. The penetration of renewable energy and energy efficiency under the policy 

scenario is likely to displace new gas-fired combined cycles, which are relatively low 

emissions technologies. 

For 2018, the analysis indicates that annual emissions savings from implementing the 

10/20 goals and energy efficiency recommendations will be between 1 percent and 2 

percent in NOx and 10 percent to 14 percent in CO2. Though the potential for emissions 

reductions may appear to be modest because renewable energy and energy efficiency 

compete against new gas fired generation sources, the 10/20 goals and energy 

efficiency will provide a hedge against future emissions growth. 

Though the 10/20 goals and energy efficiency are unlikely to reduce SO2 emissions in 

the presence of regional backstop SO2 trading program proposed in the Annex, they 

could help reduce the compliance cost of trading program. By meeting the 10/20 goals, 

the compliance cost of the trading program could decrease the compliance cost by as 
Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations 

Draft Report; October 2002 

 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 horizon, 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 average over the analysis horizon, the 

10/20 goals will lead to small increases of less than one half of one percent in 

employment and personal income along with an equally 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 energy efficiency recommendations, the 

boom in construction job sparked by the investments along with the lower production 

costs from lower electricity prices appear to be key reasons for the changes in the 

regional economy. 

 

 

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

Draft Report; October 2002 

 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 Average

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 Average

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% 4,097
Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations 

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Economic Impacts by State

10/20 Goals Scenario

Annual Average Changes in Gross Regional Product

2005-2010 2011-2015 2016-2020

Million $ (F Percent Million $ (F Percent Million $ (F 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 $ (F Percent Million $ (F Percent Million $ (F 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 $ (F Percent Million $ (F Percent Million $ (F 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% -58
Economic 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 $ (F Percent Million $ (F Percent Million $ (F 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 $ (F Percent Million $ (F Percent Million $ (F 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 $ (F Percent Million $ (F Percent Million $ (F 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% 547
Economic 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 FOR THE WESTERN 

REGIONAL AIR PARTNERSHIP BY THE AIR POLLUTION PREVENTION 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 Prevention Forum (the AP2 

Forum) to prepare estimates of electric energy efficiency 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 Forum asked the Tellus team to estimate 

the achievable potential for electricity savings through energy efficiency programs in 

three air pollutant modeling regions: the Interior West (the "WSCR" region including 

Utah, Colorado, Arizona, New Mexico, Wyoming, Eastern 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 counted 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 comprehensive assessments of all potential 

electricity savings. The electricity savings (energy and peak) and the incremental costs of 

the programs were provided for use in ICF's IPM modeling system, and were used to 

generate air pollution scenario results as described 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 used to estimate the potential 

impacts of energy efficiency programs, present a brief summary of the overall results of 

the estimation process, and indicate what next steps might be undertaken to elaborate the 

assessment of energy efficiency opportunities in the West. 

Overall Approach 

The key steps in the estimation of energy efficiency opportunities in the Interior 

West and Oregon/Western Idaho regions were as follows: 

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

Tellus team 

• Measure evaluation, to determine the basic cost-effectiveness of individual measure 

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

Draft Report; October 2002 

 51 

• Program evaluation, including assembly of illustrative energy efficiency 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 region. 

Identification of Measures 

The Forum group, based on their knowledge of electricity demand in the West, 

prepared a preliminary list of energy efficiency measures for the Tellus team to evaluate. 

The measures spanned all customer categories (including residential, 

commercial/institutional, industrial, and agricultural consumers), and ranged widely in 

scope and applicability. Measures designed strictly to reduce or displace load (load 

response and load management programs), but not save energy, were not included, nor 

were major uses of renewable energy in end-use settings (such as solar water heating). 

Likewise distributed generation technologies without heat production, gas energy 

efficiency measures, and transportation sector measures were also excluded from the 

study. 

The Tellus team performed an initial, qualitative screening of the suggested 

measures, eliminating (in a relatively few cases) measures 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, except 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 

Draft Report; October 2002 

 52 

Table 1: Energy Efficiency Measures Evaluated, Interior West Region 

Residential Sector Measures Commercial Sector Measures Industrial Sector Measures 

Efficient Central Air Conditioning Lighting, Advanced Measures Motor Downsizing 

Efficient Room Air Conditioning Lighting, Efficient Fluorescent Premium Motors versus Rewinding 

Evaporative Cooling Refrigeration, High-cost Measures Premium Motors (versus standard 

new motors) 

Indirect-direct Evaporative Cooling Refrigeration, Low-cost Measures Air Compressor System Measures 

Appliance Recycling (refrigerators) Air Conditioning Improvement 

Residential-type Central AC 

Fan System Measures 

Compact Fluorescent Torchieres Air Conditioning Improvement 

Residential-type Room-type AC 

Pump System Measures 

CFL Fixtures--Indoor Air Conditioning Improvement, Small 

Heat Pumps 

CHP24, 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, IDDEC25, 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 Cooling 
Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations 

Draft Report; October 2002 

 53 

Table 1 (Continued): Energy Efficiency Measures Evaluated, Interior West 

Region

Additional Commercial Sector Measures 

Gas Air Conditioning (with heat recovery displacing Electric WH26) 

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 VSD27 (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 other measures28, MS ExcelTM 

workbook tools were used to evaluate the measure cost-effectiveness. For each measure, 

cost-effectiveness was calculated relative to standard technologies, that is, technologies 

providing the same energy service but with efficiencies just meeting existing or planned 

standards, or technologies that correspond to standard practice for the end-use. 

Inputs to the measure cost-effectiveness calculation included: 

• Measure cost information, including incremental or total measure capital cost (of 

both the energy-efficient and standard measure) per unit, and incremental or total 

non-fuel annual operating and maintenance (O&M) costs. 

• Energy use impacts, including annual energy and peak power savings or usage, and 

annual gas use, if applicable, expressed on the same 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-cycle units, using gas prices as 

defined by the Forum for use in the IPM modeling process. Note that these costs 

were used for rough screening purposed only, and are not the same as the costs used 

in the IPM modeling work to derive the impacts of energy 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 variety of national and 

regional publications. Additional inputs were developed through consultation with 

experts in the energy-efficiency field. In cases where 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 several 

energy-efficiency measures that proved less than cost-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 the 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 program-related inputs to the energy 

efficiency analysis. 

The outputs of the measure cost analyses included life-cycle costs, for those 

measures where standard units were compared directly 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 to standard equipment. Benefit-cost 

ratios calculated from a total resource cost perspective were the primary yardstick used to 

assess whether measures should be included in programs, but in some cases participant 

cost measures were used to (roughly) inform the level of incentives that might be 

required. 

Program Evaluation 

Increasing the market penetration of energy-efficiency measures in an aggressive 

manner generally implies the provision of financial incentives to customers. As a 

consequence, the program evaluation phase of the development of energy-efficiency 

estimates for use by the AP2 Forum focused on estimating the sponsor costs of reaching a 

broader market for energy efficiency measures29. The estimation of energy-efficiency 

program costs and benefits involved the following steps: 

• 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 information on markets for energyefficiency measures included national end-use surveys, statistics on electricity use by 

sector, State, and utility area, and a host of specific studies on particular markets from 

the national and regional literature. 

• Estimating program penetration rates based on a combination of penetration rates 

historically achieved by utilities mounting aggressive 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 consideration 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 ongoing basis. 

In a few cases, program impacts were based on the assumption that mandatory 

standards would be implemented in the future (for example, 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 programs. Key program inputs—such as 

the number of participants annually per measure, program 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 savings, peak power savings 

(summer and winter peak), customer measure costs, sponsor 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 emissions 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 measures 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 national (American Council for an 

Energy Efficient Economy or ACEEE) study. Based on its national analysis, ACEEE 

provided Tellus with estimated electricity reductions by sector for a number of policies. 

The Tellus team used results of some of these policies ("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 electricity 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 determined 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 to determine CNV reductions. A 

similar approach was used to estimate program costs30. 

Once estimates based on ACEEE results were obtained, these estimates were 

"trued-up" for consistency with end-use based energy 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 nearly two-thirds31. 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 ACEEE estimates were prepared is Nadel, S. and H. 

Geller with the Tellus Institute (2001), Smart Energy 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 Emissions 

Modeling Effort 

The AP2 Forum reviewed the results of the energy-efficiency analyses described 

above in order to decide which results to carry forward for use in the IPM emission 

modeling effort. In addition to deciding to exclude the results of the combined heat and 

power analyses (see discussion below), the Forum felt that it would be prudent to remove 

the costs and savings for those measures with higher costs of saved energy from the 

packages of energy-efficiency programs modeled in each 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 generation in the West regions, and measures 

with costs higher than the threshold level were accordingly excluded from the final 

packages of energy-efficiency programs for which energy/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 and 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 savings for the years 2002 

through 2018 in the WSCR (Interior West), WSCP (Oregon/W. Idaho), and CNV 

(California/Las Vegas) regions, respectively. Results 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 GWh, versus about 5,200 GWh in the 

Oregon/W. Idaho region, and about 28,000 in California/Las Vegas32. 

 

32 Note that these figures do not include credit for avoided transmission and distribution losses, so the net 

effect on required generation will be higher than the 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

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Annual GWH

Industrial

Commercial/Institutional

Residential

Figure 2:

Energy Savings from AP2 Energy Efficiency Recommendations: 

WSCP Region

-

1,000

2,000

3,000

4,000

5,000

6,000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Annual GWH

Industrial

Commercial/ Institutional

Residential
Economic 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

35,000

20022003200420052006200720082009201020112012201320142015201620172018

GWh

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 Interior West. 

Figure 4:

Energy Savings for Illustrative Interior West DSM Programs

-

5,000

10,000

15,000

20,000

25,000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Annual 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 savings, by region and by 

sector, for the Interior West and Oregon/W. Idaho regions. 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/Las 
Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations 

Draft Report; October 2002 

 59 

Vegas region from the energy-efficiency package were 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

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Summer 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

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Summer Peak MW

Industrial

Commercial/ Institutional

Residential
Economic 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 2013 2014 2015 2016 2017 2018

MW 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 Towers

C/I and Industrial Transform Industrial Motors

Industr. Drive Systems

Program Costs 

The total incremental costs of the packages of energy-efficiency programs for 

each region are presented in Figures 8 through 10 for the three regions modeled. These 

costs are presented as annualized costs, that is, incremental capital costs for purchase of 

measures are levelized so that a portion of those costs are ascribed to each year in which 

a given device installed under the program is in operation. 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 annualized costs in the California/Las 

Vegas region reach approximately $1,100 million 2001 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 Recommendations 

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 2013 2014 2015 2016 2017 2018

Million 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 Recommendations 

for Oregon/Western Idaho Region (Measure Costs Annualized)

$-

$10

$20

$30

$40

$50

$60

$70

$80

$90

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Million 2001 Dollars

Customer Gas Costs

Customer Water Costs

Customer O&M Costs

Sponsor Admin Costs

Sponsor Measure Costs

Customer Measure Costs
Economic 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

$1,200

19992000200120022003200420052006200720082009201020112012201320142015201620172018

Million 2001 Dollars

Industrial

Commercial

Residential

Costs of Saved Energy 

Figure 11 show the curve of the cost of saved energy for the measures ultimately 

included in the Interior West energy efficiency package. 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 incremental program costs for the period 

2002 to 202633. Cost curve results for the Oregon/W. Idaho region are not shown here, 

but are similar. 

Figure 11:

Cost of Saved Energy vs. Lifetime GWh Savings for Measures 

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 Savings

Real 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 2001 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 Cost 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 (1,145) $ 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 29,224 $ 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 120,842 $ 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 186,808 $ 31,092,432 0.0138 $ 44.4% 130,381,605 16.9% 425,699 $ 

Residential Appl. Standby Loss Red.--Incentive 19,091 $ 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 30,151 $ 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 6,408 $ 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 111,958 $ 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 Tellus team identified a 

considerable achievable potential for the application of combined heat and power (CHP) 

in all three of the modeled regions. Implementation of CHP could result in significant 

cost savings, displacement of capacity (about 7.5 GW 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 emissions of nitrogen oxides (NOx) that 

might, depending on the type of CHP used and the type and extent of emissions control 

equipment with which it is fitted, result in an increase of NOx emissions relative to 

separate heat production and power generation. This result is far from certain, as it 

depends on the average emission factors for CHP systems meeting current standards in 

major air sheds in the West. Though any increase in NOx emissions from the 

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

Draft Report; October 2002 

 64 

relative to overall NOx emissions from power generation in the West, Forum members 

were sufficiently concerned about the potential impact 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 costs) 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 energy savings, summer peak 

savings, and annualized costs of the sum of all three regional energy efficiency packages 

modeled for the AP2 Forum. Together, the energy efficiency 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 2018 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

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20,000

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Annual GWh Savings

CNV-EE

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WSCR-EE

Figure 13:

Estimated Energy Efficiency (EE) Summer Peak 

Savings by Region: AP2 Forum Recommendations

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2,000

4,000

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MW Summer Peak Savings

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

Draft Report; October 2002 

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Figure 14:

Estimated Annualized Incremental Costs of 

Energy Efficiency Programs by Region

0

200

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2002200320042005

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201320142015201620172018

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Figure 15:

Estimated Energy Efficiency Savings by Sector (all 

Regions): AP2 Forum Recommendations

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20,000

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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

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2,000

4,000

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20042005

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MW Summer Peak Savings

California (All Sectors)

Industrial (WSCR + WSCP)

Commercial/ Institutional (WSCR + WSCP)

Residential (WSCR + WSCP)

Potential "Next Steps" in Energy Efficiency Analysis for the West 

The analysis described above has identified a number 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-efficiency potential, similar to 

that done for the other two regions, for the California/Las Vegas region. 

• Review the air pollutant emissions (especially NOx) impacts of potential combined 

heat and power systems, factoring in local regulations on new emissions sources and 

the types of pollution control used on new CHP systems. 

• Deepen the overall analysis by evaluating additional measures, and by incorporating 

more region-, state-, tribe- and utility-area-specific information into the estimates 

wherever possible. 

• Provide the energy-efficiency analysis on a State-by-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-level analyses. 

• Identify and tailor approaches for implementation of 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 (AP2) Forum have requested, 

on behalf of their constituents, a listing with brief definitions of the energy efficiency 

measures considered during the WRAP energy efficiency analyses carried out for the 

WSCR (Interior West) and WSCP (Northwest—Oregon and Western Idaho) regions. 

The listing below is divided into residential, commercial/institutional, industrial, and 

combined heat and power (CHP) measures. This listing is intended to supplement the 

document Estimation of Potential Energy Efficiency Savings for the Western Regional 

Air Partnership by the Air Pollution Prevention Forum: Approach, Methods and 

Summary Results, itself an annex to Final Report on Energy Efficiency and Renewable 

Energy, which reports on the overall pollution impacts modeling effort overseen by the 

AP2 Forum. 

The descriptions that follow cover all of the energy efficiency measures 

evaluated, including some measures (higher cost and CHP measures) ultimately not 

included in the package of energy efficiency measures used in pollutant emissions 

modeling. For each of the descriptions, names in italics and parentheses (for example 

"Residential Efficient CAC") correspond to the short measure names found in tables of 

"Cost of Saved Energy Results" presented in Estimation 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 efficiency analyses. 

RESIDENTIAL SECTOR MEASURES

Residential Appliance Recycling: The appliance recycling program approach provides 

incentives to customers to allow their operable refrigerators 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 savings 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 market 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 substantially 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 coolers lower indoor temperatures by 

evaporating a mist of water, which carries away heat. 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"). 
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Residential Air Conditioning—IDDEC: A variant of residential evaporative cooling 

called indirect/direct evaporative cooling, or IDDEC, is under development that will 

provide reliable cooling with significantly less electricity input than typical compressordriven air conditioning, and is useful in applications where standard evaporative cooling 

might not be appropriate ("Residential IDDEC Cooling"). 

Residential Heating and Cooling—System and Duct Service 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 areas more efficient (evaluated as two 

measures: "Residential Duct Test and Seal--CAC", and "Residential Duct Test and Seal--

ESH"). 

Residential Heating and Cooling—Weatherization Retrofits: The thermal 

performance of a dwelling—the degree to which a heated house stays warm and a cooled 

house stays cool, is a function of many factors, including 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 orientation 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 Building Envelopes for New 

Homes: Although some parts of the West already have state (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 improved code enforcement, and to 

strengthen building codes to other states. For the WRAP energy efficiency analysis, 

incentives were assumed used until 2009 to bring homes to IECC 2000 (International 

Energy Conservation Code) levels ("Residential Building Envelope Impr.--IECC 2000"), 

and that thereafter code changes mandate enhancements in performance beyond the IECC 

2000 level ("Residential Building Envelope Impr.--Enhanced"). 

Residential Lighting—Compact Fluorescent (CFL) Bulbs: 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-quarter 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 electricity, 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 outdoor use are both expensive and 

short-lived, there are significant operation and maintenance 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 inexpensive units have become widely available. 
Economic Assessment of Implementing the 10/20 Goals and Energy Efficiency Recommendations 

Draft Report; October 2002 

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Most units use bright, but inefficient, halogen bulbs, 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 units, 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 consumed by standby equipment adds up 

to about 5 percent of current residential electricity 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 standby consumption from 4.4 to 1 watt 

per device, a drop of over 75 percent. For WRAP, introduction 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" clothes faster so that less energy is 

required to dry them. Two types of higher-than-standard-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/institutional buildings produce more cold 

air (or chilled water) per unit of electricity input 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 Units: 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 air 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 Cooling: Evaporative cooling 

technologies use the latent heat of vaporization of water to cool air. One of the most 

promising configurations, indirect-direct evaporative cooling (IDDEC) can substantially 

reduce electricity requirements relative to conventional cooling systems and operate well 

in the relatively low humidity conditions that prevail during Western summers. For 

WRAP measures in three size classes were modeled for use in different types of 

commercial/institutional buildings, based on the size 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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Commercial/Institutional Cooling—Gas-fired Air Conditioning: Electricity use can 

be reduced by replacing electric air conditioners with gas-fired air conditioners. Gasfired air conditioners use either an absorption cooling cycle or a gas-fired internalcombustion engine that turns an air conditioning compressor. Additional energy is saved 

by using waste heat from the gas-fired engine to heat water. Three gas-fired AC 

configurations were evaluated: without heat recovery ("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 Variable-Speed Drives: Cooling 

systems for large buildings often have cooling towers, where waste heat is exhausted 

using fans. Variable-speed drives for the fan motors 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 regions 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 that 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 operate) 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 buried "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 constant temperature of the earth allows the 

heat pump to run more efficiently, under some conditions, 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 heating 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 resistance-type water heaters to heatpump-type water heaters ("Comml/Instit. Water Heating, Heat Pump Unit"). Switching 

from electric water heating to natural gas-fired water heating, using both boilers and tanktype water heaters, can also reduce both electricity use and overall energy requirements 

after losses in electricity generation are accounted 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 

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Commercial/Institutional Building "Retrocommissioning": Retrocommissioning is 

defined as "a process of thoroughly identifying the current needs for services within a 

building, assessing the functionality and appropriateness of the equipment now serving 

the building, devising and implementing a systematic plan for repairing, rejuvenating or 

replacing the existing systems, and finally creating 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 building components help reduce heating 

and cooling energy use. Two levels of building standards, 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 residential units to walk-in or building-sized 

cold storage rooms or freezers. Options for improving the energy efficiency of 

refrigeration systems in the commercial sector include improving door seals, 

compressors, insulation, and controls. The WRAP analysis included two sets of 

measures, one of which includes measures having payback 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 years ("Comml/Instit. Refrigeration, 

High-cost Measures"). 

Commercial/Institutional Lighting—Fluorescent Bulbs and Ballasts: Replacing 

standard bulbs and ballasts in the four-foot fluorescent 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 measures, 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 percent ("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 of energy, and may not need to be 

replaced for a decade or more, significantly reducing 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 years, are now starting to find new 

lighting applications. As with LED exit signs, long-lasting LED traffic signals, though 
Economic 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 signals do not produce the same 

amount of overall light as incandescent signals, the 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 Transformers: In larger commercial 

buildings and in industrial installations, transformers are used to "step down" highvoltage power from the electrical grid to usable lower voltages. Transformer losses are 

not substantial, but as each kWh of electricity used in a building typically must pass 

through a transformer, even a small reduction in losses 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 motors 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 capacity for the systems they power 

("Industrial Motor Downsizing"). These types of improvements typically save only 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 operation of systems that motors drive: air 

compressors, pumps and valves, fans, and other systems (such as conveyors). For the 

WRAP energy efficiency analysis, the potential savings 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 from 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 retrofit aluminum production cells for 

higher electrolytic efficiency and lower heat loss ("Industrial Aluminum Process Impr.: 

Cell Retrofit"). Other technological advances are possible, such as advanced forming and 

near net-shape casting. These advances are designed to save energy by producing 

aluminum in shapes that are close to their final form, can provide considerable O&M and 

thermal energy (typically gas energy) savings, though typically small electricity savings 

("Industrial Aluminum Process Impr.: Adv. Forming"). 

Industrial Electrical Transformers: (see listing under Commercial/Institutional sector, 

above) 

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

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 73 

From half to two-thirds of the energy used for fuel-based electricity generation is 

typically lost as waste heat. Combined heat and power (CHP) systems effectively capture 

this waste heat and supply it to a facility’s process 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 natural gas-fired CHP systems in 

several size classes: 

• Internal Combustion Engines: Internal combustion (IC) engines have been used in 

stationary power generation applications for a century or more, and are a very mature 

technology. Heat from gas-fired water-cooled IC engines 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 been 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 likely) for process heat in industrial 

plants. We incorporated 10 and 40 MW combustion turbines into the industrial sector 

CHP initiative that we evaluated. 

• "Micro" Turbines: Micro-turbines (MT) are self-contained CHP devices that are 

new on the market. These units, the size of a large 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, recently commercialized, will be 

available in size classes other than 30 kW soon, but 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 follows: 

• Commercial CHP: CHP measures in the commercial sector included 30 kW MT 

units, 100 kW IC units, and 800 kW IC units, with some of the units displacing grid 

electricity and heat from electric resistance boilers 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 water 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-generated heat from these units was 

assumed to displace gas-fired boilers or process heating 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 FOR 

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 $2.50 $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 0.280 $324 $0

50% of incr. 

cost

SEHA Horizontal Axis Washers Appliances 15 814 0.339 $374 $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 0.242 $309 $0

70% of incr. 

cost

Duct Measures, Space Cooling Savings Homes 10 153 0.175 $309 $0

70% of incr. 

cost

8.6% of 

spon. Costs

Improvements to IECC 2000 Level Homes 50 230 0.096 $1,161 $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 

Improvements
Economic 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 36,058 37,187 37,064 37,239 SEER 13.5 vs. 10.5

High-efficiency Room AC AC Units 4,646 9,316 15,639 15,978 15,941 15,993 SEER 10 vs. 8.5

Residential Evaporative Cooling

Direct Evaporative Cooling AC Units 3,555 7,137 14,423 14,875 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 729,749 237,961 994,749 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 20,702 21,177 21,658

Residential Lighting--Torchieres

CFL Torchieres Lamps 26,812 63,952 140,102 143,420 146,710 150,040

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 10,954 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 1,758,995

Incentive program ends in 

2009

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

Improvements
Economic 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 EVALUATIONS 

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 Air Pollution Partnership Forum of 

WRAP. The examples shown—for Commercial/Institutional/Industrial Transformers, 

Residential Air Conditioning, and Commercial Refrigeration—illustrate the process used 

in the "bottom-up" (end-use based) energy efficiency 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 documents three analytical “steps” for the 

measures and programs considered. The first two steps, compilation of measure costs 

and performance data and measure benefit/cost analysis, and estimation of program 

markets and participation, are carried out and documented in MS ExcelTM workbooks. 

The third step, estimation of program costs and savings, was accomplished using the 

ECO energy-efficiency program analysis software tool, 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 taken 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-efficiency “TP-1” transformers save, for 

commercial and industrial applications, respectively, an average of 23.3 and 7.4 kWh per 

kVA of transformer capacity, relative to standard new transformers34. 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 years35. 

The measure cost and savings data described above were used, along with rough 

estimates of avoided energy and capacity costs for electricity generation, to estimate 

benefit/cost ratios for the two transformer measures. Both proved very cost-effective 

(with benefit/cost ratios of about 3.3 for commercial transformers and 2.6 for industrial 

units), and were thus included in the WRAP energy efficiency package. 

 

34 Data on incremental costs and savings for high-efficiency transformers were derived based on Tables 5.4, 

5.7, and 5.8 of Supplement to the "Determination Analysis" (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 Report 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, is taken from the "National" worksheet of the 

workbook "neep1017.xls", prepared by various researchers 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 related to appliance or equipment standards. The average 

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 transformers in the Interior West (WSCR) 

region were estimated starting with an estimate that of nationwide annual sales of “drytype” transformers in 2000 totaled 22 million kVA36. In order to estimate the fraction of 

these transformers that were sold in each sector, average commercial-sector and 

industrial-sector load factors of 20 and 40 percent, respectively, were applied37. Using 

these load factors, the implied distribution of transformer 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 industrial 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 WSCR were calculated as 870,654 kVA 

in the commercial sector, and 375,684 kVA in the industrial sector38. These year-2000 

sales by sector were then extrapolated through 2018 using the rates of growth in 

commercial and industrial electricity sales included 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 program 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 program 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 developing program marketing materials), and 

a sponsor incentive equal to 50 percent of the incremental 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 required to process incentive payments and for 

ongoing program marketing, and the “free- rider” fraction was taken to be 15 percent39. 

Step 3: Program Costs and Savings Estimates 

Measure cost, savings, and lifetime estimates prepared as described in Step 1, above, 

together with estimates of annual program participation for each measure, administrative 

cost factors, sponsor cost fractions, and free-ridership estimates estimated as described in 

Step 2, were entered into the ECO software tool, together 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), Metered 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 from 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-ridership” is sometimes measured by post-program 

evaluation surveys or by market studies, but in many instances, for planning of DSM programs, values in 

the range of 10 to 20 percent are assumed. 

40 The discount rate used here is similar to real discount rates used by large utilities operating in the 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 industrial 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 costs) and savings data were 

aggregated with costs from other programs, and savings data were likewise aggregated, 

and the “package” of annual costs and savings results was summarized for consideration 

by the Air Pollution Prevention Forum and for inclusion in air pollution and economic 

impacts modeling using ICF, Inc.’s IPM software tool.