Power Measurement
Closing the Green Gap
Will wind power close the gap between state renewable portfolio standards and the current shortfall in viable
technologies?
April 2005
By Kent S. Knutson and Peter McMahan
Today there are 20 states plus the District of Columbia in which renewable portfolio standards (RPS) or mandatory renewable quotas have been established. During the past several months, six additional states formally have considered renewable standards but have not yet initiated programs.
The RPS rules vary significantly across states in terms of qualifying fuel types, credit trading, incentives, targeted goals, and the time frame for compliance. Today the RPS states represent 52.6 percent of the nation's retail electricity revenue. These states account for virtually all of the current production of solar, wind, and geothermal power generated in the United States annually.
Global Energy's recent multi-client study, Renewable Energy: The Bottom Line, estimates the gap at 118,400 GWh between operating non-hydro renewable electric (NHRE) output today and that required in 2020. This gap translates into new renewable capacity by 2020 of 52,729 MW, with 76 percent expected to come from wind because of attractive economics and resource availability.
The cumulative capital investment is estimated at $53.4 billion.
Moreover, according to the Electric Power Research Institute, there is a concern that the current pace of innovation in all of today's power generation technologies-fossil, nuclear, and renewable -will not be sufficient to meet many other economic or greenhouse gas reduction needs.
Of course, the energy shortfall is sensitive to a number of factors including the: a) expected load growth in each state; b) most likely mix of renewable development in each state based upon resource availability and cost; c)
forward view of the capital costs of each technology; and d) expected capacity factors for each technology. So how
sensitive are our findings to these assumptions? We used our RPS toolkit to calculate the following sensitivities:
Load-growth sensitivities:
o Reference case based on individual state-level assumptions, resulting in a 1.8 percent national average;
o At 1 percent per year, the gap falls to 46.8 GW needed at a cost of $46.9 billion;
o At 3 percent per year, the gap grows to 74.7 GW needed at a cost of $74.3 billion-a variance of $27.4 billion.
Sensitivity to capacity factors
for wind projects:
o Reference case uses 30 percent capacity factor for new wind plants, and the wind shortfall alone is 40 GW-at a cost of $36 billion;
o At 25 percent wind capacity factor, the wind gap grows to 47.6 GW at a cost of $42.7 billion;
o At 35 percent, the wind gap shrinks to 34.6 GW at a cost
of $31.1 billion.
Sensitivity to Renewable Energy Credit (REC) trading:
o Reference case assumes no trading, resulting in a gap of 52.7 GW at a cost of $53.3 billion;
o With trading, the gap falls significantly to 38.9 GW needed at a cost of $39.4 billion-a savings of $14 billion.
Sensitivity to a potential federal standard overriding state standards:
o 10 percent national standard: 130 GW needed at a cost of $143 billion dollars;
o 20 percent national standard: 287 GW needed at a cost of $314 billion dollars.
State-Level Impacts
California, Pennsylvania, Illinois, and New York will see the largest impacts given their overall size and the extent
of regulations in their RPS. Chart 2 (see p. 16) illustrates the impact in cumulative investment expected by each portfolio state over the next 15 years. The map on the following page provides a geographic view of the RPS impact.
Three states, Maine, Iowa and
Wisconsin, have enacted standards, yet already they comply with the 2020 goal. Power generated in these states and even non-RPS states where qualifying renewable energy exists would benefit greatly from a broad-based Renewable Energy Credit (REC) trading program by enabling "surplus" renewable energy to be sold to companies in deficit states to help meet RPS mandates. RECs currently exist in a handful of states.
Company Impacts
Despite the varying rules and incentives unique to each state RPS, there is one common thread-the largest utility companies in each state are responsible for meeting a percentage of their load with qualifying renewable energy.
Five of the largest distribution utilities in America top the list of most affected companies by state portfolio standards. These include Southern California Edison (SCE), which could spend an estimated $3.3 billion to $4 billion to comply. SCE currently accounts for more than 22 percent of California's retail power sales. Commonwealth Edison, a subsidiary of Exelon, is second, with an estimated $3.2 billion to $3.9 billion in cumulative compliance costs. It accounts for more than 50 percent of all retail
sales in Illinois.
Further, the top 25 companies account for nearly 63 percent of the cumulative investment expected to meet the standards by 2020, even though they represent less than 18 percent of the total U.S. retail power market. And the top 75 utilities affected by the state standards account for 76 percent of the cumulative 2020 investment.
Wind Fills In
Wind is expected to fill more than
75 percent of the gap created by the state RPS standards. Though most of the wind capacity operating today
(80.9 percent) is in the RPS states, more than 30 percent of wind turbines under construction or in the planning stages are targeted to be built in states without current portfolio standards. These include most of the Northwestern states, and the Dakotas, Nebraska, Kansas, and Oklahoma. This is best illustrated by the wind capacity map (see p. 18).
Chart 4 shows that the cumulative investment in wind dwarfs the other technologies. Between now and 2020, in order to meet the current state RPS, more than 40 GW of wind capacity is needed. As of the end of 2004, operating wind capacity in the United States was only 6.7 GW. Most of today's
operating capacity is located in California, Texas, the upper Midwest, and the Northwest.
Projects under construction or in the planning pipeline total more than 27 GW, and this number is growing every day. To put this pipeline into perspective, consider that during the next four years alone, 22 GW are projected to come online-nearly four times the current wind operating capacity.
Becoming the Standard
Over the past decade, more than 340 state-level renewable energy programs have been established. Add to these 9 federal incentives, including the most beneficial to renewable developers: the production tax credit. Then there's green pricing and marketing programs involving more than 140 individual programs nationwide that sell power to more than 650 electric distribution companies. On top of this is the federal mandate to use renewable energy to meet 2.5 percent of federal facilities' energy demands.
All of this pales alongside the evolving renewables world created by the new state portfolio standards. The combined impact of all the green pricing, marketing and federal facility mandates are estimated at only 2.5 GW-less than
5 percent of the gap created by current state RPS goals. Many state and local regulatory agencies have begun to work together to overcome many of the historic barriers to renewables development, such as transmission constraints, permitting, tax policy, and trading. It's clear that they will have to if renewable energy technologies are ever to meet state renewable portfolio standards.
Kent Knutson is manager of the Renewable Energy Project and Peter McMahan is
a research associate at Global Energy
Advisors. Contact Knutson at kknutson@
globalenergy.com or 720-240-2121.
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