How Future Climate Laws Will Make New Coal Plants More Expensive

1
How Future Climate Laws Will Make New Coal
Plants More Expensive
Gambling with Coal

• Steve Clemmer
• Clean Energy Program Research Director
• Union of Concerned Scientists

NARUC Summer MeetingsNew York CityJuly 16, 2007
2
Coal plants are the single largestsource of
emissions in the US
Sources of U.S. Energy Related CO2 Emissions, 2004
Electricity Generation
Transportation
from Coal
33.1
33.8
Other Electricity
Generation
7.0
Industrial
Commercial
15.4
Residential
4.0
6.6
Source EPA 2006
3
High natural gas prices driving coal rush and
higher carbon emissions
4
The debate on the science is over
Artic sea ice in 1979
5
The debate on the science is over
Artic sea ice in 2003
20 of ice has disappeared

• IPCC 4th Assessment Report
• Warming of the climate is unequivocal.
• Most of the observed increase...since the
  mid-20th century is very likely due to the
  observed increase in anthropogenic greenhouse gas
  concentrations.

• Scientific consensus emerging on need to reduce
  developing countries emissions 80 below current
  levels by 2050 to avoid dangerous warming

6
Impact of 6 m Sea Level Rise
7
Northeast Climate Impacts Assessment (NECIA)
AP Photo/Michael Kim
8
Global climate policy response

• Kyoto and beyond US isolated and under pressure
  to act
• G8 summit agreed to consider seriously halving
  global emissions by 2050

9
State and regional globalwarming initiatives
10
Renewable Electricity Standards

• 23 States D.C.

PA 8 by 2020

• 15 states have already raised or accelerated
  targets

• 13 states have requirements of 20 or higher

11
Climate proposals in 110th Congress
12
Cap-and-trade has widespread support

• Many major US corporations
• Five of the nations ten biggest power companies
• Half of power executives surveyed in 2004
  expected CO2 laws within 5 years
• Dozens of evangelical Christian leaders
• US Climate Action Partnership

13
Grandfathering growing opposition togiving free
allowances to new plants

• Senators Boxer and Bingaman
• US Climate Action Partnership
• MIT Future of Coal report
• Most RGGI states moving toward full auctioning
  NY, MA, NJ, VT, ME, CT
• California Market Advisory Committee recommends
  full auction

14
Utilities are increasingevaluating carbon risk
Weighted
Unweighted
Base Case with
70
Scenarios
Scenarios
Unweighted Scenarios
60
Range of Scenarios
50
Weighted Average
40
Base-Case Assumption
Levelized /ton CO2 (2003 )
30
20
10
0
Avista
PGE
PSCo
PSE
Idaho
PGE
PacifiCorp
PacifiCorp
PSCo
(IRP)
2005
Power
(Supp.)
2003
2004
(Settlement)

• Lawrence Berkeley Lab recommends that
• all utilities evaluate carbon risk
• a greater level of consistency in evaluation
  approaches be sought
• a broad range of possible regulatory environments
  be considered

15
CO2 costs change economics of electricity
generation options
Coal Generation under Xcels Preferred Plan
(Reference Case) and Carbon Regulatory Scenarios
(GWh)
32,000
31,000
30,000
29,000
28,000
Reference Case
27,000
US Unilateral
26,000
25,000
GWh
Kyoto Protocol,
24,000
Global Trading
Kyoto Protocol,
23,000
Annex B Trading
22,000
McCain-Lieberman
21,000
20,000
19,000
18,000
17,000
2005
2007
2009
2011
2013
2015
2017
2019
2021
2023
2025
2027
2029
2031
2033
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What is the costof future CO2 limits in the US?
Mid-range CO2 costs will add about 20/MWh to
coal power costs
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EPRI power plant constructioncosts are on the
rise
18
Construction Commodity Cost Increases (EIA)
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Coal plant costs are increasing
2,445
Florida Glades 1

• Coal rush creating supply constraints
• At least 6 plants have announced 30-80 cost
  increases in the past year

2,390
Nelson Dewey 3 (WI)
2,369
Big Stone II (SD)
2,333
Westar (KS)
2,250
Cliffside (NC)
2,241
John W. Turk Plant
2,240
Black Veatch (2007)
2,083
Oak Creek (WI)
2,000
Comanche (CO)
1,887
Weston 4 (WI)
1,857
Taylor Energy Center FL)
1,818
Dalman Unit 4 (MO)
1,702
Florida Glades 2
1,667
Prairie State (IL)
1,646
Council Bluffs 67 (IA)
1,500
EPA (2003)
1,400
EPRI (2004)
1,330
MIT (2007)
1,285
EIA (AEO 2007)
1,100
TXU 11 plants (TX)
0
500
1,000
1,500
2,000
2,500
3,000
/kW
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Wind capital costs are also increasing
21
CO2 prices significantly increase the cost of coal
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Efficiency and renewables cheaper than coal and
gas, with CO2 prices
Pulverized Coal
Conc. Solar (2015)
Natural Gas CC
Geothermal
Wind Class 4
Conc. Solar (2030)
Wind Class 6
Efficiency
23
EIA Reducing carbon in electricity means
replacing coal or capturing carbon

• National Commission Case 4 (2x rate of
  reductions 49/ton ceiling)
• Only scenario with overall carbon reductions
• 44 by 2030

Source EIA, Energy Market Impacts of Alternative
Greenhouse Gas Intensity Reduction Goals, March
2006. http//www.eia.doe.gov/oiaf/servicerpt/agg/p
df/sroiaf(2006)01.pdf
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Efficiency renewables path to 60-80 CO2
reductions
Efficiency
Wind
Biofuels
Biomass
PV
CSP
Geothermal
80 reduction path
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Efficiency renewables distributed across US
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Benefits of a 20 by 2020 National RPS

• 185,000 new jobs in manufacturing, construction
  and other industries.
•  
• 25.6 billion in bioenergy revenues and wind land
  leases to farmers, ranchers and rural landowners.
  
•  
• 10.5 billion in cumulative consumer energy bill
  savings, growing to 31.8 billion by 2030. 
• 223 million metric tons of CO2 reductions per
  year taking 36 million cars off the road.

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Electricity Generation, BAU vs. 20 RPS
Cogeneration
Cogeneration
Other Renewables
Other Renewables
Natural Gas
Natural Gas
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20 by 2020 National RPS Saves Consumer Money in
All Regions
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Other recent national RPS studiesshow modest
savings or costs
Study Energy Bill Savings () Energy Bill Savings () Discounted Dollars?
UCS 20 31.8 b 0.6 Y (2005)
EIA 20 10.8 b 0.3 Y (2005)
EIA 15 no sunset 16.4 b 0.14 Y (2005)
EIA 15 2030 sunset -18 b -0.3 Y (2005)
EEI (15) -175 b -0.7 N
Wood MacKenzie 240 b 3 ?
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Southeast imported 93 of the coal used for
electricity in 2005

• Annual biomass payments to farmers rural areas
  in Southeast in 2020 under 20 national RPS
• -7.7 billion (EIA)
• -2.7 billion (UCS)

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The mistakes of the last baseload boom

• utilities ignored skyrocketing construction costs
• many nuclear plants were abandoned
• many coal plants became costly excess capacity
• regulators and courts were forced to decide if
  ratepayers or shareholders should pay

32
Regulatory lessons from the past

• utilities need a clear financial incentive to
  reassess major baseload projects
• past regulators denied full cost recovery of
  investment mistakes to create that incentive
• prudent investment test or shared costs test
• failure to continually reassess plans in the face
  of rising costs threatens shareholders and
  ratepayers

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Conclusions

• Future limits on global warming emissions are
  coming soon to the US
• Mandatory market based limits on CO2 with
  complementary policies for efficiency and
  renewables has lowest costs and lowest risks
• Utilities should factor CO2 costs into planning
  and procurement for new generation
• Regulators should require utilities to takes
  these steps and shareholders to bear the risk